<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                  FORM 10-K/A
                                AMENDMENT NO. 1
                               ------------------

             /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 0-23012

                         NEXSTAR PHARMACEUTICALS, INC.
             (Exact name of registrant as specified in its charter)

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

<TABLE>
<S>                                  <C>
             DELAWARE                            84-1173453
     (State of Incorporation)          (I.R.S. Employer Identification
                                                    No.)

       2860 WILDERNESS PLACE
         BOULDER, COLORADO                          80301
  (Address of principal executive                (Zip code)
             offices)
</TABLE>

                 REGISTRANT'S TELEPHONE NUMBER: (303) 444-5893

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

          SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

                                      NONE

          SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:

                     Common Stock, par value $.01 per share

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

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

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

    The aggregate market value of the voting stock held by non-affiliates of the
registrant, as of March 17, 1999, was $374,282,691.00.

    The number of shares of the registrant's common stock, par value $.01 per
share, outstanding as of March 17, 1999, was 28,821,975.

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
                                     PART I

ITEM 1. BUSINESS

GENERAL

    NeXstar Pharmaceuticals, Inc., a Delaware corporation ("NeXstar
Pharmaceuticals" or the "Company"), is an integrated biopharmaceutical company
engaged in the discovery, development, manufacture and marketing of proprietary
pharmaceutical products to treat life-threatening and other serious oncological,
hematological and infectious diseases. NeXstar Pharmaceuticals employs a broad
range of proprietary technologies in the discovery and formulation of
pharmaceutical products, including the Company's liposome drug delivery
technology; a powerful combinatorial chemistry technology known as the SELEX
process that rapidly identifies novel oligonucleotide compounds with potential
therapeutic and diagnostic benefits; and Evolutionary Chemistry, designed to
rapidly discover small organic molecules to serve as orally available drugs. The
Company's technologies have produced two approved drugs and several drug
candidates that are in clinical or preclinical development and have provided the
basis for a significant pipeline of drug development candidates.

    On February 28, 1999, the Company entered into an Agreement and Plan of
Merger (the "Merger Agreement") pursuant to which the Company will be acquired
through merger (the "Merger") by Gilead Sciences, Inc., a Delaware corporation
("Gilead").

    Pursuant to the terms of the Merger Agreement, each issued and outstanding
share of Company common stock, par value $0.01 per share ("Company Common
Stock"), will be converted into the right to receive that number of shares of
Gilead common stock, par value $0.001 per share ("Gilead Shares") equal to the
"Exchange Ratio". The "Exchange Ratio" equals 0.425, provided, however, that if
the Gilead Share Value (defined as the average of the closing prices of the
Gilead Shares as reported on the Nasdaq National Market for the 20 consecutive
trading days ending on the third trading day preceding the date on which the
stockholders of the Company vote on the Merger at the special meeting of the
Company's stockholders called to approve and adopt the Merger Agreement and the
Merger) is (i) less than $36.47, then the Exchange Ratio shall be equal to the
lesser of 0.50 or a fraction having a numerator equal to $15.50 and having a
denominator equal to the Gilead Share Value, or (ii) greater than $45.88, then
the Exchange Ratio shall be equal to the greater of 0.3786 or a fraction having
a numerator equal to $19.50 and having a denominator equal to the Gilead Share
Value. Cash will be paid in lieu of fractional shares. The Merger is subject to
several conditions, including that it be approved by the stockholders of both
the Company and Gilead. See "--Agreement and Plan of Merger with Gilead
Sciences, Inc."

    Currently, the Company markets AmBisome, an antifungal agent, and DaunoXome,
an anticancer drug, which had combined 1998 revenues of $107.9 million. The
United States Food and Drug Administration ("FDA") has approved AmBisome for use
in the United States as a primary therapy for patients with a low white blood
cell count (febrile neutropenia) who have a presumed fungal infection, also
known as fever of unknown origin or FUO, or with visceral leishmaniasis and as a
secondary treatment for fungal infections that do not respond to amphotericin B
treatment. AmBisome has been approved for sale by the regulatory authorities in
38 countries for the treatment of life-threatening fungal infections, including
16 countries in which it has been approved as a primary therapy for some form of
fungal infection. DaunoXome has been approved for sale as a primary therapy for
HIV-associated Kaposi's sarcoma in 24 countries, including the United States,
Canada and all significant Western European markets.

    The Company continues to conduct clinical trials with AmBisome in a variety
of settings with the goal of expanding its uses. The Company is conducting
clinical trials with DaunoXome in an attempt to find additional indications and
is planning clinical trials of DaunoXome in patients with acute myeloblastic
leukemia and chronic lymphocytic leukemia. In addition, the Company is
conducting Phase II clinical trials

                                       1
<PAGE>
with a third product, the antibiotic MiKasome, a liposomal formulation of
amikacin (a potent aminoglycoside antibiotic) for complicated urinary tract
infections, cystic fibrosis, nosocomial pneumonia and tuberculosis. The Company
recently commenced Phase I clinical trials for its NX211 product, a liposomal
form of Glaxo Wellcome, Inc.'s lurtotecan product, a camptothecin derivative and
potent anti-cancer compound.

    Each of AmBisome, DaunoXome, MiKasome and NX211 was developed using the
Company's liposomal drug delivery technology. Liposomes are subcellular-sized
spheres composed primarily of molecules called phospholipids. By encapsulating
in liposomes certain drugs that in their free state are dosed at or close to
toxic levels, it is possible to increase the therapeutic index of the active
drug (I.E., to increase the efficacy of the active drug relative to the severity
of its side effects).

    The Company utilizes two other powerful proprietary technologies for drug
discovery and delivery-- the SELEX process and Evolutionary Chemistry (formerly
called the Parallel SELEX process). The SELEX process, a combinatorial chemistry
technology, can rapidly identify novel oligonucleotide compounds (also referred
to as aptamers) with a high affinity for specified disease targets and therefore
potential use as drug candidates or as diagnostic agents.

    The Company has discovered several aptamers using the SELEX process which
are currently in the research and early clinical/preclinical development stages.
In 1998, the Company received FDA approval of its Investigational New Drug
("IND") application, and has begun clinical trials for NX1838, its aptamer which
binds to vascular endothelial growth factor ("VEGF"). VEGF is a growth factor
which is believed to contribute to age-related macular degeneration, the leading
cause of adult-onset blindness, by inducing the formation of blood vessels
associated with the disease state.

    Evolutionary Chemistry is a proprietary technology being developed by the
Company to rapidly identify small organic molecules intended to serve as orally
available drugs. The potential advantages of Evolutionary Chemistry are that,
unlike current combinatorial chemistry drug discovery methodologies, it does not
require tagging chemistries, high reaction yields or laborious screening steps.

    The Company has a substantial marketing, manufacturing and
medical/regulatory infrastructure in the United States, Europe and Australia and
markets its products through third-party distributors in other areas throughout
the world. The Company markets its products through its own sales
representatives throughout Europe, in the United States (where the Company
co-markets AmBisome with Fujisawa Healthcare, Inc.) and in Australia as well as
through third-party distributors. The Company has established marketing
subsidiaries in most of its significant European markets. The Company has built
and continues to enhance its medical/regulatory staff in the U.S. and Europe as
necessary to facilitate the approval of drug candidates, which have been, or may
be, generated by the Company's drug discovery efforts. The Company manufactures
its liposomal drugs.

    In late 1997, the Company established its NeXstar Technology Products
division which included the Company's proprietary technology called Product
Anchored Sequential Synthesis ("PASS"), a method of synthesizing the
oligonucleotides that are the basis for the products being developed using the
SELEX process. In July 1998, the Company established Proligo L.L.C., a Delaware
limited liability company ("Proligo"), as a wholly-owned subsidiary and
transferred all of the assets of the NeXstar Technology Products division to
Proligo. On August 15, 1998, the Company sold a 51% interest in Proligo to SKW
Americas, Inc. ("SKW") in exchange for $15 million cash and a 49% interest in
PerSeptive Biosystems GmbH, a German corporation ("PerSeptive"). As part of the
transaction, the Company contributed its interest in PerSeptive to Proligo, and
SKW contributed its 51% interest in PerSeptive to Proligo. Proligo has agreed to
manufacture oligonucleotides required by the Company at cost plus a fixed
percentage.

    NeXstar Pharmaceuticals was formed in 1991 as NeXagen, Inc. On February 21,
1995, the Company was merged with Vestar, Inc., a Delaware corporation founded
in 1981, and changed its name to NeXstar Pharmaceuticals, Inc.

                                       2
<PAGE>
               SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

    Certain statements in this Report constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors which may cause the actual results, performance or achievements of
the Company, or industry results, to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among other things, the
following: general economic and business conditions, including fluctuations in
currency exchange rates; reliance on a single product for a substantial portion
of the Company's revenues; competition; technological advances; ability to
obtain rights to technology; ability to obtain and enforce patents; ability to
commercialize and manufacture products; results of clinical studies; results of
research and development activities; availability of qualified personnel;
changes in, or failure to comply with, governmental regulations; ability to
obtain adequate financing in the future; and other factors referenced in this
Report. In particular, statements preceded by, followed by or that include the
words "believes," "expects," "anticipates," "plans," "intends," "scheduled" or
other similar expressions are or may constitute forward-looking statements. See
"Risk Factors" in Part II of this Report.

                                       3
<PAGE>
PRODUCTS AND PRODUCT DEVELOPMENT

    The following table summarizes the principal products and certain product
development activities of the Company. Except as specifically noted below, all
commercial rights to such products are held exclusively by the Company.

<TABLE>
<CAPTION>
PRODUCT                                      INDICATION                          STATUS
--------------------------------  --------------------------------  --------------------------------
<S>                               <C>                               <C>
LIPOSOMAL PRODUCTS
AmBisome*                         Systemic fungal infections        Approved for marketing in 38
                                                                     countries.
                                  First line therapy for fungal     Approved for marketing in 16
                                   infections                        countries, including the U.S.
                                  Treatment of fever of unknown     Approved for marketing in the
                                   origin (FUO)                      U.S. and six other countries.
                                  Prophylaxis in liver transplant   Approved for marketing in four
                                   patients                          countries.
                                  Visceral leishmaniasis            Approved for marketing in
                                                                     several countries.
                                  Histoplasmosis, CRYPTOCOCCUS      Phase III clinical trials
                                                                     ongoing in the U.S.

DaunoXome                         First line therapy for advanced   Approved for marketing in the
                                   Kaposi's sarcoma                  U.S., Canada and 22 other
                                                                     countries.
                                  Non-Hodgkin's lymphoma; acute     Phase I clinical trials
                                   myeloblastic leukemia             completed.

MiKasome                          Healthy volunteers                Phase I clinical trials
                                                                     completed.
                                  Complicated urinary tract         Phase II clinical trials
                                   infections                        ongoing.
                                  Cystic fibrosis, nosocomial       Phase II clinical trials
                                   pneumonia, tuberculosis           ongoing.

NX211**                           Advanced-stage, solid tumors      Phase I clinical trials ongoing.

SELEX PROCESS-DERIVED PRODUCTS

NX1838                            Age-related macular degeneration  Phase I clinical trials ongoing.
                                   (AMD)
</TABLE>

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

*   Fujisawa Healthcare, Inc. ("Fujisawa") and the Company co-develop and
    co-promote AmBisome in the United States pursuant to a collaborative
    relationship. Fujisawa has sole marketing rights to AmBisome in Canada; the
    Company has sole marketing rights in the rest of the world and is required
    to pay royalties to Fujisawa in connection with sales in most significant
    Asian markets, including Japan. Sumitomo Pharmaceuticals Co., Ltd. has
    marketing rights to AmBisome in Japan, and is required to pay royalties to
    the Company upon approval and sale of AmBisome in Japan.

**  Glaxo Wellcome, Inc. and Glaxo Group Limited (together, "Glaxo") and the
    Company are parties to a license agreement which contains provisions
    permitting Glaxo, at their option, to participate in the further development
    and commercialization of NX211. If Glaxo exercises this option, Glaxo will
    be required to share in the development costs of NX211 and will co-promote
    NX211 and share profits in certain territories. In addition, NeXstar
    Pharmaceuticals will be relieved of some or all of its obligations to make
    milestone payments and royalties to Glaxo. See "--Collaborative
    Relationships and License Agreements--Glaxo Wellcome."

                                       4
<PAGE>
PRODUCTS AND MARKETS

AMBISOME

    AmBisome is a liposomal formulation of amphotericin B, a well-established
antifungal agent that is effective against a broad spectrum of fungi. NeXstar
Pharmaceuticals has received marketing approval for AmBisome as a treatment for
life-threatening fungal infections in 38 countries, 16 of which have granted
approval as a first line therapy for some form of fungal infection and the
remainder of which have granted approval for use when conventional amphotericin
B treatment fails. AmBisome has also been approved as a treatment for visceral
leishmaniasis in several countries and is approved in four countries for
prophylactic treatment to prevent fungal infection after liver transplantation.
In addition, AmBisome has been approved for the treatment of fever of unknown
origin (FUO) in the U.S. and six other countries.

    Pursuant to a collaborative agreement, the Company and Fujisawa Healthcare,
Inc., as successor to Fujisawa USA, Inc. ("Fujisawa"), co-develop and co-promote
AmBisome in the United States. Fujisawa has sole marketing rights to AmBisome in
Canada. The Company has sole marketing rights to AmBisome in the rest of the
world, provided that the Company is required to pay royalties to Fujisawa in
connection with sales in most significant Asian markets, including Japan. In
connection with U.S. sales, the Company sells AmBisome to Fujisawa at cost;
Fujisawa collects all payments from the sale of AmBisome in the U.S. and pays
the Company 20% of the gross profits from all sales. The Company has also
licensed the rights to develop and market AmBisome in Japan to Sumitomo
Pharmaceuticals Co., Ltd. ("Sumitomo"). Under the terms of its license with the
Company, Sumitomo is required to make payments to the Company if certain
clinical and commercial milestones are met and to pay the Company royalties on
all Japanese sales of AmBisome. Sumitomo has paid a total of $10 million to
NeXstar in connection with the achievement of milestones, including $3 million
in 1998 related to the filing of a new drug application in Japan. Under the
terms of the license, Sumitomo is required to make an additional milestone
payment to the Company if AmBisome is approved for sale in Japan.

    PRODUCT PROFILE.  Amphotericin B, an antifungal agent used to treat a broad
spectrum of fungal infections, has been a commonly used drug for the treatment
of systemic fungal infections. The clinical usefulness of amphotericin B is
limited, however, because serious toxicity can occur prior to achieving
effective therapy. NeXstar Pharmaceuticals has used its proprietary technology
to develop AmBisome, a liposomal product that incorporates amphotericin B. The
maximum tolerated dose of AmBisome in some animal models is up to 75 times that
of the free drug, permitting higher daily and cumulative doses of amphotericin B
to be delivered to the diseased tissues, while simultaneously greatly reducing
the normal acute and chronic toxicity often associated with conventional
amphotericin B therapy. NeXstar Pharmaceuticals believes that the increased
safety profile of AmBisome is due to a proprietary manufacturing process that
tightly binds amphotericin B into the membrane of the liposome, preventing the
free drug from escaping into the blood stream.

    AmBisome is sold as a lyophilized (freeze-dried) product that is easily
reconstituted by adding sterilized water. In the United States and many other
countries, AmBisome has an approved shelf life of 36 months. However, in most
European countries, AmBisome has an approved shelf life of 30 months.

    MARKET.  The Company's marketing efforts for AmBisome are primarily directed
at physicians who treat patients with systemic fungal infections and presumptive
fungal infections. Systemic fungal infections are serious infections with a
mortality rate of up to 70% and are commonly caused by species of CANDIDA,
ASPERGILLUS or CRYPTOCOCCUS, as well as a variety of less common organisms.
These infections can occur in patients whose immune systems have been
compromised by other diseases or by the treatment of other medical conditions.
The largest population of immune-impaired patients consists of organ/bone marrow
transplant patients, heavily treated cancer patients (principally those with
leukemias or lymphomas) and AIDS patients. AmBisome is also currently used in a
number of countries for the treatment of visceral leishmaniasis, a parasitic
infection.

                                       5
<PAGE>
DAUNOXOME

    DaunoXome is a liposomal formulation of daunorubicin, a well-characterized
and long-used chemotherapeutic agent. DaunoXome has been approved in the United
States, Canada and 22 other countries as a primary therapy for HIV-associated
Kaposi's sarcoma ("KS").

    PRODUCT PROFILE.  DaunoXome uses a proprietary tumor targeting technology
for delivering daunorubicin into tumor cells. This targeted liposomal delivery
system consists of small liposomes that encapsulate the daunorubicin in their
internal aqueous space. The size of the liposomes used in

DaunoXome was selected, in part, so that the liposomes can escape from
circulation through the more porous blood vessels that are generally found in
tumors. In some animal models, DaunoXome's formulation permits a concentration
of the therapeutic agent in tumors of 5 to 10 times the concentration achieved
with intravenous administration of the free drug. The same animal tests have
also demonstrated up to 10 times the efficacy as the equivalent level of
daunorubicin in its free drug form. Further, these animal models have
demonstrated a substantial reduction in certain toxicities associated with
daunorubicin. DaunoXome has an approved shelf life of 52 weeks in the United
States and 40 weeks in Canada and most European countries.

    MARKET.  The Company's initial targeted market for DaunoXome has been AIDS
patients who suffer from KS, a malignant disease characterized by widely
disseminated lesions in the skin, mucous membranes, lymph nodes and viscera.
With the advent of combination therapies for AIDS, the incidence of KS has
declined in recent years which has substantially limited the market for the
indication for which DaunoXome has been approved.

CLINICAL TRIALS, PRECLINICAL TRIALS AND REGULATORY STATUS

    The Company is continuing clinical trials for both AmBisome and DaunoXome
for currently approved and additional indications and two other liposomal
products, MiKasome and NX211, which are in clinical trials. The Company received
FDA approval for its Investigational New Drug application in the United States
("IND") in 1998 for its aptamer antagonist to VEGF for the treatment of
age-related macular degeneration. This was the first IND application filed by
the Company for one of its aptamers. The Company has begun clinical trials for
NX211 in Europe and plans to file an IND in the United States for NX211 in the
first half of 1999. No assurance can be given that proposed clinical trials will
be initiated or that any clinical trials or preclinical development work will
result in any commercially successful new drugs or approval of any additional
indications for AmBisome or DaunoXome.

AMBISOME

    NeXstar Pharmaceuticals continues to conduct clinical trials with AmBisome
in a variety of settings with the aim of expanding the uses of this antifungal
drug. The Company has recently concentrated its clinical development for
AmBisome on empiric therapy for presumed fungal infections among patients at
high risk for such infections, first line therapy for systemic and/or deep
fungal infections and prophylaxis against systemic fungal infections following
chemotherapy or bone marrow transplantation.

    In a double-blind trial, 687 adult and pediatric patients with neutropenia
(a low number of infection-fighting white blood cells) and persistent fever that
did not resolve with antibiotic treatment were randomized to receive either
conventional amphotericin B or AmBisome. Results of the study, which was
sponsored by Fujisawa, show that, overall, AmBisome was associated with a
therapeutic success rate (measured by a combination of factors including, among
others, resolution of fever, absence of emergent fungal infection and patient
survival for at least seven days after therapy) equivalent to conventional
amphotericin B, but was significantly more effective in the prevention of proven
breakthrough fungal infections. In addition, among patients treated with
AmBisome compared with patients treated with conventional amphotericin B, there
was a significant reduction in the incidence of infusion-related fever,
chills/rigors, cardiorespiratory events and the development of nephrotoxicity.
Patients treated with

                                       6
<PAGE>
amphotericin B had a slightly lower incidence of diarrhea and nausea than those
treated with AmBisome. The study also indicated that there was a statistically
significant reduction in kidney toxicity with AmBisome compared to conventional
amphotericin B. Overall, there was a lower incidence of adverse events
associated with the use of AmBisome as compared to amphotericin B.

    The Company has completed two additional randomized open label clinical
trials comparing the safety and efficacy of AmBisome to conventional
amphotericin B in the empiric treatment of patients with fever of unknown origin
(FUO) and severe neutropenia who had presumed or confirmed fungal infection.
These patients were receiving intensive chemotherapy or had underlying
hematological disease. One clinical trial enrolled adults (193 patients) and the
other pediatric subjects (205 patients). These two clinical trials indicated
that AmBisome had an improved safety profile compared with amphotericin B and
there was a trend towards improved efficacy for AmBisome, specifically for the
higher dose group (3 mg/ kg).

    A double-blind, placebo-controlled, randomized clinical trial in 86 patients
studying the efficacy and safety of AmBisome as prophylaxis following liver
transplantation showed a trend towards improved efficacy for AmBisome compared
to amphotericin B. Additionally, the Company has completed five clinical trials
in which patients with confirmed systemic and/or deep fungal infections were
treated with AmBisome. In these trials, AmBisome was clinically at least as
effective as amphotericin B and the overall fungal eradication rate was greater
for AmBisome than for amphotericin B.

    NeXstar Pharmaceuticals, in conjunction with Fujisawa, is conducting three
Phase III clinical trials of AmBisome in the United States for the treatment of
histoplasmosis and for the treatment of CRYPTOCOCCUS. The trials for
histoplasmosis are being monitored and analyzed by the Mycology Study Group of
the National Institutes of Health. In addition, a randomized, double-blind
comparative trial of AmBisome versus Abelcet (a lipid-based amphotericin B
product marketed by The Liposome Company, Inc.) in the empirical treatment of
febrile neutropenia has been completed, and the data will be presented in late-
March 1999.

DAUNOXOME

    The Company is seeking to expand the number of approved indications for
DaunoXome. The Company has completed clinical trials and is continuing to
perform additional studies aimed at optimizing the treatment of KS. The
completed clinical trials in KS have evaluated the safety and efficacy of higher
dose regimens and the treatment of the pulmonary manifestations of KS.

    In addition, the Company is pursuing a strategy of evaluating the
therapeutic potential of DaunoXome in hematological malignancies (leukemias and
lymphomas), indications in which the efficacy and safety of daunorubicin is well
established. The Company, in a Phase II clinical trial, has substituted
DaunoXome for doxorubicin in a CHOP (cyclophosphamide, doxorubicin, vincristine
and prednisone) regimen (COP-X) in the treatment of high grade lymphomas. The
Company has completed a Phase I study in acute myeloblastic leukemia in
combination with cytosine-arabinoside (Ara-C) and is planning Phase II
development for this indication as well as for chronic lymphocytic leukemia.

MIKASOME

    MiKasome is a liposomal formulation of amikacin, which is a member of a
class of antibiotic compounds called aminoglycosides. Traditionally, serious
bacterial infections are treated with an injectable antibiotic such as amikacin.
In its free (unencapsulated) form, amikacin is a potent antibiotic, but can be
associated with side effects such as kidney failure, hearing loss or loss of
balance. The target product profile for MiKasome, as compared to free amikacin,
includes significantly improved safety, extended circulation times, increased
penetration to sites of infection and a broader range of antimicrobial activity.

    The Company began an initial 75-patient Phase II study of MiKasome in
November 1997 to assess its use in patients with complicated urinary tract
infections ("UTIs"). This study is now completed, and the

                                       7
<PAGE>
results will be publicly presented in the first half of 1999. Complicated UTIs
are functional or anatomic abnormalities of the urinary tract often resulting in
recurrent infections in patients despite antibiotic therapy. The Company is now
initiating a follow-up study comparing three doses of MiKasome in this
indication. Additional Phase II studies are ongoing in adults with cystic
fibrosis and in patients with nosocomial (hospital acquired) pneumonia and
tuberculosis. The Company is planning additional studies in patients with
febrile neutropenia and in patients with impaired renal function.

    Phase I studies using MiKasome have indicated that (i) at the doses studied,
MiKasome did not cause toxicity or impairment to the kidneys, to hearing or to
balance; (ii) the half-life (an indication of the time the product stays in the
body) is up to seven days, compared to approximately two hours for free
amikacin; and (iii) relatively constant antibiotic levels appear to be
maintained with once weekly dosing of MiKasome.

    Preclinical studies with MiKasome in animals have indicated that (i)
MiKasome has a much longer half-life than free amikacin; (ii) MiKasome
administered daily was as effective as free amikacin administered twice a day in
the treatment of endocarditis caused by PSEUDOMONAS, a Gram-negative bacteria;
and (iii) MiKasome was more effective than free amikacin in decreasing the
incidence and severity of myocarditis (inflammation of the muscular walls of the
heart).

    In preclinical studies, the pathogens against which MiKasome has shown at
least equivalent, if not improved efficacy compared to free amikacin, are
PSEUDOMONAS AERUGINOSA, STAPHYLOCOCCUS AUREUS, KLEBSIELLA PNEUMONIAE,
MYCOBACTERIUM AVIUM complex and MYCOBACTERIUM TUBERCULOSIS.

    The current development plan for MiKasome includes clinical trials for
indications in patients with moderate, severe and life-threatening Gram-negative
bacterial infections, including, but not limited to, those infections which are
the focus of the planned, or currently conducted, Phase II clinical trials.

NX211

    NX211 is the Company's liposomal formulation of a topoisomerase I inhibitor
called lurtotecan, a camptothecin derivative and potent anti-cancer compound
licensed from Glaxo Wellcome, Inc. and Glaxo Group Limited (together, "Glaxo").
Pursuant to the License Agreement, dated May 27, 1998 (the "Glaxo License
Agreement"), between the Company and Glaxo, the Company has an exclusive
worldwide license to lurtotecan, provided that Glaxo has the option within
certain parameters to participate in the further development of NX211.

    Topoisomerase I is required for DNA replication, an activity which is
integral to the normal division of cells. Lurtotecan, as is the case with other
camptothecin analogues, binds tightly to topoisomerase I, causing cell cycle
arrest. Data from both preclinical and clinical studies indicate that the
cytotoxicity of camptothecins (both topotecan, a commercially available
camptothecin, and lurtotecan) is directly related to the length of their
exposure. The Company's preclinical experiments with liposomal lurtotecan show a
threefold increase in the therapeutic index compared to the free drug. The
Company believes that its liposomal formulation of lurtotecan will increase the
drug's plasma circulation time and exposure, and thus increase its therapeutic
index.

    The Company has planned three Phase I clinical trials of NX211. The first,
being conducted in the Netherlands, is already underway, and is designed to
determine the single maximum tolerated dose of NX211. The second and third Phase
I trials will be conducted in Canada and the United States, respectively.
Documentation for the Canadian trial has been submitted, and the trial, which
will evaluate the safety and pharmacokinetics of doses on days 1, 2, and 3, is
scheduled to begin in March 1999. The U.S. trial is expected to begin prior to
the end of the second quarter in 1999, after submission of an IND application to
the FDA at the beginning of the second quarter of 1999.

    Results from these three Phase I trials will be used to determine the best
dose and dose schedule for Phase II trials of NX211. Phase II clinical trials
are expected to evaluate NX211 in ovarian cancer and small-cell lung cancer.

                                       8
<PAGE>
NX1838

    NX1838 is the first aptamer identified by the Company's proprietary SELEX
technology to enter clinical development, and the first aptamer ever to be
studied under a U.S. IND. NX1838 is a potent and selective inhibitor of human
vascular endothelial growth factor ("VEGF"), a key cytokine responsible for the
growth of new blood vessels in the body (a process known as angiogenesis).
NX1838 binds with high affinity to VEGF and prevents its attachment to
complementary cell receptors. As a result, the sequence of events leading to
angiogenesis is interrupted.

    The Company has begun clinical trials with NX1838 in a disease known as
Age-Related Macular Degeneration ("AMD"). AMD is characterized by progressive
degenerative changes in the central portion of the retina that can lead to loss
of visual acuity over time. AMD is classified into one of two general subgroups,
the atrophic or "dry" form of the disease and the exudative or "wet" form. The
"wet" form of the disease, accounting for approximately 20% of AMD cases, is a
more severe condition in which there is a sudden, often substantial, loss of
central vision. AMD is characteristically a disease of the elderly population
(i.e., persons age 65 or older) and is the single leading cause of blindness in
developed countries around the world. It is estimated that in the United States
6% of individuals ages 65-74, and 20% of those older than 75, have AMD.

    The abnormal growth of blood vessels behind the retina is a feature of AMD
as the disease progresses to the more advanced stages. It is believed that VEGF
plays a key role in initiating the abnormal angiogenesis seen in AMD. Studies in
animals have demonstrated that NX1838 can inhibit angiogenesis in a variety of
settings. Systemic administration of NX1838 to rats resulted in significant
inhibition of VEGF-dependent angiogenesis in the corneal tissue of the eye.
Other tests in animals confirm the effect of NX1838 on angiogenesis and confirm
that the drug is sufficiently safe to begin human trials.

    Phase I clinical studies in humans (aimed principally at confirming the
drug's safety profile) are underway, and the Company is preparing for the Phase
II program, which will provide initial information on the effectiveness of
NX1838 in halting the progression of AMD.

RESEARCH AND DEVELOPMENT

    The Company's research and development activities focus on the
identification of potential drug candidates using its three significant
proprietary technologies: liposome technology, the SELEX process and
Evolutionary Chemistry. The Company develops its most suitable candidates into
drugs for oncological, hematological and infectious disease. In addition, the
Company is developing SELEX process-derived oligonucleotide compounds as
non-therapeutic products, including diagnostic agents. Research expense
sponsored by third-parties totaled $2.6 million, $2.4 million and $1.2 million
in 1998, 1997 and 1996, respectively.

LIPOSOME TECHNOLOGY

    NeXstar Pharmaceuticals believes that it has substantial technological
strengths in the development of liposome products. The Company's proprietary
liposome drug delivery technology enables it to develop products with
significant potential advantages over intravenous administration of a
conventional drug, including concentrating the drug on the targeted disease,
extending the time the drug remains in the blood stream to prolong the
therapeutic effect and reducing toxic side effects. The Company's liposome
technology may be used as a method of drug delivery in connection with drugs
developed or being developed pursuant to the Company's other technologies. The
use of liposomes has the potential for increasing the efficacy and safety of
such drugs.

    NeXstar Pharmaceuticals intends to continue to develop products based on its
liposome platforms for oncological, hematological and infectious diseases. The
Company has identified certain generic and proprietary oncological compounds
that may benefit substantially from encapsulation in tumor-targeted liposomes
and has begun formulation studies for these compounds. As part of its strategy
to develop liposomal drugs, the Company has discussed, and will continue to
discuss, collaborative relationships with

                                       9
<PAGE>
other companies to encapsulate such companies' proprietary drugs in liposomes in
order to increase the efficacy and safety of the free drugs.

THE SELEX PROCESS: SYSTEMATIC EVOLUTION OF LIGANDS BY EXPONENTIAL ENRICHMENT

    NeXstar Pharmaceuticals' proprietary combinatorial chemistry technology,
called the SELEX process, can rapidly identify compounds that bind tightly and
selectively to molecular targets.

    Complementary shape (sometimes described as a "lock and key") is fundamental
to drug discovery research. In searching for potential drug candidates, the
scientist looks for the drug candidate (key) that best fits the disease causing
molecular target (lock). In this search, it is advantageous to have a large
library of potential drug candidates (keys) to test against the target molecule
(to attempt to fit into the lock). In developing effective drug products, it is
also advantageous to have a drug candidate that binds tightly to the target
molecule and not to other molecules. A drug compound with high affinity binding
properties is more likely to be effective at low doses and induce fewer side
effects than a drug compound with low affinity for the disease target. High
specificity also reduces the likelihood of potential side effects since the drug
compound is unlikely to interact with targets not involved in the particular
disease. The SELEX process generates a pool of up to one million billion
(10(15)) oligonucleotide compounds (keys) and then rapidly searches this pool of
compounds to identify the compounds that bind tightly and with a high degree of
specificity to the chosen disease-causing molecular target. Typically, the SELEX
process creates drug candidates in a matter of weeks or months. The lead
oligonucleotide compound resulting from the application of the SELEX process to
a particular disease target is referred to as an aptamer. The Company believes
that its SELEX process reduces the time and cost of identifying lead compounds
and ultimately will reduce the time and cost involved in discovering and
developing effective pharmaceutical products.

    PHARMACOKINETICS AND STABILITY.  The Company has improved the stability and
the pharmacokinetic activity of aptamers developed using the SELEX process. Like
all oligonucleotides, aptamers can be destroyed in the body by nucleases,
enzymes that attack and break down RNA and DNA molecules. In order to improve
the stability of aptamers, the Company has created an assortment of proprietary
nucleotides (the building blocks for RNA and DNA) modified to resist nuclease
attack. Compared to natural RNA, SELEX process-derived RNA aptamers that
incorporate modified nucleotides are up to 200 times more stable in the blood of
test animals. In addition, the circulation time of aptamers can be modified by
altering the formulation of the aptamers (E.G., by the addition of polyethylene
glycol). Using its modified aptamers, the Company has demonstrated specific
pharmacologic activity in animal models representing different disease
processes.

    AUTOMATION.  Currently, much of the SELEX process is labor intensive. By
automating the SELEX process, the Company believes that it will increase the
speed at which it is able to identify aptamers. The Company has contracted with
RELA, a Colorado MEDtech affiliate, which is a custom product development and
manufacturing service company, to design, construct and test a proof of
principle machine in collaboration with the Company.

    THERAPEUTIC APPLICATIONS OF SELEX PROCESS-DERIVED COMPOUNDS. SELEX
process-derived aptamers have potential therapeutic uses because of their high
affinity and specificity for their targets. The Company has identified aptamers
to a variety of different targets. In addition to NX1838, an aptamer which binds
to VEGF (see "Clinical Trials, Preclinical Trials and Regulatory Status--
NX1838"), the Company has identified aptamers for other targets, including the
following: platelet-derived growth factor (implicated in tumor growth and the
progression of other proliferative diseases such as restenosis and fibrosis),
P-selectin (implicated in the process of inflammation), basic fibroplast growth
factor (implicated in restenosis, fibrosis and cancer), human neutrophil
elastase (an enzyme capable of degrading a wide variety of connective tissue
proteins) and human complement C5 (implicated in the process of inflammation).

