Use these links to rapidly review the documentNaPro BioTherapeutics, Inc. and Subsidiaries Table of Contents

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

Form 10-Q

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

For the quarterly period ended July 2, 2003

Commission File Number 0-24320

NAPRO BIOTHERAPEUTICS, INC.(Exact name of Registrant as specified in its charter)

|Incorporated in Delaware |  |                                                                           |  | IRS ID No. 84-1187753
|------------------------ |  | ------------------------------------------------------------------------- |  | ---------------------
|                         |  | 4840 Pearl East Circle, Suite 300W
Boulder, Colorado 80301
(303) 516-8500 |  |                      

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. ý Yes    o No

Indicate
by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the
Act). o Yes    ý No

As
of July 23, 2003, the registrant had 30,762,631 shares of common stock, $0.0075 par value, outstanding.

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NaPro BioTherapeutics, Inc. and Subsidiaries  Table of Contents



|           |  |                       |  |                                                                                      
|---------- |  | --------------------- |  | -------------------------------------------------------------------------------------
|Part I     |  | Financial Information
|           |  | Item 1                |  | Financial Statements                                                                 
|           |  | Item 2                |  | Management's Discussion and Analysis of Financial Condition and Results of Operations
|           |  | Item 3                |  | Quantitative and Qualitative Disclosures about Market Risk                           
|           |  | Item 4                |  | Controls and Procedures                                                              
|Part II    |  | Other Information    
|           |  | Item 1                |  | Legal Proceedings                                                                    
|           |  | Item 4                |  | Submission of Matters to a Vote of Security Holders                                  
|           |  | Item 6                |  | Exhibits and Reports on Form 8-K                                                     
|Signatures |  |                      

Exhibits

|Exhibit 31.1 |  | Certification of Chief Executive Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002.                      
|------------ |  | ----------------------------------------------------------------------------------------------------------------------------
|Exhibit 31.2 |  | Certification of Chief Financial Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002.                      
|Exhibit 32.1 |  | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).
|Exhibit 32.2 |  | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).

2

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NaPro BioTherapeutics, Inc. and Subsidiaries

Consolidated Condensed Balance Sheets

(In thousands, except per share data)

|                                           |                                                                                                                                                           | July 2,
2003 |        | December 31,
2002 |  
|------------------------------------------ | --------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------ | ------ | ----------------- | -
|
|ASSETS                                     |                                                                                                                                                          
|Current assets:                            |                                                                                                                                                           |              |        |                   |  
|                                           | Cash and cash equivalents                                                                                                                                 |              | $      | 5,836             |  
|                                           | Accounts receivable, net of allowance for doubtful accounts                                                                                               |              |        | 8,097             |  
|                                           | Inventory                                                                                                                                                 |              |        | 6,871             |  
|                                           | Prepaid expense and other current assets                                                                                                                  |              |        | 1,530             |  
|                                           |                                                                                                                                                           |              |        |                   |  
|Total current assets                       |                                                                                                                                                           |              | 22,334 |                   |  
|Property, plant and equipment, net         |                                                                                                                                                           |              | 11,154 |                   |  
|Inventoryraw materials                    |                                                                                                                                                           |              | 6,106  |                   |  
|Other assets                               |                                                                                                                                                           |              | 3,097  |                   |  
|                                           |                                                                                                                                                           |              |        |                   |  
|Total assets                               |                                                                                                                                                           | $            | 42,691 |                   | $
|                                           |                                                                                                                                                           |              |        |                   |  
|LIABILITIES AND STOCKHOLDERS' EQUITY       |                                                                                                                                                          
|Current liabilities:                       |                                                                                                                                                           |              |        |                   |  
|                                           | Accounts payable and accrued liabilities                                                                                                                  |              | $      | 6,653             |  
|                                           | Accrued payroll and payroll taxes                                                                                                                         |              |        | 1,265             |  
|                                           | Notes payablecurrent portion                                                                                                                             |              |        | 20,188            |  
|                                           | Deferred income                                                                                                                                           |              |        | 1,250             |  
|                                           |                                                                                                                                                           |              |        |                   |  
|Total current liabilities                  |                                                                                                                                                           |              | 29,356 |                   |  
|Notes payablelong term                    |                                                                                                                                                           |              | 81     |                   |  
|Deferred incomelong term                  |                                                                                                                                                           |              | 5,327  |                   |  
|Convertible debentures                     |                                                                                                                                                           |              | 5,418  |                   |  
|Commitments and contingencies              |                                                                                                                                                           |              |        |                   |  
|Stockholders' equity:                      |                                                                                                                                                           |              |        |                   |  
|                                           | Preferred stock, $.001 par value; 2,000,000 shares authorized; none issued                                                                                |              |        |                  |  
|                                           | Common stock, $.0075 par value; 66,000,000 shares authorized; 30,762,631 and 29,964,292 shares issued at July 2, 2003 and December 31, 2002, respectively |              |        | 231               |  
|                                           | Additional paid-in capital                                                                                                                                |              |        | 111,017           |  
|                                           | Accumulated deficit                                                                                                                                       |              |        | (108,558          | )
|                                           | Treasury stock, 54,306 shares at cost at July 2, 2003 and December 31, 2002                                                                               |              |        | (181              | )
|                                           |                                                                                                                                                           |              |        |                   |  
|Total stockholders' equity                 |                                                                                                                                                           |              | 2,509  |                   |  
|                                           |                                                                                                                                                           |              |        |                   |  
|Total liabilities and stockholders' equity |                                                                                                                                                           | $            | 42,691 |                   | $
|                                           |                                                                                                                                                           |              |        |                   |  

See
accompanying notes to Consolidated Condensed Financial Statements.

3

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NaPro BioTherapeutics, Inc. and Subsidiaries

Consolidated Condensed Statements of Operations

(In thousands, except per share data)

(Unaudited)

|                                            |                            | Quarter Ended |        | Six Months Ended |  
|------------------------------------------- | -------------------------- | ------------- | ------ | ---------------- | -
|
|Product sales                               |                            | $             | 7,561  |                  | $
|Expenses:                                   |                            |               |        |                  |  
|                                            | Cost of sales              |               |        | 4,107            |  
|                                            | Research and development   |               |        | 2,495            |  
|                                            | General and administrative |               |        | 2,755            |  
|                                            |                            |               |        |                  |  
|                                            |                            |               | 9,357  |                  |  
|                                            |                            |               |        |                  |  
|Operating loss                              |                            |               | (1,796 | )                |  
|Other income (expense):                     |                            |               |        |                  |  
|                                            | License fee income         |               |        | 280              |  
|                                            | Interest income            |               |        | 18               |  
|                                            | Interest expense           |               |        | (632             | )
|                                            |                            |               |        |                  |  
|Net (loss) income                           |                            | $             | (2,130 | )                | $
|                                            |                            |               |        |                  |  
|Basic (loss) income per share               |                            | $             | (0.07  | )                | $
|                                            |                            |               |        |                  |  
|Diluted (loss) income per share             |                            | $             | (0.07  | )                | $
|                                            |                            |               |        |                  |  
|Basic weighted average shares outstanding   |                            |               | 30,507 |                  |  
|                                            |                            |               |        |                  |  
|Diluted weighted average shares outstanding |                            |               | 30,507 |                  |  
|                                            |                            |               |        |                  |  

See
accompanying notes to Consolidated Condensed Financial Statements.

4

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NaPro BioTherapeutics, Inc. and Subsidiaries

Consolidated Condensed Statements of Cash Flows

(In thousands)

(Unaudited)

|                                                                            |                                                                 | Six Months Ended                         |       
|--------------------------------------------------------------------------- | --------------------------------------------------------------- | ---------------------------------------- | ------
|
|Operating activities:                                                       |                                                                 |                                          |       
|Net loss                                                                    |                                                                 | $                                        | (4,880
|Adjustments to reconcile net loss to net cash used in operating activities: |                                                                 |                                          |       
|                                                                            | Depreciation and amortization                                   |                                          |       
|                                                                            | Accretion of debt issue cost                                    |                                          |       
|                                                                            | Amortization of debt discount                                   |                                          |       
|                                                                            | Accretion of license fee income                                 |                                          |       
|                                                                            | License fees paid with common stock                             |                                          |       
|                                                                            | Compensation paid with common stock, options and warrants       |                                          |       
|                                                                            | Retirement contributions paid with common stock                 |                                          |       
|                                                                            | Asset writedown                                                 |                                          |       
|                                                                            | Changes in operating assets and liabilities:                    |                                          |       
|                                                                            |                                                                 | Accounts receivable                      |       
|                                                                            |                                                                 | Inventory                                |       
|                                                                            |                                                                 | Prepaid expense and other assets         |       
|                                                                            |                                                                 | Accounts payable and accrued liabilities |       
|                                                                            |                                                                 | Accrued payroll and payroll taxes        |       
|                                                                            |                                                                 | Deferred income                          |       
|                                                                            |                                                                 |                                          |       
|Net cash provided by (used in) operating activities                         |                                                                 |                                          | 532   
|Investing activities:                                                       |                                                                 |                                          |       
|                                                                            | Additions to property and equipment                             |                                          |       
|                                                                            | Acquisition of patents                                          |                                          |       
|                                                                            | Investment in Chromadex                                         |                                          |       
|                                                                            |                                                                 |                                          |       
|Net cash used in investing activities                                       |                                                                 |                                          | (1,685
|Financing activities:                                                       |                                                                 |                                          |       
|                                                                            | Proceeds from convertible debentures, net of issuance cost      |                                          |       
|                                                                            | Proceeds from notes payable                                     |                                          |       
|                                                                            | Payments of notes payable                                       |                                          |       
|                                                                            | Proceeds from the sale of common stock, net of issuance cost    |                                          |       
|                                                                            | Proceeds from the exercise of common stock options and warrants |                                          |       
|                                                                            |                                                                 |                                          |       
|Net cash provided by financing activities                                   |                                                                 |                                          | 227   
|                                                                            |                                                                 |                                          |       
|Net (decrease) increase in cash and cash equivalents                        |                                                                 |                                          | (926  
|Cash and cash equivalents at beginning of period                            |                                                                 |                                          | 6,762 
|                                                                            |                                                                 |                                          |       
|Cash and cash equivalents at end of period                                  |                                                                 | $                                        | 5,836 
|                                                                            |                                                                 |                                          |       

See
accompanying notes to Consolidated Condensed Financial Statements.

5

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NaPro BioTherapeutics, Inc. and Subsidiaries        Consolidated Condensed Statements of Cash Flows (continued)        (In thousands)        (Unaudited)

|                                                  |                                                                  | Six Months Ended
|------------------------------------------------- | ---------------------------------------------------------------- | ----------------
|
|Supplemental disclosure of cash flow information: |                                                                  |                 
|Interest paid                                     |                                                                  | $               
|Non-cash investing and financing activities:      |                                                                  |                 
|                                                  | Issuance of common stock to prepay retirement plan contributions |                 
|                                                  | Transfer of fixed assets for investment in Chromadex             |                 
|                                                  | Issuance of common stock to prepay license fees                  |                 
|                                                  | Depletion of plantation cost to inventory                        |                 
|                                                  | Issuance of restricted common stock to prepay retention bonus    |                 

See
accompanying notes to Consolidated Condensed Financial Statements.

6

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NaPro BioTherapeutics, Inc.        Notes to Consolidated Condensed Financial Statements        July 2, 2003        (Unaudited)

Note 1. Basis of Presentation

The accompanying financial statements are unaudited. However, in the opinion of management, the financial statements reflect all adjustments, consisting of only
normal recurring adjustments, necessary for fair presentation. Interim results of operations are not indicative of results for the full year. These financial statements should be read in conjunction
with the Company's Annual Report on Form 10-K and Form 10-K/A for the year ended December 31, 2002.

Effective
January 1, 2003, the Company changed its fiscal year, from a calendar year ending on December 31 to a 52-53 week fiscal year ending on the Wednesday
closest to December 31. As a result of this change, the Company's three fiscal quarters in 2003 end on April 2, July 2, and October 1, 2003, and its fiscal year will end on
December 31, 2003. Thereafter, the Company will maintain a 52-53 week cycle ending on a Wednesday and the Company will add a 53rd week to every fifth or sixth fiscal
year.

Note 2. Reclassifications

Certain data in the consolidated condensed financial statements of the prior year has been reclassified to conform to the current year presentation.

Note 3. Revenue Recognition

Product sales:NaPro recognizes revenue from product sales at the time of shipment, as the title passes to the customer, and
the customer assumes the risks and rewards of ownership. Payments received in advance against future sales are recorded as deferred revenue until earned.

License fees:NaPro capitalizes license fees and amortizes them to income over the estimated economic life of the license.
The amortization period consists of amortizing 80% of fees to income over the first five years of the license, and the remaining 20% of the fees to income over the remaining period of the license.