    DIAGNOSTIC APPLICATIONS OF SELEX PROCESS-DERIVED COMPOUNDS. In addition to
efforts aimed at the potential use of SELEX process-derived aptamers as
therapeutic agents, the Company has devoted

                                       10
<PAGE>
significant research and development efforts to demonstrating that aptamers
derived from its SELEX process have utility in a variety of diagnostic
applications.

    TAQ (THERMUS AQUATICUS) POLYMERASE APTAMERS.  The development of the
polymerase chain reaction ("PCR") has revolutionized many aspects of modern
molecular biology. PCR allows the rapid and efficient amplification of specific
sequence DNA molecules. The molecule responsible for PCR is the thermostable DNA
polymerase enzyme TAQ polymerase. While the utility of PCR is high, it is also
flawed because it can function at low temperatures, allowing the DNA primers to
non-specifically bind to each other and to the target DNA molecule to be
amplified. This results in undesirable amplification of DNA and makes
interpretation of the PCR results difficult.

    In collaboration with Roche Molecular Systems, Inc., NeXstar Pharmaceuticals
has identified SELEX process-derived DNA aptamers that bind to TAQ polymerase
and inhibit its activity at low temperatures where the non-specific binding
problem occurs. At low temperatures, the DNA aptamers bind to TAQ polymerase and
prevent undesirable DNA amplification. At high temperatures (where TAQ
polymerase functions in the manner desired), the DNA aptamers, by design, no
longer bind and inhibit TAQ polymerase, allowing this enzyme to amplify only the
desired DNA target. The Company's DNA aptamers appear to have substantial
advantages compared to traditional PCR applications, especially in clinical
diagnostics.

    OTHER DIAGNOSTIC APPLICATIONS.  The Company has demonstrated that a SELEX
process-derived aptamer which binds to VEGF can be used in place of an antibody
in a common diagnostic assay known as a sandwich enzyme-linked immunosorbent
assay ("ELISA"). This assay usually requires two antibodies that bind
simultaneously to the molecule to be analyzed. The first antibody captures the
target, and the second antibody is used for detection (the two antibodies are
thought of as two pieces of bread that "sandwich" the target molecule). The use
of two antibodies greatly reduces the probability of misdiagnosis. In the
Company's demonstration, the detection antibody in the diagnostic assay was
replaced with a SELEX process-derived aptamer specific for VEGF, indicating that
SELEX process-derived aptamers might be effective and useful diagnostic
reagents.

    In addition to using aptamers to replace one of the antibodies in ELISA, the
Company believes that aptamers with the capability to form covalent bonds with
their target molecules may allow the development of new diagnostic
methodologies. In this context, the two components of interaction between the
aptamer and its target (initial binding followed by the formation of a covalent
bond) would provide two dimensions of specificity, analogous to the use of two
different antibodies. The Company is developing its Photo-SELEX process to
identify aptamers that have the capacity to cross-link with target molecules
upon excitation by light of a specific wavelength.

    Aptamers may have several advantages over antibodies for use as clinical
diagnostic reagents. Aptamers are approximately ten times smaller than
antibodies and are completely chemically defined (allowing for consistent
manufacturing and ease of modification). Aptamers can be "rationally" designed,
I.E., the SELEX process can be designed so that the resulting aptamer is capable
of binding to the target molecule in a particular assay solution or with a
desired target specificity. Because the entire SELEX process is carried out IN
VITRO, aptamers can be developed for most targets, including those for which it
is difficult to obtain antibodies. The Company also believes that Proligo will
be able to use its PASS technology for large-scale manufacture of these aptamers
at a substantially lower cost than the current cost of most antibodies. See
"--Proligo L.L.C. and PASS: Product Anchored Sequential Synthesis."

EVOLUTIONARY CHEMISTRY

    The Evolutionary Chemistry process (formerly called the Parallel SELEX
process) is a proprietary technology being developed by the Company to discover
small-molecule drug and agrochemical candidates. The Evolutionary Chemistry
process has several potential advantages over current combinatorial chemistry
drug discovery methodologies, including the following: (i) tagging chemistries
are not necessary; (ii) high reaction yields are not required, so that both
known and unknown reaction chemistries (with

                                       11
<PAGE>
numerous regiochemical and stereochemical outcomes) currently inaccessible by
combinatorial chemistry can be utilized to provide extensive small-molecule
libraries; and (iii) the Evolutionary Chemistry process also avoids laborious
and database-intensive screening steps common in other combinatorial chemistry
approaches. The Company's Evolutionary Chemistry technology uses RNA to catalyze
reactions in an effort to produce molecules that are difficult to obtain using
current combinatorial chemistry techniques. The Company believes that the
Evolutionary Chemistry process will be valuable for developing lead compounds
and products with potentially improved pharmacokinetics. The Company hopes that
this technology will also significantly reduce costs of pharmaceutical discovery
and development.

    The focus of research efforts of the Evolutionary Chemistry group at the
Company has been to expand the repertoire of reactions that may be used to form
chemically diverse small-molecule libraries. NeXstar Pharmaceuticals' scientists
have shown that RNA is capable of catalyzing a carbon-carbon bond-forming
reaction important for the assembly of many pharmacophore compounds. In these
experiments, modified RNAs, which are proprietary to the Company, were used to
facilitate the Diels-Alder reaction, a highly valued organic transformation. The
Company also used modified RNA to promote the formation of an amide bond,
another reaction commonly used in the assembly of drug candidates. These results
indicate that RNA molecules form catalytic binding pockets similar to protein
enzymes. The Diels-Alder and amide bond formation reactions represent only a
subset of possibly useful reactions for the assembly of drug candidates, and
further efforts to prove the applicability of the Evolutionary Chemistry
methodology to other classes of reactions, especially those with diverse
regiochemical and stereochemical possibilities, are ongoing.

COLLABORATIVE RELATIONSHIPS AND LICENSE AGREEMENTS

    To apply and develop its technologies as widely as possible, NeXstar
Pharmaceuticals has entered into and expects to enter into strategic
collaborative research agreements, joint ventures and licensing arrangements
with pharmaceutical and other health care companies and research institutions.

FUJISAWA HEALTHCARE, INC.

    In 1987, the Company entered into a partnership agreement with Lyphomed,
Inc. for the joint development of AmBisome. In 1991, the partnership agreement
and the partnership were terminated. The Company received all assets of the
partnership, including AmBisome; however rights to commercialize and sell
AmBisome throughout the world were divided between the Company and Fujisawa
Healthcare, Inc. ("Fujisawa"), the successor to Lyphomed. Pursuant to an
agreement between the Company and Fujisawa, (a) the Company has exclusive
marketing rights to AmBisome in all countries, except the United States and
Canada; (b) the Company and Fujisawa co-promote AmBisome in the United States,
and (c) Fujisawa has exclusive marketing rights to AmBisome in Canada.

    Fujisawa has primary responsibility for AmBisome in the United States. The
Company receives 20% of the gross profits from the sale of AmBisome in the
United States for its co-promotion efforts. The Company is required to pay
Fujisawa a 4% royalty in connection with sales of AmBisome in significant Asian
markets, including Japan.

    The Company manufactures all AmBisome for sales worldwide. Fujisawa
purchases AmBisome from the Company for sale in the United States and Canada at
a price equal to the Company's cost to manufacture the product. See "--Products
and Markets--AmBisome."

SUMITOMO PHARMACEUTICALS CO., LTD.

    In 1996, NeXstar Pharmaceuticals licensed the right to develop and market
AmBisome in Japan to Sumitomo Pharmaceuticals Co., Ltd. ("Sumitomo"). Under the
terms of the license, Sumitomo is required to make payments to the Company if
certain clinical and commercial milestones are met and to pay the Company
royalties on all Japanese sales of AmBisome. Sumitomo has paid the Company a
total of $10 million in connection with the license of AmBisome, $7 million of
which was paid at the time the license was granted and $3.0 million of which was
paid in March 1998 related to the filing of a new drug

                                       12
<PAGE>
application for AmBisome in Japan. Under the terms of the license, Sumitomo is
required to make a final milestone payment of $4 million to the Company if
AmBisome is approved for sale in Japan.

    The Company will manufacture AmBisome for sale in Japan. Both the price at
which Sumitomo must purchase AmBisome from the Company and the royalty Sumitomo
must pay the Company for sales in Japan depend on the in-market price of
AmBisome in Japan.

PROLIGO L.L.C. AND PASS: PRODUCT ANCHORED SEQUENTIAL SYNTHESIS

    In late 1997, the Company established its NeXstar Technology Products
division which included the Company's proprietary technology called Product
Anchored Sequential Synthesis ("PASS"), a method of synthesizing the
oligonucleotides that are the basis for the products being developed using the
SELEX process. In July 1998, the Company established Proligo L.L.C., a Delaware
limited liability company ("Proligo"), as a wholly-owned subsidiary and
transferred all of the assets of the NeXstar Technology Products division to
Proligo. On August 15, 1998, the Company sold a 51% interest in Proligo to SKW
Americas, Inc. ("SKW") in exchange for $15 million cash and a 49% interest in
PerSeptive Biosystems GmbH, a German corporation ("PerSeptive). As a part of the
transaction, the Company contributed its interest in PerSeptive and $4.9 million
cash to Proligo, and SKW contributed its 51% interest in PerSeptive and $5.1
million cash to Proligo. In addition, SKW will pay the Company $3 million in
guaranteed payments and up to $20.5 million in performance-based milestones over
the next five years. The milestones are primarily related to Proligo's ability
to manufacture aptamers in commercial batches using the PASS technology. The
Company and Proligo have agreed that Proligo will manufacture oligonucleotides
required by the Company at cost plus a fixed percentage. The Company does not
have any commitments to provide additional funding or to support the operations
of Proligo.

    Traditional methods for the manufacture of oligonucleotides are suitable for
research-scale production of these compounds, but are severely limited for
larger-scale or commercial production. Traditional manufacturing methods use
solid phase synthetic methods that are not capable of predictable scale up.
Adapting traditional manufacturing methods to a particular oligonucleotide
(aptamer) is laborious and costly. The crude product of traditional
manufacturing methods is contaminated and requires further purification.

    The PASS technology is a new method for synthesizing oligonucleotides
(including aptamers) which is expected to produce oligonucleotide-based drugs in
commercial quantities in a predictable and cost-effective manner. The PASS
technology allows for predictable scale-up of oligonucleotide products, using
conventional chemical engineering techniques. The PASS technology improves the
economics of oligonucleotide synthesis in several ways. The PASS technology uses
fewer (costly) monomers in each step needed to construct an oligonucleotide
chain. The PASS technology also reduces purification costs associated with
oligonucleotide synthesis as a result of the removal of contaminants, using a
proprietary product anchoring process, after each monomer is added to the chain.
The PASS technology also uses chemical activators to speed up the chemical
reactions that assemble monomers into a chain. In addition, the in-process
controls and documentation of PASS-manufactured oligonucleotides (not present
with traditional manufacturing methods) may prove beneficial in obtaining
regulatory approval for oligonucleotide-based products.

SCHERING A.G.

    In 1993, the Company entered into a collaborative research agreement (the
"Schering Research Agreement") and license agreement (the "Schering License
Agreement") with Schering A.G. Under the Schering Research Agreement, Schering
A.G. has funded research at NeXstar Pharmaceuticals for the discovery and
development of aptamers as IN VIVO diagnostic agents. The level of funding under
this agreement has varied over the five year term, from $1.0 million to $2.4
million annually. In March 1999, Schering A.G. agreed to fund $250,000 under the
Schering Research Agreement for the first half of 1999, with an option to
continue funding an additional $250,000 in 1999 and $500,000 annually
thereafter. Under the Schering Research Agreement, NeXstar Pharmaceuticals is
developing aptamers for thromboembolic disease diagnosis and tumor diagnosis.

                                       13
<PAGE>
    Under the Schering License Agreement, Schering A.G. has the right to develop
and commercialize aptamers as IN VIVO diagnostic agents or radiotherapeutics
discovered and developed under the Schering Research Agreement. Schering A.G. is
required to make milestone and royalty payments to the Company upon
commercialization and sale of any products developed under the collaboration
with the Company. The milestone payments for any one product total $6 million
and are triggered by the filing of an IND, the initiation of Phase III clinical
trials, the filing of an NDA and approval of a product for commercial sale. The
Schering License Agreement permits the Company to develop and commercialize
aptamers discovered under the Schering Research Agreement outside the field of
IN VIVO diagnostic agents or radiotherapeutics, subject to royalty payments to
Schering A.G.

GLAXO WELLCOME, INC. AND GLAXO GROUP LIMITED

    In May 1998, the Company entered into a three-part collaboration with Glaxo
Wellcome, Inc. and Glaxo Group Limited (together, "Glaxo"), consisting of a
license agreement (granting the Company exclusive rights to lurtotecan, a
proprietary Glaxo compound), a research license (granting Glaxo rights to use
the SELEX process for target validation) and a stock purchase agreement.

    Pursuant to the Glaxo License Agreement, Glaxo granted to the Company the
exclusive right to develop and commercialize Glaxo's proprietary topoisomerase I
inhibitor, lurtotecan, a comptothecin derivative and potent anti-cancer
compound. The Company is developing a liposomal formulation of lurtotecan,
designated by the Company as NX211 and has planned three Phase I clinical trials
for NX211, the first of which has begun in the Netherlands. The Company expects
to submit an IND in the United States in the second quarter 1999 and expects to
commence a Phase I trial in the United States prior to the end of the second
quarter 1999. See "--Products and Markets--NX211".

    The Glaxo License Agreement requires the Company to make milestone payments
and pay royalties to Glaxo at various stages of development and
commercialization of NX211. The first such milestone payment is due upon
initiation by the Company of a Phase III clinical trial. Additional milestones
are payable if NX211 is approved for sale as a second-line therapy, a first-line
therapy and for additional indications. The aggregate milestone payments, if
Glaxo does not elect to participate in the development and commercialization of
NX211 as described below, are $15 million. Under the Glaxo License Agreement,
Glaxo has the option to participate with the Company in the continued
development and commercialization of NX211 for one or more territories
throughout the world, including the United States, Europe and Japan. Such option
may be exercised within 60 days after the development of the first Phase III
protocol or the preparation of a Phase II study report, whichever is later. If
Glaxo exercises the option, Glaxo and the Company must negotiate and execute a
development and marketing agreement for the joint development and promotion of
NX211 in the relevant territories. The milestone payments and royalties payable
by the Company to Glaxo under the Glaxo License Agreement will be reduced or
eliminated upon Glaxo's option exercise, depending on the territories in which
Glaxo has elected to participate.

    In connection with the Company's collaboration with Glaxo and pursuant to
the SELEX Research Agreement, dated May 27, 1998, between the Company and Glaxo
(the "Glaxo Research Agreement"), the Company granted to Glaxo a five year
non-exclusive worldwide license to practice the SELEX technology for target
validation. The Glaxo Research Agreement includes development rights granting
Glaxo, in certain situations, the right to develop and commercialize the
aptamers discovered in the course of its research. If Glaxo enters into a
development license for an aptamer discovered under the Glaxo Research
Agreement, Glaxo will be required to pay license fees, milestone payments and
royalties to the Company at various states of development and commercialization
of the aptamer.

    Pursuant to a Stock Purchase Agreement, dated May 27, 1998, between Glaxo
and the Company and in connection with the Glaxo License Agreement and Glaxo
Research Agreement, Glaxo purchased 962,117 shares of Company Common Stock for
$10 million cash. Glaxo was granted certain registration rights in connection
with the purchase of the Company Common Stock.

                                       14
<PAGE>
UNIVERSITY OF COLORADO

    NeXstar Pharmaceuticals has a significant ongoing collaborative relationship
with the University of Colorado at Boulder ("CU") relating to the SELEX process
technology. The relationship is formally with University Research Corporation
("URC"), a for-profit, wholly owned subsidiary of the University of Colorado
Foundation, Inc. URC is designed to serve as the corporate vehicle for
commercial exploitation of inventions by the CU faculty. URC has assigned to the
Company all of URC's present and future rights to (i) inventions falling within
the scope of the claims contained in issued patents and pending patent
applications for the SELEX process technology, (ii) improvements to such
technology made or discovered by researchers at CU, (iii) oligonucleotides or
other molecules that are derived through the application of such technology by
researchers at CU, (iv) results of certain sponsored research and (v) computer
software related to such technology. In connection with the rights assigned by
URC to the Company, URC is to receive certain royalties on the Company's net
sales of products derived from the SELEX process and on royalties received by
the Company from non-affiliates. Specifically, NeXstar is required to pay URC
royalties, (i) on sales of SELEX derived products by NeXstar or any sublicensed
affiliate equal to two percent (2%) of net sales of such products, (ii) on net
sales by non-affiliate sublicensees equal to fifteen percent (15%) of any earned
royalties received by NeXstar from the sublicensee with respect to such sales,
(iii) equal to five percent (5%) of any advances received by NeXstar for
sublicensees that are credited against royalties on future sales, (iv) equal to
five percent (5%) of any license fees received by NeXstar from sublicensees, (v)
equal to five percent (5%) of any milestone payments received by NeXstar from
sublicensees that are credited against royalties on future sales.

MARKETING

    NeXstar Pharmaceuticals has established marketing subsidiaries in the United
Kingdom, Germany, Italy, Spain, France, Portugal, The Netherlands and Australia
and a marketing branch operation in Greece to promote and sell its existing
products. In addition, the Company has a domestic sales and marketing
organization to sell DaunoXome and to co-promote AmBisome in the United States.
NeXstar Pharmaceuticals also has agreements with third-party distributors,
including distributors in certain of the countries in which the Company has
marketing operations, to promote, sell and distribute its products. In certain
countries, AmBisome and DaunoXome can be prescribed by individual physicians who
request the products, even though a regulatory approval in that country has not
yet been obtained. In those cases, the Company's marketing professionals provide
information and assistance requested by physicians.

    Each of the Company's marketing subsidiaries is headed by a general manager
who oversees the Company's operations in the market(s) served by the subsidiary.
The subsidiaries assist in conducting Phase IV clinical trials in the countries
in which they are located and many of the major subsidiaries have a physician
employed by them to assist in conducting these clinical trials. The Company also
has established an administrative infrastructure in Europe, including accounting
and human resources support, to assist in its European marketing operations.

MANUFACTURING

    The Company is manufacturing AmBisome in commercial quantities in two
separate, but adjacent, facilities in San Dimas, California (the "Manufacturing
Facilities"). The Medicines Control Agency of the United Kingdom (the "MCA") has
approved the manufacture of AmBisome for commercial distribution from both
Manufacturing Facilities. The FDA has also approved a new drug application
listing both Manufacturing Facilities for the manufacture of AmBisome for U.S.
distribution. While the Company currently uses internal capacity to perform
lyophilization, it also uses third parties to fill and lyophilize commercial
batches as alternative contract manufacturing suppliers. There can be no
assurance that problems with such lyophilization vendors will not occur and have
an adverse effect on the Company's results of operations.

                                       15
<PAGE>
    The Company currently has regulatory approval from the MCA to manufacture
DaunoXome for commercial distribution at both Manufacturing Facilities, and from
the FDA to manufacture and distribute DaunoXome from only one of the
Manufacturing Facilities. The Company intends to seek FDA approval to
manufacture DaunoXome at its other Manufacturing Facility. There can be no
assurance that the Company will be successful in obtaining the regulatory
approvals which it is seeking or may seek in connection with its manufacturing
facilities.

    To import its products into the European Union (the "EU"), the Company must
obtain quality control release of its products in the EU. The Company owns a
manufacturing facility in Dublin, Ireland. The Company performs quality control
release, packaging and distribution from this facility for distribution in the
EU and elsewhere.

    NeXstar Pharmaceuticals concentrates on developing internal manufacturing
capabilities for its products at the same time as it develops those products.
While each liposomal formulation requires unique variations in process methods,
NeXstar Pharmaceuticals believes that it possesses the necessary technical
skills to design and implement scaled-up manufacturing capabilities for the
liposomal products it is currently developing. However, there can be no
assurance that the Company will be able to achieve such capabilities in
connection with new liposomal products or will be able to cost effectively
manufacture any compounds derived using the Company's non-liposomal
technologies.

    All of the component steps of the manufacturing process use equipment that
is commercially available and that can be obtained in larger sizes if required.
Currently, high quality amphotericin B, daunorubicin HCl and high quality
cholesterol, each of which is used in the Company's manufacture of liposome
products, are obtained only from single approved suppliers. Additional suppliers
of each of these components are presently under evaluation. In the event that
the materials become unavailable from their respective suppliers, the Company
believes that alternative supplies of such materials are or will become
available at reasonable prices. Other lipid materials and other raw materials
are available from a number of suppliers, and NeXstar Pharmaceuticals believes
that supplies are adequate for the foreseeable future.

COMPETITION

    Generally, competition in the pharmaceutical field is based on such factors
as product performance, safety, acceptance by doctors, patient compliance,
patent protection, ease of use, price, distribution, marketing and adaptability
to various modes of administration. The Company's products compete or may
compete with new chemical substances as well as improved delivery of current
drugs. The Company's products and potential products are in various stages of
development and no assurance can be given that any of these products or
potential products will be sufficiently more effective than existing treatment
alternatives to generate meaningful commercial demand.

    NeXstar Pharmaceuticals anticipates that it will face increased competition
in the future as new products enter the market and advanced technologies become
available. Many of the Company's existing or potential competitors have
substantially greater financial, technical and human resources than NeXstar
Pharmaceuticals and may be better equipped to develop, manufacture and market
products. In addition, many of these companies have extensive experience in
research, preclinical testing and human clinical trials; obtaining FDA and other
regulatory approvals; and manufacturing and marketing their products. As a
result, these companies may develop and introduce products and processes more
rapidly than, and competitive with or superior to, those of NeXstar
Pharmaceuticals. There can be no assurance that existing products or new
products developed by the Company will be more effective than any that may be
developed by the Company's competitors. Competitive products may render the
Company's technology and products obsolete or noncompetitive.

    In markets in which AmBisome has been approved as a primary therapy, it
competes against traditional amphotericin B, which is made by Bristol-Myers
Squibb Company, and the Company expects to increasingly face competition from
other antifungal products, including those produced or currently under
development by major pharmaceutical companies, such as Pfizer, Inc. In addition,
there are a number of

                                       16
<PAGE>
other companies that are focused on the development of lipid-based products,
some of which have lipid-based amphotericin B products that have been approved
in the United States and throughout Europe. These products compete against
AmBisome as both primary and secondary therapy and have been offered at prices
that are less than AmBisome's price. Other drugs have been approved, or are
awaiting approval, for the treatment of KS in the U.S. and Europe, including one
lipid-based anticancer drug, and these drugs compete or are expected to compete
with DaunoXome. If the Company is successful in broadening the indications for
DaunoXome, it will face competition from a number of oncology drugs. Some of the
drugs, which currently or may in the future compete with DaunoXome, are owned by
companies with substantially greater resources than the Company's.

    The Company believes that earlier entry into a market is an advantage for a
new drug, but it also believes that therapeutic index and cost-effectiveness are
important to a product's success. Ultimately, therefore, the Company believes
that its products and those of its competitors, whether or not lipid-based, will
compete on their merits in the markets where they are approved.

PATENTS, TRADE SECRETS AND LICENSES

    Patents and other proprietary rights are important to the Company's
business. NeXstar Pharmaceuticals also relies upon trade secrets, know-how,
continuing technological innovations and licensing opportunities to develop and
maintain its competitive position. NeXstar Pharmaceuticals actively seeks patent
protection both in the U.S. and internationally and has a portfolio of patent
and license rights related to its products and technologies. The patents and
patent applications primarily relate to the Company's liposome products and
liposome technology and various aspects of its SELEX and Evolutional Chemistry
processes.

    Set forth below are the patent expiration dates in the United States and
Europe for the compounds included in the Company's marketed product and products
in clinical development:

<TABLE>
<CAPTION>
COMPOUND        U.S. PATENT EXPIRATION   EUROPEAN PATENT EXPIRATION
--------------  -----------------------  ---------------------------
<S>             <C>                      <C>
AmBisome                    2016*                      2008
DaunoXome                   2009                       2008
MiKasome                    2015*                      2006*
NX211                       2013*                      2012*
NX1838                      2015*                        --*
</TABLE>

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

* Applications pending.

    Expiration dates do not reflect patent term extensions or supplementary
protection certificates not yet applied for or granted. There can be no
assurance that pending patent applications will issue as patents, or that issued
patents will provide significant proprietary protection.

    NeXstar Pharmaceuticals has licensed certain technology from and pays
royalties to the Regents of the University of California in connection with the
production and sale of AmBisome. The royalty rate varies depending on the amount
of revenues from the commercial sale of AmBisome, among other things. Currently,
the royalty rate averages less than 1% of net sales. In addition, NeXstar
Pharmaceuticals makes quarterly and annual payments to The Liposome Company,
Inc. ("TLC") in connection with the settlement of litigation involving the
Company and TLC. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Results of Operations." Pursuant to the
settlement agreement between the two parties, TLC agreed that it would not sue
the Company in connection with the worldwide production and sale of AmBisome.
NeXstar Pharmaceuticals has also licensed technology from and pays royalties to
The City of Hope National Medical Center in connection with the production and
sale of DaunoXome. The royalty rate varies depending on the amount of revenues
from the commercial sale of DaunoXome.

                                       17
<PAGE>
    European and Japanese patents have a defined term following grant during
which opposition to the grant can be filed. Both NeXstar Pharmaceuticals and
certain of its competitors have filed such oppositions against each other with
respect to certain patents in Europe and Japan. NeXstar Pharmaceuticals has also
opposed the grant of European and Japanese patents of TLC relating to certain
active drug loading techniques that the owner of this patent or application
could claim are used in the manufacture of products such as DaunoXome.

    Although patents are enforceable from the date of issuance and presumed to
be valid, future litigation or reexamination proceedings regarding the
enforcement or validity of the Company's existing patents or future patents, if
issued, could result in a ruling adverse to the Company that could invalidate
such patents or substantially reduce the scope of the protection afforded by
such patents. As to any issued patent or patent application, it is also possible
that the U.S. Patent and Trademark Office ("USPTO") could declare an
interference proceeding to determine, INTER ALIA, priority of inventorship
between applications claiming the same invention. An adverse ruling in any such
interference proceeding could result in cancellation of claims in issued patents
or patent applications, limitations on the scope of issued patents or claims in
patent applications or in the awarding of the rights to third parties
participating in such interference. If the Company elects to, or is required to
participate in, interference proceedings declared by the USPTO, substantial cost
to the Company could result.

    The Company also relies on trade secrets, proprietary know-how and
continuing technological innovation which it seeks to protect with
confidentiality agreements with its collaborators, employees and consultants.
There can be 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 and proprietary know-how will not otherwise become known or be
independently discovered by competitors. Under certain of the Company's research
and development agreements, inventions discovered in certain cases become
jointly owned by the Company and the corporate partner or research institution
and in other cases become the exclusive property of the Company or the corporate
partner or research institution. Disputes may arise with respect to ownership of
any such inventions.

GOVERNMENT REGULATION

    The production and marketing of the Company's products, developed through
the Company's technologies, and its ongoing research and development activities,
including its preclinical studies and clinical trials, are subject to regulation
by numerous federal, state and local governmental authorities in the United
States and by similar regulatory agencies in other countries where the Company
tests and markets, or intends to test and/or market, its current or potential
products. There can be no assurance that the Company will obtain further
regulatory approvals to conduct clinical trials or to market its products, or
that the Company will obtain regulatory approvals to conduct clinical trials or
to market products developed in the future, if any, on a timely basis. Prior to
marketing any drug developed by the Company or marketed under license, the
Company must undergo an extensive regulatory approval process by the FDA and
comparable regulatory authorities in foreign countries. The regulatory process,
which includes preclinical testing and clinical trials of each compound to
establish its safety and efficacy, can take many years and require the
expenditure of substantial resources.

    Before obtaining regulatory approvals for the commercial sale of any of its
products under development, the Company must demonstrate through preclinical
studies and clinical trials that the product is safe and efficacious for use in
each target indication. The results from preclinical animal studies and early
clinical trials may not be predictive of results that will be obtained in large
scale testing, and there can be no assurance that the Company's clinical trials
will demonstrate the safety and efficacy of any products or will result in
marketable products. A number of companies in the biotechnology industry have
suffered significant setbacks in advanced clinical trials, even after
experiencing promising results in early animal and human testing. In addition,
the rate of completion of the Company's clinical trials is dependent upon, among
other factors, the rate of patient enrollment. Patient enrollment is a function
of many factors,

                                       18
<PAGE>
including the size of the patient population, the nature of the protocol, the
Company's ability to manage the clinical trial, the proximity of patients to
clinical sites and the eligibility criteria for the study. Several factors, such
as delays in planned patient enrollment, may result in increased costs and
delays or termination of clinical trials prior to completion, which could have a
material adverse effect on the Company. Preclinical studies must also be
conducted in conformity with the FDA's good laboratory practice regulations.
Clinical trials generally must meet requirements for institutional review board
oversight and informed consent, as well as regulatory agency prior review,
oversight and good clinical practice requirements.

    The procedure for obtaining regulatory approval for a new human
pharmaceutical product involves many steps. Initially, NeXstar Pharmaceuticals
conducts animal studies to secure data relevant to potential safety and
efficacy. Based on the data from these animal studies, NeXstar Pharmaceuticals
files applications to conduct clinical trials of the products in humans. Such
applications, known as Investigational New Drug applications in the United
States, must be made in each country in which NeXstar Pharmaceuticals proposes
to conduct clinical trials. Once such applications have been approved, NeXstar
Pharmaceuticals can commence clinical trials.

    Clinical trials are generally conducted in three phases. Phase I trials are
designed to test basic human safety. Phase II trials test dosage and involve a
detailed evaluation of human efficacy and safety. Phase III trials involve
large-scale evaluation of general efficacy and safety and a comparison with
existing alternative therapies for the treatment of a specific indication. To
the extent possible, NeXstar Pharmaceuticals designs such clinical trials to
meet the standards of both foreign and U.S. regulatory authorities, but there
can be no assurance that the authorities in any country will be satisfied with
the conduct of any particular clinical trial. Data obtained from preclinical and
clinical activities are susceptible to varying interpretations which could
delay, limit or prevent regulatory approval. In addition, delays or rejections
may be encountered based upon changes in the policies of regulatory authorities
for drug approval during the period of product development and regulatory review
of each submitted new drug application or product license application. The
Company may be required to demonstrate that the proposed product represents an
improved form of treatment over existing therapies. There can be no assurance
that, even after such time and expenditures, regulatory approvals will be
obtained for any drugs developed or discovered by the Company or its
collaborative partners utilizing the Company's technologies.

    If the results of its clinical trials indicate it is appropriate, NeXstar
Pharmaceuticals may file for regulatory approvals of the product. Such filings
are known as New Drug Applications in the United States and as Product License
Applications in Europe. Prior to making any filing, the Company determines
whether it has sufficient data for such filing and whether the Company is likely
to generate sufficient revenues in order to justify the time and expense of such
filing.

    When a regulatory authority approves the sale of a drug, regulations also
govern the manufacturing process and marketing activities, including the types
of information that the Company may provide to health care providers, and may
require post-marketing testing and surveillance programs to monitor the effects
of the Company's products. Moreover, if regulatory approval of a drug is
granted, such approval is likely to entail limitations on the indicated uses for
which it may be marketed. Further, even if such regulatory approval is obtained,
a marketed drug and its manufacturer are subject to continual review, and
discovery of previously unknown problems with a product or manufacturer may
result in restrictions on such product or manufacturer, including withdrawal of
the product from the market. During the first quarter of 1997, the Company
received and responded to an FDA warning concerning certain promotional
materials supplied by the Company in connection with the sale of DaunoXome in
the U.S. While the Company does not believe that the actions which it has taken
in connection with the warning letter will adversely affect the operations of
the Company, no assurance can be given.

    Regulatory approval of prices is generally required in most foreign
countries. In particular, certain countries will condition their approval of a
product on the agreement of the seller not to sell that product for more than a
certain price in that country and in the past have required price reductions
after or in

                                       19
<PAGE>
connection with product approval. There can be no assurance that regulatory
authorities in the future will not establish lower prices or that any regulatory
action reducing the price of AmBisome or DaunoXome in any one country will not
have the practical effect of requiring the Company correspondingly to reduce its
prices in other countries. There can be no assurance that the resulting prices
would be sufficient to generate an acceptable return on the Company's investment
in its products.

    NeXstar Pharmaceuticals is aggressively pursuing worldwide commercialization
of its products. In some countries, regulatory procedures allow for product
sales under certain circumstances before final regulatory approvals are
obtained. The Company has submitted and will continue to submit requests for
approval of AmBisome and DaunoXome with regulatory authorities worldwide.
Regulatory procedures and review times vary from country to country. There can
be no assurance that any of the Company's pending applications for approvals
will be granted or that regulatory actions will be taken in a timely fashion.

    The Company has received an approved shelf life for DaunoXome of 52 weeks in
the United States and 40 weeks in Canada and most European countries. While the
Company is attempting to obtain longer shelf lives than those currently approved
in Canada and Europe, there can be no assurance that the extension of any
approved shelf lives will be approved by any regulatory authority. The Company
in the past has replaced, and in the future expects, under certain
circumstances, to replace, vials of DaunoXome with expired shelf lives and the
likelihood that customers would seek to return material amounts of DaunoXome to
the Company because of the expiration of its shelf life may be increased if
shelf lives longer than those currently approved are not obtained.