The
Company recognizes income from development milestones when the milestone is achieved and the Company has no future obligation to perform additional work associated with the given
milestone.

Note 4. Proposed Sale of Paclitaxel Business

In April 2003, the Company announced that it is offering to sell its worldwide polyethoxylated castor oil formulated injectable paclitaxel business, its
first product approved for commercial sale. Polyethoxylated castor oil formulations are the only paclitaxel formulations currently approved by the United States Food and Drug Administration and other
international regulatory agencies. Proceeds from the sale would be used to fund the development and commercialization of products based on NaPro's proprietary Gene Editing and Oncology platforms and
to retire $20.0 million of debt owed to Abbott Laboratories. The contemplated sale would transfer all of the Company's assets related to the manufacture and sale of paclitaxel, which comprises
a significant portion of the Company's total assets and its current operations. The assets to be sold include the Company's leased bulk paclitaxel manufacturing facilities and related production
equipment; yew tree plantations (which includes related cultivation agreements, leases and yew trees owned by the Company); contracts with Abbott Laboratories (Abbott), Mayne Pharma, Tzamal Pharma
(Tzamal), and JCR Pharmaceuticals Co., Ltd. (JCR) and other contracts related to the paclitaxel business; regulatory filings; and patents and

7

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intellectual
property relating to the manufacture and formulation of generic cremaphor injectible paclitaxel. The Company expects to retain rights for formulations other than polyethoxylated castor
oil formulations. The timing and terms of sale of the paclitaxel business are uncertain at this time, and the Company can not give assurance that any transaction will occur. If the sale of the
paclitaxel business is successful, NaPro will exit that business. If the transaction does not occur, the Company expects to remain in the paclitaxel business for the foreseeable future.

Note 5. Sale of Analytical Services group

In April 2003, the Company sold its technical and analytical services group to privately held ChromaDex, Inc. in exchange for approximately 15%, on
a fully diluted basis, of the then outstanding common stock of ChromaDex, Inc. Ten Company employees transferred to ChromaDex in April and eight employees may transfer in September 2003
as part of this transaction. In exchange for the common stock received, the Company sold property and equipment valued at approximately $1.0 million, as well as provided rents and other
subsidies of approximately $500,000, which included a payment of $300,000 in cash at the closing. ChromaDex assumed the lease for NaPro's research facility in Boulder, Colorado as part of this
transaction. ChromaDex is a supplier of phytochemical reference standards for the nutraceutical, dietary supplement and functional food industries.

Note 6. Inventory

Inventory consists of the following (in thousands):

July 2,
2003

December 31,
2002Raw materials

$
1,966

$
3,858Work in process


2,724


3,402Finished goods


2,181


2,137Total current inventory


6,871


9,397Raw materials-long-term


6,106


3,781Total inventory

$
12,977

$
13,178


Long-term
inventory consists of raw materials that are not expected to be utilized during the next twelve months, due to the timing of biomass harvests and anticipated future
changes to our production process.

In
May 2003, the Company recorded a loss of approximately $1.0 million resulting from the writedown of its current year harvest to the lower of cost or market. The
writedown resulted from an early harvest of fields to reduce on-going maintenance costs.

8

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Note 7. Property, Plant and Equipment

Property, plant and equipment consists of the following (in thousands):

July 2,
2003

December 31,
2002Land

$
718

$
718Furniture, fixtures and office equipment


1,578


987Laboratory and production equipment


7,610


9,140Plantation costs


4,129


4,650Leasehold improvements


3,783


3,911Construction in progress


266


56818,084


19,974Less accumulated depreciation and amortization


(6,930
)

(6,243
)Property, plant and equipment, net

$
11,154

$
13,731


Note 8. Stock Options

NaPro accounts for its stock options to employees and directors in accordance with Accounting Principles Board Opinion No. 25 (APB 25), Accounting for
Stock Issued to Employees, and related interpretations. Pursuant to APB 25, compensation expense is recorded over the vesting period only if the fair value of the underlying stock exceeds the
exercise price. Stock options granted to consultants are accounted for under the fair value method, in accordance with Statement of Financial Accounting Standards No. 123 (SFAS 123),
Accounting for Stock-Based Compensation.

Pro
forma information regarding net income and earnings per share is required by SFAS 123 and Statement of Financial Accounting Standards No. 148, Accounting for
Stock-Based Compensation Transition and Disclosure, which requires that the information be determined as if the Company had accounted for employee stock options granted subsequent to
December 31, 1994 under the fair value method of that statement. NaPro estimated the fair value for these options at the date of grant using a Black-Scholes option pricing model with the
following weighted-average assumptions for the quarters ended July 2, 2003 and June 30, 2002, respectively: risk-free interest rates of 2.51% to 3.22% and 4.60% to 5.07%; no
expected dividend; volatility factors of 1.194 and 1.090, and an estimated expected life range of three to six years. For the six months ended July 2, 2003 and June 30, 2002,
respectively: NaPro estimated the fair value of these options with the following weighted average assumptions, risk-free interest rates of 2.49% to 3.22% and 4.12% to 5.07%; no expected
dividend; volatility factors of 1.187 to 1.194 and 1.090 to 1.167, and an estimated expected life range of three to six years.

9

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For
purposes of pro forma disclosures, the Company amortizes to expense the estimated fair value of the options over the options' vesting period. NaPro's pro forma information is as
follows (in thousands, except per share amounts):

Quarter Ended

Six Months EndedJuly 2,
2003

June 30,
2002

July 2,
2003

June 30,
2002Net (loss) income as reported

$
(2,130
)
$
3,055

$
(4,880
)
$
(3,608
)Deduct: Total stock based employee compensation expense determined under fair value based method for all awards


(927
)

(1,231
)

(1,922
)

(2,295
)Pro forma net (loss) income

$
(3,057
)
$
1,824

$
(6,802
)
$
(5,903
)Basic (loss) income per shareas reported

$
(0.07
)
$
0.10

$
(0.16
)
$
(0.12
)Diluted (loss) income per shareas reported

$
(0.07
)
$
0.10

$
(0.16
)
$
(0.12
)Pro forma basic (loss) income per share

$
(0.10
)
$
0.06

$
(0.23
)
$
(0.20
)Pro forma diluted (loss) income per share

$
(0.10
)
$
0.06

$
(0.23
)
$
(0.20
)


Note 9. Delaware Economic Development Authority Grant

In May 2003, the Company was awarded $130,000 of a grant that could total up to $1.0 million from the Delaware Economic Development Authority under
the Delaware Strategic Fund Program. The grant award is based on maintaining a certain number of employees with an average salary above a minimum within the State of Delaware for four years or the
Company is subject to defaulting on the grant. A default would require that the Company repay all or a portion of the grant that had been received. This grant award has been recorded as deferred
income until the Company is past the default period. The Company does not expect to obtain any of the possible additional amounts under the grant. Application for the remaining awards, if any, must be
submitted by May 2008.