    In addition, the Company's manufacturing facilities are subject to
inspection and regulation by U.S., foreign and state regulatory agencies. The
Company's facilities in San Dimas, California have been inspected by the FDA,
the MCA and the State of California. These agencies may reinspect at any time,
and other countries' regulatory authorities may inspect the Company's facilities
as well. Furthermore, although the Company's current pharmaceutical products do
not require export licenses, there can be no assurance that export licenses will
not be required in the future. See "--Manufacturing."

    Failure to comply with applicable regulatory requirements can, among other
things, result in fines, suspension of regulatory approvals, product recalls,
seizure of products, imposition of operating restrictions and criminal
prosecutions. Further, FDA policy or similar policies of regulatory agencies in
other countries may change and additional government regulations may be
established that could prevent or delay regulatory approval of potential
products.

    The Company's research and development involves the controlled use of
hazardous materials, chemicals, viruses and various radioactive compounds.
Although the Company believes that its safety procedures for handling and
disposing of such materials comply with the standards prescribed by state and
federal regulations, the risk of accidental contamination or injury from these
materials cannot be completely eliminated. In the event of such an accident, the
Company could be held liable for any damages that result and any such liability
could exceed the resources of the Company or otherwise adversely affect the
Company. NeXstar Pharmaceuticals is subject to numerous environmental and safety
laws and regulations, including those governing the use of hazardous materials.
In June 1995, the Company was contacted by the U.S. Environmental Protection
Agency (the "EPA") informing the Company that it is a potentially responsible
party relating to the disposal of the Company's waste products by a third party
at a hazardous waste disposal facility. The Company has complied with all
requests by the EPA relating to this matter and believes that its liability with
respect to this matter will be minimal; however, there can be no assurance that
this matter or any violation of, or the cost of compliance with, environmental
and safety laws and regulations will not adversely impact the Company's
operations.

EMPLOYEES

    As of February 28, 1999, NeXstar Pharmaceuticals and its subsidiaries
employed 488 persons on a full-time basis, of whom 292 were engaged in research,
development, clinical research, medical and regulatory

                                       20
<PAGE>
affairs, quality control and manufacturing and 196 were engaged in marketing,
finance and administration. There can be no assurance that NeXstar
Pharmaceuticals will be able to continue to attract and retain qualified
personnel in sufficient numbers to meet its needs. NeXstar Pharmaceuticals
believes that it maintains good relations with its employees.

AGREEMENT AND PLAN OF MERGER WITH GILEAD SCIENCES, INC.

    On February 28, 1999, The Company entered into (i) an Agreement and Plan of
Merger (the "Merger Agreement") by and among Gilead, Gazelle Acquisition Sub,
Inc. ("Sub") and the Company, pursuant to which Sub will be merged into the
Company and the Company will survive as a wholly owned subsidiary of Gilead (the
"Merger") and (ii) a Stock Option Agreement (the "Option Agreement"), by and
between Gilead and the Company.

    Pursuant to the terms of the Merger Agreement, each issued and outstanding
share of Company stock, par value $.01 per share ("Company Common Stock"), will
be converted into the right to receive that number of shares of Gilead common
stock, par value $.001 per share ("Gilead Shares") equal to the "Exchange
Ratio". The "Exchange Ratio" equals 0.425, provided, however, that if the Gilead
Share Value (defined as the average of the closing prices of the Gilead Shares
as reported on the Nasdaq National Market for the 20 consecutive trading days
ending on the third trading day preceding the date on which the stockholders of
the Company vote on the Merger at the special meeting of the Company's
stockholders called to approve and adopt the Merger Agreement and the Merger) is
(i) less than $36.47, then the Exchange Ratio shall be equal to the lesser of
0.50 or a fraction having a numerator equal to $15.50 and having a denominator
equal to the Gilead Share Value, or (ii) greater than $45.88, then the Exchange
Ratio shall be equal to the greater of 0.3786 or a fraction having a numerator
equal to $19.50 and having a denominator equal to the Gilead Share Value. Cash
will be paid in lieu of fractional shares.

    The Merger is subject to several conditions, including that it be approved
by the stockholders of both the Company and Gilead. The Merger will be accounted
for as a "pooling of interests" and the exchange of shares will be tax free to
the holders of Company Common Stock.

    In connection with the execution of the Merger Agreement, (a) the Company
granted to Gilead an option to purchase up to 19.9% of Company Common Stock
under certain circumstances, and (b) each Director of the Company, Warburg,
Pincus Investors, L.P. and Warburg, Pincus Capital Partners Liquidating Trust,
each in his, or her or its capacity as a stockholder of the Company, agreed to
vote his, her or its respective shares of Company Common Stock in favor of the
approval and adoption of the Merger Agreement and the Merger. If, however, the
Gilead Share Value drops below $27.00, the obligation to vote such shares in
favor of the Merger becomes terminable.

ITEM 2. PROPERTIES

    The Company's corporate headquarters, including its principal executive
offices, are located in Boulder, Colorado. The Company subleases a facility of
approximately 32,000 square feet of office space (the "Subleased Office Space"),
which is being used as administrative offices and leases approximately 60,000
square feet of space (the "Research Facilities"), which is being used as
research laboratories and administrative offices. The sublease for the Subleased
Office Space expires in July 2003. The lease for the Research Facilities expires
in October 2001, but can be renewed at the option of the Company for two
successive five-year periods.

    NeXstar Pharmaceuticals also occupies a facility in San Dimas, California
(the "650 Facility") under a noncancelable operating lease which expires in May
2003 and has two five-year renewal options. The 650 Facility provides 51,500
square feet of space and houses research and development activities,
manufacturing and certain administrative functions. The 650 Facility has been
inspected by the State of California for compliance with "current Good
Manufacturing Practices" and is licensed by the State of California for
pharmaceutical manufacturing. The license is renewable annually. The 650
Facility has been registered for the commercial production of AmBisome and
DaunoXome by the MCA and the FDA.

                                       21
<PAGE>
    The Company also leases a manufacturing facility adjacent to the 650
Facility in San Dimas, California (the "502 Facility"). The lease for the 502
Facility expires in November 2003 and has two five-year renewal options. The 502
Facility provides in excess of 70,000 square feet of space, including
approximately 45,000 square feet of manufacturing space, and is the Company's
primary injectable pharmaceutical production plant. The MCA has approved the
manufacture of AmBisome and DaunoXome at the 502 Facility. The FDA has approved
a New Drug Application for the manufacture of AmBisome at the 502 Facility for
U.S. distribution, and the Company intends to seek FDA approval of a new drug
application listing for the manufacture of DaunoXome at the 502 facility.

    In addition, the Company owns a 9,700 square foot facility located in
Dublin, Ireland, in which the quality control testing, final labeling and
packaging are currently being conducted for AmBisome and DaunoXome for the
European Union and elsewhere.

ITEM 3. LEGAL PROCEEDINGS

    Both the Company and certain of its competitors have filed oppositions
against each other as to patents granted by the European Patent Office and
patents granted by the Japanese Patent Office. The Liposome Company, Inc.
("TLC") has patents or patent applications relating to active drug loading
techniques that the owners could claim are used in the manufacture of products
such as DaunoXome. The Company has opposed the grant of a European and a
Japanese patent owned by TLC relating to such loading technology.

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

    There were no matters submitted to a vote by the Company's security holders
during the fourth quarter of the Company's fiscal year ended December 31, 1998.

                                       22
<PAGE>
                                    PART II

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

    The Company's common stock is traded on the Nasdaq National Market (Symbol:
NXTR). The following table sets forth, for the periods indicated, the high and
low closing sales prices per share of the Company's common stock as reported on
the Nasdaq National Market.

<TABLE>
<CAPTION>
                                           HIGH          LOW
                                         --------     ---------
<S>                                      <C>          <C>
1997:
  First Quarter......................... $17 3/4      $10
  Second Quarter........................  15 1/4        9 3/8
  Third Quarter.........................  18 1/2       12 1/2
  Fourth Quarter........................  18 1/2       10 5/16
1998:
  First Quarter......................... $12 3/8      $10
  Second Quarter........................  12 3/8        9 1/2
  Third Quarter.........................  11 3/16       6 1/2
  Fourth Quarter........................  11 3/8        7 11/16
</TABLE>

    According to the records of the Company's transfer agent, the Company had
approximately 463 stockholders of record as of March 17, 1999. Because many of
such shares are held by brokers and other institutions on behalf of
stockholders, the Company is unable to estimate the total number of beneficial
owners represented by these record holders.

DIVIDEND POLICY

    The Company has not declared or paid any cash dividends on its common stock
since its inception. The Company does not anticipate paying any cash dividends
on its common stock in the next several years. Certain of the Company's bank and
building improvement and equipment lease facilities require the Company to
maintain financial ratios and levels of cash and/or stockholders' equity which
may have the effect of limiting the Company's ability to pay dividends.

SALES OF UNREGISTERED SECURITIES

    All of the Company's sales of unregistered securities during 1998 have
previously been reported in the Company's Quarterly Reports on Form 10-Q.

ITEM 6. SELECTED FINANCIAL DATA

    The following selected consolidated financial data are derived from the
Consolidated Financial Statements of NeXstar Pharmaceuticals, which have been
audited by Ernst & Young LLP, independent auditors for NeXstar Pharmaceuticals.
The selected financial data for 1998 includes data for Proligo L.L.C. (a company
formed August 15, 1998 in which NeXstar Pharmaceuticals owns a 49% equity
interest), which have been audited by PricewaterhouseCoopers LLP, independent
accountants for Proligo L.L.C. The selected consolidated financial data give
retroactive effect to the merger of NeXagen, Inc. and Vestar, Inc. on February
21, 1995, which has been accounted for as a pooling-of-interests. The selected
consolidated financial data also include the acquisition of Supragen, Inc., a
research-oriented biotechnology company, on September 8, 1995, which has been
accounted for using the purchase method of accounting. Certain
reclassifications, including adjustments to conform accounting practices, have
been made to prior year amounts to agree with the current year presentation. The
data should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Consolidated Financial
Statements of the Company and related notes thereto appearing elsewhere in this
Report.

                                       23
<PAGE>

<TABLE>
<CAPTION>
                                                                     YEARS ENDED DECEMBER 31,
                                                  ---------------------------------------------------------------
                                                     1998         1997         1996         1995         1994
                                                  -----------  -----------  -----------  -----------  -----------
                                                             (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                               <C>          <C>          <C>          <C>          <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
  Product revenues..............................  $   108,102  $    89,152  $    80,153  $    57,770  $    43,967
  License fees..................................        3,000           10        7,000           --           --
  Royalties.....................................        5,007          671           --           --           --
  Collaborative agreements and contracts........        2,440        2,388        1,548        2,920        4,054
                                                  -----------  -----------  -----------  -----------  -----------
Total revenues..................................      118,549       92,221       88,701       60,690       48,021
Expenses:
  Cost of goods sold............................       21,331       19,787       18,320       13,246        8,091
  Research and development......................       52,475       53,015       47,760       37,356       31,595
  Selling, general and administrative...........       49,460       45,033       42,933       35,300       22,108
  Litigation settlement and related expenses....        1,267       16,031        2,006           --           --
  Purchased research and development............           --           --           --       11,824           --
  Retirement agreement expense..................           --           --           --           --        4,097
                                                  -----------  -----------  -----------  -----------  -----------
Total expenses..................................      124,533      133,866      111,019       97,726       65,891
                                                  -----------  -----------  -----------  -----------  -----------
Operating loss..................................       (5,984)     (41,645)     (22,318)     (37,036)     (17,870)
Gain on sale of a majority interest in a
  subsidiary....................................       22,132           --           --           --           --
Interest income.................................        3,323        2,446        1,821        1,736        2,409
Interest expense................................       (6,591)      (4,389)      (1,558)      (1,148)        (587)
                                                  -----------  -----------  -----------  -----------  -----------
Income (loss) before provision for income tax
  and equity in loss of unconsolidated
  affiliate.....................................       12,880      (43,588)     (22,055)     (36,448)     (16,048)
Provision for income tax........................          859          322          926          183          159
Equity in loss of unconsolidated affiliate......       (1,101)          --           --           --           --
                                                  -----------  -----------  -----------  -----------  -----------
Net income (loss)...............................  $    10,920  $   (43,910) $   (22,981) $   (36,631) $   (16,207)
                                                  -----------  -----------  -----------  -----------  -----------
                                                  -----------  -----------  -----------  -----------  -----------
Net income (loss) per share:
Basic...........................................  $      0.39  $     (1.65) $     (0.88) $     (1.57) $     (0.71)
                                                  -----------  -----------  -----------  -----------  -----------
                                                  -----------  -----------  -----------  -----------  -----------
Diluted.........................................  $      0.38  $     (1.65) $     (0.88) $     (1.57) $     (0.71)
                                                  -----------  -----------  -----------  -----------  -----------
                                                  -----------  -----------  -----------  -----------  -----------
Shares used in computing net income (loss) per
  share:
Basic...........................................       28,135       26,692       26,029       23,374       22,825
                                                  -----------  -----------  -----------  -----------  -----------
                                                  -----------  -----------  -----------  -----------  -----------
Diluted.........................................       28,403       26,692       26,029       23,374       22,825
                                                  -----------  -----------  -----------  -----------  -----------
                                                  -----------  -----------  -----------  -----------  -----------
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents and marketable
  securities....................................  $    68,749  $    64,289  $    41,965  $    26,734  $    40,284
Working capital.................................      102,995       89,943       48,199       35,029       44,099
Total assets....................................      190,130      170,543      144,500      112,449      126,927
Accrued litigation settlement expenses due after
  one year......................................        7,848        8,767           --           --           --
Long-term obligations...........................        8,320        8,327       15,206        9,848       10,500
Convertible subordinated debentures.............       80,000       80,000           --           --           --
Accumulated deficit.............................     (158,966)    (169,886)    (125,976)    (102,995)     (66,364)
Total stockholders' equity......................       68,378       46,002       87,622       81,164       97,374
</TABLE>

                                       24
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

OVERVIEW

    THIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 (SEE "SPECIAL NOTE REGARDING
FORWARD-LOOKING STATEMENTS" ON PAGE 3). THESE FORWARD-LOOKING STATEMENTS
REPRESENT THE EXPECTATIONS OF THE COMPANY'S MANAGEMENT AS OF THE FILING DATE OF
THIS FORM 10-K. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
ANTICIPATED BY THE FORWARD-LOOKING STATEMENTS DUE TO RISKS AND UNCERTAINTIES,
INCLUDING THOSE DESCRIBED UNDER "RISK FACTORS" IN PART II OF THIS REPORT AND
ELSEWHERE IN THIS FORM 10-K. THE COMPANY'S STOCKHOLDERS AND POTENTIAL INVESTORS
SHOULD CONSIDER CAREFULLY THESE RISKS AND UNCERTAINTIES IN EVALUATING NEXSTAR
PHARMACEUTICALS' FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

    NeXstar Pharmaceuticals is an integrated biopharmaceutical company engaged
in the discovery, development, manufacture and marketing of proprietary
pharmaceutical products to treat life-threatening and other serious oncological,
hematological and infectious diseases.

    The Company markets AmBisome, a liposomal formulation of amphotericin B, for
the treatment of life-threatening fungal infections, and DaunoXome, a liposomal
formulation of the anticancer agent daunorubicin, which is used as a first line
therapy for the treatment of HIV-associated Kaposi's sarcoma ("KS"). The Company
currently relies on sales of AmBisome in Europe for a substantial majority of
its product revenues and expects sales of AmBisome in Europe to account for a
majority of its revenues in 1999. In the second quarter of 1998, AmBisome
received French approval and is now approved in every European Union country. In
the third quarter of 1997, the United States Food and Drug Administration
("FDA") approved AmBisome for use in the United States as a primary therapy for
patients with a low white blood cell count (febrile neutropenia) who have a
presumed fungal infection, also known as fever of unknown origin or FUO, or with
visceral leishmaniasis and as a secondary treatment for fungal infections that
do not respond to amphotericin B treatment. AmBisome has been approved for sale
by the regulatory authorities in 38 countries for the treatment of
life-threatening fungal infections, including 16 countries in which it has been
approved as a primary therapy for some form of fungal infection. DaunoXome has
been approved for sale as a primary therapy for KS in 24 countries, including
the United States, Canada and all significant Western European markets.

    The Company continues to conduct clinical trials with AmBisome in a variety
of settings with the goal of expanding its uses. The Company is conducting
clinical trials with DaunoXome in an attempt to find additional indications and
is planning clinical trials of DaunoXome in patients with acute myeloblastic
leukemia and chronic lymphocytic leukemia. In addition, the Company is
conducting Phase II clinical trials with a third product, the antibiotic
MiKasome, a liposomal formulation of amikacin (a potent aminoglycoside
antibiotic) in patients with complicated urinary tract infections, cystic
fibrosis, nosocomial pneumonia and tuberculosis. The Company recently commenced
Phase I clinical trials for NX 211, its liposomal formulation of a topoisomerase
I inhibitor, lurtotecan, a camptothecin derivative and potent anti-cancer
compound.

    The Company has discovered several aptamers using the SELEX process, a
combinatorial chemistry technology, which are currently in the research and
early clinical/preclinical development stages. In 1998, the Company received FDA
approval of its Investigational New Drug ("IND") application, and has begun
clinical trials for NX1838, its aptamer which binds to vascular endothelial
growth factor ("VEGF"). VEGF is a growth factor which is believed to contribute
to age-related macular degeneration, the leading cause of adult-onset blindness,
by inducing the formation of blood vessels associated with the disease state.

    The timing of the clinical trials for MiKasome, NX211, and NX1838 may be
affected by many factors including, among others, unanticipated delays;
unexpected preclinical or clinical trial results, as applicable;

                                       25
<PAGE>
and difficulties in enrolling patients. There can be no assurance that the
Company will be able to meet the time schedule which it has established for any
of its products.

    NeXstar Pharmaceuticals was formed in 1991 as NeXagen, Inc. On February 21,
1995, the Company was merged with Vestar, Inc., a Delaware corporation founded
in 1981, and changed its name to NeXstar Pharmaceuticals, Inc. The merger was
accounted for as a "pooling-of-interests".

AGREEMENT AND PLAN OF MERGER WITH GILEAD SCIENCES, INC.

    On February 28, 1999, the Company entered into an Agreement and Plan of
Merger (the "Merger Agreement") pursuant to which the Company will be acquired
through merger (the "Merger") by Gilead Sciences, Inc., a Delaware corporation
("Gilead").

    Pursuant to the terms of the Merger Agreement, each issued and outstanding
share of Company common stock, par value $0.01 per share ("Company Common
Stock"), will be converted into the right to receive that number of shares of
Gilead common stock, par value $0.001 per share ("Gilead Shares") equal to the
"Exchange Ratio". The "Exchange Ratio" equals 0.425, provided, however, that if
the Gilead Share Value (defined as the average of the closing prices of the
Gilead Shares as reported on the Nasdaq National Market for the 20 consecutive
trading days ending on the third trading day preceding the date on which the
stockholders of the Company vote on the Merger at the special meeting of the
Company's stockholders called to approve and adopt the Merger Agreement and the
Merger) is (i) less than $36.47, then the Exchange Ratio shall be equal to the
lesser of 0.50 or a fraction having a numerator equal to $15.50 and having a
denominator equal to the Gilead Share Value, or (ii) greater than $45.88, then
the Exchange Ratio shall be equal to the greater of 0.3786 or a fraction having
a numerator equal to $19.50 and having a denominator equal to the Gilead Share
Value. Cash will be paid in lieu of fractional shares.

    The Merger is subject to several conditions, including that it be approved
by the stockholders of both the Company and Gilead. The Merger will be accounted
for as a "pooling of interests" and the exchange of shares will be tax free to
the holders of Company Common Stock. The Merger is expected to be completed by
early summer. The Company anticipates it will incur approximately $6 million in
expenses in 1999 associated with the Merger.

    In October 1998, the Company announced a potential spin-off of its drug
discovery business, which if completed would have created a new company to be
known as Iterex Technologies, Inc. ("Iterex"). Pending the completion of the
Merger, this spin-off will not occur and the Company's drug discovery business
will remain part of the Company. In 1998, the Company incurred $664,000 of
spin-off related expenses. In the first quarter of 1999, the Company expects to
record additional expenses of approximately $400,000 related to the previously
planned Iterex spin-off.

INTERNATIONAL OPERATIONS, CURRENCY FLUCTUATIONS

    In connection with a majority of its European sales, the Company prices its
products in the currencies of the countries into which they are sold (the
"Payment Currencies"), and revenues in the past have been, and in the future
could be, adversely affected by currency fluctuations. A significant majority of
the Company's manufacturing costs are in U.S. Dollars. Therefore, any decline in
the value of the Payment Currencies relative to the U.S. Dollar is likely to
negatively impact gross margins for the Company's products because the Company's
manufacturing costs would remain approximately the same while its revenue in
terms of U.S. Dollars would decline. Sales in Germany, the U.K., Italy and Spain
together accounted for 56% of the Company's product sales for the year ended
December 31, 1998. The Company prices its products in each of these four
countries in the local currency.

    NeXstar Pharmaceuticals hedges certain of its foreign currency exposures
with respect to its outstanding trade accounts receivable and accounts payable
through the use of forward contracts. NeXstar Pharmaceuticals does not currently
enter into speculative foreign currency transactions and does not write

                                       26
<PAGE>
speculative options. In the future, the Company may begin currency hedging in
connection with anticipated revenues and expenses and may use options in
addition to forward contracts. Such hedging will be done solely for the purpose
of protecting the Company from foreign currency fluctuations. The Company
recognizes a gain or loss for each forward contract equal to the difference
between the contract rate and the market rate on each balance sheet date which
is recorded as a selling, general and administrative expense. At present, no
deferred accounting is used in connection with the Company's hedging activities.
Notwithstanding its hedging activities (which have not always included fully
hedging against potential gains or losses), the Company has in the past
recognized foreign exchange gains and losses. There can be no assurance that
significant gains or losses will not be incurred in the future.

RESULTS OF OPERATIONS

YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996

    PRODUCT REVENUES.  Product revenues increased 21% to $108.1 million, 11% to
$89.2 million and 39% to $80.2 million in 1998, 1997 and 1996, respectively,
primarily due to increased unit sales of AmBisome in European markets. As a
result of the U.S. approval of AmBisome in the third quarter of 1997, the
Company anticipates that an increasing percentage of its sales during future
periods will occur outside of Europe. Sales of DaunoXome, which was initially
approved in the U.S. during the second quarter of 1996, totaled $4.7 million,
$5.2 million and $3.9 million during 1998, 1997 and 1996, respectively.

    LICENSE FEES.  In the first quarter of 1998, the Company recorded a $3
million milestone payment (less withholding taxes of $300,000) in connection
with a licensing agreement with Sumitomo Pharmaceuticals Co., Ltd. ("Sumitomo")
pursuant to which Sumitomo is developing and intends to market AmBisome in
Japan. In 1996, the Company recorded an initial $7 million licensing fee (less
withholding taxes of $700,000) in connection with the Sumitomo license
agreement.

    ROYALTIES.  During 1998 and 1997, the Company received royalties of $5
million and $671,000, respectively, primarily in connection with the sale of
AmBisome in the U.S. following the third-quarter 1997 approval by the FDA. This
amount will increase if the amount of sales of AmBisome in the U.S. increases.

    COLLABORATIVE AGREEMENTS AND CONTRACTS.  Collaborative agreement and
contract revenues were $2.4 million, $2.4 million and $1.5 million for 1998,
1997 and 1996, respectively. The increases for 1998 and 1997 were due to an
agreement by Schering A.G., in February 1997, to increase its annual funding to
the Company to $2.4 million from $1 million in connection with a collaborative
research agreement (the "Schering Research Agreement") first entered into in
1993. The decline in 1996 related to the expiration or termination of
collaborations between the Company and certain corporate partners. Collaborative
agreement and contract revenue fluctuations are generally the result of changes
in the number of funded research projects as well as the timing and performance
of contract benchmarks. In March 1999, Schering A.G. agreed to fund $250,000
under the Schering Research Agreement for the first half of 1999, with an option
to continue funding an additional $250,000 in 1999 and $500,000 annually
thereafter.

    COST OF GOODS SOLD.  Cost of goods sold was $21.3 million, or 20% of product
revenues, $19.8 million, or 22% of product revenues, and $18.3 million, or 23%
of product revenues, in 1998, 1997 and 1996, respectively. The increases in cost
of goods sold for 1998 and 1997 were primarily due to increased sales of the
Company's products. The decreases in cost of goods sold as a percentage of
product revenues for 1998 and 1997 were primarily due to reductions in the
average manufacturing cost of products sold by the Company. The decreases in
cost of goods sold as a percentage of product revenues were partially offset
because of increased sales of AmBisome to Fujisawa at cost. Pursuant to an
agreement between the two firms, the Company and Fujisawa co-promote AmBisome in
the United States and the Company sells AmBisome to Fujisawa at cost for sale in
the United States. In addition, the Company receives 20% of the Fujisawa gross
profits from all U.S. sales which the Company records as royalty income. If the
Company's

                                       27
<PAGE>
unit sales of AmBisome to Fujisawa increase as a percentage of total AmBisome
sales, the cost of goods sold as a percentage of revenues is expected to
increase. Cost of goods sold consists primarily of raw materials, allocation of
overhead, labor and equipment costs and charges associated with services
provided by outside vendors.

    RESEARCH AND DEVELOPMENT EXPENSES.  Research and development expenses
decreased 1% to $52.5 million in 1998 and increased 11% to $53 million and 28%
to $47.8 million for 1997 and 1996, respectively. The decrease in 1998 as
compared to 1997 is primarily related to certain charges in 1997 including: (i)
a charge of $1.1 million for validation expenses related to product scale-up;
(ii) an expense of $1.3 million related to the write off of capitalized
purchased technology, which the Company had been amortizing over a four-year
period, but which the Company has decided not to pursue; and (iii) $622,000 in
reorganization expenses related to research and development consolidation
activities, including certain staff reductions. These decreases were partially
offset by increased 1998 expenses associated with expanded clinical trial
activity for the Company's products and additional preclinical spending on drug
candidates. In addition, in October 1998, the Company reduced its research and
development workforce by 47 employees and recorded an expense of $1.6 million
related to severance packages for the discharged employees. The increase in 1997
expenses as compared to 1996 are due to expanded clinical trial activity for the
Company's products and additional preclinical spending on aptamer drug
candidates developed using the SELEX process. In 1996, the Company had a charge
to research and development of $1.2 million in connection with a write down of
an investment that the Company held in a biotechnology company, an expense of $1
million in connection with the Company's decentralization of its
medical/regulatory operations in Europe and an expense of $1.2 million in
connection with the acquisition of additional laboratory facilities. In 1998,
$2.6 million of research expenses was sponsored by third parties, as compared to
$2.4 million and $1.2 million in 1997 and 1996, respectively. Research and
development expenses consist primarily of salaries and benefits for scientific,
medical, regulatory, quality control and pilot manufacturing personnel and
consultants; supplies; occupancy costs; and depreciation of laboratory equipment
and facilities. As a result of the October 1998 workforce reduction, the Company
expects to realize savings in research and development expenses of approximately
$2.5 million per year.

    SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.  Selling, general and
administrative expenses increased 10% to $49.5 million, 5% to $45 million and
22% to $42.9 million, or 46%, 50% and 53% of product revenues, in 1998, 1997 and
1996, respectively. The increase for 1998 is primarily related to (i) increased
sales and marketing expenses in Europe in connection with increased AmBisome
sales, in particular, expenses associated with the launch of AmBisome in France;
(ii) an expense of approximately $760,000 pursuant to a separation agreement
between the Company and Patrick J. Mahaffy upon his resignation as President,
Chief Executive Officer and Director of the Company in August 1998; and (iii) an
expense of $580,000 related to severance packages for 28 selling, general and
administrative employees discharged due to the October 1998 workforce reduction.
The increase for 1997 primarily related to (a) increased expenses in connection
with the continued expansion of the Company's marketing operations and (b) a
charge of $309,000 related to a warrant issued in connection with a $15 million
revolving line of credit entered into by the Company. The increase for 1996 was
primarily due to (x) the expansion of the Company's marketing efforts, in
particular, in connection with the launch of DaunoXome in the United States and
the continued expansion of the Company's international operations; (y) an
expense of $741,000 in connection with the termination of distribution
agreements in Australia and France; and (z) an increase of $520,000 in the
Company's allowance for doubtful accounts due to an increase in accounts
receivable resulting primarily from increased sales of the Company's products.
In addition, the Company recognized foreign exchange losses of approximately
$269,000, $287,000, and $362,000 in 1998, 1997 and 1996, respectively. As a
result of the October 1998 workforce reduction, the Company expects to realize
savings in selling, general and administrative expenses of approximately
$700,000 per year.

    LITIGATION SETTLEMENT AND RELATED EXPENSES.  The Company reported litigation
settlement and related expenses of $1.3 million, $16 million and $2 million for
1998, 1997 and 1996, respectively. The amount for

                                       28
<PAGE>
1997 was primarily related to the August 1997 settlement between the Company and
The Liposome Company, Inc. ("TLC") in which the two companies agreed to dismiss
all legal proceedings in connection with two U.S. patents and their
international counterparts held by TLC (the "Patent Litigation"). Under the
terms of the settlement agreement, the Company made an initial payment to TLC of
$1.75 million and is required to make payments which began in 1998 based on
AmBisome sales over the next several years. Because the payments are subject to
certain minimum and maximum amounts, the Company recorded accounting charges in
1997 of $11.8 million, of which $10 million represented the net present value of
all future minimum payments it is required to make and $1.75 million represented
the initial cash payment. Beginning in 1998, the Company is recording an expense
each quarter related to the difference between all future minimum payments and
the expense recorded in 1997 and is expensing the difference between the minimum
and maximum payments, if any. In 1998, these combined expenses totaled $1.3
million. The Company does not expect the difference between its future minimum
and maximum payments to TLC to be material. During 1997 and 1996, the Company
had $4.2 million and $2 million in additional expenses related to the Patent
Litigation, respectively.

    GAIN ON SALE OF SUBSIDIARY.  In 1998, the Company recorded a $22.1 million
gain on the sale of its 51% interest (the "Interest") in its newly established
subsidiary, Proligo L.L.C., a Delaware limited liability company ("Proligo"), to
SKW Americas, Inc. ("SKW"). Proligo was formed in July 1998 and initially
consisted of the assets of the Company's NeXstar Technology Products division, a
manufacturer of oligonucleotides and specialty chemicals for the pharmaceuticals
industry. As payment for the Interest, the Company received $15 million and a
49% interest in PerSeptive Biosystems GmbH, a company in Hamburg, Germany (the
"Hamburg Company"), which specializes in the manufacture of nucleoside
phosphoramidite monomers. The 49% interest of the Hamburg Company had a fair
market value of approximately $5.5 million. In addition, SKW will pay the
Company $3 million in guaranteed payments and up to $20.5 million in
performance-based milestones over the next five years. As part of the
transaction, the Company contributed $4.9 million and its 49% interest in the
Hamburg Company to Proligo. SKW contributed $5.1 million and the remaining 51%
interest in the Hamburg Company to Proligo.

    INTEREST INCOME.  Interest income was $3.3 million, $2.4 million and $1.8
million in 1998, 1997 and 1996, respectively. Interest income during 1998 and
1997 increased primarily as a result of investing the proceeds from the
Company's sale in the third quarter of 1997 of $80 million of 6 1/4% Convertible
Subordinated Debentures due 2004 (the "Debentures"). Interest income generally
fluctuates as a result of the average amount of cash available for investment
and prevailing interest rates.

    INTEREST EXPENSE.  Interest expense was $6.6 million, $4.4 million and $1.6
million in 1998, 1997 and 1996, respectively. The increase for 1998 was
primarily due to a full year of interest payable by the Company on the
Debentures and additional borrowings in connection with several equipment lease
and financing arrangements. The increase for 1997 was primarily due to five
months of interest payable on the Debentures and the Company's bank borrowings.

    EQUITY IN LOSS OF UNCONSOLIDATED AFFILIATE.  In 1998, the Company recorded
$1.1 million as its equity in the loss from Proligo representing its 49% share
of losses from August 15 through November 30, 1998, the Proligo fiscal year end.
The Proligo operating loss for December 1998 is approximately $1.6 million, of
which the Company will recognize its 49% share (approximately $800,000) in 1999.
The loss recorded by Proligo for December 1998 included three months of
operating losses for the Hamburg Company due to a change in the Hamburg
Company's fiscal year from September 30 to November 30 to conform to Proligo's
reporting period. The Company expects to record additional equity in the loss
from its investment in Proligo L.L.C. through fiscal year 1999.

    NET INCOME (LOSS).  The Company reported net income for 1998 of $10.9
million (after giving effect to the $22.1 million gain from the sale of the
Interest), or $0.39 per basic share and $0.38 per diluted share, compared to net
losses of $43.9 million and $23 million, or $1.65 and $0.88 per basic and
diluted share, for 1997 and 1996, respectively.

                                       29
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES

    The Company's cash and cash equivalents and marketable securities position
at December 31, 1998 was $68.7 million compared to $64.2 million on December 31,
1997. The $4.5 million increase in cash and cash equivalents and marketable
securities position was primarily the result of the following:

<TABLE>
<S>                                                        <C>          <C>
Net income...............................................  $10,920,000
Depreciation and amortization............................   11,164,000
Gain on sale of a majority interest in a subsidiary......  (22,132,000)
Other non-cash items.....................................    2,381,000
Working capital..........................................   (3,637,000)
                                                           -----------
Net cash used in operating activities....................               $(1,304,000)
Addition to property, plant and equipment................                (8,281,000)
Proceeds from sale of a majority interest in a
 subsidiary, net of closing costs........................                14,652,000
Investment in unconsolidated affiliate...................                (4,900,000)
Payments on short-term borrowings, net...................                (5,034,000)
Payments on capital lease obligations....................                (2,934,000)
Proceeds from issuance of long-term debt and
 sale-leaseback transactions.............................                 4,478,000
Repayments on long-term debt.............................                (1,821,000)
Proceeds from sale of common stock, net..................                11,359,000
Other....................................................                (1,755,000)
                                                                        -----------
  Total increase in cash and cash equivalents and
    marketable securities................................               $ 4,460,000
                                                                        -----------
                                                                        -----------
</TABLE>

    The Company invests its cash and cash equivalents and marketable securities
in interest-bearing investment grade securities.

    The Company's accounts receivable balance at December 31, 1998 was $43.6
million as compared to $34.6 million on December 31, 1997. The growth in
receivables was primarily due to increased sales of AmBisome and proportionately
increased sales of the Company's products in countries in which payments tend to
be slower than the average payment periods historically experienced by the
Company. Payment practices vary significantly between countries and increased
sales in countries in which payments tend to be slower, often as a result of the
pace at which governmental entities reimburse the Company's customers, have in
the past increased, and in the future may increase, the average length that
accounts receivable are outstanding and may increase the financial risk of
certain of the Company's customers. In certain countries, in particular Greece,
Spain and Italy, in which payments have been slow, the amount of accounts
receivable owed to the Company is significant. At December 31, 1998, the
Company's past due accounts receivable for Greece, Spain and Italy totaled
approximately $16 million, of which approximately $6 million was more than 120
days past due. To date, the Company has experienced only modest losses with
respect to the collection of its accounts receivable and believes that the past
due accounts receivable for Greece, Spain and Italy are collectible. The Company
continually seeks improvements in its collection process to maximize its cash
flow from product sales in a timely manner.

    As of December 31, 1998, the Company's inventory balance was $11.7 million
compared to $14.6 million as of December 31, 1997. The decrease is primarily due
to a reduction in the per unit cost of the inventory.

    For the year ended December 31, 1998, the Company had $4.5 million in
proceeds from facilities improvement and capital equipment financing
transactions. As of December 31, 1998, no additional amounts were available
under agreements relating to the financing of manufacturing equipment, general
laboratory and scientific equipment, office equipment, furniture and fixtures
and facility improvements.

                                       30
<PAGE>
    The Company maintains a $10 million unsecured line of credit (the "Credit
Agreement") with an average interest rate of 8.0% with a financial institution.
Under the terms of the Credit Agreement, the Company is required to maintain
certain financial ratios and there are limitations on the Company's ability to
incur additional debt or to engage in certain significant transactions. The
Credit Agreement, which includes a foreign exchange facility, expires November
1, 1999. As of December 31, 1998, the Company had no borrowings under the Credit
Agreement.

    In May 1996, the Company's Spanish subsidiary entered into an agreement to
borrow 500 million Spanish Pesetas with such borrowing being secured by the
subsidiary's accounts receivable. In February 1997, the agreement was amended to
increase the amount that the subsidiary could borrow to 750 million Spanish
Pesetas. On April 1, 1998, the Company's Spanish subsidiary terminated the loan
as to new borrowings and the balance of the loan was paid in full in September
1998.

    The Company does not have any commitments to provide additional funding to
Proligo.

    The Company believes that in the future it may be advisable to augment its
cash in order to fund all of its activities, including potential product
acquisitions. Therefore, the Company will consider raising cash whenever market
conditions are favorable. Such capital may be raised through additional public
or private financing, as well as collaborative relationships, borrowings and
other available sources. In addition, in the course of its business, the Company
evaluates products and technologies held by third parties which, if acquired,
could result in the development of product candidates by the Company or which
complement technologies currently being developed by the Company. The Company
expects from time to time to be involved in discussions with other entities
concerning the Company's potential acquisition of rights to additional
pharmaceutical products. In the event that the Company acquires such products or
third-party technologies, the Company may find it necessary or advisable to
obtain additional funding.

    The Company's future capital requirements will be substantial and will
depend on, and could increase as a result of, many factors, including: progress
of the Company's research, drug discovery and development programs; whether the
Company acquires interests in products currently held by third parties; the
results and costs of preclinical and clinical testing of the Company's products,
if developed; the time and costs involved in obtaining regulatory approvals; the
costs involved in filing, prosecuting and enforcing patent claims; competing
technological and market developments; the Company's success in entering into
collaborative agreements; changes in collaborative research relationships; the
costs associated with potential commercialization of its products, if any,
including the development of additional manufacturing, marketing and sales
capabilities; the cost and availability of third-party financing for capital
expenditures; and administrative and legal expenses. However, the Company
believes its cash and cash equivalents and marketable securities position at
December 31, 1998 is sufficient to meet its short-term liquidity needs. There
can be no assurance that additional or sufficient financing will be available,
or, if available, that it will be available on acceptable terms. If additional
funds are raised by issuing equity securities of the Company, dilution to then
existing stockholders may result. If adequate funds are not available, the
Company may be required to significantly curtail one or more of its research and
development programs or commercialization efforts or obtain funds through
arrangements with collaborative partners or others on less favorable terms than
might otherwise be available.

YEAR 2000 ISSUE

    The "Year 2000 Issue" is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the Company's
computer programs or hardware that have date-sensitive software or embedded
chips may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions, send invoices, or engage in similar normal business
activities.

                                       31
<PAGE>
    The Company has substantially completed a review of its internal computer
systems and is conducting a review of the external computer systems on which it
relies to determine what action will be necessary or appropriate in connection
with the Year 2000 Issue. As a result of its review, the Company has determined:

    It will be required to modify or replace certain portions of its software
and hardware, and upgrade certain software so that those systems will properly
utilize dates beyond December 31, 1999. The Company presently believes that with
modifications or replacements of existing software and certain hardware, the
Year 2000 Issue can be mitigated. However, if such modifications and
replacements are not made, or are not completed timely, the Year 2000 Issue
could have an impact on the efficiencies of the Company.

    The Company's plan to resolve the Year 2000 Issue involves the following
four phases: assessment, planning, testing and implementation and two
categories: information technology systems ("IT Systems") and manufacturing and
laboratory equipment ("Operating Equipment").

    With respect to IT Systems, the completed assessment indicated that most of
the Company's significant IT Systems, in particular, the general ledger,
billing, and inventory systems, are Year 2000 compliant. This is a result of (a)
the newness of the Company's personal and mini-computer systems (most of its
date data is stored using four digits for years and the software residing in its
embedded chips recognizes correctly the nuances of the upcoming uncommon leap
year), (b) the Company's reliance primarily on personal and mini-computers and
not on older mainframes for most of its computing needs and (c) the nature of
the Company's business (I.E., the Company is neither a consumer nor
financial-based business). For the remaining IT Systems exposures, to date, the
Company has completed the planning phase and expects to complete software
replacement and upgrades no later than June 30, 1999. Once software is replaced
or upgraded for a system, the Company begins testing and implementation. These
phases run concurrently for different systems. Completion of the testing and
implementation phases for all significant systems is expected by July 31, 1999.

    With respect to Operating Equipment, the assessment indicated that certain
software and embedded chips used in certain Operating Equipment may be at risk.
For its Operating Equipment exposures, the Company is completing its planning
phase. Scheduling and testing of this equipment is more difficult than the
testing of the IT Systems; a substantial majority of the testing occured during
an annual manufacturing shutdown in December 1998. Once testing is complete, the
Company will implement any upgrades or replace any non-compliant software or
hardware. Testing and implementation of affected equipment is expected to be
complete by September 30, 1999.

    The Company does not share information systems with any suppliers,
subcontractors, customers or other outside parties ("Third-party Entities"). The
Company has requested, and will continue to seek, information from Third-party
Entities on which it relies, certifying that their computer systems will not
negatively affect the Company's operations. The Company currently relies on
third-party vendors in connection with much of its payroll and benefits systems.
In addition, the Company could be affected by the failure of various
governmental entities to appropriately address the Year 2000 Issue. To date, the
Company is not aware of any Third-party Entities with a Year 2000 Issue that
would materially impact the Company's results of operations, liquidity, or
capital resources. However, the Company has no means of ensuring that
Third-party Entities will be Year 2000 ready. The inability of Third-party
Entities to complete their Year 2000 resolution process in a timely fashion
could materially impact the Company. The effect of non-compliance by Third-party
Entities is not determinable.

    The Company will utilize both internal and external resources to reprogram,
or replace, test, and implement the software and Operating Equipment for Year
2000 modifications. It is the Company's belief that the costs to the Company as
a result of the Year 2000 Issue will be nominal, but no assurance can be given
that there will not be some unforeseen issue, in particular, in connection with
Third-party Entities' computer systems, that may materially affect the Company's
operations.

                                       32
<PAGE>
    Management of the Company believes it has an effective program in place to
resolve the Year 2000 Issue in a timely manner. As noted above, the Company has
not yet completed all necessary phases of the Year 2000 program. The most
reasonably likely worst case Year 2000 scenario for the Company is that
manufacturing and laboratory efficiencies will be adversely affected. The
Company has contingency plans for certain critical applications and is working
on such plans for others. In addition, disruptions in the economy generally
resulting from Year 2000 Issues could also materially adversely affect the
Company. The amount of potential liability and lost revenue cannot be reasonably
estimated at this time.

EURO CONVERSION

    A single currency called the euro was introduced in Europe on January 1,
1999. Eleven of the fifteen member countries of the European Union adopted the
euro as their common legal currency as of that date. Fixed conversion rates
between these participating countries' existing currencies (the "legacy
currencies") and the euro was established as of that date. The legacy currencies
will remain legal tender as denominations of the euro until at least January 1,
2002 (but not later than July 1, 2002). During this transition period, parties
may settle transactions using either the euro or a participating country's
legacy currency.

    The Company is still in the process of evaluating the effect, if any, of the
euro on its pricing of products in the eleven participating countries. The
Company does not expect a material impact on its results of operations from
foreign currency gains or losses as a result of its transition to the euro as
the functional currency for its subsidiaries based in EU countries.

ITEM 7A. MARKET RISK DISCLOSURES

    The Company's operations include manufacturing and sales activities in the
U.S., as well as sales activities in Europe and Australia. As a result, the
Company's financial results could be significantly affected by factors such as
changes in foreign currency exchange rates or weak economic conditions in the
foreign markets in which the Company distributes its products. The Company's
operating results are exposed to changes in exchange rates between the U.S.
dollar and various foreign currencies, including the German mark, the British
pound, the French franc, the Italian lira and the Spanish peseta. When the U.S.
dollar strengthens against these currencies, the value of the nonfunctional
currency sales decreases. When the U.S. dollar weakens, the functional currency
amount of sales increases. Overall, the Company is a net receiver of currencies
other than the U.S. dollar and, as such, benefits from a weaker dollar, but is
adversely affected by a stronger dollar relative to major currencies worldwide.

    To mitigate the effects of changes in currency exchange rates on the
Company's functional currency based sales, the Company enters into foreign
exchange forward contracts to hedge its foreign currency sales transactions.

    The Company's interest income and expense are most sensitive to changes in
the general level of U.S. interest rates. In this regard, changes in U.S.
interest rates affect the interest earned on the Company's available-for-sale
securities as well as interest paid on its debt. To mitigate the impact of
fluctuations in U.S. interest rates, the Company maintains the significant
majority of its debt as fixed rate.

                                       33
<PAGE>
                           INTEREST RATE SENSITIVITY
                     Principal Amount by Expected Maturity
                             Average Interest Rate

<TABLE>
<CAPTION>
                                            YEARS ENDING DECEMBER 31,                                   FAIR VALUE
                        -----------------------------------------------------------------              DECEMBER 31,
                          1999       2000       2001       2002       2003     THEREAFTER    TOTAL         1998
                        ---------  ---------  ---------  ---------  ---------  ----------  ----------  ------------

<S>                     <C>        <C>        <C>        <C>        <C>        <C>         <C>         <C>
ASSETS
Available-for-sale
  securities..........  $ 143,000  $      --  $      --  $      --  $      --  $       --  $  143,000   $  143,000
Average interest
  rate................       5.34%

Guaranteed payments
  from sale of a
  majority interest in
  subsidiary..........  1,000,000  1,700,000    100,000    100,000    100,000          --   3,000,000    2,754,000
Average interest
  rate................       8.50%      8.50%      8.50%      8.50%      8.50%

LIABILITIES (ALL ARE
  FIXED RATE AMOUNTS)

Minimum litigation
  settlement,
  including current
  portion                 996,000  1,083,000  1,178,000  1,281,000  1,394,000   3,600,000   9,532,000    9,532,000
Average interest
  rate................       8.50%      8.50%      8.50%      8.50%      8.50%       8.50%

Long-term debt,
  including current
  portion.............  1,717,000  1,035,000    807,000    652,000    300,000          --   4,511,000    4,511,000
Average interest
  rate................      11.25%     11.54%     11.71%     11.64%     11.50%

Convertible
  subordinated
  debentures..........         --         --         --         --         --  80,000,000  80,000,000   69,400,000
Average interest
  rate................       6.25%      6.25%      6.25%      6.25%      6.25%       6.25%
</TABLE>

                                       34
<PAGE>
                               FORWARD CONTRACTS
                      Notional Amount by Expected Maturity
     Average Forward Foreign Currency Exchange Rate (Foreign Currency/USD)
<TABLE>
<CAPTION>
                                                               YEARS ENDING DECEMBER 31,
FORWARD CONTRACTS TO SELL FOREIGN   -------------------------------------------------------------------------------
CURRENCIES FOR U.S.$:                  1999        2000         2001         2002         2003        THEREAFTER       TOTAL
----------------------------------  ----------     -----        -----        -----        -----     ---------------  ----------
<S>                                 <C>         <C>          <C>          <C>          <C>          <C>              <C>
AUSTRIAN SCHILLING
Notional amount...................  $  390,000   $      --    $      --    $      --    $      --      $      --     $  390,000
Average contract rate.............     11.8063

AUSTRALIAN DOLLAR
Notional amount...................   1,698,000          --           --           --           --             --      1,698,000
Average contract rate.............      1.6494

SWISS FRANC
Notional amount...................      75,000          --           --           --           --             --         75,000
Average contract rate.............      1.3790

GERMAN MARK
Notional amount...................   2,818,000          --           --           --           --             --      2,818,000
Average contract rate.............      1.6751

DANISH KRONE
Notional amount...................     669,000          --           --           --           --             --        669,000
Average contract rate.............      6.4322

SPANISH PESETA
Notional amount...................   9,181,000          --           --           --           --             --      9,181,000
Average contract rate.............    143.0100

FINNISH MARKKA
Notional amount...................     379,000          --           --           --           --             --        379,000
Average contract rate.............      5.0936

FRENCH FRANC
Notional amount...................   5,480,000          --           --           --           --             --      5,480,000
Average contract rate.............      5.6328

BRITISH POUND
Notional amount...................   6,113,000          --           --           --           --             --      6,113,000
Average contract rate.............      0.6011

IRISH PUNT
Notional amount...................     399,000          --           --           --           --             --        399,000
Average contract rate.............      0.6766

ITALIAN LIRA
Notional amount...................  12,151,000          --           --           --           --             --     12,151,000
Average contract rate.............     1664.01

NETHERLANDS GUILDER
Notional amount...................     112,000          --           --           --           --             --        112,000
Average contract rate.............      1.8914

NORWEGIAN KRONE
Notional amount...................      38,000          --           --           --           --             --         38,000
Average contract rate.............      7.6568

PORTUGUESE ESCUDO
Notional amount...................   2,503,000          --           --           --           --             --      2,503,000
Average contract rate.............    172.0838

SWEDISH KRONA
Notional amount...................     336,000          --           --           --           --             --        336,000
Average contract rate.............      8.0864

<CAPTION>
                                    FAIR VALUE(A)
FORWARD CONTRACTS TO SELL FOREIGN   DECEMBER 31,
CURRENCIES FOR U.S.$:                   1998
----------------------------------  -------------
<S>                                 <C>
AUSTRIAN SCHILLING
Notional amount...................    $  (2,000)
Average contract rate.............
AUSTRALIAN DOLLAR
Notional amount...................      (17,000)
Average contract rate.............
SWISS FRANC
Notional amount...................        2,000
Average contract rate.............
GERMAN MARK
Notional amount...................      (11,000)
Average contract rate.............
DANISH KRONE
Notional amount...................       (8,000)
Average contract rate.............
SPANISH PESETA
Notional amount...................      (67,000)
Average contract rate.............
FINNISH MARKKA
Notional amount...................           --
Average contract rate.............
FRENCH FRANC
Notional amount...................      (34,000)
Average contract rate.............
BRITISH POUND
Notional amount...................       15,000
Average contract rate.............
IRISH PUNT
Notional amount...................       (2,000)
Average contract rate.............
ITALIAN LIRA
Notional amount...................      (88,000)
Average contract rate.............
NETHERLANDS GUILDER
Notional amount...................       (1,000)
Average contract rate.............
NORWEGIAN KRONE
Notional amount...................           --
Average contract rate.............
PORTUGUESE ESCUDO
Notional amount...................      (15,000)
Average contract rate.............
SWEDISH KRONA
Notional amount...................        1,000
Average contract rate.............
</TABLE>

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

(a) Fair value of forward contracts represents the estimated settlement value at
    December 31, 1998

                                       35
<PAGE>
                                  RISK FACTORS

    THE FOLLOWING RISK FACTORS SHOULD BE READ IN CONJUNCTION WITH INFORMATION
APPEARING ELSEWHERE IN THIS REPORT. SPECIAL NOTE: CERTAIN STATEMENTS SET FORTH
BELOW CONSTITUTE "FORWARD-LOOKING STATEMENTS" THAT INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THE
RESULTS DISCUSSED IN THE "FORWARD-LOOKING STATEMENTS." SEE "SPECIAL NOTE
REGARDING FORWARD-LOOKING STATEMENTS" FOR ADDITIONAL FACTORS RELATING TO SUCH
STATEMENTS.

DEPENDENCE ON AMBISOME FOR PRODUCT REVENUES.

    The Company relies on sales of AmBisome for a substantial majority of its
product revenues. If demand for AmBisome were to decline, or revenues were to
fall, whether by introduction of competitive products or otherwise, the
Company's financial results would be adversely affected. Additional regulatory
approvals will also be needed to expand the indications for which AmBisome may
be marketed in the countries where it is already approved, and those approvals
may or may not be obtained. See "Business-- Clinical Trials, Preclinical Trials
and Regulatory Status--AmBisome" in Part I of this Report.

    The Company's only other approved product, DaunoXome, has had limited sales
to date and may never achieve significant sales volume. Although the Company
will seek to expand the market for DaunoXome by obtaining approvals for
indications in addition to Kaposi's sarcoma, the drug may not be effective for
the treatment of other diseases and the Company may never obtain additional
approvals. See "Business--Clinical Trials, Preclinical Trials and Regulatory
Status--DaunoXome" in Part I of this Report.

PRODUCT DEVELOPMENT EFFORTS MAY NOT YIELD SUCCESSFUL PRODUCTS.

    The Company has three potential products that have reached the clinical
development stage-- MiKasome, NX1838 and NX211. While the results of preliminary
clinical trials for these products have been encouraging, significant additional
clinical trials are required. Preliminary results are not necessarily indicative
of a successful product for the following reasons:

    - preliminary results may not be indicative of effectiveness;

    - further clinical trials may not achieve the desired result; and

    - further clinical trials may reveal unduly harmful side effects or may show
      the drugs to be less effective than other drugs or delivery systems for
      the desired indications.

    MiKasome, NX1838 and NX211 may not be more effective than existing drugs or
other drugs developed in the future, and they may never develop into
commercially viable products. See "Business-- Clinical Trials, Preclinical
Trials and Regulatory Status" in Part I of this Report.

    The Company's other potential products that are in the development stage may
not be successfully developed for several reasons, including:

    - the potential products are not shown to be safe and effective;

    - required regulatory approvals are not obtained;

    - the potential products are too difficult to develop into commercially
      viable products; or

    - the potential products do not obtain market acceptance.

DRUG DISCOVERY EFFORTS MAY NOT YIELD DRUG CANDIDATES OR OTHERWISE YIELD
  COMMERCIALLY SUCCESSFUL DRUGS.

    A significant portion of the Company's research is focused upon the
discovery and development of novel pharmaceuticals based upon oligonucleotides.
This drug discovery approach may not result in commercially successful drugs.
Although the Company has demonstrated an ability to efficiently identify
oligonucleotides that bind with high affinity to and inhibit selected molecular
targets, the Company has not successfully demonstrated the effectiveness of such
oligonucleotides as drugs. Additionally, the Company has initiated clinical
trials for only one oligonucleotide-based product, NX1838.

                                       36
<PAGE>
    For the Company to successfully develop commercial products from the drug
candidates it identifies through the SELEX and Evolutionary Chemistry processes,
several challenges must be addressed, including:

    - demonstrating the effectiveness of identified compounds as drug
      candidates;

    - developing and implementing appropriate clinical protocols for identified
      drug candidates; and

    - developing manufacturing methods which are efficient, cost-effective and
      capable of meeting stringent regulatory standards.

    The Company may be unable to successfully address any of these or other
challenges that may arise in the course of its research and development.

THE COMPANY MAY NOT SUCCEED IN ITS STRATEGY TO PROVIDE PRODUCTS FOR TREATING
  OTHER DISORDERS.

    In addition to developing products based on its liposome, SELEX process and
Evolutionary Chemistry technologies, the Company has a longer-term strategy of
providing pharmaceuticals to treat patients with cancer, infectious diseases and
hematological disorders. The Company may not be successful in developing
marketable products in these disease categories and may not have the scientific
or financial resources necessary to develop all of the potential drug candidates
or technologies which may be discovered or may be acquired. See "Business" in
Part I of this Report.

CURRENCY FLUCTUATIONS MAY IMPAIR FINANCIAL RESULTS.

    A substantial majority of the Company's product sales are made in Europe,
with 56% of product sales for the year ending December 31, 1998 occurring in the
United Kingdom, Germany, Italy and Spain. In most significant European markets,
AmBisome and DaunoXome are priced in the currency of the country in which they
are sold. Accordingly, the prices of such products in U.S. Dollars will vary as
the value of the U.S. Dollar fluctuates against such local currencies or the
Euro. Increases in the value of the U.S. Dollar against foreign currencies may
reduce the Company's U.S. Dollar return on the sale of its products. In
addition, although the Company implements hedging techniques with respect to
foreign currency accounts receivable and accounts payable, these techniques do
not eliminate the effects of foreign currency fluctuations with respect to
anticipated revenues. Therefore, the Company's future results will continue to
be affected by foreign currency fluctuations. See "Management's Discussion and
Analysis of Financial Condition--International Operations, Currency
Fluctuations."

THE COMPANY HAS A HISTORY OF OPERATING LOSSES AND WILL REQUIRE FUTURE CAPITAL TO
  DEVELOP POTENTIAL PRODUCTS.

    The Company has incurred substantial losses during its history. Although
profitability was achieved in 1998, it was due to a one-time gain of $22.1
million, and the Company may not be able to maintain profitability. In addition,
the Company's earnings have historically not been sufficient to cover fixed
charges from operations. Future capital needs will be substantial, and the
Company may be unable to obtain the capital necessary to fund all of its
operations.

THE COMPANY MAY BE UNABLE TO PROTECT ITS PATENTS AND PROPRIETARY RIGHTS.

    The patent positions of pharmaceutical and biotechnology firms, including
those of the Company, are uncertain and involve complex legal and factual
questions, the breadth of claims allowed in patents cannot be predicted. The
Company's success will depend to a significant degree on its ability to:

    - obtain patents and licenses to patent rights; and

    - operate without infringing on the proprietary rights of others, both in
      the United States and other countries.

                                       37
<PAGE>
    The Company intends to continue to file applications as appropriate for
patents covering its technologies and any products resulting from the
application of these technologies. There is a risk, however, that patents may
not issue from any of its applications or that patents may not issue in
connection with technology licensed from third parties. Even if patents do
issue, there is a risk that the claims allowed will not be sufficient to protect
the Company's proprietary rights, that such patents will be challenged,
invalidated or circumvented or that the rights granted pursuant to such patents
will not provide competitive advantages.

    The Company's commercial success will also depend in part on not infringing
patents or other proprietary rights of third parties. A number of pharmaceutical
and biotechnology companies and research and academic institutions have
developed technologies, filed patent applications or received patents on various
technologies that may be related to the Company's business. In addition, those
entities may file applications for or be issued future patents with respect to
technology potentially necessary or useful to the Company. Third parties have
filed patent applications with claims allegedly covering technologies similar to
the basic aspects of our liposomal technology and SELEX process. Some of these
technologies, applications or patents may conflict with the Company's
technologies and its existing or future patents, if any, or patent applications.
Any of these conflicts could limit the scope of the patents that the Company has
obtained or may be able to obtain or result in its patent applications failing
to issue as patents. In addition, if patents that cover activities are issued to
other companies, NeXstar Pharmaceuticals may be unable to obtain licenses to
these patents at a reasonable cost, or at all, or be unable to develop or obtain
alternative technology. As more patents are issued to third parties, the risk
increases that the Company's products may give rise to claims that they infringe
the patents of others. See "Business--Patents, Trade Secrets and Licenses" in
Part I of this Report.

THE COMPANY MAY ENGAGE IN COSTLY LITIGATION RELATED TO PATENTS AND PROPRIETARY
  RIGHTS.

    There has been and, in the Company's opinion, will continue to be
significant litigation in the pharmaceutical industry regarding patent and other
intellectual property rights. Any litigation could consume a substantial portion
of the Company's resources regardless of the outcome.

    The Company and certain of its competitors have filed oppositions against
each other as to patents granted by the European Patent Office and patents
granted by the Japanese Patent Office. The Liposome Company, Inc. has patents or
patent applications relating to active drug loading techniques that the owners
could claim are used in the manufacture of products such as DaunoXome. The
Company opposed the grant of a European and a Japanese patent owned by The
Liposome Company relating to such loading technology.

PHARMACEUTICAL MANUFACTURING IS SUBJECT TO EXTENSIVE REGULATION.

    The manufacture of AmBisome and DaunoXome involves a number of technical
challenges and requires implementation of stringent quality control
specifications and quality and manufacturing systems required to comply with
government regulations. The Company's products can only be manufactured in
facilities that have obtained regulatory approval, which can take many months.
Any regulatory action taken with respect to the Company's manufacturing
facilities due to failure to meet regulatory requirements might adversely affect
its results of operations.

THE COMPANY RELIES ON A SINGLE MANUFACTURING LOCATION FOR ITS PRODUCTS.

    The Company's only formulation and manufacturing facilities are in San
Dimas, California; although the Company owns a manufacturing facility in Ireland
that performs certain quality control testing, labeling and packaging, and the
Company uses third parties to fill and lyophilize certain batches of product as
alternate contract manufacturing suppliers. In the event of a natural disaster
(including an earthquake), equipment failure, strike or other difficulty, the
Company may be unable to replace its manufacturing

                                       38
<PAGE>
capacity in a timely manner and would be unable to manufacture its products in a
manner necessary to fulfill demand.

THE COMPANY RELIES ON SINGLE SOURCES OF SUPPLY FOR RAW MATERIALS.

    The Company relies on single suppliers for high quality amphotericin B,
daunorubicin HCl and high quality cholesterol, each of which is used in the
manufacture of its liposome products. Additional suppliers of these components
are presently under evaluation. If any of these materials becomes unavailable
from current suppliers, the Company would be unable to manufacture at least some
of its liposome products until alternative sources of supply are obtained. In
addition, the substitution of such replacement supplies would require regulatory
approval, which may not be obtained. Although the Company believes that
alternative supplies of these materials are or will become available at
reasonable prices, it cannot be certain.

THE COMPANY HAS LIMITED MANUFACTURING EXPERIENCE FOR ITS OLIGONUCLEOTIDE
  PRODUCTS.

    While the Company has experience in manufacturing drug products based on
liposome technologies, it lacks experience in the manufacture of other
pharmaceuticals, including oligonucleotide-based products. In connection with
the formation of Proligo, the Company entered into a supply agreement that
contemplates purchasing from Proligo oligonucleotide-based products. However,
Proligo may not be able to overcome the technological impediments to
synthesizing oligonucleotides on a commercial scale. If Proligo is unable to
provide product on a timely basis at commercially reasonable rates, the Company
would need to develop additional manufacturing facilities or engage a
third-party manufacturer on acceptable terms, all of which could adversely
affect its ability to conduct preclinical and clinical testing, and the Company
would be unable to obtain regulatory approval for or supply commercial
quantities of, oligonucleotide-based products. See "Business--Manufacturing," in
Part I of this Report.

THE COMPANY'S MARKETING STAFF COMPETES WITH LARGE PHARMACEUTICAL COMPANIES.

    The pharmaceutical industry is highly competitive. The Company's products
compete, and products the Company may develop are likely to compete, with
products of other companies that currently have extensive and well-funded
marketing and sales operations. Because these companies are capable of devoting
significantly greater resources to their marketing efforts, the Company's
marketing or sales efforts may not compete successfully against the efforts of
these other companies'. See "Business--Marketing" and "Business--Competition" in
Part I of this Report.

PHARMACEUTICAL GOVERNMENT AGENCIES AND THIRD PARTY REIMBURSEMENT PRESSURES MAY
  IMPAIR FINANCIAL RESULTS.

    The ability to commercialize the Company's current and future products
depends in part on the extent to which reimbursement for the cost of such
products and related treatments are available from government health agencies,
private health insurers and other third-party payers. Payers are increasingly
challenging the price and cost effectiveness of medical products. Significant
uncertainty exists as to the reimbursement status of newly approved health care
products, and the Company cannot be certain that adequate third-party coverage
will be available to obtain satisfactory price levels for its products.
Government and other third-party payers are increasingly attempting to contain
health care costs by a variety of means, including limiting both the degree of
coverage (including limiting payment for off-label uses) and the level of
reimbursement for therapeutic products or new indications for therapeutic
products. In addition, the Company's ability to sell a product in certain
countries may depend on that product being included, or continuing to be
included, on a government-approved reimbursement list. If adequate coverage and
reimbursement levels are not provided by government and third-party payers for
use of existing and potential products, the market acceptance of these products
and the Company's financial results would be adversely affected.

                                       39
<PAGE>
PRICING PRESSURES MAY IMPAIR FINANCIAL RESULTS.

    The Company is subject to the risk of governmental regulation of prices,
parallel imports and potential price competition. Differing product prices among
countries occur in part because many foreign countries require regulatory
approval of prices. In particular, some countries will condition their approval
of a product on the agreement of the seller not to sell that product for more
than a specified price in the country. A regulatory action reducing the price of
AmBisome or DaunoXome in any one country may have the practical effect of
requiring the Company to correspondingly reduce the Company's prices in other
countries. Additionally, the price set for one product in a given country for
competitive reasons may affect that product's prices worldwide. The
implementation of the Euro may also lead to more unified pricing of products in
European countries, resulting in a lower average sales price. Parallel importing
between countries compounds these issues. Under European Union laws, the Company
is limited in its ability to restrict third-party distributors to sell products
in countries outside of their authorized territory when customers from those
other countries offer to buy the product from them. Because of these laws,
customers may seek to import product from countries with the lowest price, also
resulting in lower average sales price. If the Company is successful in
developing additional products or obtaining approval for additional indications
for its current drugs, it may also face increased price competition from
potential competitors, including European-based companies. See
"Business--Competition" and "Business--Government Regulation" in Part I of this
Report.

OPERATIONS DEPEND ON COMPLIANCE WITH GOVERNMENT REGULATIONS.

    In addition to governmental regulation of the Company's manufacturing
facilities, its operations generally depend on compliance with government
regulations. See "Business--Government Regulation" in Part I of this Report.

PRODUCT LIABILITY CLAIMS MAY INCREASE COSTS.

    The use of any of the Company's products or potential products in clinical
trials and the sale of such products may expose the Company to liability claims.
These claims may be made directly by consumers, health care providers,
pharmaceutical companies or others. While the Company currently has liability
insurance, insurance is expensive and may be difficult (or impossible) to obtain
in the future. If liability insurance becomes unobtainable, the Company's
ability to clinically test and to market its products could be significantly
impaired. Moreover, the amount and scope of any coverage may be inadequate in
the event of a successful product liability claim.

    Additionally, the Company is required by governmental regulations to test
its products even after they have been sold and used by patients. As a result of
such tests, the Company may be required to, or may determine that it should,
recall products already in the market. Subsequent testing and product recalls
may increase our potential exposure to product liability claims.

INFLUENCE ON CORPORATE ACTIONS BY EXISTING STOCKHOLDER.

    Affiliates of E.M. Warburg, Pincus & Co., LLC as of March 9, 1999 owned
approximately 28.0% of the Company's outstanding common stock, including a
warrant exercisable for 125,000 shares of common stock. As a result, Warburg,
Pincus may influence the Company's corporate actions, including influencing
elections and significant corporate events. One of the Company's directors is a
Senior Managing Director of Warburg, Pincus.

THE HOLDERS OF THE COMPANY'S OUTSTANDING CONVERTIBLE DEBENTURES HAVE REDEMPTION
  RIGHTS.

    If a change in control of the Company were to occur or if the Company's
common stock were no longer listed or approved for trading on a national
exchange or an over-the-counter market, the holders of the Company's $80 million
of 6 1/4% Convertible Subordinated Debentures due 2004 can require a

                                       40
<PAGE>
repurchase of the debentures. If either event occurs, the Company may have
insufficient cash to repurchase the debentures. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

    Submitted elsewhere in this Report.

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

    Not applicable.