Note 10. Restructuring Plan

During the first quarter of 2003, the Company incurred severance costs of $377,000 associated with the termination of the employment of two executive officers.
During the second quarter of 2003 the Company incurred severance costs of approximately $26,000 resulting from the involuntary termination of the employment of six additional employees. The Company
anticipates further personnel reductions as a result of the termination of a Boulder, Colorado lease (see Note 11) and expected production process changes during the remainder of 2003. However,
NaPro is unable to estimate the financial impact of these potential charges at this time.

In
June 2003, the Company offered certain of its paclitaxel manufacturing employees a retention bonus consisting of restricted stock grants, totaling 68,720 shares of the
Company's common stock, valued at $77,000 plus related taxes of $25,000 to be paid by the Company. Restricted shares will vest if the employee is still employed by NaPro on the earlier of the sale of
the paclitaxel business or January 5, 2004.

10

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In
May 2003, the Company negotiated a voluntary termination of the majority of its regulatory affairs personnel and their transfer to an independent, third party consulting
company. NaPro contracts its regulatory affairs with that company on an as needed basis.

The
sale of the Company's Analytical Services group, as discussed in Note 5, was also part of the Company's restructuring plan.

Note 11. Leases

In March 2003, the Company entered into an agreement to terminate its lease of 54,000 square feet of office, research and development and manufacturing
space in Boulder, Colorado in two phases during 2003. In connection with terminating the lease, during the first quarter of 2003, NaPro paid to the lessor an early termination fee totaling $249,000
and anticipates paying estimated additional site remediation costs of between $300,000 and $500,000 during the remainder of 2003. As a result of this lease termination, the Company was relieved of
future minimum lease obligation payments, totaling approximately $600,000, and other occupancy costs, totaling approximately $400,000, due during the remainder of 2003 and 2004.

In
May 2003, NaPro entered into a new agreement to lease approximately 10,000 square feet of administrative space in Boulder, Colorado beginning June 1, 2003. The Company
has the option to terminate all, or a portion of this lease in October 2003. The future minimum payments in connection with this lease total $37,000 from inception through October 2003.
If the Company does not terminate this lease during the cancelable period, the lease becomes noncancelable over the remaining term, which goes through January 2008.

In
connection with the sale of the Analytical Services group to Chromadex (see Note 5), Chromadex assumed the Company's lease obligation for one of its facilities in Boulder,
Colorado. This lease is a different lease than the lease for 54,000 square feet of office, research and development and manufacturing space discussed above in this Note 11. As a result, the
Company was relieved of future minimum lease obligation payments totaling approximately $863,000.

Note 12. Commitments and Contingencies

The Company has executed noncancelable operating lease agreements for office, research and production facilities, equipment and for plantations. As of
July 2, 2003, future minimum lease payments under noncancelable operating lease agreements are as follows (in thousands):

Remainder of 2003

$
4832004


4702005


2662006


2422007


74Thereafter


142Total

$
1,677


NaPro
has renewal clauses in some of these leases that range from one to ten years.

11

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis provides information that management believes is relevant to an assessment and understanding of the results of operations of
NaPro BioTherapeutics, Inc. You should read this discussion in conjunction with the Financial Statements and Notes included elsewhere in this report. Certain statements set forth below
constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, referred to as the "Reform Act." See "Special Note Regarding Forward Looking
Statements."

General

We
are a pharmaceutical company focused in three distinct areas: the production and sale of paclitaxel, an approved cancer drug; the development of proprietary oncology products; and the
development of novel genomic technologies, primarily in the area of Gene Editing for applications in human therapeutics, diagnostics, agribiotechnology and pharmacogenomics. Our first commercialized
product is
paclitaxel, a naturally occurring chemotherapeutic anti-cancer agent found in certain species of yew, orTaxustrees. We also may be engaged
in evaluating the in-licensing or purchase of potential new products and/or technologies, whether or not those products or technologies are derived from natural products. Our evaluation of
new products and technologies may involve the examination of individual molecules, classes of compounds, or platform technologies, in both cancer and other therapeutic areas. Acquisitions of new
products or technologies may involve the purchase of such products or technologies, or the acquisition of, or merger with, other companies.

In
April 2003, we announced that we are actively seeking to sell our worldwide polyethoxylated castor oil formulated injectable paclitaxel business. Polyethoxylated castor oil
formulations are the only paclitaxel formulations currently approved by the United States Food and Drug Administration (FDA) and other international regulatory agencies. The contemplated sale would
transfer all of our assets related to the manufacture and sale of paclitaxel, which comprises a significant portion of our total assets and our current operations. The assets to be sold include our
bulk paclitaxel manufacturing facilities and related production equipment; yew tree plantations (which includes related cultivation agreements; leases and yew trees owned by NaPro); our contracts with
Abbott Laboratories (Abbott), Mayne Pharma, Tzamal Pharma (Tzamal), and JCR Pharmaceuticals Co., Ltd. (JCR) and other contracts related to the generic cremaphor injectible paclitaxel business;
regulatory filings; and patents and intellectual property relating to the manufacture and formulation of paclitaxel. We expect to retain rights for formulations other than polyethoxylated castor oil
formulations. We have retained Wells Fargo Securities, LLC to act as our agent in this sale transaction. The timing and terms of sale of the paclitaxel business are uncertain at this time, and we can
give no assurance that any transaction will occur. If the sale of our paclitaxel business is successful, we will exit that business and we intend to utilize the proceeds of the sale to fund the
development and commercialization of products based on NaPro's proprietary Gene Editing and Oncology platforms and to retire $20.0 million of debt owed to Abbott. If the transaction does not
occur, we would expect to remain in the paclitaxel business for the foreseeable future.

We
continue to incur substantial research and development expense related to the development of novel, anti-cancer agents and the development of novel genomic technologies,
primarily in the area of Gene Editing, for applications in human therapeutics, diagnostics, agribiotechnology and pharmacogenomics, as well as the improvement of our paclitaxel yield, the reduction of
our long-term

12

---

cost
of product and the development of our semisynthesis process. Accordingly, we have incurred significant losses, including losses of $8.7 million, $25.8 million and
$16.6 million for the years ended December 31, 2002, 2001 and 2000, respectively. We incurred a loss of $4.9 million for the six months ended July 2, 2003, resulting in an
accumulated deficit of $108.6 million as of July 2, 2003. We anticipate that losses may continue until such time, if ever, as we are able to generate sufficient sales to support our
development operations, including the research and development activity mentioned above.

Our
ability to generate sufficient sales to support our operations currently depends primarily upon the successful commercialization of our worldwide paclitaxel program or, if our
paclitaxel business is sold, upon our successful development of Gene Editing and/or Oncology products. Our strategy for the
paclitaxel program has been to form strategic alliances through long-term exclusive agreements with established pharmaceutical companies. In 1999, we entered into an exclusive
collaborative agreement of up to 20 years covering the U.S. and Canada with Abbott to develop and commercialize one or more formulations of paclitaxel for the treatment of a variety of cancers.
Under our agreement with Abbott, we are responsible for the supply of bulk drug; development activity is conducted jointly. Abbott is responsible for finishing, regulatory filings, marketing, and sale
of the finished drug product. Most primary decisions related to the paclitaxel development program are made by a joint Abbott-NaPro Development Committee. In March 2001, we and Abbott filed an
Abbreviated New Drug Application (ANDA) with the FDA for paclitaxel. The FDA granted approval of this ANDA on May 8, 2002. We received an approval for a second ANDA on August 1, 2002,
which provides for greater manufacturing flexibility for the generic paclitaxel product.

In
connection with the Abbott agreement, we could have received total funding of up to $118.0 million in the form of up to $30.0 million in development milestones, up to
$57.0 million in marketing milestones, $20.0 million in secured debt, and $11.0 million in equity investments. Marketing milestones are based upon certain annual sales levels, the
majority of which are unlikely to be achieved given the current pricing of paclitaxel. Through July 2, 2003, and excluding product sales, we received $40.0 million under the agreement,
including $11.0 million in equity investments in exchange for 2,000,000 shares of our common stock, $9.0 million in development milestones, and $20.0 million in secured debt.

Of
the $30.0 million of potential development-related milestone payments, we received $1.0 million upon execution of our agreement with Abbott in July 1999. With the
approval of our ANDA, and upon commencement of commercial sales, we received an $8.0 million payment in May 2002. Additional development milestones will only be available should NaPro or
Abbott undertake and successfully complete new development work, which is not currently anticipated. Therefore, it is highly unlikely that we will receive any further development milestone payments.
If we were to sell our paclitaxel operations, it is probable that we would no longer be entitled to any future milestone payments from Abbott.

We
have received $20.0 million of secured debt from Abbott. The debt bears a primary interest rate of 6.5% and is due in full on the earlier of: (i) the second anniversary
of the first sale of finished product by Abbott to a wholesaler or end-user customer following approval of finished product by the FDA (May 8, 2004); (ii) the termination of
the Abbott agreement; or (iii) January 1, 2007. The debt is limited to a borrowing base of collateralized assets, recomputed monthly. The majority of our paclitaxel inventories, and
specific assets which relate to the manufacture and related sale of paclitaxel, are collateralized as security for the debt. Abbott's only recourse in the event of our default on the debt is

13

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to
these specific assets. We anticipate that we will use a portion of the proceeds from the sale of the paclitaxel business to retire the debt to Abbott.

Contingent
upon achieving certain commercial sales thresholds for all approved formulations of paclitaxel over several years, we could have received marketing milestone payments from
Abbott of up to $57.0 million. Given the current pricing of paclitaxel, we believe that the majority, if not all, of these annual sales thresholds are unlikely to be achieved.

Under
terms of the agreement, Abbott purchases bulk drug from us. Abbott may terminate the agreement at any time with or without cause. Should Abbott terminate without cause, it is
obligated to make certain payments to us and to give us twelve months prior written notice. Since the approval of generic paclitaxel in mid-2001, the selling price of paclitaxel has fallen
significantly, and may continue to do so. We receive a fixed price payment of $500 per gram, upon delivery of paclitaxel to Abbott, plus a quarterly royalty payment on sales, if any. The royalty
payment is a percentage of sales recorded by Abbott less any product payment already paid to us. The percentage of sales varies each year based upon total sales in that year recorded by Abbott. We do
not anticipate receiving significant royalty payments given the current price of the drug.

In
1992, we entered into a 20-year exclusive agreement with F.H. Faulding & Co., Ltd. (Faulding), a large Australian pharmaceutical company, for the clinical
development, finishing, sale, marketing and distribution of paclitaxel. In October 2001, Faulding was acquired by Mayne-Nickless Limited, an Australian based health care provider and logistics
operator. As a result, Faulding is now known as Mayne Pharma. Mayne Pharma actively markets anti-cancer pharmaceuticals and other health care products in Europe, Australia, Asia, South
America, and other regions throughout the world. In 2000, we amended the Mayne Pharma agreement to, among other things, add additional countries to Mayne Pharma's exclusive territory. In 2001, we
entered into a separate agreement with Mayne Pharma covering development and sale of paclitaxel in Europe. We cannot assure that we will receive regulatory approval in any of the major markets in
Europe. Should we receive approval, Mayne Pharma will then market and sell our paclitaxel in Europe. We and Mayne Pharma will share equally the net sales of the product in Europe. With the addition of
the new agreement for Europe, the Mayne Pharma territory includes substantially all of the world other than the U.S., Canada, Japan, Israel, the former Soviet Union and parts of Africa. Mayne Pharma
has received marketing approval for, and is selling paclitaxel as ANZATAX in more than 25 countries.

In
July 2002, the European Patent Office, Opposition Division, ruled that NaPro's currently issued paclitaxel formulation patent in the European Patent Convention is invalid. We
have appealed this ruling and expect the appeal to be heard within the next 24 to 36 months. We do not believe this decision will have any effect outside of the jurisdiction of the European
Patent Office; nor will it affect our ability to enter the market in Europe as regulatory approvals are received. We also do not believe this patent decision will affect our revenues or earnings
through calendar year 2003.

We
have established an exclusive supply and distribution agreement with Tzamal for the development and distribution of paclitaxel in Israel. Tzamal is an Israeli pharmaceutical company,
active and well established in the Israeli pharmaceutical market and specializing, among other areas, in ethical products for the treatment of cancer, metabolic diseases, neurological disorders and
gynecology/fertility. In January 2001, Tzamal received approval in Israel to sell paclitaxel under the trade name Biotax. The Israeli Ministry of Health has approved Biotax for use
in treating a variety of cancers.