                                       41
<PAGE>
                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
  EXECUTIVE OFFICERS AND DIRECTORS

    On August 18, 1998, Patrick J. Mahaffy resigned as the President and Chief
Executive Officer of the Company and as a director of the Company. The Board of
Directors of the Company appointed a management committee (the "Management
Committee") to manage the affairs of the Company pending a search for a new
President and Chief Executive Officer. The Management Committee is comprised of
Michael E. Hart, Vice President and Chief Financial Officer, who serves as the
Chairman of the Committee, Lawrence H. Gold, Chairman of the Board and Chief
Scientific Officer, Crispin G.S. Eley, Vice President, Pharmaceutical
Operations, George B. Herron, Vice President, Sales and Marketing and Nicole
Onetto, Vice President, Medical Affairs.

    The following table sets forth certain information with respect to the
executive officers and directors of the Company.

<TABLE>
<CAPTION>
                   NAME                          AGE                           POSITION
-------------------------------------------  -----------  ---------------------------------------------------
<S>                                          <C>          <C>
    Lawrence M. Gold, Ph.D.................          57   Chairman of the Board and Chief Scientific Officer

    Michael E. Hart........................          46   Vice President and Chief Financial Officer

    Raymond A. Bendele, D.V.M., Ph.D.......          53   Vice President, Life Sciences

    Edward N. Brody, M.D., Ph.D............          60   Vice President, Drug Discovery

    Anthony D. Caracciolo..................          44   Vice President, Manufacturing

    Bruce E. Eaton, Ph.D...................          45   Vice President, Chemistry

    Crispin G.S. Eley, D. Phil.............          41   Vice President, Pharmaceutical Operations

    David W. Flamberg......................          54   Vice President, Compliance

    George B. Herron.......................          51   Vice President, Sales and Marketing

    Barbara B. Kazmier.....................          42   Vice President, Human Resources

    Nicole Onetto, M.D.....................          46   Vice President, Medical Affairs

    John D. Baldeschwieler, Ph.D...........          65   Director

    Judith A. Hemberger, Ph.D..............          51   Director

    David I. Hirsh, Ph.D...................          59   Director

    Roger G. Kennedy.......................          72   Director

    Rodman W. Moorhead, III................          55   Director
</TABLE>

    Dr. Gold, a founder of the Company, has been a director of the Company since
its inception in 1991 and has served as Chairman of the Board of Directors since
February 1993. He was Executive Vice President of Research and Development of
NeXstar Pharmaceuticals from March 1991 to February 1995. In February 1995, Dr.
Gold was named Chief Scientific Officer of the Company. Dr. Gold was Chairman of
the Department of Molecular, Cellular and Developmental Biology at the
University of Colorado at Boulder ("CU") from 1988 to 1992. In addition to his
full-time duties at the Company, Dr. Gold has been a professor at CU since 1970
and has received the CU Distinguished Lectureship Award. From January 1981 to
June 1988, Dr. Gold served as Founder and Co-Director of Research for Synergen,
Inc., a biopharmaceutical company located in Boulder, Colorado. Dr. Gold is a
recipient of the National Institutes of Health Merit Award and Career
Development Award. Dr. Gold received an A.B. in Biochemistry from Yale
University and a Ph.D. in Biochemistry from the University of Connecticut. Dr.
Gold is a member of the National Academy of Sciences.

                                       42
<PAGE>
    Mr. Hart served as Executive Vice President and Chief Financial Officer of
Vestar, Inc. ("Vestar") from November 1990 to February 1995. In February 1995,
Mr. Hart was named Vice President and Chief Financial Officer of NeXstar
Pharmaceuticals. He was employed by Avantek, Inc. as Treasurer and Director of
Finance from June 1982 through November 1990. From May 1980 to June 1982, he was
employed by Magnuson Computer Systems as Assistant Treasurer. Prior to 1980, Mr.
Hart was employed by Memorex Corporation where he held various financial
positions. Mr. Hart received a B.A. in Business Economics and a B.A. in
Geography from the University of California at Santa Barbara. He received an
M.B.A. from California State University, Fresno.

    Dr. Bendele has been Vice President, Life Sciences of NeXstar
Pharmaceuticals since December 1996 after serving as the Senior Director, Life
Sciences of the Company from September 1995 to December 1996. From February 1993
until August 1995, Dr. Bendele was the Company's Director of Pharmacology and
Toxicology. From 1979 to 1993, he worked at Eli Lilly and Company where he
served in numerous capacities, including Director of Pharmaceutical Projects
Management and Director of Pathology. Dr. Bendele received a B.S. in Veterinary
Science, a D.V.M. and a Ph.D. in Veterinary Pathology from Texas A&M University.

    Dr. Brody became the Company's Vice President, Drug Discovery in February
1998 and has been an advisor to the Company since 1991. From 1988 to 1992 and
from 1996 to February 1998, Dr. Brody worked for the Centre de Genetique
Moleculaire in Gif-sur-Yvette, France, including serving as Research Director
from 1996 until January 1998. From 1992 to January 1996, Dr. Brody served as the
Chairman of the Department of Biology at the State University of New York (SUNY)
in Buffalo, New York. He currently is, and has been since 1996, an adjunct
professor at the University of Colorado. Dr. Brody holds an M.D. and a Ph.D. in
Biochemistry from the University of Chicago.

    Mr. Caracciolo became the Company's Vice President, Manufacturing in March
1997. From September 1991 to February 1997, Mr. Caracciolo was the Vice
President, Operations of Bausch & Lomb Pharmaceuticals Inc., after having been
the Vice President and General Manager of Sterling Pharmaceuticals Inc. from
1989 to 1991. Mr. Caracciolo has over 20 years of pharmaceutical experience and
has held various positions in manufacturing and operational management. Mr.
Caracciolo has a B.S. in Pharmaceutical Science from St. John's University.

    Dr. Eaton has been Vice President, Chemistry of NeXstar Pharmaceuticals
since January 1995. During 1994, he was the Company's Director of Medicinal
Chemistry. From 1989 to 1994, he was an Assistant Professor and in 1995 an
Associate Professor of Chemistry at Washington State University. From 1986 to
1989, Dr. Eaton was a Research Chemist at Amoco Corporation studying the
computer aided design and synthesis of macromolecules. From 1981 to 1986, he was
a consultant and Research Associate in bioconjugate chemistry with HANA
Biologics. Dr. Eaton has a B.S. degree in Biology, a B.S. in Chemistry and an
M.S. in Organic Chemistry from the University of Oregon, Eugene. He received a
Ph.D. in Organic Chemistry from the University of California, Berkeley.

    Dr. Eley served as the Vice President of Product Development of Vestar from
March 1993 until February 1995 when he was appointed the Vice President,
Pharmaceutical Operations of NeXstar Pharmaceuticals. From August 1985 until
March 1993, Dr. Eley held the following positions with Vestar: Senior Research
Scientist (August 1985 until March 1988); Director, Chemistry Research (March
1988 until March 1989); Director, Chemistry (March 1989 until January 1992); and
Senior Director, Product Development (January 1992 until March 1993). Dr. Eley
has a B.A. in Chemistry and a D.Phil. in Chemistry from Oxford University.

                                       43
<PAGE>
    Mr. Flamberg served as Vice President of Compliance of Vestar from January
1994 until February 1995 when he was appointed Vice President, Compliance of
NeXstar Pharmaceuticals. Mr. Flamberg served as Director, QA/QC of Vestar from
1986 to 1990 and as Vestar's Senior Director of Compliance from 1990 to 1994.
Prior to joining Vestar in 1986, Mr. Flamberg spent 20 years serving in a
variety of posts in pharmaceutical quality operations and product development
for Ben Venue Laboratories, Inc. in Bedford, Ohio. Mr. Flamberg holds a B.S. in
Chemistry-Biology from Bucknell University and an M.B.A. from Baldwin-Wallace
College.

    Mr. Herron has been Vice President, Sales and Marketing of the Company since
July 1995 after having served as Senior Director, Marketing of the Company from
February 1995 until June 1995. From April 1990 until March 1993, he was the
General Manager of Vestar's United Kingdom office and from April 1993 until
February 1995, he was Senior Director, Marketing of Vestar. Prior to joining
Vestar, Mr. Herron held several senior marketing positions for various
pharmaceutical companies, including Kirby-Warrick Pharmaceuticals Ltd. (August
1986 until November 1989), Schering Corporation (September 1984 until August
1986), Novo Laboratories (November 1982 until July 1984) and Smith Kline &
French Laboratories (January 1975 until November 1982). Mr. Herron received a
B.S. from Queen's University in Belfast, Northern Ireland.

    Ms. Kazmier has been Vice President, Human Resources of the Company since
December 1995 after having served as Director, Human Resources of the Company
from August 1994 until December 1995. From October 1987 until August 1994, Ms.
Kazmier served in various human resources management positions at Syntex
Chemicals, Inc. Ms. Kazmier has a B.A. from Metropolitan State College and an
M.S. in Management and Organization from the University of Colorado.

    Dr. Onetto has been the Vice President, Medical Affairs of the Company since
May 1997 after serving as the Senior Director, Medical Affairs for the Oncology
Division--Europe of Bristol-Myers Squibb. Dr. Onetto joined Bristol-Myers Squibb
in 1991 after having worked in clinical research positions for Immunex
Corporation from 1990 to 1991 and Hoechst Canada, Inc. from 1989 to 1990. She
holds a B.A. from the Academy of Paris, an M.D. from the University of Paris V
with a specialization in pediatrics and hematology and an M.Sc. Pharmacology
from the University of Montreal. She is a member of the American Society of
Clinical Oncology, the American Association of Cancer Research and the European
Society of Medical Oncology.

    Dr. Baldeschwieler is a founder of Vestar and served as Chairman of the
Vestar Board of Directors from Vestar's inception in April 1981 to January 1993
and as a director through February 1995. He has served as a director of NeXstar
Pharmaceuticals since February 1995. He is currently a Professor of Chemistry at
the California Institute of Technology and was Chairman of the Division of
Chemistry and Chemical Engineering from 1973 to 1978. Dr. Baldeschwieler was
Deputy Director of the Office of Science and Technology, Executive Office of the
President from 1971 to 1973, and previously served on the faculties of Stanford
and Harvard Universities. He received a Ph.D. in Physical Chemistry from the
University of California at Berkeley. Dr. Baldeschwieler is a member of the
National Academy of Sciences and the American Philosophical Society.

    Dr. Hemberger has been a consultant for, and a director of, the Company
since 1997. She is currently Senior Vice President of Business Development and
Strategy for AVAX Technologies, Inc. She served as the Senior Vice President,
Global Drug Regulatory Affairs, for Hoechst Marion Roussel, Inc. from 1995 until
1997 after serving as Vice President, Global Medical Affairs and Commercial
Development; Vice President, Global Regulatory and Medical Affairs; Vice
President, Global Regulatory Affairs and Scientific Communications; and Vice
President, Regulatory Affairs and Scientific Communications for Marion Merrell
Dow Inc. from 1989 to 1995. From 1979 to 1989, Dr. Hemberger served in various
capacities at Marion Laboratories, Inc., including as Vice President, Regulatory
Affairs and Scientific Communications. She received a B.S. from Mount St.
Scholastic College, an M.B.A. from Rockhurst College and a Ph.D. from the
University of Missouri.

                                       44
<PAGE>
    Dr. Hirsh has been a director of NeXstar Pharmaceuticals since February
1993. He currently is the Robert Wood Johnson, Jr. Professor and Chairman of the
Department of Biochemistry and Molecular Biophysics at Columbia University's
College of Physicians and Surgeons. Dr. Hirsh has been a professor at Columbia
University since July 1990. Dr. Hirsh received a B.A. in Biology from Reed
College and a Ph.D. in Biochemistry from Rockefeller University.

    Mr. Kennedy has been a director of the Company since 1997. He served as the
Director of the U.S. National Park Service from 1993 to March 1997 after having
served as the Director of the National Museum of American History of the
Smithsonian Institution from 1979 to 1993. Prior to his association with the
Smithsonian Institution, Mr. Kennedy was Vice President, Finance and Senior
Financial Officer of The Ford Foundation. He has been a member of the Finance
Committee of the American Association for the Advancement of Science, chairman
of several finance committees for major foundations and a financial advisor to
many universities, including Harvard, Princeton, Stanford and Yale. In addition,
Mr. Kennedy served on the Vestar Board of Directors from 1989 to 1993.

    Mr. Moorhead has served as a director of NeXstar Pharmaceuticals since June
1992 and was a director of Vestar from 1984 to February 1995. He has been
employed since 1973 by Warburg, where he currently serves as a Senior Managing
Director. He is a director of: Coventry Corporation, a multi-market health
maintenance organization; Transkaryotic Therapies, Inc., a gene therapy company;
Xomed Surgical Products, a surgical devices and ophthalmology products company;
and a number of privately held companies. He also is a trustee of ElderTrust, a
healthcare real estate investment trust. Mr. Moorhead received an A.B. and an
M.B.A. from Harvard University. He is a trustee of The Taft School and a member
of the Overseers' Committee on University Resources, Harvard College.

SECTION 16 BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

    Under the federal securities laws, directors, certain officers and 10%
stockholders of the Company are required to report to the Securities and
Exchange Commission, by specific dates, transactions and holdings in the
Company's stock. To the Company's knowledge based on its review of the copies of
all Section 16(a) forms received by it, all filing requirements applicable to
its directors and officers and 10% stockholders were complied with during 1998,
except that Dr. Lawrence Gold filed a form for one transaction one month late;
in addition, Mr. David W. Flamberg inadvertently omitted one transaction from a
Form 4 he timely filed in August 1997. Mr. Flamberg intends to correct such form
in a current Form 4 filing for March 1999.

                                       45
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION

    The information below is provided with respect to the compensation of all
persons who acted as the Company's Chief Executive Officer or in a similar
capacity during the year ended December 31, 1998 and the four other most highly
compensated executive officers of the Company (collectively, the "Named
Officers") for the fiscal year ended December 31, 1998 and the two immediately
preceding fiscal years.

                           SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
                                                                                                                LONG TERM
                                                                                                              COMPENSATION
                                                                                                             ---------------
                                                                          ANNUAL COMPENSATION                    AWARDS
                                                            -----------------------------------------------  ---------------
                                                                                              OTHER ANNUAL     SECURITIES
                                                                        SALARY      BONUS     COMPENSATION     UNDERLYING
              NAME AND PRINCIPAL POSITION(S)                  YEAR        ($)        ($)           ($)         OPTIONS (#)
----------------------------------------------------------  ---------  ---------  ----------  -------------  ---------------
<S>                                                         <C>        <C>        <C>         <C>            <C>
Patrick J. Mahaffy........................................       1998    187,500           0           --               0
Former President and Chief Executive Officer (Resigned           1997    300,000      60,000           --          20,000
 August 18, 1998)                                                1996    250,008      90,000           --          25,000

Lawrence M. Gold..........................................       1998    300,000           0           --              --
                                                                 1997    300,000      60,000           --              --
                                                                 1996    250,008      90,000           --              --
Chairman of the Board and Chief Scientific Officer

Nicole Onetto.............................................       1998    250,008      75,000       78,480(4)       30,000
Vice President, Medical Affairs                                  1997    160,000      40,000      197,994(4)       52,700
                                                                 1996         --          --           --              --

Crispin G.S. Eley.........................................       1998    212,014      63,600           --          20,000
                                                                 1997    200,000      50,000           --          18,600
                                                                 1996    161,138      59,536           --           7,500
Vice President, Pharmaceutical Operations

Anthony D. Caracciolo.....................................       1998    203,013      60,900           --          30,000
                                                                 1997    162,521      40,625      190,214(7)       42,700
                                                                 1996         --          --           --              --
Vice President, Manufacturing Operations

Michael E. Hart...........................................       1998    189,000      56,700           --          20,000
                                                                 1997    180,000      36,000           --           6,750
                                                                 1996    166,952      50,086        5,086(10)           --
Vice President and Chief Financial Officer
 (Chairman of the Management Committee of the Company
 effective August 18, 1998)

<CAPTION>
                                                              ALL OTHER
                                                            COMPENSATION
              NAME AND PRINCIPAL POSITION(S)                     ($)
----------------------------------------------------------  -------------
<S>                                                         <C>
Patrick J. Mahaffy........................................     265,540(1)
Former President and Chief Executive Officer (Resigned           3,040(2)
 August 18, 1998)                                                3,176(2)
Lawrence M. Gold..........................................      11,500(3)
                                                                11,500(3)
                                                                 6,596(3)
Chairman of the Board and Chief Scientific Officer
Nicole Onetto.............................................       2,500(5)
Vice President, Medical Affairs                                  2,500(5)
                                                                       --
Crispin G.S. Eley.........................................       3,418(6)
                                                                 3,418(6)
                                                                 2,500(6)
Vice President, Pharmaceutical Operations
Anthony D. Caracciolo.....................................       3,312(8)
                                                                 3,101(8)
                                                                       --
Vice President, Manufacturing Operations
Michael E. Hart...........................................       2,500(9)
                                                                 2,500(9)
                                                                 2,500(9)
Vice President and Chief Financial Officer
 (Chairman of the Management Committee of the Company
 effective August 18, 1998)
</TABLE>

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

(1) Includes $112,500 in severance payments and a $150,000 bonus payment for
    completion of the Company's sale of a 51% interest in its Proligo L.L.C.
    subsidiary, all pursuant to the Separation Agreement between Mr. Mahaffy and
    the Company dated August 18, 1998; also includes payment of $540 of
    insurance premiums for a term life insurance policy and a $2,500 matching
    contribution to the Company's 401(k) Plan.

(2) Includes payment of $676 and $540 for 1996 and 1997, respectively, of
    insurance premiums for a term life insurance policy purchased by NeXstar
    Pharmaceuticals for the benefit of Mr. Mahaffy's estate in the amount of
    $500,000 and matching contributions of $2,500 in each of 1996 and 1997 to
    the Company's 401(k) Plan.

(3) Represents payments of $4,096, $9,000 and $9,000 for 1996, 1997 and 1998,
    respectively, of insurance premiums for a term life insurance policy
    purchased by NeXstar Pharmaceuticals for the benefit of Dr. Gold's estate in
    the amount $1.0 million and matching contributions of $2,500 in each of
    1996, 1997 and 1998 to the Company's 401(k) Plan.

(4) Represents relocation expenses including a tax gross-up of $65,844 for 1997,
    and relocation expenses including a tax gross-up of $24,908 for 1998.

(5) Represents a matching contribution to the Company's 401(k) Plan in each of
    1997 and 1998.

(6) Includes a $2,500 matching contribution to the Company's 401(k) Plan in each
    of 1996, 1997 and 1998 and payments of $918 in each of 1997 and 1998 of a
    premium for a life insurance policy.

(7) Represents relocation expenses, including a tax gross-up of $77,803 for
    1997.

(8) Includes matching contributions to the Company's 401(k) Plan of $2,438 and
    $2,500 in 1997 and 1998, respectively, and payments of $663 and $812, in
    1997 and 1998, respectively, of a premium for a life insurance policy.

(9) Represents a matching contribution to the Company's 401(k) Plan in each of
    1996, 1997 and 1998.

(10) Represents a tax gross-up of relocation costs previously paid to Mr. Hart.

                                       46
<PAGE>
OPTIONS GRANTED IN FISCAL YEAR ENDED DECEMBER 31, 1998

<TABLE>
<CAPTION>
                                                                    INDIVIDUAL GRANTS                         POTENTIAL REALIZABLE
                                               ------------------------------------------------------------     VALUE AT ASSUMED
                                                  NUMBER OF                                                  ANNUAL RATES OF STOCK
                                                 SECURITIES        % OF TOTAL      EXERCISE OR               PRICE APPRECIATION FOR
                                                 UNDERLYING      OPTIONS GRANTED   BASE PRICE                   OPTION TERM ($)
                                               OPTIONS GRANTED   TO EMPLOYEES IN    ($/SHARE)   EXPIRATION   ----------------------
NAME                                                 (#)           FISCAL YEAR         (1)         DATE        5%(2)       10%(2)
---------------------------------------------  ---------------  -----------------  -----------  -----------  ----------  ----------
<S>                                            <C>              <C>                <C>          <C>          <C>         <C>
Patrick J. Mahaffy...........................            --                --              --            --          --          --

Lawrence M. Gold.............................            --                --              --            --          --          --

Nicole Onetto (3)............................        30,000               3.8           10.31      12/09/06     147,713     353,798

Crispin G.S. Eley (3)........................        20,000               2.5           10.31      12/09/06      98,475     235,865

Anthony Caracciolo (3).......................        30,000               3.8           10.31      12/09/06     147,713     353,798

Michael E. Hart (3)..........................        20,000               2.5           10.31      12/09/06      98,475     235,865
</TABLE>

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

(1) The exercise price of all of the options granted was the fair market value
    of the Company's Common Stock on the date of grant.

(2) In accordance with Securities and Exchange Commission rules, these columns
    show gains that might exist for the respective options, assuming the market
    price of the Company's Common Stock appreciates from the date of grant over
    a period of eight years at the annual rate of five and ten percent,
    respectively. If the stock price does not increase above the exercise price,
    compensation to the Named Officers will be zero.

(3) These options were granted on December 9, 1998 and vest 25% on each of the
    first four anniversary dates of the date of grant.

AGGREGATED OPTION EXERCISES IN FISCAL YEAR ENDED DECEMBER 31, 1998 AND FY-END
  OPTION VALUES

<TABLE>
<CAPTION>
                                                                                NUMBER OF SECURITIES     VALUE OF UNEXERCISED
                                                                               UNDERLYING UNEXERCISED    IN-THE-MONEY OPTIONS
                                                  SHARES                        OPTIONS AT FY-END(#)        AT FY-END($)(1)
                                                ACQUIRED ON       VALUE        -----------------------  -----------------------
NAME                                            EXERCISE(#)    REALIZED($)     EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
----------------------------------------------  -----------  ----------------  -----------------------  -----------------------

<S>                                             <C>          <C>               <C>                      <C>
Patrick J. Mahaffy............................      --              --                145,000/0                   0/0

Lawrence M. Gold..............................      --              --                   --                       --

Nicole Onetto.................................                                      13,175/69,525                 0/0

Crispin G.S. Eley.............................      --              --              77,060/40,200              121,405/0

Anthony Caracciolo............................                                      10,675/62,025                 0/0

Michael E. Hart...............................      --              --              80,008/25,062              157,001/0
</TABLE>

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

(1) Value is calculated by (i) subtracting the exercise price per share from the
    market value at December 31, 1998 and (ii) multiplying the result in clause
    (i) by the number of shares subject to the option. Options that have an
    exercise price equal to or greater than the market value of the date of
    exercise are not included in the value calculation.

                                       47
<PAGE>
COMPENSATION OF DIRECTORS

    The Company pays each director, who is not an employee of the Company, or an
employee of an affiliate of the Company, $1,000 for each meeting of the Board of
Directors or a committee of the Board of Directors that he or she attends in
person and $500 for each meeting that he or she attends by telephone; provided
that, a director does not receive any compensation for attending a committee
meeting that occurs on the same day as a meeting of the entire Board of
Directors. Directors are also reimbursed for their out-of-pocket expenses
incurred in attending meetings. Outside directors (non-employee directors who
are not affiliated with Warburg, Pincus & Co. ("WP")) are eligible to receive an
annual stock option grant under the Company's 1995 Director Option Plan (the
"Director Plan"). Under the Director Plan, each new outside director of the
Company is entitled to receive an option for 10,000 shares of the Company's
Common Stock on the date on which such person first becomes an outside director.
In addition, each outside director who has served on the Board of Directors for
at least six months automatically is entitled to receive an option grant for
5,000 shares of Common Stock on the last business day prior to each annual
meeting of stockholders of the Company. The options have a term of ten years, an
exercise price equal to 100% of the fair market value of the Common Stock on the
date of grant and vest 50% on each anniversary date of the two years following
the grant date; provided that, the optionee is still a director of the Company
on the date of vesting. All options held by a director terminate if they are not
exercised within two years of such director's ceasing to be a director of the
Company. Options for up to 500,000 shares of Common Stock have been reserved for
issuance under the Director Plan. In 1998, each of Dr. Baldeschwieler, Dr.
Hirsh, Dr. Hemberger and Mr. Kennedy received an option grant for 5,000 shares
of Common Stock.

EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
  ARRANGEMENTS

    On August 18, 1998, the Company entered into a Separation Agreement with Mr.
Patrick Mahaffy (the "Separation Agreement") in connection with his resignation
as the Company's President and Chief Executive Officer. Under the terms of the
Separation Agreement, Mr. Mahaffy receives $25,000 per month for a period of 24
months (the "Salary Continuation Period"). Mr. Mahaffy also received a one-time
bonus of $150,000 in connection with his efforts to effect the transaction
between the Company and SKW Americas, Inc. regarding Proligo L.L.C. Mr. Mahaffy
will continue to consult to the Company through May 21, 1999 at the request of
the Company and will be reimbursed for his out-of-pocket expenses. The Company
also agreed to continue Mr. Mahaffy's medical benefits under the Company's
health plans and pay the premiums for a $500,000 life insurance policy during
the Salary Continuation Period. The Separation Agreement terminated and
superseded the Employment Agreement between the Company and Mr. Mahaffy dated
May 1992.

    Dr. Gold has an employment agreement with the Company which expires on
February 14, 2002, unless terminated by either party prior to such date. Unless
earlier terminated, the term of Dr. Gold's employment agreement is extended one
year on each February 14. Pursuant to the terms of the employment agreement, Dr.
Gold's base salary is determined by the Board of Directors, but will always be
greater than $200,000 per annum unless Dr. Gold agrees otherwise. Dr. Gold
presently receives an annual salary of $300,000. In addition to the minimum
salary required by Dr. Gold's employment agreement, Dr. Gold is eligible to
participate in such fringe benefits as are generally made available to
executives of the Company, including any incentive compensation programs which
may be developed from time to time during the term of Dr. Gold's employment
agreement. The Company has also purchased a $1,000,000 term life insurance
policy for the benefit of Dr. Gold's estate. Dr. Gold can terminate his
obligations under the employment agreement at any time upon 30 days' written
notice. The Company can terminate Dr. Gold's employment (i) in the event of
physical or mental incapacitation, (ii) if Dr. Gold joins the faculty of an
academic institution other than CU or (iii) with or without cause. If Dr. Gold's
employment is terminated pursuant to clause (i) above, he will be entitled to
receive severance pay for the balance of the term of his employment agreement at
the rate of 75% of his salary at the time his employment is terminated, reduced

                                       48
<PAGE>
by applicable payroll taxes and the amount he receives during such period under
any disability insurance policy or plan maintained by the Company or under
Social Security or similar laws. If the Company terminates Dr. Gold's employment
without cause, Dr. Gold will be entitled to receive severance pay for the
balance of the term of the employment agreement at the rate of 100% of his
salary in effect at the time his employment is terminated, reduced by applicable
payroll taxes. If the Company terminates Dr. Gold's employment for cause or
pursuant to clause (ii) above, then Dr. Gold will not be entitled to receive any
severance pay.

    The Company entered into an employment agreement with Dr. Nicole Onetto on
March 14, 1997. The terms of Dr. Onetto's agreement include a minimum salary of
$240,000 annually and a 35% bonus opportunity, the payment by the Company of
certain relocation expenses, and one year of severance pay if her employment is
terminated for any reason beyond her control.

    In August 1998, the Company granted retention bonuses to certain key
employees, including Mr. Caracciolo, Dr. Eley, Mr. Hart and Dr. Onetto in the
amounts of $50,000, $100,000, $100,000 and $100,000, respectively (the "August
Retention Bonuses"). The August Retention Bonuses will be paid if such key
employees remain employed by the Company through March 31, 1999. In January
1999, the Company granted additional retention bonuses to certain key employees,
including Mr. Caracciolo, Dr. Eley, Mr. Hart and Dr. Onetto in the amounts of
$25,000, $50,000, $50,000 and $50,000, respectively (the "January Retention
Bonuses"). The January Retention Bonuses will be paid if such individuals remain
employed by the Company through September 1, 1999 or earlier if there is a
change of control of the Company.

    On February 8, 1999, the Company entered into change-in-control agreements
(the "Change in Control Agreements") with certain members of senior management,
including Mr. Caracciolo, Dr. Eley, Mr. Hart, and Dr. Onetto. Pursuant to the
terms of the Change in Control Agreements, in the event there is a change in
control of the Company and either (a) such officer's employment is terminated
without cause, (b) the functions and responsibilities of such officer's job are
substantially diminished, or (c) the officer is required to relocate his or her
place of residence, then such officer shall receive severance pay equal to 12
months of his or her base salary, continue to receive coverage under the
Company's health benefit plans for a period of 12 months and receive
outplacement services.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

    Mr. Rodman W. Moorhead, III and Dr. David I. Hirsh, both of whom are
non-employee directors of the Company, served as members of the Compensation
Committee of the Board of Directors of the Company during 1998.

                                       49
<PAGE>
    ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

    The following table sets forth certain information as to the beneficial
ownership of each person known to the Company to own more than 5% of the
Company's outstanding Common Stock as of March 17, 1999 (unless otherwise
indicated). The information set forth below is based on information furnished by
such beneficial owners to the Company.

<TABLE>
<CAPTION>
                                                                                  SHARES
NAME AND ADDRESS OF                                                            BENEFICIALLY     PERCENT OF
BENEFICIAL OWNER                                                                   OWNED           CLASS
---------------------------------------------------------------------------  -----------------  -----------
<S>                                                                          <C>                <C>
Warburg, Pincus Investors, L.P.(1).........................................       4,412,755          15.3%
  466 Lexington Avenue
  New York, New York 10017

Warburg, Pincus Capital Partners Liquidating Trust(1)......................       3,600,792          12.5%
  466 Lexington Avenue
  New York, New York 10017

Rodman W. Moorhead, III(1)(2)..............................................       8,013,547          27.8%
  466 Lexington Avenue
  New York, New York 10017

Shaker Investments(3)......................................................       1,986,244           6.9%
  Tower East
  20600 Chagrin Boulevard
  Cleveland, Ohio 44122

State of Wisconsin Investment Board(4).....................................       1,180,000           4.1%
  P.O. Box 7842
  Madison, Wisconsin 53707
</TABLE>

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

(1) The sole general partner of Warburg, Pincus Investors, L.P. ("WPI") is
    Warburg, Pincus & Co., a New York general partnership ("WP"). E.M. Warburg,
    Pincus & Co., LLC, a New York limited liability company ("EMW LLC"), manages
    WPI. The members of EMW LLC are substantially the same as the partners of
    WP. Lionel I. Pincus is the managing partner of WP and the managing member
    of EMW LLC and may be deemed to control both WP and EMW LLC. WP has a 20%
    interest in the profits of WPI as the general partner. WP has an
    approximately 26% interest in the assets held by Warburg, Pincus Capital
    Partners Liquidating Trust ("WPCP"). The trustees of WPCP are Lionel I.
    Pincus, John L. Vogelstein and Stephen Distler. Each of Messrs. Pincus,
    Vogelstein and Distler disclaims beneficial ownership of any shares of
    Common Stock beneficially owned by WPCP. By reason of the provisions of Rule
    16a-1 under the Securities Exchange Act of 1934 ("Rule 16a-1"), WP and EMW
    LLC may be deemed to be beneficial owners of the Common Stock and warrant
    held by WPI and WP may be deemed to be a beneficial owner of the Common
    Stock held by WPCP, although both WP and EMW LLC disclaim beneficial
    ownership of such securities except to the extent of any indirect pecuniary
    interest therein. Mr. Rodman W. Moorhead, III, a director of the Company, is
    a Senior Managing Director and member of EMW LLC and a general partner of
    WP. As such, Mr. Moorhead may be deemed to have an indirect pecuniary
    interest (within the meaning of Rule 16a-1) in an indeterminate portion of
    the shares beneficially owned by WPI, WPCP and WP. The totals for WPI and
    Mr. Moorhead include 125,000 shares of Common Stock reserved for issuance
    upon the exercise of a warrant held by WPI.

(2) All of the shares indicated as owned by Mr. Moorhead are owned directly by
    WPI and WPCP and are included because of Mr. Moorhead's affiliation with WPI
    and WPCP. Mr. Moorhead disclaims "beneficial ownership" of these shares
    within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934.
    See Footnote (1) above.

                                       50
<PAGE>
(3) This information is based solely on information furnished to the Company by
    Shaker Investments as of December 31, 1998.

(4) This information was furnished to the Company by the State of Wisconsin
    Investment Board as of March 15, 1999, subsequent to their most recent Form
    13(g) filing with the Securities and Exchange Commission on February 2,
    1999.

STOCK OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS

    The following table sets forth the number of shares of Common Stock
beneficially owned (or deemed to be beneficially owned pursuant to the rules of
the Securities and Exchange Commission) as of March 17, 1999 by each director of
the Company, the Named Executive Officers (excluding Patrick J. Mahaffy, who no
longer serves as a director or executive officer of the Company) and all of the
executive officers of the Company as a group.

<TABLE>
<CAPTION>
                                                                                  SHARES
                                                                                BENEFICIALLY PERCENT OF
NAME                                                                             OWNED(1)       CLASS
------------------------------------------------------------------------------  -----------  -----------
<S>                                                                             <C>          <C>
Lawrence M. Gold, Ph.D.(2)....................................................     894,466      3.1%
John D. Baldeschwieler, Ph.D.(3)..............................................     149,827        *
Judith A. Hemberger, Ph.D.(4).................................................       5,000        *
David I. Hirsh, Ph.D.(5)......................................................      49,016        *
Roger G. Kennedy(6)...........................................................      34,867        *
Rodman W. Moorhead, III(7)....................................................   8,013,547      27.8%
Michael E. Hart(8)............................................................      80,445        *
Crispin G.S. Eley, D. Phil.(9)................................................      88,749        *
Nicole Onetto(10).............................................................      13,175        *
Anthony Caracciolo(11)........................................................      24,075        *
All directors, director nominees and executive officers as a group
 (16 persons)(12).............................................................   9,594,266      32.8%
                                                                                -----------  -----------
</TABLE>

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

*   Less than 1% of the Company's outstanding Common Stock.