14

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In
June 2001, we and JCR entered into a mutually exclusive development, supply and distribution agreement for paclitaxel in Japan. JCR, headquartered in Ashiya, Japan, is a
research and development oriented pharmaceutical manufacturer, focusing on the research of bioactive substances such as enzymes, hormones, enzyme inhibitors, growth factors and stimulating factors.
Under the agreement, we will be responsible for manufacturing and supplying the finished drug. We and JCR will jointly be responsible for the clinical and regulatory program necessary for seeking
approval to market paclitaxel in Japan. JCR will be responsible for the sales and distribution of the product in Japan upon its approval. We cannot assure, however, that we will receive regulatory
approval of paclitaxel in Japan, or that we and our strategic partner will successfully market it.

Research
and Development

Research
and development are major activities for us. We discussed the nature and status of our research and development in depth in our Annual Report on Form 10-K for
the year ended December 31, 2002, and in the General section of this Management's Discussion and Analysis. If the paclitaxel business is sold, we would expect to fund our near-term
research and development efforts with a portion of the proceeds from the sale.

We
have incurred the following expense on research and development projects, including process improvements in our paclitaxel business and legal expenses incurred in connection with
patent applications and regulatory filings (in thousands):

Quarter Ended

Six Months EndedJuly 2,
2003

June 30,
2002

July 2,
2003

June 30,
2002Pharmaceutical

$
1,437

$
2,532

$
3,252

$
5,770Genomics


1,058


1,503


2,238


2,558$
2,495

$
4,035

$
5,490

$
8,328


Research
and development is expected to remain a significant expense of our business. Our research and development activity is subject to change as we develop a better understanding of
our projects and their prospects. We currently expect to concentrate on the development of novel anti-cancer agents, and the development of novel genomic technologies, primarily in the
area of Gene Editing, for applications in human therapeutics, diagnostics, agribiotechnology and pharmacogenomics. We anticipate bringing our Targeted Oncology program to the clinic during 2004. Our
Sickle Cell Disease and Huntington's Disease programs are expected to go into the clinic during 2004 or the beginning of 2005. However, there can be no assurance that we will be able to achieve the
timing of these programs. We also cannot estimate the cost of the effort necessary to complete the programs or the timing of commencement of material net cash inflows from these programs. Continued
development of these programs is dependent upon additional capital. We cannot assure that we will be able to obtain such capital on terms, which are acceptable to us. We have included a number of the
risks and uncertainties associated with completing development on schedule in the Special Note Regarding Forward-looking Statements, below.

15

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Quarter Ended July 2, 2003 Compared to the Quarter Ended June 30, 2002

Product Sales.Product sales for the quarter ended July 2, 2003 were $7.6 million, a decrease of approximately
$1.9 million from the prior year period. The decrease during this quarter was primarily attributable to lower shipments to Abbott partially offset by an increase in sales to Mayne Pharma. Sales
to Abbott for the quarter were $2.6 million, a decrease of $4.7 million from the same period in 2002. The larger quantities in 2002 corresponded with the launch of sales by Abbott
following the May 2002 approval by the FDA. Sales to Mayne Pharma for the quarter were $4.9 million, an increase of $2.8 million from the prior year quarter. This increase was
primarily due to shipping initial launch quantities for Europe at a higher per unit sales price ($1.4 million) and a net increase in our share of gross proceeds from sales price reconciliations
($1.1 million). Future sales are difficult to predict and are expected to vary from year to year depending upon numerous demand and competitive factors. Among these factors are: the
relationship of competitors with their customers, the relationship of Abbott, Mayne Pharma and Tzamal with their respective customers and the amount of competitive product in the distribution channel.

Cost of Sales.Cost of sales for the current year quarter was $4.1 million, a decrease of $2.9 million from the
prior year quarter. The decrease was attributable to lower quantities sold ($3.3 million) and lower per unit cost ($1.3 million). Lower per unit cost resulted primarily from our biomass
strategic plan, process improvements and cost containment efforts. This was partially offset by a biomass inventory valuation writedown of $1.0 million. As a result of our lower cost of sales,
our gross margin increased to 46% in the second quarter of 2003 compared with 26% in the prior year quarter. Gross margins may fluctuate in future periods depending on a number of factors, including
biomass taxane content, production volumes and developments in our manufacturing process.

Research and Development Expense.Research and development expense for the current year quarter was $2.5 million, a
decrease of $1.5 million from the prior year quarter. Genomics research and development decreased $400,000 from the 2002 quarter, while pharmaceutical research and development decreased
$1.1 million from the prior year quarter. The decrease in 2003 was primarily attributable to reductions in our salaries and benefits ($900,000), consulting and contract services ($400,000) and
supplies ($200,000). This overall decrease is primarily a result of our restructuring plan designed to control costs. In the 2002 quarter, a significant portion of our contract services expenditures
were related to our semi-synthesis paclitaxel program and in-licensing of technology. Salaries and benefits declined in the 2003 quarter primarily due to the sale of our
Analytical Services group to Chromadex and reduction of personnel in our oncology division.

General and Administrative Expense.General and administrative expense for the current year quarter was $2.8 million,
a decrease of approximately $100,000 from the prior year quarter. The decrease was primarily due to lower legal expenses ($500,000) and outside services ($200,000). These decreases were partially
offset by higher depreciation expense resulting from a shortened useful life of leasehold improvements at the Boulder, Colorado facility in which we terminated our lease early ($300,000), and the
early termination fee paid on the lease ($200,000).

License Fee Income.License fee income for the current year quarter was $280,000, a decrease of $7.8 million from the
prior year quarter. The decrease was attributable to a one-time milestone payment of $8.0 million received in 2002 from Abbott upon commencement of commercial sales in the United
States.