(1) Unless otherwise indicated, each person listed as the beneficial owner of
    shares of Common Stock has the sole voting power and investment power with
    respect to such shares.

(2) The amount shown includes 102,000 shares of Common Stock held by members of
    Dr. Gold's immediate family in which shares Dr. Gold disclaims beneficial
    ownership.

(3) The amount shown includes 88 shares of Common Stock owned by Dr.
    Baldeschwieler's spouse in which shares Dr. Baldeschwieler disclaims
    beneficial ownership. The amount shown includes 55,000 shares of Common
    Stock owned by the John D. Baldeschwieler, Inc. Profit Sharing Trust and
    1,911 shares owned by the John D. Baldeschwieler, Inc. Pension Trust, in
    which trusts Dr. Baldeschwieler is the sole trustee and sole beneficiary.
    The amount shown also includes options to purchase 24,500 shares of Common
    Stock which are exercisable within 60 days.

(4) The amount shown represents options to purchase Common Stock which are
    exercisable within 60 days. The amount does not include options held by Dr.
    Hemberger to purchase 10,000 shares of Common Stock which are not exercisble
    within 60 days.

(5) The amount shown includes 5,352 shares of Common Stock owned by Dr. Hirsh's
    wife and 704 shares owned by Dr. Hirsh's sons in which shares Dr. Hirsh
    disclaims beneficial ownership. The amount also includes 1,980 shares of
    Common Stock which are owned as a joint tenant with Dr. Hirsh's wife. The
    amount shown includes options to purchase 17,500 shares of Common Stock
    which are exercisable within 60 days. The amount shown does not include
    options held by Dr. Hirsh to purchase 7,500 shares of Common Stock which are
    not exercisable within 60 days.

                                       51
<PAGE>
(6) The amount shown includes 29,867 shares held in trust, including 17,899
    shares held in trust in which Mr. Kennedy is the primary trustee. The amount
    shown also includes options to purchase 5,000 shares of Common Stock which
    are exercisable within 60 days.

(7) All of the shares indicated as owned by Mr. Moorhead are owned directly by
    WPI and WPCP and are included because of Mr. Moorhead's affiliation with WPI
    and WPCP. Mr. Moorhead disclaims "beneficial ownership" of these shares
    within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934.
    See Footnotes (1) and (2) under "Stock Ownership of Certain Beneficial
    Owners." The amount shown includes a warrant to purchase 125,000 shares of
    Common Stock.

(8) The amount shown represents 437 shares of Common Stock credited to Mr.
    Hart's account under the Company's 401(k) Retirement Savings Plan (the
    "Company's 401(k) Plan") and options to purchase 80,008 shares of Common
    Stock which are exercisable within 60 days.

(9) The amount shown includes 2,979 shares of Common Stock credited to Dr.
    Eley's account under the Company's 401(k) Plan and options to purchase
    77,060 shares of Common Stock which are exercisable within 60 days. The
    amount shown also includes 2,904 shares of Common Stock owned jointly with
    Dr. Eley's father in which shares Dr. Eley disclaims beneficial ownership.

(10) The amount shown represents options to purchase shares of Common Stock
    exercisable within 60 days.

(11) The amount shown includes options to purchase 20,675 shares of Common Stock
    exercisable within 60 days.

(12) The amount shown includes 391,666 shares of Common Stock issuable upon
    options exercisable within 60 days.

CHANGES IN CONTROL

    In connection with the execution of the Merger Agreement with Gilead, the
Directors of the Company, Warburg, Pincus Investors, L.P. and Warburg, Pincus
Capital Partners Liquidating Trust, each in his, or her or its capacity as a
stockholder of the Company, agreed to vote his, her or its respective shares of
Company Common Stock in favor of the approval and adoption of the Merger
Agreement and the Merger. If, however, the Gilead Share Value drops below
$27.00, the obligations to vote such shares in favor of the Merger becomes
terminable.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

    In June 1994, the Company loaned $80,000 to Dr. Crispin Eley who is the
Company's Vice President, Pharmaceutical Operations. The amount has an interest
rate of 7.25% per annum and is due on June 29, 1999.

    In February 1998, the Company loaned $161,488 to Dr. Bruce Eaton who is the
Company's Vice President, Chemistry. The loan has an interest rate of 8.5% per
annum and is due on January 21, 2002.

    During 1998, the Company entered into an agreement with BolderPATH, Inc., a
company 50% owned by Dr. Ray Bendele's spouse. Dr. Bendele is the Company's Vice
President, Life Sciences. The Company paid approximately $30,000 to BolderPATH
in 1998.

    During 1998, the Company purchased $8,200 of supplies for Dr. Gold's
laboratory at CU. The Company has exclusive commercial rights to all of the
research occurring in Dr. Gold's laboratory.

    During 1998, Dr. Hemberger received $40,100 for technical and scientific
services performed as a consultant for the Company. Dr. Hemberger entered into
an agreement with the Company in January 1998 pursuant to which she receives
$1,500 per day for consulting services which she provides to the Company.

                                       52
<PAGE>
    Mr. Moorhead serves as a director of the Company pursuant to certain
provisions of an agreement between the Company, Warburg, Pincus Investors, L.P.
("WPI"), Dr. Gold and others which provide that the Company will nominate and
use its best efforts to have elected up to two directors, designated by WPI
while WPI owns more than 20% of the outstanding Common Stock or one director
while it owns more than 10% of the outstanding Common Stock but less than 20%.
Currently, WPI has designated one director, Mr. Moorhead, to serve on the
Company's Board of Directors. Certain provisions of the same agreement provide
that the Company will nominate and use its best efforts to have elected as a
director one person designated by Dr. Gold if Dr. Gold were to increase his
ownership to more than 10% of the outstanding Common Stock.

                                       53
<PAGE>
                                    PART IV

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

    (a)  1. INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                                                         PAGE IN
                                                                                                        FORM 10-K
                                                                                                        ----------
<S>                                                                                                     <C>
    Report of Independent Auditors Ernst & Young LLP..................................................     F-1
    Report of Independent Auditors PricewaterhouseCoopers LLP.........................................     F-2
    Consolidated Balance Sheets as of December 31, 1998 and 1997......................................     F-3
    Consolidated Statements of Operations for the years ended December 31, 1998, 1997 and 1996........     F-4
    Consolidated Statements of Stockholders' Equity for the years ended December 31, 1998, 1997 and
    1996..............................................................................................     F-5
    Consolidated Statements of Cash Flows for the years ended December 31, 1998, 1997 and 1996........     F-6
    Notes to Consolidated Financial Statements........................................................     F-7

    2. INDEX TO FINANCIAL STATEMENT SCHEDULES

    Schedule II: Valuation and Qualifying Accounts for the years ended December 31, 1998, 1997 and
    1996..............................................................................................     S-1
</TABLE>

    All other schedules not applicable.

    3. EXHIBITS

<TABLE>
<CAPTION>
  EXHIBIT
   NUMBER                                                  DESCRIPTION
------------  -----------------------------------------------------------------------------------------------------
<C>           <S>
      2.1 --  Agreement and Plan of Merger, dated February 28, 1999 by and among Gilead Sciences, Inc., Gazelle
              Acquisition Sub, Inc. and NeXstar Pharmaceuticals, Inc.(1).

      2.2 --  Purchase Agreement, dated August 15, 1998, by and among SKW Americas, Inc., Proligo L.L.C. and
              Registrant (2).

      3.1 --  Second Amended and Restated Certificate of Incorporation of the Registrant(3).

      3.2 --  Amended and Restated Bylaws of the Registrant(4).

      4.1 --  Second Amended and Restated Certificate of Incorporation of the Registrant (filed as Exhibit 3.1 to
              this Report).

      4.2 --  Form of Common Stock certificate of the Registrant(4).

      4.3 --  Indenture, dated as of July 31, 1997, between the Registrant and IBJ Schroder Bank & Trust Company as
              Trustee, for the Registrant's 6 1/4% Convertible Subordinated Debentures due 2004(5).

      4.4 --  Registration Rights Agreement, dated July 31, 1997, among the Registrant and SBC Warburg Inc. and
              Oppenheimer & Co., Inc.(5).

     10.1 --  License Agreement between University Research Corporation and the Registrant, effective as of July
              17, 1991, as amended on October 26, 1992(6).

     10.2 --  Amendment No. 2, effective April 5, 1996, and Amendment No. 3, dated September 5, 1996, to the
              License Agreement between University Research Corporation and the Registrant, effective as of July
              17, 1991, as amended on October 26, 1992(7).
</TABLE>

                                       54
<PAGE>
<TABLE>
<C>           <S>
     10.3 --  Stock Purchase Agreement among the Registrant, Warburg, Pincus Investors, L.P., University Research
              Corporation and Lawrence M. Gold, dated as of July 17, 1991, as amended on December 4, 1992, and as
              amended by letter agreement on November 19, 1993(6).

     10.4 --  Employment Agreement, dated July 1, 1991, between the Registrant and Lawrence M. Gold(6).

     10.5 --  Form of Change in Control Agreement, dated February 8, 1999, between the Company and each executive
              officer of the Company(19).

     10.6 --  Master Equipment Lease Agreement between MMC/GATX Partnership No. 1 and the Registrant, dated as of
              November 23, 1992(6).

     10.7 --  Stock Purchase Agreement among the Registrant, Eli Lilly and Company and Warburg, Pincus Investors,
              L.P., dated as of September 15, 1992(6).

     10.8 --  Supplement to Stock Purchase Agreement among the Registrant, Eli Lilly and Company, Warburg, Pincus
              Investors, L.P. and certain additional investors, dated as of September 30, 1992(6).

     10.9 --  Second Supplement to Stock Purchase Agreement among the Company, Accel III, L.P., Accel Japan L.P.,
              Accel Investors '92 L.P., New Enterprise Associates V Limited Partnership, Ven Sed I, Eli Lilly and
              Company and Warburg, Pincus Investors, L.P., dated as of December 4, 1992(6).

    10.10 --  Securities Purchase Agreement among Warburg, Pincus Capital Partners, L.P., Humana Inc. and Vestar,
              Inc., dated May 11, 1990(7).

    10.11 --  Collaborative Research Agreement between the Registrant and Schering A.G., dated as of November 16,
              1993(6).

    10.12 --  Letter Agreement between the Registrant and Schering A.G., effective February 1, 1997, amending the
              Collaborative Research Agreement between the Registrant and Schering A.G., dated as of November 16,
              1993(7)

    10.13 --  License Agreement between the Registrant and Schering A.G., dated as of November 16, 1993(6).

    10.14 --  Master Equipment Lease Agreement between Phoenix Leasing Incorporated and the Registrant, dated
              November 15, 1993(6).

    10.15 --  Master Lease Agreement between USL Capital Corporation and the Registrant, dated as of November 9,
              1995(8).

    10.16 --  Master Lease Agreement, dated as of September 9, 1996, between General Electric Capital Corporation
              and the Registrant(5).

    10.17 --  Master Security Agreement, dated as of March 27, 1997, between General Electric Capital Corporation
              and the Registrant(5).

    10.18 --  Common Stock Purchase Warrant issued to Warburg, Pincus Investors L.P., dated March 27, 1997(9).

    10.19 --  NeXagen, Inc. 1993 Incentive Stock Plan, adopted February 8, 1993, as amended(5).

    10.20 --  Registrant's 1995 Director Option Plan, adopted July 25, 1995(10).

    10.21 --  Vestar, Inc. 1988 Stock Option Plan(4).
</TABLE>

                                       55
<PAGE>
<TABLE>
<C>           <S>
    10.22 --  Registrant's 1994 Employee Stock Purchase Plan, adopted June 9, 1994(4).

    10.23 --  Amendment No. 1 to Registrant's 1994 Employee Stock Purchase Plan, adopted June 9, 1994(3).

    10.24 --  Lease, dated March 26, 1987, between Vestar, Inc. and Majestic Realty Co. and Patrician Associates,
              Inc. and Amendment No. 1 thereto and Amendment No. 2 thereto, dated as of June 8, 1992(4).

    10.25 --  Third Amendment, dated January 11, 1996, between Majestic Realty Co. and Patrician Associates, Inc.
              and the Registrant, to Lease, dated March 26, 1987, between Vestar, Inc. and Majestic Realty Co. and
              Patrician Associates, Inc.(8).

    10.26 --  Assignment and Royalty Agreement, dated December 21, 1990, effective as of June 2, 1989, between
              Vestar, Inc. and City of Hope National Medical Center(11).

    10.27 --  License Agreement, effective as of August 12, 1986, between Vestar, Inc. and The Regents of the
              University of California(8).

    10.28 --  Agreement by and between Fujisawa USA, Inc. and Vestar, Inc., dated August 9, 1991, and Amendment No.
              1 thereto, dated as of May 17, 1994(4).

    10.29 --  Amendment No. 2 to agreement between Fujisawa USA, Inc. and Vestar, Inc., dated as of April 3, 1995,
              between Fujisawa USA, Inc. and Vestar, Inc.(12) [Part of this document has been redacted for purposes
              of confidentiality pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended].

    10.30 --  Amendment No. 3 to Agreement between Fujisawa USA, Inc. and the Registrant, dated March 4, 1996, to
              the Agreement by and between Fujisawa USA, Inc. and Vestar, Inc., dated August 9, 1991(8).

    10.31 --  Lease, dated April 13, 1992, between Vestar, Inc. and Majestic Realty Co. and Patrician Associates,
              Inc.(4).

    10.32 --  First Amendment to Lease, dated April 10, 1993, between Majestic Realty Co. and Patrician Associates,
              Inc. and Vestar, Inc. amending Lease, dated April 13, 1992, between Majestic Realty Co. and Patrician
              Associates, Inc. and Vestar, Inc.(8).

    10.33 --  Master Lease Agreement, dated June 29, 1994, between Vestar, Inc. and Comdisco, Inc.(4).

    10.34 --  Amendment No. 1, dated December 5, 1997, between the Registrant and Comdisco, Inc. to the Master
              Lease Agreement, dated June 29, 1994, between Vestar, Inc. and Comdisco, Inc.(13)

    10.35 --  Employment Agreement, dated March 14, 1997, between the Registrant and Nicole Onetto(9).

    10.36 --  Consulting Agreement, dated January 29, 1998, between the Registrant and Judith A. Hemberger(13).

    10.37 --  Royalty Agreement, dated October 30, 1995, between the Registrant and Amplimed Corporation(8).

    10.38 --  Pharmaceutical Pricing Agreement between the Secretary of Veterans Affairs and the Registrant, dated
              April 30, 1996(14).

    10.39 --  Master Agreement between Secretary of Veterans Affairs and the Registrant, dated April 30, 1996(14).
</TABLE>

                                       56
<PAGE>
<TABLE>
<C>           <S>
    10.40 --  Pharmaceutical Pricing Agreement between the Secretary of Health and Human Services and the
              Registrant, dated April 30, 1996(14).

    10.41 --  Rebate Agreement between the Secretary of Health and Human Services and the Registrant, dated April
              30, 1996(14).

    10.42 --  Industrial Real Estate Lease, dated July 1, 1996, by and between Wilderness Place, Ltd. and the
              Registrant(15).

    10.43 --  Sublease Agreement, dated July 31, 1996, between Sybase, Inc. and the Registrant(16).

    10.44 --  License and Distribution Agreement, dated September 26, 1997, by and between Sumitomo Pharmaceuticals
              Co., Ltd. and the Registrant(7). [Part of the document has been redacted for purposes of
              confidentiality pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.]

    10.45 --  Settlement Agreement, dated August 11, 1997, by and among Registrant, Fujisawa U.S.A., Inc. and The
              Liposome Company, Inc.(17). [Part of the document has been redacted for purposes of confidentiality
              pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.]

    10.46 --  Credit Agreement, dated September 1, 1997, by and between the Registrant and Wells Fargo Bank,
              National Association(17).

    10.47 --  First Amendment to Credit Agreement, dated May 1, 1998, by and between Registrant and Wells Fargo
              Bank, National Association amending Credit Agreement, dated September 1, 1997, by and between the
              Registrant and Wells Fargo Bank, National Association (2).

    10.48 --  Letter agreement, dated September 1, 1998, between Registrant and Wells Fargo Bank, National
              Association amending Credit Agreement, dated September 1, 1997, as amended, by and between the
              Registrant and Wells Fargo Bank, National Association (2).

    10.49 --  Second Amendment to Credit Agreement, dated November 1, 1998, by and between the Registrant and Wells
              Fargo Bank, National Association amending Credit Agreement, dated September 1, 1997, as amended, by
              and between the Registrant and Wells Fargo Bank, National Association (2).

    10.50 --  Amended and Restated Limited Liability Company Agreement of Proligo L.L.C., dated August 15, 1998, by
              and among NeXstar Pharmaceuticals International, Inc., SKW Americas, Inc. and the Registrant (2).

    10.51 --  Amendment, dated April 30, 1998, between Sumitomo Pharmaceuticals Co., Ltd. ("Sumitomo") and the
              Registrant to the License and Distribution Agreement, dated September 26, 1996, between Sumitomo and
              the Registrant (18).

    10.52 --  Share Option Agreement, dated February 28, 1999, by and between Gilead Sciences, Inc. and NeXstar
              Pharmaceuticals, Inc.(1)

    10.53 --  Form of Voting Agreement executed by each director of the Company, Warburg Pincus Investors, L.P. and
              Warburg Pincus Capital Partners Liquidating Trust(1).

    10.54 --  Separation Agreement, dated August 18, 1998, between the Company and Patrick J. Mahaffy(19).

     21.1 --  Subsidiaries of the Registrant(19).

     23.1 --  Consent of Independent Auditors Ernst & Young LLP.

     23.2 --  Consent of Independent Accountants PricewaterhouseCoopers LLP.
</TABLE>

                                       57
<PAGE>
<TABLE>
<C>           <S>
     27.1 --  Financial Data Schedule(19).
</TABLE>

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

(1) Previously filed in the Exhibits to Form 8-K (File No. 0-23012) for the
    Registrant dated March 9, 1999, which exhibit is incorporated by reference
    herein.

(2) Previously filed in the Exhibits to Form 10-Q (File No. 0-23012) for the
    Registrant for the quarter ended September 30, 1998, which exhibit is
    incorporated herein by reference.

(3) Previously filed in the Exhibits to the Registration Statement on Form S-3
    (File No. 333-04653), declared effective by the Securities and Exchange
    Commission on June 19, 1996, which exhibit is incorporated by reference
    herein.

(4) Previously filed in the Exhibits to Form 10-K (File No. 0-23012) for the
    Registrant for the fiscal year ended December 31, 1994, and incorporated by
    reference herein.

(5) Previously filed in the Exhibits to Form 10-Q (File No. 0-23012) for the
    Registrant for the quarterly period ended June 30, 1997, and incorporated by
    reference herein.

(6) Previously filed in the Exhibits to the Registration Statement on Form S-1
    (File No. 33-72142), declared effective by the Securities and Exchange
    Commission on January 28, 1994, which exhibit is incorporated by reference
    herein.

(7) Previously filed in the Exhibits to Form 10-K (File No. 0-23012) for the
    Registrant for the fiscal year ended December 31, 1996, and incorporated by
    reference herein.

(8) Previously filed in the Exhibits to Form 10-K (File No. 0-23012) for the
    Registrant for the fiscal year ended December 31, 1995, and incorporated by
    reference herein.

(9) Previously filed in the Exhibits to Form 10-Q (File No. 0-23012) for the
    Registrant for the quarterly period ended March 31, 1997, and incorporated
    by reference herein.

(10) Previously filed in the Exhibits to Form 10-Q (File No. 0-23012) for the
    Registrant for the quarterly period ended September 30, 1995, and
    incorporated by reference herein.

(11) Previously filed, on March 22, 1991, in the Exhibits to the Registration
    Statement on Form S-2 (File No. 33-39549), which exhibit is incorporated by
    reference herein.

(12) Previously filed in the Exhibits to Form 10-Q (File No. 0-23012) for the
    Registrant for the quarterly period ended March 31, 1995, and incorporated
    by reference herein.

(13) Previously filed in the Exhibits to Form 10-K (File No. 0-23012) for the
    Registrant for the year ended December 31, 1997, which exhibit is
    incorporated by reference herein.

(14) Previously filed in the Exhibits to Form 10-Q (File No. 0-23012) for the
    Registrant for the quarterly period ended March 31, 1996, and incorporated
    by reference herein.

(15) Previously filed in the Exhibits to Form 10-Q (File No. 0-23012) for the
    Registrant for the quarterly period ended June 30, 1996, and incorporated by
    reference herein.

(16) Previously filed in the Exhibits to Form 10-Q (File No. 0-23012) for the
    Registrant for the quarterly period ended September 30, 1996, and
    incorporated by reference herein.

(17) Previously filed in the Exhibits to Form 10-Q (File No. 0-23012) for the
    Registrant for the quarterly period ended September 30, 1997, and
    incorporated by reference herein.

(18) Previously filed in the Exhibits to Form 10-Q (File No. 0-23012) for the
    Registrant for the quarter ended June 30, 1998 and incorporated herein by
    reference.

(19) Previously filed in the Exhibits to Form 10-K (File No. 0-23012) for the
    Registrant for the fiscal year ended December 31, 1998, which exhibit is
    incorporated by reference herein.

    (b)  REPORTS ON FORM 8-K

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

                                       58
<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.

<TABLE>
<S>                             <C>  <C>
                                NEXSTAR PHARMACEUTICALS, INC.

                                By:             /s/ MICHAEL E. HART
                                     -----------------------------------------
                                                  Michael E. Hart
                                     VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
</TABLE>

Date: June 23, 1999

                                       59
<PAGE>
                         REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Stockholders
NeXstar Pharmaceuticals, Inc.

    We have audited the accompanying consolidated balance sheets of NeXstar
Pharmaceuticals, Inc. as of December 31, 1998 and 1997, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1998. Our audits also
included the financial statement schedule listed in the index at Item 14(a).
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits. We did not audit the financial
statements of Proligo L.L.C., a limited liability company, the investment in
which is reflected in the accompanying consolidated financial statements using
the equity method of accounting. The investment in Proligo L.L.C. represents
5.4% of consolidated total assets at December 31, 1998, and the Company's equity
in the net loss of Proligo L.L.C. is $1,101,000 in 1998. The 1998 financial
statements of Proligo L.L.C. have been audited by other auditors whose report
has been furnished to us; insofar as our opinion on the 1998 consolidated
financial statements relates to data included for Proligo L.L.C., it is based
solely on their report.

    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 and the report of other auditors provide a reasonable
basis for our opinion.

    In our opinion, based on our audits and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of NeXstar
Pharmaceuticals, Inc. at December 31, 1998 and 1997, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1998, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.

                                          ERNST & YOUNG LLP

Denver, Colorado
March 1, 1999

                                      F-1
<PAGE>
                       REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and
Members of Proligo LLC:

In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, members' equity and of cash flows present
fairly, in all material respects, the financial position of Proligo L.L.C. and
its subsidiaries at November 30, 1998, and the results of their operations and
their cash flows for the period from August 15, 1998 through November 30, 1998,
in conformity with generally accepted accounting principles. 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 audit. We conducted our audit of these financial statements in accordance
with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for the opinion expressed
above.

PricewaterhouseCoopers LLP
Denver, Colorado

January 7, 1999, except for Note 13, for
  which the date is March 1, 1999

                                      F-2
<PAGE>
                         NEXSTAR PHARMACEUTICALS, INC.

                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                          ASSETS

                                                                        DECEMBER 31,
                                                                 --------------------------
                                                                     1998          1997
                                                                 ------------  ------------
Current assets:
<S>                                                              <C>           <C>
Cash and cash equivalents......................................  $ 68,606,000  $ 39,292,000
  Marketable securities........................................       143,000    24,997,000
  Accounts receivable, net of allowance for doubtful accounts
    of $1,156,000 and $1,150,000 at December 31, 1998 and 1997,
    respectively...............................................    43,577,000    34,623,000
  Inventories..................................................    11,669,000    14,606,000
  Prepaid expenses and other...................................     4,584,000     3,872,000
                                                                 ------------  ------------
Total current assets...........................................   128,579,000   117,390,000
Property, plant and equipment, net of accumulated depreciation
  and amortization.............................................    40,837,000    44,778,000
Investment in unconsolidated affiliate.........................    10,261,000            --
Patent and trademark costs, net of accumulated amortization of
  $1,984,000 and $1,432,000 at December 31, 1998 and 1997,
  respectively.................................................     5,226,000     5,623,000
Other noncurrent assets, net of an allowance of $1,737,000 at
  December 31, 1997............................................     5,227,000     2,752,000
                                                                 ------------  ------------
Total assets...................................................  $190,130,000  $170,543,000
                                                                 ------------  ------------
                                                                 ------------  ------------

                           LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Short-term borrowings........................................  $         --  $  5,034,000
  Accounts payable.............................................     4,240,000     5,237,000
  Accrued compensation and employee benefits...................     7,027,000     4,338,000
  Accrued litigation settlement and related expenses due within
    one year...................................................     2,124,000     1,273,000
  Accrued interest payable.....................................     2,083,000     2,083,000
  Other accrued expenses.......................................     6,038,000     4,037,000
  Long-term obligations due within one year....................     4,072,000     5,445,000
                                                                 ------------  ------------
Total current liabilities......................................    25,584,000    27,447,000
Accrued litigation settlement expenses due after one year......     7,848,000     8,767,000
Long-term obligations due after one year.......................     8,320,000     8,327,000
Convertible subordinated debentures............................    80,000,000    80,000,000

Commitments and contingencies

Stockholders' equity:
  Preferred stock, $1.00 par value; 5,000,000 shares authorized
    Common stock, $.01 par value; 50,000,000 shares authorized;
    issued and outstanding shares--28,664,559 in 1998 and
    27,426,395 in 1997.........................................       287,000       274,000
  Additional paid-in capital...................................   227,505,000   216,159,000
  Deferred compensation........................................       (68,000)     (151,000)
  Other comprehensive loss.....................................      (380,000)     (394,000)
  Accumulated deficit..........................................  (158,966,000) (169,886,000)
                                                                 ------------  ------------
Total stockholders' equity.....................................    68,378,000    46,002,000
                                                                 ------------  ------------
Total liabilities and stockholders' equity.....................  $190,130,000  $170,543,000
                                                                 ------------  ------------
                                                                 ------------  ------------
</TABLE>

          See accompanying notes to consolidated financial statements.

                                      F-3
<PAGE>
                         NEXSTAR PHARMACEUTICALS, INC.

                     CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                             YEARS ENDED DECEMBER 31,
                                                                  ----------------------------------------------
                                                                       1998            1997            1996
                                                                  --------------  --------------  --------------

<S>                                                               <C>             <C>             <C>
Revenues:
  Product revenues..............................................  $  108,102,000  $   89,152,000  $   80,153,000
  License fees..................................................       3,000,000          10,000       7,000,000
  Royalties.....................................................       5,007,000         671,000              --
  Collaborative agreements and contracts........................       2,440,000       2,388,000       1,548,000
                                                                  --------------  --------------  --------------
Total revenues..................................................     118,549,000      92,221,000      88,701,000
                                                                  --------------  --------------  --------------

Expenses:
  Cost of goods sold............................................      21,331,000      19,787,000      18,320,000
  Research and development......................................      52,475,000      53,015,000      47,760,000
  Selling, general and administrative...........................      49,460,000      45,033,000      42,933,000
  Litigation settlement and related expenses....................       1,267,000      16,031,000       2,006,000
                                                                  --------------  --------------  --------------
Total expenses..................................................     124,533,000     133,866,000     111,019,000
                                                                  --------------  --------------  --------------
Operating loss..................................................      (5,984,000)    (41,645,000)    (22,318,000)
Gain on sale of a majority interest in a subsidiary.............      22,132,000              --              --
Interest income.................................................       3,323,000       2,446,000       1,821,000
Interest expense................................................      (6,591,000)     (4,389,000)     (1,558,000)
                                                                  --------------  --------------  --------------
Income (loss) before provision for income tax and equity in loss
  of unconsolidated affiliate...................................      12,880,000     (43,588,000)    (22,055,000)

Provision for income tax........................................         859,000         322,000         926,000
Equity in loss of unconsolidated affiliate......................      (1,101,000)             --              --
                                                                  --------------  --------------  --------------
Net income (loss)...............................................  $   10,920,000  $  (43,910,000) $  (22,981,000)
                                                                  --------------  --------------  --------------
                                                                  --------------  --------------  --------------
Net income (loss) per share:
  Basic.........................................................  $         0.39  $        (1.65) $        (0.88)
                                                                  --------------  --------------  --------------
                                                                  --------------  --------------  --------------
  Diluted.......................................................  $         0.38  $        (1.65) $        (0.88)
                                                                  --------------  --------------  --------------
                                                                  --------------  --------------  --------------
Shares used in computing net income (loss) per share:
  Basic.........................................................      28,135,000      26,692,000      26,029,000
                                                                  --------------  --------------  --------------
                                                                  --------------  --------------  --------------
  Diluted.......................................................      28,403,000      26,692,000      26,029,000
                                                                  --------------  --------------  --------------
                                                                  --------------  --------------  --------------
</TABLE>

          See accompanying notes to consolidated financial statements.

                                      F-4
<PAGE>
                         NEXSTAR PHARMACEUTICALS, INC.

                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                   COMMON STOCK      ADDITIONAL                                    OTHER          TOTAL
                               --------------------    PAID-IN      DEFERRED     ACCUMULATED   COMPREHENSIVE   STOCKHOLDERS'
                                SHARES     AMOUNT      CAPITAL    COMPENSATION     DEFICIT     INCOME (LOSS)      EQUITY
                               ---------  ---------  -----------  -------------  ------------  --------------  ------------
<S>                            <C>        <C>        <C>          <C>            <C>           <C>             <C>
Balance at December 31,
 1995........................  24,377,192 $ 244,000  $184,290,000   $(235,000)   $(102,995,000)   $ (140,000)   $81,164,000
  Net loss...................         --         --           --           --     (22,981,000)           --    (22,981,000)
  Foreign currency
    translation adjustment...                    --           --           --              --       (90,000)       (90,000)
                                                                                                               ------------
  Comprehensive loss.........                                                                                  (23,071,000)
Issuance of common stock for
 cash........................  1,429,268     14,000   24,982,000           --              --            --     24,996,000
  Stock repurchases..........       (136)        --           --           --              --            --             --
  Employee stock purchase
    plan.....................     58,357      1,000      807,000           --              --            --        808,000
  Option exercises...........    289,030      3,000    2,320,000           --              --            --      2,323,000
  Warrant exercises..........    257,100      2,000    1,231,000           --              --            --      1,233,000
  Deferred compensation
    related to grants of
    stock options............         --         --      301,000     (301,000)             --            --             --
  Amortization of deferred
    compensation.............         --         --           --      169,000              --            --        169,000
                               ---------  ---------  -----------  -------------  ------------  --------------  ------------
Balance at December 31,
 1996........................  26,410,811   264,000  213,931,000     (367,000)   (125,976,000)     (230,000)    87,622,000
  Net loss...................         --         --           --           --     (43,910,000)           --    (43,910,000)
  Foreign currency
    translation adjustment...         --         --           --           --              --      (164,000)      (164,000)
                                                                                                               ------------
  Comprehensive loss.........                                                                                  (44,074,000)
  Issuance of warrant to
    related party............         --         --      353,000           --              --            --        353,000
  Stock repurchases..........       (408)        --           --           --              --            --             --
  Employee stock purchase
    plan.....................     81,962      1,000      880,000           --              --            --        881,000
  Option exercises...........    161,160      1,000      932,000           --              --            --        933,000
  Warrant exercises..........    772,870      8,000       19,000           --              --            --         27,000
  Deferred compensation
    related to grants of
    stock options............         --         --       44,000      (44,000)             --            --             --
  Amortization of deferred
    compensation.............         --         --           --      260,000              --            --        260,000
                               ---------  ---------  -----------  -------------  ------------  --------------  ------------
Balance at December 31,
 1997........................  27,426,395   274,000  216,159,000     (151,000)   (169,886,000)     (394,000)    46,002,000
                               ---------  ---------  -----------  -------------  ------------  --------------  ------------
  Net income.................         --         --           --           --      10,920,000            --     10,920,000
  Foreign currency
    translation adjustment...         --         --           --           --              --        14,000         14,000
                                                                                                               ------------
  Comprehensive income.......         --         --           --           --              --            --     10,934,000
  Issuance of common stock
    for cash.................    962,117     10,000    9,973,000           --              --            --      9,983,000
  Employee stock purchase
    plan.....................     88,541      1,000      725,000           --              --            --        726,000
  Option exercises...........    187,506      2,000      648,000           --              --            --        650,000
  Amortization of deferred
    compensation.............                    --           --       83,000              --            --         83,000
                               ---------  ---------  -----------  -------------  ------------  --------------  ------------
Balance at December 31,
 1998........................  28,664,559 $ 287,000  $227,505,000   $ (68,000)   $(158,966,000)   $ (380,000)   $68,378,000
                               ---------  ---------  -----------  -------------  ------------  --------------  ------------
                               ---------  ---------  -----------  -------------  ------------  --------------  ------------
</TABLE>

          See accompanying notes to consolidated financial statements.