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Six Months Ended July 2, 2003 Compared to the Six Months Ended June 30, 2002

Product Sales.Product sales for the 2003 period were $14.4 million, a decrease of approximately $1.8 million
from the 2002 period. The decrease during this period was primarily attributable to lower shipments to Abbott and Tzamal partially offset by an increase in shipments to Mayne Pharma. Sales to Abbott
for the period were $6.7 million, a decrease of $4.6 million from the same period in 2002. The 2002 sales included significant quantities sold in anticipation of launch following the
May 2002 approval by the FDA. There were no sales to Tzamal for the current year period, which resulted in a decrease of $500,000 from the prior year period. Sales to Mayne Pharma for the
period were $7.6 million, an increase of $3.3 million from the prior year period. A large portion of the increase in sales to Mayne Pharma resulted from shipping initial launch
quantities for Europe at a higher per unit sales price ($1.4 million) and a net increase in NaPro's share of gross proceeds from sales price reconciliations ($1.1 million). Future sales
are difficult to predict and are expected to vary from year to year depending upon numerous demand and competitive factors. Among these factors are: the relationship of competitors with their
customers, the relationship of Abbott, Mayne Pharma and Tzamal with their respective customers and the amount of competitive product in the distribution channel.

Cost of Sales.Cost of sales for the 2003 period was $7.4 million, a decrease of $6.7 million from the 2002
period. The decrease was attributable to lower quantities sold ($3.0 million) and lower per unit cost ($3.2 million). Lower per unit cost resulted primarily from increased production
yields, implementation of our biomass strategic plan and results of our cost containment efforts. The 2002 cost per unit was impacted by costs associated with the start-up of larger scale
production. As a result, the gross margin increased to 49% for the 2003 period compared with 13% in the prior year period. Gross margins may fluctuate in future periods depending on a number of
factors, including biomass taxane content, production volumes and developments in our manufacturing process.

Research and Development Expense.Research and development expense for the current year period was $5.5 million, a
decrease of $2.8 million from the prior year period. Genomics research and development decreased $300,000 from the 2002 period, while pharmaceutical research and development decreased
$2.5 million from the prior year period. The decrease was primarily attributable to reductions in our consulting and contract services ($1.2 million), salaries and fringe benefits
($700,000) and supplies ($600,000). This overall decrease is primarily a result of our restructuring plan designed to control
costs. In the prior year period, a significant portion of our research and development expenditures were related to our semi-synthesis paclitaxel program and in-licensing of
technology. Salaries and benefits declined in the 2003 quarter due to the sale of our Analytical Services group to Chromadex and personnel reductions in our oncology division, partially offset by
severance costs associated with an executive officer.

General and Administrative Expense.General and administrative expense for the current year period was $5.8 million,
an increase of approximately $900,000 from the prior year period. The increase was primarily due to higher depreciation resulting from a shortened useful life of leasehold improvements at the Boulder,
Colorado facility in which we terminated our lease early ($400,000), increased staffing at our genomics division ($300,000) and lease termination costs associated with our corporate facilities in
Boulder, Colorado ($200,000). These increases were partially offset by lower legal costs ($300,000) and lower supplies expense ($300,000).

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License Fee Income.License fee income for the current year period was $600,000, a decrease of $7.8 million from the
prior year period. The decrease was primarily attributable to a to a one-time milestone payment of $8.0 million received in 2002 from Abbott upon commencement of commercial sales in
the United States.

Interest Expense.Interest expense for the 2003 period was $1.2 million, an increase of $200,000 from the 2002 period.
The increase was primarily attributable to the convertible debenture interest and amortization of the discount attributable to the conversion feature of the $8.0 million in convertible debt
issued in February 2002 and higher amortization of debt issuance costs.

Liquidity
and Capital Resources

Our
capital requirements have been, and will continue to be, significant. As of July 2, 2003, we had a working capital deficit of $7.0 million compared to a working capital
balance of $18.8 million as of December 31, 2002. We anticipate that we will be able to provide adequate capital to fund our operations and capital expenditures for at least the next
twelve months. This would be accomplished through the sale of the paclitaxel business, renegotiation of debt, or raising additional capital, as well as projected sales, the reduction of current
inventory and collection of accounts receivable. However, we cannot assure that we will be able to sell the paclitaxel business for a price acceptable to us or that we will be able to renegotiate the
payment of the Abbott debt under terms acceptable to us. We also cannot assure that if we did seek additional capital we will be able to obtain such capital on terms that are acceptable to us.

To
date, we have funded our capital requirements primarily with the net proceeds of public offerings of common stock of approximately $21.1 million, with private placements of
equity securities of approximately $62.6 million, with the exercise of warrants and options of $8.0 million and with net borrowing of $28.3 million.

In
February 2002, we sold privately $8.0 million of common stock issued at $9 per share and $8.0 million principal of five-year 4% debentures convertible
into common stock at $15 per share to TL Ventures V L.P. and TL Ventures V Interfund L.P. No placement agent was involved in the transaction. The net proceeds were $15.6 million. As part of
this transaction, we recorded a discount attributable to the conversion feature of the convertible debentures in the amount of $3.1 million, which is being amortized over the term of the
debentures.During the first quarter of 2002, we filed a registration statement with the Securities and Exchange Commission to register under the
Securities Act of 1933 the resale of common stock that was issuable upon conversion of the debentures and issuable in lieu of cash interest on the debentures. In July 2002, the registration
statement was declared effective by the SEC. NaPro may pay the debenture interest in cash or common stock at its option. The debentures automatically convert into common stock during the first two
years if the average price of the common stock for 15 trading days exceeds $22, and during the last three years if the average price for 30 trading days exceeds $16. If we have insufficient funds to
repay the debentures in full at maturity or upon acceleration, the holders of the debentures may elect to convert the outstanding principal balance and any unpaid accrued interest on the debentures
into shares of common stock at a conversion price equal to the then current 20 day average trading price of the common stock. The conversion price of the common stock in such a circumstance
could be materially below the price at which we otherwise would be willing to issue our common stock. Issuance of common stock at such a price could result in

18

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substantial
dilution to our other stockholders and could have a material adverse effect on the market price of our common stock.

In
February 2002, we sold privately $8.0 million of common stock and $8.0 million principal of five-year 4% debentures to TL Ventures V L.P. and TL
Ventures V Interfund L.P. A representative of TL Ventures has recently asserted that TL Ventures will have the right to cause us to redeem its debentures if we complete the sale of our
paclitaxel business. We do not agree with TL Venture's assertion and we are discussing with TL Ventures a resolution of this matter. However, if we are required to redeem these debentures with the
proceeds of the sale of our paclitaxel business, the amount of the proceeds would be reduced accordingly and our ability to apply the proceeds to the benefit of our oncology and gene editing
technologies would be reduced.