                                      F-5
<PAGE>
                         NEXSTAR PHARMACEUTICALS, INC.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                       YEARS ENDED DECEMBER 31,
                                                                                 -------------------------------------
                                                                                    1998         1997         1996
                                                                                 -----------  -----------  -----------
<S>                                                                              <C>          <C>          <C>
OPERATING ACTIVITIES
Net income (loss)..............................................................  $10,920,000  $(43,910,000) $(22,981,000)
Adjustments to reconcile net income (loss) to net cash used in operating
  activities:
  Depreciation and amortization of property, plant and equipment...............    9,471,000    9,535,000    9,759,000
  Amortization of intangible assets............................................    1,693,000    1,943,000    1,541,000
  Write-off of purchased technology............................................           --    1,256,000           --
  Gain on sale of a majority interest in a subsidiary..........................  (22,132,000)          --           --
  Equity in loss of unconsolidated affiliate...................................    1,101,000           --           --
  Litigation settlement charges................................................    1,267,000   11,767,000           --
  Additions to allowance for doubtful accounts.................................        6,000      125,000      520,000
  Reduction in allowance for note receivable...................................     (550,000)          --           --
  Compensation expense related to grant of options and sales of stock,
    including amortization of deferred compensation............................       83,000      260,000      169,000
  Write down of investment in life science enterprise..........................           --           --    1,241,000
  Other........................................................................      474,000     (202,000)     222,000
  Changes in operating assets and liabilities:
    Accounts receivable........................................................   (8,927,000)  (5,031,000) (12,019,000)
    Inventories................................................................    2,937,000    1,023,000   (6,160,000)
    Prepaid expenses and other.................................................     (712,000)  (1,196,000)    (328,000)
    Other noncurrent assets....................................................   (1,645,000)     (25,000)     151,000
    Accounts payable...........................................................     (694,000)  (5,115,000)   4,174,000
    Accrued compensation and employee benefits.................................    2,754,000      794,000      735,000
    Accrued interest...........................................................           --    2,083,000           --
    Accrued litigation related expenses........................................      (22,000)    (987,000)   1,010,000
    Other accrued expenses.....................................................    2,672,000   (1,779,000)   1,635,000
                                                                                 -----------  -----------  -----------
Net cash used in operating activities..........................................   (1,304,000) (29,459,000) (20,331,000)

INVESTING ACTIVITIES
Purchases of marketable securities.............................................   (3,091,000) (19,110,000) (25,533,000)
Maturities of marketable securities............................................   27,945,000   14,536,000   10,951,000
Additions to property, plant and equipment.....................................   (8,281,000) (10,484,000) (11,198,000)
Proceeds from sale of a majority interest in a subsidiary, net of closing
  costs........................................................................   14,652,000           --           --
Investment in unconsolidated affiliate.........................................   (4,900,000)          --           --
Proceeds from sale of investment in life science enterprise....................           --    2,683,000           --
Additions to patent costs......................................................     (992,000)  (1,542,000)  (1,320,000)
Payments received on note receivable...........................................      550,000      706,000      700,000
                                                                                 -----------  -----------  -----------
Net cash provided by (used in) investing activities............................   25,883,000  (13,211,000) (26,400,000)

FINANCING ACTIVITIES
Proceeds from (payments on) short-term borrowings, net.........................   (5,034,000)  (7,902,000)   9,436,000
Payments on litigation settlement..............................................   (1,313,000)  (1,750,000)          --
Proceeds from sale-leaseback transactions......................................      119,000    2,217,000    2,978,000
Payments on capital lease obligations..........................................   (2,934,000)  (4,660,000)  (4,258,000)
Proceeds from issuance of long-term debt.......................................    4,359,000   18,108,000   11,527,000
Repayments on long-term debt...................................................   (1,821,000) (24,634,000)  (1,667,000)
Proceeds from issuance of convertible subordinated debentures, net of offering
  costs........................................................................           --   77,200,000           --
Proceeds from sale of common stock, net of offering costs......................   11,359,000    1,841,000   29,364,000
                                                                                 -----------  -----------  -----------
Net cash provided by financing activities......................................    4,735,000   60,420,000   47,380,000
                                                                                 -----------  -----------  -----------
Net increase in cash and cash equivalents......................................   29,314,000   17,750,000      649,000
Cash and cash equivalents at beginning of period...............................   39,292,000   21,542,000   20,893,000
                                                                                 -----------  -----------  -----------
Cash and cash equivalents at end of period.....................................  $68,606,000  $39,292,000  $21,542,000
                                                                                 -----------  -----------  -----------
                                                                                 -----------  -----------  -----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
  Interest paid................................................................  $ 6,591,000  $ 2,306,000  $ 1,558,000
  Income taxes paid............................................................      790,000      253,000    1,030,000
SUPPLEMENTAL DISCLOSURES OF GAIN ON SALE OF A MAJORITY INTEREST IN A
  SUBSIDIARY:
  Cash receipts, net of closing costs..........................................  $14,652,000  $        --  $        --
  Receipt of 49% interest in manufacturing facility............................    5,500,000           --           --
  Net present value of guaranteed payments.....................................    2,668,000           --           --
  Other........................................................................       63,000           --           --
  Net book value of 51% interest sold..........................................     (751,000)          --           --
                                                                                 -----------  -----------  -----------
                                                                                 $22,132,000  $        --  $        --
SUPPLEMENTAL SCHEDULE OF NON-CASH ACTIVITIES:
  Purchase of equipment and leasehold improvements through accounts payable....  $   757,000  $   889,000  $ 1,020,000
  Issuance of stock through director deferred compensation plan................           --           --       32,000
</TABLE>

          See accompanying notes to consolidated financial statements.

                                      F-6
<PAGE>
                         NEXSTAR PHARMACEUTICALS, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                               DECEMBER 31, 1998

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BUSINESS

    NeXstar Pharmaceuticals, Inc., a Delaware corporation ("NeXstar
Pharmaceuticals" or the "Company") is an integrated biopharmaceutical company
engaged in the discovery, development, manufacture and marketing of proprietary
pharmaceutical products to treat life threatening and other serious oncological,
hematological and infectious diseases. NeXstar Pharmaceuticals was formed in
1991 as NeXagen, Inc. On February 21, 1995, the Company was merged with Vestar,
Inc., a Delaware corporation founded in 1981, and changed its name to NeXstar
Pharmaceuticals, Inc. The merger was accounted for as a pooling of interests.

    On February 28, 1999, the Company entered into an Agreement and Plan of
Merger (the "Merger Agreement") pursuant to which the Company will be acquired
through merger ("the Merger") by Gilead Sciences, Inc., a Delaware corporation
("Gilead").

    Pursuant to terms of the Merger Agreement, each issued and outstanding share
of Company common stock, par value $.01 per share ("Company Common Stock"), will
be converted into the right to receive that number of shares of Gilead Common
Stock, par value $.001 per share ("Gilead Shares") equal to the "Exchange
Ratio." The Exchange Ratio equals 0.425, provided, however, that if the Gilead
Share Value (defined as the average of the closing prices of the Gilead Shares
as reported on the NASDAQ National Market for the 20 consecutive trading days
ending on the third trading day preceding the date on which the stockholders of
the Company vote on the Merger at the special meeting of the Company's
stockholders called to approve and adopt the Merger Agreement and the Merger) is
(i) less than $36.47, then the Exchange Ratio shall be equal to the lesser of
0.50 or a fraction having a numerator equal to $15.50 and having a denominator
equal to the Gilead Share Value, or (ii) greater than $45.88, then the Exchange
Ratio shall be equal to the greater of 0.3786 or a fraction having a numerator
equal to $19.50 and having a denominator equal to the Gilead Share Value. Cash
will be paid in lieu of fractional shares.

    The Merger is subject to several conditions, including that it be approved
by the stockholders of both the Company and Gilead. The Merger will be accounted
for as a "pooling of interests" and the exchange of the shares will be tax free
to the holders of the Company Common Stock.

PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION

    The accompanying consolidated financial statements include the accounts of
the Company and its wholly and majority-owned subsidiaries; significant
intercompany transactions have been eliminated. Certain reclassifications have
been made to prior year amounts to agree with the current year presentation.

ACCOUNTING ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS

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

                                      F-7
<PAGE>
                         NEXSTAR PHARMACEUTICALS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REPORTING COMPREHENSIVE INCOME

    Effective January 1, 1998, the Company adopted Financial Accounting
Standards Board ("FASB") Statement No. 130, "Reporting Comprehensive Income"
("Statement No. 130"). Statement No. 130 establishes standards for reporting and
display of comprehensive income and its components in the financial statements.
The adoption of Statement No. 130 in 1998 has no impact on the Company's
Consolidated Statements of Operations or Consolidated Statements of
Stockholders' Equity. The Company has elected to disclose comprehensive income
in the Consolidated Statements of Stockholders' Equity in its annual report and
in its notes to Condensed Consolidated Financial Statements for interim
financial reporting.

PROPERTY, PLANT AND EQUIPMENT

    Property, plant and equipment are stated at cost less accumulated
depreciation and amortization. Depreciation and amortization are provided by the
straight-line method over the shorter of the lease term or the estimated useful
life, which is as follows:

<TABLE>
<S>                                    <C>
Building.............................  20 years
Laboratory and manufacturing
  equipment..........................  5-7 years
Office furniture and equipment.......  3-7 years
Capitalized lease equipment..........  3-5 years
Leasehold improvements...............  Shorter of useful life or lease term
</TABLE>

PATENT AND TRADEMARK COSTS AND OTHER LONG-LIVED ASSETS

    The Company capitalizes certain legal costs associated with applying for
patents and trademarks. The Company amortizes these costs over a period of ten
years.

    The carrying values of intangible and other long-lived assets are reviewed
quarterly to determine if any impairment indicators are present. If it is
determined that such indicators are present and the review indicates that the
assets will not be recoverable, based on undiscounted estimated cash flows over
the remaining amortization and depreciation period, their carrying values are
reduced to estimated fair market value. Impairment indicators include, among
other conditions, cash flow deficits, an historic or anticipated decline in
revenue or operating profit, adverse legal or regulatory developments,
accumulation of costs significantly in excess of amounts originally expected to
acquire the asset and a material decrease in the fair value of some or all of
the assets. Assets are grouped at the lowest level for which there are
identifiable cash flows that are largely independent of the cash flows generated
by other asset groups.

PRODUCT REVENUES/ACCOUNTS RECEIVABLE

    Product revenues are recognized upon passage of legal title of the inventory
and satisfaction of all of the Company's performance obligations. The Company
generally does not provide its customers with the right of product return;
however, the Company will replace product that has expired or is deemed to be
damaged or defective. To date, such product replacement has been minimal.

    A substantial majority of the Company's product revenues are export sales of
AmBisome primarily through Company subsidiaries and to distributors in Europe.
The Company performs credit evaluations of its customers' financial condition
and generally has not required collateral. The Company's accounts

                                      F-8
<PAGE>
                         NEXSTAR PHARMACEUTICALS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
receivable are predominantly trade receivables, and to date, the Company has
experienced only modest losses with respect to the collection of its accounts
receivable.

    In connection with most of its European sales, the Company prices its
products in the currencies of the country into which they are sold (the "Payment
Currencies"), and revenues in the past have been, and in the future could be,
adversely affected by currency fluctuations. A significant majority of the
Company's manufacturing costs are in U.S. Dollars. Therefore, any decline in the
value of the Payment Currencies relative to the U.S. Dollar is likely to
negatively impact gross margins for the Company's products since the Company's
manufacturing costs would remain approximately the same while its revenue in
terms of U.S. Dollars would decline.

OTHER REVENUE

    Revenue recognized under the Company's collaborative arrangements, licenses
and royalty agreements is recorded as earned based upon the performance
requirements of the underlying contractual agreements. Milestone payments are
recognized as revenue when all of the Company's performance obligations have
been met, the amount of the milestone payment is readily determinable and the
Company has a unilateral right to demand payment. Payments received in advance
under such agreements are recorded as deferred revenue until earned. Royalty
revenue is recognized in the period that the corresponding sales are made to
independent third party customers.

FOREIGN CURRENCY TRANSACTIONS AND CONTRACTS

    Foreign exchange transaction losses included in the Consolidated Statements
of Operations in 1998, 1997 and 1996 were $269,000, $287,000 and $362,000,
respectively.

    The Company hedges certain of its foreign currency exposures, with respect
to its outstanding trade accounts receivable and accounts payable, through the
use of forward contracts. The Company does not currently enter into speculative
foreign currency transactions and does not write speculative options. In the
future, the Company may begin currency hedging in connection with anticipated
revenues and expenses and may use options in addition to forward contracts. Such
hedging will be done solely for the purpose of protecting the Company from
foreign currency fluctuations. The Company recognizes a gain or loss for each
forward contract for the difference between the contract rate and the market
rate on each balance sheet date that is recorded as a selling, general and
administrative expense. At present, no deferred accounting is used in connection
with the Company's hedging activities. Notwithstanding its hedging activities
(which have not always included fully hedging against potential gains or
losses), the Company has in the past recognized foreign exchange gains and
losses. There can be no assurance that significant gains or losses will not be
incurred in the future.

    At December 31, 1998 and 1997, the Company had forward exchange contracts
outstanding of $42.3 million and $27.9 million, respectively. These contracts
have maturities that do not exceed one year and gains/losses resulting from
these contracts net of gains/losses on foreign currency exposures, with respect
to the Company's outstanding trade accounts receivable and accounts payable,
were not material.

    The Company does not hedge any balance sheet exposure of its foreign
subsidiaries.

ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

    In June 1998, the FASB issued Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("Statement No. 133"). Statement No. 133
requires recording all derivative instruments as assets or liabilities, measured
at fair value. Statement No. 133 is effective for fiscal years

                                      F-9
<PAGE>
                         NEXSTAR PHARMACEUTICALS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
beginning after June 15, 1999 and, therefore, the Company will adopt the new
requirement effective January 1, 2000. Management has not completed its review
of Statement No. 133 and has not yet determined the impact on its financial
position or results of operations.

RESEARCH AND DEVELOPMENT

    Expenditures for research and development, including costs related to
contract and collaborative agreements, and technology defense costs are charged
to operations as incurred.

NET INCOME (LOSS) PER SHARE

    Effective December 31, 1997, the Company adopted FASB Statement No. 128,
"Earnings Per Share" ("Statement No. 128"), which replaced the calculation of
primary and fully diluted earnings per share with basic and diluted earnings per
share. Unlike primary earnings per share, basic earnings per share exclude any
dilutive effects of options, warrants and convertible securities. Diluted
earnings per share is very similar to the previous fully diluted earnings per
share. Earnings per share amounts for all periods presented conform to Statement
No. 128.

    The Company's basic net income (loss) per share is computed using the
weighted average number of shares of common stock outstanding. Common share
equivalents from stock options and warrants are included in the computation of
diluted net income per share for the year ended December 31, 1998. Common share
equivalents from convertible securities are excluded from the computation for
the year ended December 31, 1998, as their effect is antidilutive. Common share
equivalents from stock options, warrants and convertible securities are excluded
from the computation of diluted earnings per share for the years ended December
31, 1997 and 1996 as their effect is antidilutive.

                                      F-10
<PAGE>
                         NEXSTAR PHARMACEUTICALS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
                   COMPUTATION OF NET INCOME (LOSS) PER SHARE

<TABLE>
<CAPTION>
                                                                        YEARS ENDED DECEMBER 31,
                                                              ---------------------------------------------
                                                                  1998            1997            1996
                                                              -------------  --------------  --------------
<S>                                                           <C>            <C>             <C>

BASIC:
Net income (loss)...........................................  $  10,920,000  $  (43,910,000) $  (22,981,000)
                                                              -------------  --------------  --------------
                                                              -------------  --------------  --------------

Weighted average shares outstanding during the period.......     28,135,000      26,692,000      26,029,000
                                                              -------------  --------------  --------------
                                                              -------------  --------------  --------------

Net income (loss) per basic common share....................  $        0.39  $        (1.65) $        (0.88)
                                                              -------------  --------------  --------------
                                                              -------------  --------------  --------------

DILUTED:
Net income (loss)...........................................  $  10,920,000  $  (43,910,000) $  (22,981,000)
                                                              -------------  --------------  --------------
                                                              -------------  --------------  --------------

APPLICABLE COMMON SHARES AND COMMON SHARE EQUIVALENTS:
Weighted average shares outstanding during the period.......     28,135,000      26,692,000      26,029,000
Shares assumed issued for stock options.....................        750,000               -               -
Shares assumed issued for warrants..........................         68,000               -               -
Less: treasury stock assumed purchased......................       (550,000)              -               -
                                                              -------------  --------------  --------------
Total.......................................................     28,403,000      26,692,000      26,029,000
                                                              -------------  --------------  --------------
                                                              -------------  --------------  --------------

Net income (loss) per diluted common share..................  $        0.38  $        (1.65) $        (0.88)
                                                              -------------  --------------  --------------
                                                              -------------  --------------  --------------
</TABLE>

CASH AND CASH EQUIVALENTS

    Cash and cash equivalents represent highly liquid debt instruments with a
maturity of three months or less when purchased.

FAIR VALUE OF FINANCIAL INSTRUMENTS

    FASB Statement No. 107, "Disclosure about Fair Value of Financial
Instruments," requires disclosures of fair value information about financial
instruments for which it is practicable to estimate that value. The Company's
financial instruments consist principally of cash and cash equivalents,
marketable securities, accounts receivable, certain other non-current assets,
forward contracts, short-term borrowings, accounts payable, long-term
obligations and convertible subordinated debentures. Management believes the
financial instruments' recorded values approximate current values with the
exception of the convertible subordinated debentures. The fair value of the
convertible subordinated debentures at December 31, 1998 was $69.4 million (such
fair value being determined by the average of the bid and asked price set by a
market maker for the convertible subordinated debentures) as compared to a
carrying value of $80 million.

                                      F-11
<PAGE>
                         NEXSTAR PHARMACEUTICALS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 2. MARKETABLE SECURITIES

    Management determines the appropriate classification of debt securities at
the time of purchase and re-evaluates such designation as of each balance sheet
date. Available-for-sale securities are carried at fair value with unrealized
gains or losses excluded from earnings and reported in other comprehensive
income. Realized gains and losses and declines in value judged to be other than
temporary are included in income.

    The following is a summary of available-for-sale marketable securities:

<TABLE>
<CAPTION>
                                                                           DECEMBER 31,
                                                                     -------------------------
                                                                        1998         1997
                                                                     ----------  -------------
<S>                                                                  <C>         <C>
Corporate securities...............................................  $       --  $  14,821,000
U.S. government agency securities..................................          --      8,001,000
U.S. government securities.........................................     143,000        175,000
Other debt securities..............................................          --      2,000,000
                                                                     ----------  -------------
Total marketable securities........................................  $  143,000  $  24,997,000
                                                                     ----------  -------------
                                                                     ----------  -------------
</TABLE>

    All marketable securities at December 31, 1998 and 1997 are due in one year
or less.

NOTE 3. INVENTORIES

    Raw materials, work in process and finished goods inventories are recorded
at the lower of cost or market, with cost determined on a first-in, first-out
basis. Management periodically reviews the composition of inventory in order to
identify obsolete, slow-moving or otherwise unsaleable items. If such items are
observed and there are no alternate uses of the inventory, the Company will take
a write-down to net realizable value in the period that the units are identified
as impaired. Historically, inventory write-downs have been insignificant and
consistently within management's expectations.

    Inventories are summarized as follows:

<TABLE>
<CAPTION>
                                                                         DECEMBER 31,
                                                                 ----------------------------
                                                                     1998           1997
                                                                 -------------  -------------
<S>                                                              <C>            <C>
Finished goods.................................................  $   3,712,000  $   3,512,000
Work in process................................................      5,785,000      8,161,000
Raw materials..................................................      2,172,000      2,933,000
                                                                 -------------  -------------
Total inventories..............................................  $  11,669,000  $  14,606,000
                                                                 -------------  -------------
                                                                 -------------  -------------
</TABLE>

                                      F-12
<PAGE>
                         NEXSTAR PHARMACEUTICALS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 4. PROPERTY, PLANT AND EQUIPMENT

    Property, plant and equipment consist of the following:

<TABLE>
<CAPTION>
                                                                         DECEMBER 31,
                                                                ------------------------------
                                                                     1998            1997
                                                                --------------  --------------
<S>                                                             <C>             <C>
Building and building improvements............................  $    1,879,000  $    1,831,000
Laboratory and manufacturing equipment........................      19,531,000      18,038,000
Office furniture and equipment................................      10,999,000       9,238,000
Capitalized leased equipment..................................      17,351,000      20,086,000
Leasehold improvements........................................      30,133,000      30,519,000
Construction-in-progress......................................         530,000         763,000
                                                                --------------  --------------
                                                                    80,423,000      80,475,000
Less accumulated depreciation and amortization................     (39,586,000)    (35,697,000)
                                                                --------------  --------------
Net property, plant and equipment.............................  $   40,837,000  $   44,778,000
                                                                --------------  --------------
                                                                --------------  --------------
</TABLE>

NOTE 5. INVESTMENT IN UNCONSOLIDATED AFFILIATE

    In late 1997, the Company established its NeXstar Technology Products
division which included the Company's proprietary technology called Product
Anchored Sequential Synthesis ("PASS"), a method of synthesizing the
oligonucleotides that are the basis for the products being developed using the
SELEX process. In July 1998, the Company established Proligo L.L.C., a Delaware
limited liability company ("Proligo"), as a wholly-owned subsidiary and
transferred all of the assets of the NeXstar Technology Products division to
Proligo. On August 15, 1998, the Company sold a 51% interest (the "Interest") in
Proligo to SKW Americas, Inc. ("SKW"). As payment for the Interest, the Company
received $15 million in cash and a 49% interest in PerSeptive Biosystems GmbH, a
company in Hamburg, Germany (the "Hamburg Company"), which specializes in the
manufacture of nucleoside phosphoramidite monomers. The 49% interest of the
Hamburg Company had a fair market value of approximately $5.5 million. In
addition, SKW will pay the Company $3 million in guaranteed payments (discounted
at 8.5% for gain recognition purposes) and up to $20.5 million in
performance-based milestones over the next five years. As part of the
transaction, the Company contributed $4.9 million and its 49% interest in the
Hamburg Company to Proligo. SKW contributed $5.1 million and the remaining 51%
interest in the Hamburg Company to Proligo. The Company and Proligo have agreed
that Proligo will manufacture oligonucleotides required by the Company at cost
plus a fixed percentage. The Company recorded a $22.1 million gain in connection
with this sale.

    The Company accounts for its investment in Proligo using the equity method
and the net book value of the investment at December 31, 1998 was approximately
$10.3 million. In 1998, the Company recorded $1.1 million as its equity in the
loss from Proligo representing its 49% share of losses from August 15 through
November 30, 1998, the Proligo fiscal year end. The Proligo operating loss for
December 1998 was approximately $1.6 million, of which the Company will
recognize its 49% share (approximately $800,000) in 1999.

    Proligo is in the business of supplying nucleic acid and Peptide synthesis
products to the pharmaceutical and biopharmaceutical industry for sale and use
as laboratory research reagents and in therapeutic and diagnostic products. The
Company does not have any commitments to provide additional funding or to
support the operations of Proligo.

                                      F-13
<PAGE>
                         NEXSTAR PHARMACEUTICALS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 6. INVESTMENT IN LIFE SCIENCE ENTERPRISE

    At December 31, 1996, the Company recorded a $1,241,000 write down to an
investment in a life science enterprise accounted for under the cost method due
to a permanent decline in value. In June 1997, the Company sold all of its
holdings in the enterprise for $2.7 million following that company's initial
public offering. As a result of the sale, the Company recorded a loss of $26,000
in 1997.

NOTE 7. PURCHASED TECHNOLOGY

    In 1992, the Company and Vical, Incorporated ("Vical") entered into an
agreement under which the Company purchased (for $3,000,000) exclusive rights to
develop applications of Vical's lipid conjugate technology for a limited number
of applications. This agreement was expanded in 1993 (for an additional
$1,500,000) to grant the Company exclusive rights to Vical's entire portfolio of
lipid conjugate technologies for all potential therapeutic applications. The
cost of such base-core technology was capitalized. Effective January 1, 1995,
the Company began amortizing the remaining value of the technology over a
four-year period. The Company evaluated the carrying amount of the technology
for impairment at least quarterly by, among other things, reviewing the status
of applicable ongoing development activities, as well as the progress of patent
applications and issuances. In September 1997, the Company determined that it
would no longer pursue this technology and expensed the remaining $1.3 million
of unamortized purchased technology.

NOTE 8. OTHER ACCRUED EXPENSES

    Other accrued expenses consist of the following:

<TABLE>
<CAPTION>
                                                                           DECEMBER 31,
                                                                    --------------------------
                                                                        1998          1997
                                                                    ------------  ------------
<S>                                                                 <C>           <C>
Value added taxes.................................................  $  1,613,000  $    930,000
Other.............................................................     4,425,000     3,107,000
                                                                    ------------  ------------
Total other accrued expenses......................................  $  6,038,000  $  4,037,000
                                                                    ------------  ------------
                                                                    ------------  ------------
</TABLE>

NOTE 9. LONG-TERM OBLIGATIONS

    Long-term obligations consist of the following:

<TABLE>
<CAPTION>
                                                                                     DECEMBER 31,
                                                                              --------------------------
                                                                                  1998          1997
                                                                              ------------  ------------
<S>                                                                           <C>           <C>
Capital lease obligations: interest payable monthly at 6.89% to 12.43%......  $  7,881,000  $  9,419,000
Other debt: monthly installments through 2003; secured by equipment;
  interest payable monthly at 9.69% to 12.62%...............................     4,511,000     4,353,000
                                                                              ------------  ------------
Total long-term obligations.................................................    12,392,000    13,772,000
Less current portion........................................................    (4,072,000)   (5,445,000)
                                                                              ------------  ------------
Long-term obligations due after one year....................................  $  8,320,000  $  8,327,000
                                                                              ------------  ------------
                                                                              ------------  ------------
</TABLE>

    Maturities of all long-term obligations, including capital lease
obligations, due subsequent to December 31, 1998 are as follows: $4,072,000 -
1999; $3,171,000 - 2000; $2,993,000 - 2001; $1,855,000 - 2002; and $301,000 -
2003.

                                      F-14
<PAGE>
                         NEXSTAR PHARMACEUTICALS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 9. LONG-TERM OBLIGATIONS (CONTINUED)
    In June 1996, the Company entered into a term loan agreement with a bank for
$10 million which was repaid in the third quarter of 1997.

NOTE 10. CONVERTIBLE SUBORDINATED DEBENTURES

    During the third quarter of 1997, the Company sold $80 million of 6 1/4%
Convertible Subordinated Debentures due 2004 (the "Debentures") in a private
offering to SBC Warburg Inc. and Oppenheimer & Co., Inc. which resold the
Debentures to a group of private investors. The Debentures were issued pursuant
to an indenture and are convertible into a total of up to 4,740,740 shares of
the Company's common stock at $16.875 per share, which was greater than the fair
market value of the Company's common stock at the time the Debentures were
issued. The Company has reserved 4,740,740 shares of its authorized common stock
for shares that may be issued upon conversion of the Debentures. As required by
the terms of a registration rights agreement (the "Registration Rights
Agreement") entered into by the Company in connection with the sale of the
Debentures, the Company filed a "shelf" registration statement registering for
resale the Debentures and the shares of common stock into which the Debentures
may be converted. The registration statement was declared effective on October
6, 1997. Pursuant to the Registration Rights Agreement, the Company is required
to keep the "resale" registration statement effective for up to two years.

NOTE 11. COMMITMENTS AND CONTINGENCIES

LEASES AND FINANCING AGREEMENTS

    The Company has entered into one long-term noncancelable operating lease and
one long-term noncancelable operating sublease for office, research and
manufacturing facilities in Boulder, Colorado and two long-term lease agreements
for office, research and manufacturing facilities in San Dimas, California. The
three leases and one sublease contain the following terms:

<TABLE>
<CAPTION>
LOCATION                   TERMINATION DATE           RENEWAL OPTIONS
-------------------------  -------------------------  -------------------------
<S>                        <C>                        <C>
Boulder, CO                October 2001               2 5-year terms
Boulder, CO                July 2003                  None
San Dimas, CA              November 2003              2 5-year terms
San Dimas, CA              May 2003                   2 5-year terms
</TABLE>

    The Company has entered into certain sale-leaseback transactions and related
master equipment lease agreements for manufacturing equipment, general
laboratory and scientific equipment, office equipment, furniture and fixtures.
Title to assets acquired under the lease lines of credit resides with the
lessor. The Company has the option to purchase the assets at the end of the
lease term at fair market value. The leases have terms ranging from three to
five years. At December 31, 1998, no amounts were available under such
agreements.

    The Company has entered into certain financing transactions and related
capital equipment and facilities improvement master agreements for manufacturing
equipment, general laboratory and scientific equipment, office equipment,
furniture, fixtures and facilities improvements. At December 31, 1998, no
amounts were available under such agreements.

    In connection with the August 1998 sale of a majority interest in its
subsidiary, Proligo, (see Note 5-- Investment in Unconsolidated Affiliate), the
Company transferred certain property and equipment with a net book value of $4.5
million to Proligo. The majority of such property and equipment is financed or

                                      F-15
<PAGE>
                         NEXSTAR PHARMACEUTICALS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 11. COMMITMENTS AND CONTINGENCIES (CONTINUED)
leased by the Company in accordance with the aforementioned sale-leaseback
transactions and financing arrangements. As part of this transaction, the
Company transferred the underlying debt to Proligo pursuant to various Sublease,
Consent and Assignment Agreements (collectively referred to as the "Sublease
Agreements"). As a result, the Company is required to pay the debt financing and
lease liabilities to the financial institutions directly for Proligo's share of
the liabilities and Proligo is required to reimburse the Company for these
amounts and is bound by the same terms and conditions as the Company's
agreements with financial institutions and lessors. In the event that Proligo
were to default on its obligations under the Sublease Agreements, the Company
would continue to be liable for amounts outstanding as of the date of the
default. At December 31, 1998, Proligo was current with respect to its
reimbursements to the Company and the balance of Proligo's lease and debt
liabilities under the Sublease Agreements was $2.8 million. Such liabilities are
not included in the Company's Consolidated Balance Sheets.

    Additionally, the Company and Proligo entered into Assignment, Assumption
and Consent Agreements (the "Agreements") with the landlords of two laboratory
facilities Proligo occupies. Under the Agreements, Proligo has assumed the
obligations to the landlords, but the Company remains liable in the event of
default. The total unpaid amount of such operating lease commitments as of
December 31, 1998 was approximately $560,000.

    In the event Proligo defaults on any payments under the Sublease Agreements
and the Company is required to cure such default on behalf of Proligo, SKW is
obligated to reimburse the Company 51% of any amounts paid by the Company.

    Rent expense for the years ended December 31, 1998, 1997 and 1996 was
approximately $4,618,000, $4,538,000 and $3,485,000, respectively.

    Future minimum rental payments under noncancelable operating and capital
leases with initial or remaining terms of more than one year as of December 31,
1998 are as follows:

<TABLE>
<CAPTION>
                                                                    OPERATING       CAPITAL
YEARS ENDING DECEMBER 31,                                            LEASES         LEASES
----------------------------------------------------------------  -------------  -------------
<S>                                                               <C>            <C>
1999............................................................  $   3,986,000  $   2,930,000
2000............................................................      3,089,000      2,522,000
2001............................................................      2,577,000      2,393,000
2002............................................................      2,099,000      1,245,000
2003............................................................      1,347,000             --
Thereafter......................................................        445,000             --
                                                                  -------------  -------------
                                                                  $  13,543,000      9,090,000
                                                                  -------------
                                                                  -------------
Less amount representing interest...............................                    (1,209,000)
                                                                                 -------------
Total capital lease obligations.................................                     7,881,000
Less current portion............................................                    (2,356,000)
                                                                                 -------------
Capital lease obligations due after one year....................                 $   5,525,000
                                                                                 -------------
                                                                                 -------------
</TABLE>

LOAN RECEIVABLE

    The Company owns a 13.9% equity interest in Phytogen Life Sciences Inc.
("PLS"), a Canadian corporation incorporated in British Columbia. In June 1996,
the Company's holdings in connection with

                                      F-16
<PAGE>
                         NEXSTAR PHARMACEUTICALS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 11. COMMITMENTS AND CONTINGENCIES (CONTINUED)
PLS were restructured. Pursuant to the restructuring, the Company gave up its
right to convert a Canadian $4,500,000 loan (the "Loan") (approximately
$3,285,000 at the time of conversion and approximately $3,348,000 at December
31, 1995), which it made to PLS, into a 49.9% interest in PLS; converted
Canadian $968,784 (approximately $707,000 at the time of conversion) of the Loan
into 235,714 preference shares in PLS; and converted the Loan to a United States
Dollar-based loan. In addition, PLS issued a warrant to the Company to acquire
up to 300,000 PLS common shares for $3 per share and repaid the Company
approximately $700,000 in connection with the Loan. During 1997, PLS repaid the
Company $753,000 in connection with the Loan. The face amount of the Loan at
December 31, 1997 was $1,737,000 with an outstanding allowance for loan loss of
$1,737,000. In March 1998, the company received $550,000 as full settlement of
the loan.

SHORT-TERM BORROWINGS

    In March 1997, the Company entered into an agreement with a domestic bank
pursuant to which the Company and certain of its subsidiaries could borrow up to
$15 million, with the borrowings being collateralized by certain of the non-U.S.
accounts receivable of the Company and its subsidiaries. In September 1997, the
Company simultaneously terminated this agreement and entered into an unsecured
line of credit with the same bank for $10 million (the "Credit Agreement").
Under the terms of the Credit Agreement, the Company is required to maintain
certain financial ratios and there are limitations on the Company's ability to
incur additional debt or to engage in certain significant transactions. The
Credit Agreement, which includes a foreign exchange facility, expires November
1, 1999. The short-term borrowings outstanding under the Credit Agreement at
December 31, 1997 were $1,750,000. There were no amounts outstanding under this
agreement as of December 31, 1998.

    In May 1996, the Company's Spanish subsidiary entered into an agreement to
borrow up to 500 million Spanish Pesetas (approximately $3.3 million on December
31, 1997) with such borrowing being secured by the subsidiary's accounts
receivable in Spain. In February 1997, the agreement was amended to increase the
amount that the subsidiary may borrow to 750 million Spanish Pesetas
(approximately $4.9 million on December 31, 1997). In connection with the
agreement, the Company had to maintain $2.0 million in an unrestricted account.
As of December 31, 1997, the subsidiary had borrowings of 500 million Spanish
Pesetas (approximately $3.3 million on December 31, 1997) under the agreement.
On April 1, 1998, the Company's Spanish subsidiary terminated the loan as to new
borrowings and the balance of the loan was paid in full in September 1998.
Additionally, the $2.0 million in the unrestricted accounts was returned to the
Company.

    The weighted average interest rate on short-term borrowings as of December
31, 1997 was 6.89%.

LICENSES AND ROYALTIES

    The Company has entered into license agreements with various commercial,
medical and educational institutions to obtain certain exclusive and
nonexclusive patent rights for the purpose of developing, manufacturing and
selling potential products using these patented technologies. Under these
agreements, the Company will pay royalties at varying rates based upon levels of
revenues from the licensed products, as defined. Generally, the agreements
continue as long as any licensed patents remain in force.

    In September 1996, the Company and Sumitomo Pharmaceuticals Co., Ltd.
("Sumitomo") entered into an agreement (the "Sumitomo License") pursuant to
which Sumitomo will develop and market AmBisome in Japan. Under the terms of the
Sumitomo License, Sumitomo paid the Company an initial $7 million licensing fee
(less withholding taxes of $700,000) in October 1996 and a $3,000,000 milestone

                                      F-17
<PAGE>
                         NEXSTAR PHARMACEUTICALS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 11. COMMITMENTS AND CONTINGENCIES (CONTINUED)
payment (less withholding taxes of $300,000) in March 1998. Sumitomo also is
required to make additional payments to the Company if certain clinical and
commercial milestones are met and to pay the Company royalties on all Japanese
AmBisome sales.

    The Company's rights to market AmBisome are subject to an agreement between
the Company and Fujisawa Healthcare, Inc., as successor to Fujisawa USA, Inc.
("Fujisawa"). Under the terms of the agreement, as amended, Fujisawa and the
Company co-promote AmBisome in the United States, Fujisawa has sole marketing
rights to AmBisome in Canada and the Company has exclusive marketing rights to
AmBisome in the rest of the world, provided the Company is required to pay
royalties to Fujisawa in connection with sales in most significant Asian
markets, including Japan. In connection with U.S. sales, Fujisawa purchases
AmBisome from the Company at cost; Fujisawa collects all payments from the sale
of AmBisome in the U.S., and the Company receives 20% of the gross profits from
the sale of AmBisome in the United States. In 1998 and 1997, the Company
recorded $4.8 million and $671,000 of royalty income, respectively, in
connection with the agreement between the Company and Fujisawa.

                                      F-18
<PAGE>
                         NEXSTAR PHARMACEUTICALS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 11. COMMITMENTS AND CONTINGENCIES (CONTINUED)

    PATENT MATTERS

    On August 11, 1997, the Company and The Liposome Company, Inc. ("TLC")
reached a settlement in which the two companies agreed to dismiss all legal
proceedings involving TLC's reexamined U.S. Patent No. 4,880,635 (the "TLC '635
Patent") and U.S. Patent No. 5,578,320 (the "TLC '320 Patent") and their
international counterparts. The legal proceedings related to whether AmBisome,
the Company's liposomal formulation of amphotericin B, infringed TLC's patents
because of the manner in which it is freeze dried (lyophilized). In the
settlement agreement between the parties, TLC granted the Company immunity from
suit in connection with the worldwide production and sales of AmBisome and a
worldwide right to use the TLC '635 Patent and the TLC '320 Patent. Under the
terms of the Settlement Agreement, the Company made an initial payment to TLC of
$1.75 million and is required to make payments which began in 1998 based on
AmBisome sales over the next several years. Because the payments are subject to
certain minimum and maximum amounts, the Company recorded accounting charges in
1997 of $11.8 million, of which $10.0 million represented the net present value
of all future minimum payments it is required to make (utilizing an 8.5%
discount rate) and $1.75 million represented the initial cash payment. Beginning
in 1998, the Company is recording an expense each quarter related to the
difference between all future minimum payments and the expense recorded in 1997.
In addition, beginning in 1998, the Company is expensing the difference between
the minimum and maximum payments, if any. The Company does not expect the
difference between its future minimum and maximum payments to TLC to be
material.

    LEGAL PROCEEDINGS GENERALLY

    The Company is involved, from time to time, in legal proceedings arising in
the ordinary course of its business. In the opinion of management, after
consultation with legal counsel, none of these matters, based on factors
currently known to management, is expected to have a material adverse effect on
the financial position of the Company.

NOTE 12. STOCKHOLDERS' EQUITY

    COMMON STOCK

    On May 27, 1998, the Company entered into a three-part collaboration with
Glaxo Wellcome in which (a) Glaxo Wellcome received a non-exclusive right to
practice the Company's proprietary SELEX process for target validation; (b) the
Company received the exclusive rights to develop and commercialize a liposomal
formulation of Glaxo Wellcome's proprietary topoisomerase I inhibitor
(lurtotecan); and (c) Glaxo Wellcome acquired 962,117 shares of the Company's
common stock, $.01 par value (the "Shares") for $10 million. The Shares were
sold in a private offering in reliance on Section 4(2) of the Securities Act of
1933, as amended, since Glaxo Wellcome is a sophisticated investor. In
connection with the sale of the Shares, Glaxo Wellcome was granted certain
registration rights.

    On February 13, 1996, the Company completed a private sale of 1,425,000
shares of its common stock to a group of private investors (the "Private
Investors"). The net proceeds to the Company from the sale were approximately
$24.9 million. In connection with the transaction, the Company filed a "shelf"
registration statement on Form S-3 registering for resale the shares acquired by
the Private Investors. Pursuant to its agreement with the Private Investors, the
Company is required to keep the "resale" registration statement effective for up
to three years. As of March 18, 1999 such registration statement remains
effective. In addition to the Private Investors, a holder of 297,619 shares of
the Company's common stock and two holders of warrants to acquire 250,481 shares
of the Company's common stock

                                      F-19
<PAGE>
                         NEXSTAR PHARMACEUTICALS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 12. STOCKHOLDERS' EQUITY (CONTINUED)
exercised registration rights granted to them by the Company and had their
shares of common stock, or the shares of common stock which relate to their
warrants, included in the registration statement.

    WARRANTS

    Outstanding common stock warrants are summarized as follows:

<TABLE>
<CAPTION>
                                                                    RANGE OF
                                                                    EXERCISE      SHARES     EXPIRATION
                                                      WARRANTS       PRICES      RESERVED      DATES
                                                      ---------  --------------  ---------  ------------
<S>                                                   <C>        <C>             <C>        <C>
Outstanding, December 31, 1997 and 1998.............    256,285  $  4.09-$32.54    256,285     1999-2003
</TABLE>

    In 1990, the Company issued to Warburg, Pincus Capital Partners, L.P.
("WPCP"), which at that time was a beneficial owner of more than 5% of the
Company's common stock, a warrant to purchase 1,035,294 shares of the Company's
common stock at an exercise price of $4.83 per share, which was issued in
connection with the sale of certain equity securities of the Company. In April
1995, WPCP's warrant was amended to change the expiration date to December 31,
1997. On September 30, 1997, WPCP exercised its warrant for 1,035,294 shares in
a net exercise and received 753,577 shares of the Company's common stock.

    In March 1997, Warburg, Pincus Investors, L.P. ("WPI"), which is an owner of
more than 5% of the Company's common stock, received a warrant to acquire
125,000 shares of the Company's common stock at a purchase price of $12.50 per
share in return for an affiliate of WPI guaranteeing a credit line entered into
by the Company (the "Credit Line"). Under the Credit Line, which was terminated
in July 1997, the Company was permitted to borrow up to $15 million.

    REGISTRATION RIGHTS

    Under certain circumstances, the Company's common stockholders and holders
of warrants to purchase common stock of the Company may require a registration
of the outstanding common shares or the shares underlying warrants, the cost of
which would be borne by the Company.

    STOCK OPTIONS AND STOCK-BASED COMPENSATION

    On February 8, 1993, the Company adopted the 1993 Incentive Stock Plan (the
"1993 Plan") for employees, directors, and consultants of NeXstar
Pharmaceuticals, which provides for the sale of shares or the issuance of
incentive and nonstatutory stock options for common stock. Options issued under
the 1993 Plan are exercisable under conditions as determined by the Board of
Directors, with the term of each option being a maximum of ten years from the
date of grant. On May 28, 1997, the number of shares that can be granted under
the 1993 Plan was increased by 1,500,000 shares to 3,904,847 shares. The Company
has reserved 3,904,847 shares of its authorized common stock under the 1993
Plan. Options granted prior to November 1993 vested 20% immediately and 20% on
the grant date anniversary each year thereafter for four years. Options granted
after October 1993 generally vest 25% on each anniversary date of the four years
following the grant date.

    The Company has reserved for issuance 1,204,904 shares of its common stock
to allow for the exercise of options under its 1988 Stock Option Plan (the "1988
Plan"). Options granted under the 1988 Plan are exercisable upon conditions
determined by the Board of Directors of the Company, and expire no later than
ten years from the date of grant. No additional options may be issued under the
1988 Plan.

                                      F-20
<PAGE>
                         NEXSTAR PHARMACEUTICALS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 12. STOCKHOLDERS' EQUITY (CONTINUED)
    On July 25, 1995, the Company adopted the 1995 Director Option Plan (the
"Director Plan"). Under the Director Plan, each outside director of the Company
is entitled to receive an option for 10,000 shares of the Company's common stock
on the date on which such person first becomes an outside director. In addition,
each outside director who has served on the Board of Directors for at least six
months automatically is entitled to receive an option grant for 5,000 shares on
the last business day prior to each annual meeting of stockholders of the
Company. The options have a term of ten years, an exercise price equal to 100%
of the fair market value of the common stock on the date of grant and vest 50%
on each anniversary date of the two years following the grant date. Options for
up to 500,000 shares of common stock may be issued under the Director Plan. In
1998, options for 20,000 shares were issued to four outside directors. In 1997,
options for 40,000 shares were issued to six outside directors. In 1996, options
for 15,000 shares were issued to three outside directors.

    Stock option activity under all stock plans was as follows:

<TABLE>
<CAPTION>
                                                                                                      WEIGHTED
                                                                                                       AVERAGE
                                                                                     RANGE OF         EXERCISE
                                                                      OPTIONS     EXERCISE PRICES       PRICE
                                                                     ----------  -----------------  -------------
<S>                                                                  <C>         <C>                <C>
Outstanding, December 31, 1995.....................................   2,190,334  $   0.69 - $18.47    $    9.80
  Granted..........................................................     654,300  $  15.00 - $25.00    $   19.20
  Exercised........................................................    (290,615) $   0.69 - $18.47    $    8.08
  Forfeited........................................................    (130,385) $   1.12 - $25.00    $   17.91
                                                                     ----------
Outstanding, December 31, 1996.....................................   2,423,634  $   0.69 - $25.00    $   12.11
  Granted..........................................................     899,110  $  10.31 - $18.25    $   13.11
  Exercised........................................................    (163,971) $   0.69 - $16.48    $    5.94
  Forfeited........................................................    (175,973) $   1.12 - $25.00    $   15.26
                                                                     ----------
Outstanding, December 31, 1997.....................................   2,982,800  $   0.69 - $25.00    $   12.56
  Granted..........................................................     790,824  $   8.00 - $12.06    $   10.13
  Exercised........................................................    (187,506) $   0.69 - $10.00    $    3.47
  Forfeited........................................................    (361,233) $   5.97 - $25.00    $   14.54
                                                                     ----------
Outstanding, December 31, 1998.....................................   3,224,885  $   0.69 - $25.00    $   12.28
                                                                     ----------
                                                                     ----------
Exercisable, December 31, 1996.....................................   1,090,662                       $    8.75
Exercisable, December 31, 1997.....................................   1,364,481                       $   10.44
Exercisable, December 31, 1998.....................................   1,672,343                       $   12.11
Weighted-average fair value of options granted during 1996.........  $    10.38
Weighted-average fair value of options granted during 1997.........  $     5.60
Weighted-average fair value of options granted during 1998.........  $     4.99
</TABLE>

                                      F-21
<PAGE>
                         NEXSTAR PHARMACEUTICALS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 12. STOCKHOLDERS' EQUITY (CONTINUED)
    The options outstanding at December 31, 1998 have been segregated into
ranges for additional disclosure as follows:

<TABLE>
<CAPTION>
                                                                           OPTIONS EXERCISABLE
                                  OPTIONS OUTSTANDING                  ----------------------------
                   --------------------------------------------------     OPTIONS
                      OPTIONS       WEIGHTED AVERAGE      WEIGHTED      EXERCISABLE     WEIGHTED
                   OUTSTANDING AT       REMAINING          AVERAGE          AT           AVERAGE
    RANGE OF        DECEMBER 31,       CONTRACTUAL        EXERCISE     DECEMBER 31,     EXERCISE
 EXERCISE PRICES        1998          LIFE IN YEARS         PRICE          1998           PRICE
-----------------  --------------  -------------------  -------------  -------------  -------------
<S>                <C>             <C>                  <C>            <C>            <C>
$ 0.69 - $10.23          808,930             3.94         $    7.66         601,030     $    7.20
$10.25 - $12.78          919,634             6.30         $   11.05         234,308     $   12.08
$12.88 - $14.77          807,431             4.99         $   13.85         481,562     $   14.22
$15.00 - $25.00          688,890             4.70         $   17.50         355,443     $   17.56
                   --------------                                      -------------
$ 0.69 - $25.00        3,224,885             5.04         $   12.28       1,672,343     $   12.11
                   --------------                                      -------------
                   --------------                                      -------------
</TABLE>

    At December 31, 1998 options for 1,389,883 shares were available for future
grants under the 1993 Plan and the Director Plan.

    The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" ("APB No. 25"), in accounting for
its employee stock options because, as discussed below, the alternative fair
value accounting provided for under FASB Statement No. 123, "Accounting for
Stock-Based Compensation" ("Statement No. 123"), requires use of option
valuation models that were not developed for use in valuing employee stock
options. Because the exercise price of the Company's employee stock options
equals the market price of the underlying stock on the date of grant, no
compensation expense is recognized under APB No. 25. Pursuant to the provisions
of APB No. 25 and its related interpretations, the Company treats all members of
the Board of Directors as functionally equivalent employees and, accordingly, no
compensation expense is recorded for stock option awards to such individuals if
the exercise price of the stock option equals the market value of the underlying
stock on the date of grant. Stock options granted to consultants are capitalized
as deferred compensation at the estimated fair value on the date of award and
are charged to expense over the shorter of the corresponding period of service
or the vesting period of the stock option grant.

    Statement No. 123 requires disclosure of pro forma net income and pro forma
earnings per share. It also requires that the pro forma information be
determined as if the Company has accounted for its employee stock options
granted subsequent to December 31, 1994 under the fair value method of Statement
No. 123. The fair value for these options was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted-average
assumptions for 1998, 1997 and 1996, respectively: risk-free interest rates of
4.73%, 5.59% and 5.49%; a dividend yield of 0%; volatility factors of the
expected market price of the Company's common stock of .6144, .5178 and .7240;
and an average expected life of the options after vesting date of 1.44, 1.00 and
1.23 years.

    The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options, which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions, including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.

                                      F-22
<PAGE>
                         NEXSTAR PHARMACEUTICALS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 12. STOCKHOLDERS' EQUITY (CONTINUED)
    For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting periods. The Company's
pro forma information is as follows:

<TABLE>
<CAPTION>
                                                                     YEARS ENDED DECEMBER 31,
                                                           --------------------------------------------
                                                               1998           1997            1996
                                                           ------------  --------------  --------------
<S>                                                        <C>           <C>             <C>
Pro forma net income (loss)..............................  $  6,815,000  $  (47,900,000) $  (26,080,000)
Pro forma net income (loss) per basic and diluted
  share..................................................  $       0.24  $        (1.79) $        (1.00)
</TABLE>

    Because Statement No. 123 is applicable only to options granted subsequent
to December 15, 1994, its pro forma effect was not fully reflected until the
fiscal year ended December 31, 1998.

    As a result of nonstatutory stock options granted to consultants in 1997 and
1996, the Company recorded deferred compensation of $44,000 and $301,000,
respectively, which is being amortized over a period of four years. The Company
recognized $83,000, $142,000 and $51,000 as a non-cash charge to earnings during
1998, 1997 and 1996, respectively, as a result of this amortization.

    As a result of compensatory stock issuances and option grants in 1993, the
Company recorded deferred compensation of $470,000 that it amortized over a
period of four years.

    RESTRICTIONS ON PAYMENT OF DIVIDENDS

    Certain of the Company's bank and building improvement and equipment lease
facilities require the Company to maintain certain financial ratios and levels
of cash and/or stockholders' equity which may have the effect of limiting the
Company's ability to pay dividends.

NOTE 13. EMPLOYEE BENEFIT PLANS

    EMPLOYEE STOCK PURCHASE PLAN

    On June 9, 1994, the Company adopted an employee stock purchase plan (the
"Stock Purchase Plan") with an effective date of August 1, 1994, under Internal
Revenue Code Section 423, which provides for the sale to employees of up to
500,000 shares of common stock. The Company has reserved 500,000 shares of its
authorized common stock in connection with the Stock Purchase Plan. Employees
who work at least twenty hours per week and at least five months per calendar
year may participate. The granting of rights (options) to purchase common stock
of the Company is determined by the Board of Directors. As of December 31, 1998,
a total of 281,469 shares have been purchased at prices per share from $4.78 to
$15.30, which represented 85% of the fair market value of the common stock on
the lower of the offering date or the date of exercise. Expenses associated with
the Stock Purchase Plan are not material.

                                      F-23
<PAGE>
                         NEXSTAR PHARMACEUTICALS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 13. EMPLOYEE BENEFIT PLANS (CONTINUED)

    Stock Purchase Plan activity was as follows:

<TABLE>
<CAPTION>
                                                                                                       WEIGHTED
                                                                                                        AVERAGE
                                                                                      RANGE OF         EXERCISE
                                                                        OPTIONS    EXERCISE PRICES       PRICE
                                                                       ---------  -----------------  -------------
<S>                                                                    <C>        <C>                <C>
Outstanding, December 31, 1995.......................................         --                 --           --
  Granted............................................................     58,357  $  12.75 - $15.30    $   13.85
  Exercised..........................................................    (58,357) $  12.75 - $15.30    $   13.85
                                                                       ---------
  Outstanding, December 31, 1996.....................................         --                 --           --
  Granted............................................................     81,962  $   9.67 - $12.11    $   10.75
  Exercised..........................................................    (81,962) $   9.67 - $12.11    $   10.75
                                                                       ---------
Outstanding, December 31, 1997.......................................         --                 --           --
  Granted............................................................     88,541  $    7.86 - $8.47    $    8.20
  Exercised..........................................................    (88,541) $    7.86 - $8.47    $    8.20
                                                                       ---------
Outstanding, December 31, 1998.......................................         --                 --           --
                                                                       ---------
                                                                       ---------
Weighted-average fair value of options granted during 1996...........  $    6.76
Weighted-average fair value of options granted during 1997...........  $    4.60
Weighted-average fair value of options granted during 1998...........  $    3.18
</TABLE>

    RETIREMENT SAVINGS PLAN

    The Company maintains a retirement savings plan pursuant to which eligible
employees may defer compensation for income tax purposes under Section 401(k) of
the Internal Revenue Code of 1986 (the "Savings Plan"). Employee contributions
are discretionary, but are not to exceed 15% of eligible annual compensation.
The Savings Plan includes a Company match of 50% of employee contributions up to
a maximum of 6% of eligible annual compensation. For the years ended December
31, 1998, 1997, and 1996, the Company recorded expenses related to the Savings
Plan of approximately $506,000, $580,000 and $513,000, respectively. At December
31, 1998, approximately $720,000, representing 77,296 shares of the Company's
common stock, was held by the Savings Plan in trust for plan participants.
Additional contributions of Company stock are not allowed under the Savings
Plan.

NOTE 14. EMPLOYEE RELATED EXPENSES AND OTHER CHARGES

    In August 1998, the Company entered into a separation agreement with Patrick
J. Mahaffy upon his resignation as President, Chief Executive Officer and
Director of the Company and recorded a selling, general and administrative
expense of $760,000.

    In August 1998, the Company announced its intentions to evaluate the
possible spin off of its drug discovery business into a separate publicly traded
company to be known as Iterex Technologies, Inc. ("Iterex"). In 1998, the
Company incurred $664,000 of selling, general and administrative expenses
related to the potential Iterex spin-off. On February 28, 1999, the Company
announced a Merger Agreement with Gilead. Pending the completion of the Merger,
the Iterex spin-off will not occur and the Company's drug discovery business
will remain part of the Company. In 1999, the Company expects to record selling,
general and administrative expenses of approximately $400,000 related to Iterex
spin-off costs incurred prior to the announcement of the Merger.

                                      F-24
<PAGE>
                         NEXSTAR PHARMACEUTICALS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 14. EMPLOYEE RELATED EXPENSES AND OTHER CHARGES (CONTINUED)
    In August 1998, the Company granted retention bonuses to certain key
employees (the "August Retention Bonuses") totaling $1.6 million. The August
Retention Bonuses will be paid prior to April 16, 1999 if such key employees
remain employed by the Company through March 31, 1999. The August Retention
Bonuses are being expensed over the period beginning on the date the August
Retention Bonuses were granted through March 31, 1999. In 1998, the Company
recorded $410,000 and $516,000 of research and development expenses and selling,
general and administrative expenses, respectively, in connection with the August
Retention Bonuses. In January 1999, the Company granted additional retention
bonuses to certain key employees (the "January Retention Bonuses") totaling
$800,000. The January Retention Bonuses will be paid prior to September 17, 1999
if such key employees remain employed by the Company through September 1, 1999,
or earlier if there is a change in control of the Company. The January Retention
Bonuses will be expensed over the period beginning on the date the January
Retention Bonuses were granted through September 1, 1999.

    In October 1998, the Company reduced its workforce by 75 employees (the
"Workforce Reduction"). As a result of the Workforce Reduction, the Company
recorded a research and development expense of $1.6 million related to severance
packages for 47 discharged research and development employees and selling,
general and administrative expense of $580,000 related to severance packages for
28 discharged selling, general and administrative employees.

NOTE 15. DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION

    Effective January 1, 1998, the Company adopted FASB Statement No. 131,
"Disclosures about Segments of an Enterprise and Related Information"
("Statement No. 131"). Statement No. 131 establishes standards for the way that
public business enterprises report information about operating segments in
annual financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. The Company has determined that it only
has one reportable segment because management has organized the business around
the Company's products and services and, for the periods presented herein, only
the AmBisome business meets the reportable segment criteria defined in Statement
No. 131.

                                      F-25
<PAGE>
                         NEXSTAR PHARMACEUTICALS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 15. DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION
(CONTINUED)
    GEOGRAPHIC INFORMATION

    AmBisome revenues accounted for approximately 94%, 92% and 94% of total
revenues for 1998, 1997 and 1996, respectively. The following is a summary of
revenues from external customers by geographic areas:

<TABLE>
<CAPTION>
                                                                     YEARS ENDED DECEMBER 31,
                                                           --------------------------------------------
                                                                1998
                                                           --------------
REVENUES FROM EXTERNAL CUSTOMERS (A)                                           1997           1996
---------------------------------------------------------                  -------------  -------------
<S>                                                        <C>             <C>            <C>
United States............................................  $   16,152,000  $   7,927,000  $  11,163,000
Germany..................................................      20,029,000     14,780,000     15,096,000
United Kingdom...........................................      15,441,000     14,794,000     14,222,000
Italy....................................................      13,420,000     10,993,000      8,432,000
Spain....................................................      11,934,000      8,880,000      7,156,000
Other European countries.................................      30,333,000     26,820,000     28,526,000
Other foreign countries..................................      11,240,000      8,027,000      4,106,000
                                                           --------------  -------------  -------------
Consolidated total.......................................  $  118,549,000  $  92,221,000  $  88,701,000
                                                           --------------  -------------  -------------
                                                           --------------  -------------  -------------
</TABLE>

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

(a) Revenues are attributed to countries based on the location of customers.

    At December 31, 1998, the net book value of the Company's long-lived assets
was approximately $40.8 million. Approximately 90% of such assets were located
in the United States. At December 31, 1997, the net book value of the Company's
long-lived assets was approximately $44.8 million. Approximately 91% of such
assets were located in the United States.

    MAJOR CUSTOMER

    In 1998, 1997 and 1996, sales to one distributor accounted for approximately
14%, 16% and 18% of product revenues, respectively.

NOTE 16. INCOME TAXES

    For financial reporting purposes, income (loss) before income taxes and
equity in loss of unconsolidated affiliate includes the following components:

<TABLE>
<CAPTION>
                                                                    YEARS ENDED DECEMBER 31,
                                                          ---------------------------------------------
                                                              1998            1997            1996
                                                          -------------  --------------  --------------
<S>                                                       <C>            <C>             <C>
United States...........................................  $  12,792,000  $  (40,801,000) $  (20,890,000)
Foreign.................................................         88,000      (2,787,000)     (1,165,000)
                                                          -------------  --------------  --------------
                                                          $  12,880,000  $  (43,588,000) $  (22,055,000)
                                                          -------------  --------------  --------------
                                                          -------------  --------------  --------------
</TABLE>

                                      F-26
<PAGE>
                         NEXSTAR PHARMACEUTICALS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 16. INCOME TAXES (CONTINUED)
    The current provision for income and withholding taxes includes the
following:

<TABLE>
<CAPTION>
                                                                          YEARS ENDED DECEMBER 31,
                                                                     ----------------------------------
                                                                        1998        1997        1996
                                                                     ----------  ----------  ----------
<S>                                                                  <C>         <C>         <C>
Federal income taxes...............................................  $  160,000  $       --  $       --
State income taxes.................................................      21,000          --          --
Foreign income taxes...............................................     378,000     305,000     226,000
Foreign withholding taxes..........................................     300,000      17,000     700,000
                                                                     ----------  ----------  ----------
                                                                     $  859,000  $  322,000  $  926,000
                                                                     ----------  ----------  ----------
                                                                     ----------  ----------  ----------
</TABLE>

    The difference between the Company's current provision for income taxes and
the federal statutory rate of 34% is reconciled as follows:

<TABLE>
<CAPTION>
                                                                      YEARS ENDED DECEMBER 31,
                                                             -------------------------------------------
                                                                 1998           1997           1996
                                                             ------------  --------------  -------------
<S>                                                          <C>           <C>             <C>
Statutory rate applied to income before income taxes and
  equity in loss of unconsolidated affiliate...............  $  4,379,000  $  (14,820,000) $  (7,499,000)
State income taxes, net of federal benefit.................        21,000              --             --
Tax effect of foreign subsidiary losses....................       116,000       1,114,000        553,000
Difference in foreign income tax rates.....................       232,000          87,000         49,000
Alternative minimum taxes..................................       160,000              --             --
Net operating loss unused, net of operating loss
  carryforwards utilized...................................    (4,349,000)     13,691,000      6,958,000
Foreign withholding taxes..................................       300,000          17,000        700,000
Other......................................................            --         233,000        165,000
                                                             ------------  --------------  -------------
                                                             $    859,000  $      322,000  $     926,000
                                                             ------------  --------------  -------------
                                                             ------------  --------------  -------------
</TABLE>

    At December 31, 1998, the Company had net operating loss and tax credit
carryforwards available to reduce future taxable income. Utilization of these
losses and credits may be subject to substantial annual limitations due to the
separate return limitation years and ownership change limitations provided by
the

                                      F-27
<PAGE>
                         NEXSTAR PHARMACEUTICALS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 16. INCOME TAXES (CONTINUED)
Internal Revenue Code of 1986. The annual limitation may result in the
expiration of the net operating losses and credits before utilization. Tax loss
and tax credit carryforwards are as follows:

<TABLE>
<CAPTION>
                                                                            STATE
                                             FEDERAL             ---------------------------
                                  -----------------------------                 RESEARCH AND
                                       NET        RESEARCH AND        NET       DEVELOPMENT
                                    OPERATING      DEVELOPMENT     OPERATING     AND OTHER
EXPIRES                                LOSS          CREDITS         LOSS         CREDITS
--------------------------------  --------------  -------------  -------------  ------------
<S>                               <C>             <C>            <C>            <C>
1999............................  $           --  $          --  $          --   $       --
2000............................              --             --      1,719,000           --
2001............................       2,581,000             --      2,206,000           --
2002............................       3,732,000             --      4,486,000           --
2003............................       6,442,000             --             --           --
2004............................       7,287,000             --             --           --
2005............................       6,815,000             --             --           --
2006............................       2,943,000             --      2,364,000           --
2007............................       8,002,000        463,000      8,002,000           --
2008............................      14,857,000      4,669,000     11,858,000    1,397,000
2009............................       5,284,000        710,000      5,284,000           --
2010............................      15,803,000        517,000      2,029,000      371,000
2011............................      15,669,000        691,000      2,592,000      500,000
2012............................      33,106,000      2,408,000      5,311,000      300,000
2013............................              --             --             --      145,000
2018............................              --      1,882,000             --           --
                                  --------------  -------------  -------------  ------------
                                  $  122,521,000  $  11,340,000  $  45,851,000   $2,713,000
                                  --------------  -------------  -------------  ------------
                                  --------------  -------------  -------------  ------------
</TABLE>

    The components of the Company's deferred tax asset and related valuation
allowance as of December 31, 1998 and 1997 are as follows:

<TABLE>
<CAPTION>
                                                                                   DECEMBER 31,
                                                                          ------------------------------
                                                                               1998            1997
                                                                          --------------  --------------
<S>                                                                       <C>             <C>
Net operating loss carryforwards
  Federal...............................................................  $   41,657,000  $   42,717,000
  State.................................................................       2,293,000       2,413,000
Tax credit carryforwards
  Federal...............................................................      11,340,000       9,458,000
  State.................................................................       2,713,000       2,574,000
Other-- net.............................................................       5,044,000       8,649,000
                                                                          --------------  --------------
                                                                              63,047,000      65,811,000
Valuation allowance.....................................................     (63,047,000)    (65,811,000)
                                                                          --------------  --------------
Deferred tax asset recognized...........................................  $           --  $           --
                                                                          --------------  --------------
                                                                          --------------  --------------
</TABLE>

                                      F-28
<PAGE>
                         NEXSTAR PHARMACEUTICALS, INC.

                 SCHEDULE II: VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
                                                              ADDITIONS
                                                    ------------------------------
<S>                                  <C>            <C>          <C>                <C>           <C>
                                      BALANCE AT    CHARGED TO                                     BALANCE AT
                                     BEGINNING OF    COST AND       CHARGED TO                       END OF
                                        PERIOD        EXPENSE     OTHER ACCOUNTS     DEDUCTIONS      PERIOD
                                     -------------  -----------  -----------------  ------------  -------------
YEAR ENDED DECEMBER 31, 1998:
  Allowance for doubtful
    accounts.......................  $   1,150,000  $     6,000  $           --     $         --      1,156,000
  Allowance for other noncurrent
    assets.........................      1,737,000     (550,000 (1)             --     1,187,000(1)            --
  Valuation allowance for deferred
    tax assets.....................     65,811,000           --      (2,764,000)(2)           --     63,047,000
                                     -------------  -----------  -----------------  ------------  -------------
                                     $  68,698,000  $  (544,000) $   (2,764,000)    $  1,187,000  $  64,203,000
                                     -------------  -----------  -----------------  ------------  -------------
                                     -------------  -----------  -----------------  ------------  -------------

YEAR ENDED DECEMBER 31, 1997:
  Allowance for doubtful
    accounts.......................  $   1,025,000  $   125,000  $           --     $         --      1,150,000
  Allowance for other noncurrent
    assets.........................      1,737,000           --              --               --      1,737,000
  Valuation allowance for deferred
    tax assets.....................     51,080,000           --      14,731,000(2)            --     65,811,000
                                     -------------  -----------  -----------------  ------------  -------------
                                     $  53,842,000  $   125,000  $   14,731,000     $         --  $  68,698,000
                                     -------------  -----------  -----------------  ------------  -------------
                                     -------------  -----------  -----------------  ------------  -------------

YEAR ENDED DECEMBER 31, 1996:
  Allowance for doubtful
    accounts.......................  $     505,000  $   520,000  $           --     $         --      1,025,000
  Allowance for other noncurrent
    assets.........................      2,430,000           --              --          693,000(3)     1,737,000
  Valuation allowance for deferred
    tax assets.....................     39,844,000           --      11,236,000(2)            --     51,080,000
                                     -------------  -----------  -----------------  ------------  -------------
                                     $  42,779,000  $   520,000  $   11,236,000     $    693,000  $  53,842,000
                                     -------------  -----------  -----------------  ------------  -------------
                                     -------------  -----------  -----------------  ------------  -------------
</TABLE>

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

(1) NeXstar Pharmaceuticals, Inc. accepted $550,000 in full settlement of an
    outstanding note receivable that was fully-reserved on the balance sheet.

(2) Charged to deferred tax benefit.

(3) Relates to restructuring of a note receivable in default.

                                      S-1