In
December 2002, we acquired the genomics business of Pangene Corporation for $1.3 million in cash and assumption of debt obligations totaling approximately $65,000. The
acquisition consisted primarily of patents and intellectual property relating to Pangene's homologous recombination technology and gene isolation and service business, physical assets,
instrumentation, software, customer relationships and third-party licenses. The purchase price was allocated to intangible assets totaling $987,000, fixed assets and software of $183,000, and other
current assets of $44,000. In process research and development of $151,000 was expensed at the time of the acquisition. We are amortizing the intangible
assets over 5 to 15 years, and fixed assets and software over 3 years. In connection with this agreement, we acquired additional patents in January 2003 in the amount of $400,000.

In
November 2000, we entered into a 20-year Gene Editing technology license with the University of Delaware and Thomas Jefferson University relating to the use of
proprietary oligonucleotides (small, synthetic DNA polymers) designed to precisely alter genes in humans, animals, plants, viruses and microbes. The license provides for research and patent funding
commitments and payments in common stock. To date, we have issued 300,000 shares under the license agreement. Assuming we do not cancel the license, we will issue an additional 900,000 shares in
100,000 share-per-year increments on the license anniversaries. We may, at our option, accelerate the issuance dates. Certain milestones may also accelerate the issuance dates.
The license is terminable at NaPro's option. If terminated, no further shares would be issued. We have committed to fund at least $300,000 in research under this agreement during 2003.

Working Capital and Cash Flow

Cash and cash equivalents decreased $900,000 to $5.8 million for the period ended July 2, 2003 from $6.8 million as of December 31,
2002. During the 2003 period, net cash provided by operating activities was $500,000, net cash used in investing activities was $1.7 million and financing activities provided net cash of
$200,000.

Inventory
was $13.0 million at July 2, 2003, of which $6.1 million was classified as non-current. Non-current inventory consists of raw
materials which are not expected to be utilized during the next twelve months, due to the timing of biomass harvests and anticipated future changes to our production process. The amount of inventory
is dependent on a number of factors, including the shipping requirements of our strategic partners, our production planning for meeting those needs, and the timing of seasonal biomass harvests.
Inventory balances may vary significantly during product development, launch periods and during seasonal harvests.

19

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Accounts
receivable was $8.1 million at July 2, 2003 and $9.3 million at December 31, 2002. We anticipate that the level of our accounts receivable will
continue to decrease throughout the remainder of 2003. If we sell the paclitaxel business, we expect that our accounts receivable will be significantly reduced from our current levels for the
foreseeable future.

Notes
payablecurrent portion was $20.2 million at July 2, 2003, an increase of $20.1 million from December 31, 2002. We reclassified our note
payable due to Abbott of $20.0 million, and related unamortized issuance costs to current as the note is due on May 8, 2004.

Capital Expenditures

We spent $700,000 on capital projects during the first six months of 2003. These capital project expenditures primarily consisted of manufacturing and laboratory
equipment purchases, and plantation costs. We spent $600,000 for our investment in Chromadex and $400,000 for patents acquired in connection with the prior year acquisition of assets from Pangene
Corporation.

The
amount and timing of future capital expenditures will depend upon numerous factors, including:



We
anticipate capital expenditures of approximately $1.7 million during 2003, which will be significantly reduced from the prior year. The primary focus of capital spending during
the remainder of 2003 is expected to be in our manufacturing areas. Although we may seek additional long-term financing to fund capital expenditures, we cannot assure that we can obtain
such financing on terms which are acceptable to us.

Net Operating Loss Carryforwards

As of December 31, 2002, we had approximately $87.0 million of net operating loss carryforwards to offset future taxable income. Tax law provides
limits on the utilization of net operating loss

20

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carryforwards
if there has been a "change of ownership" as described in Section 382 of the Internal Revenue Code. Such a change of ownership may limit our utilization of our net operating loss
carryforwards, and could be triggered by sales of securities by us or our stockholders. Any gain on a sale of the paclitaxel business would use a portion of these carryforwards.

Business Development Activities

In the normal course of our business, we investigate, evaluate, and discuss licensing relationships, acquisitions, and other business combination opportunities in
the pharmaceutical and genomics businesses. In the event we enter into any such relationships or transactions, we may consider using available cash, issuing equity securities or increasing our debt.
Such transactions could materially affect our capital structure.

Critical Accounting Policies

The Company's critical accounting policies are presented in its Annual Report on Form 10-K for the year ended December 31, 2002. There
were no changes to these critical accounting policies during the six month period ended July 2, 2003.

Special
Note Regarding Forward-looking Statements

The
statements in this report that are not historical facts are forward-looking statements that represent management's beliefs and assumptions based on currently available information.
Forward-looking statements can be identified by the use of words such as "believes", "intends", "estimates", "may", "will", "should", "anticipated", "expected" or comparable terminology or by
discussions of strategy. Such forward-looking statements may include, among others:



21

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Although
we believe that the expectations reflected in such forward-looking statements are reasonable, we cannot assure you that these expectations will prove to be correct. Such
forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause our actual results, performance or achievements, 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:



22

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23

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Should
one or more of the risks mentioned above materialize (or the consequences of such a development worsen), or should the assumptions underlying our forward-looking statements prove
incorrect, actual results could differ materially from those forecasted or expected. These factors are not intended to be an all-inclusive enumeration of the business risks we face.
Reference is also made to the risk factors discussed in Amendment No. 4 to our Registration Statement (No. 333-82810) filed with the Securities and Exchange Commission on
July 1, 2002. The forward-looking statements included in this report represent our view as of the date of this report. The reader should not assume that the statements made herein remain
accurate at any future date. We do not intend to update these statements whether as a result of new information, future events or otherwise and undertake no duty to any person to make any update under
any circumstance.

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

Under the Mayne Pharma agreement, Mayne Pharma pays us a fixed percentage of their sales price for paclitaxel. Each year, Mayne Pharma estimates the sales price
it will receive in the upcoming year, and based upon that estimate, we determine the price we will charge Mayne Pharma. We recognize the corresponding sales at the time of shipment to Mayne Pharma.
However, Mayne Pharma's actual selling price may differ from that estimated. Pursuant to the agreement, Mayne Pharma is obligated to provide us with their calculation of the actual quantity of sales
and the sales price per gram as of each March 30 and an adjustment is calculated that may increase or decrease our sales of products to Mayne Pharma during that year.

Mayne
Pharma's sales are made in the currencies of each of the countries in which it sells paclitaxel. As a result, our sales are affected by fluctuations in the value of these various
foreign currencies relative to the U.S. dollar. In the past, currency fluctuations were a significant factor in reductions in the price we charged Mayne Pharma. If changes in foreign currency markets
continue to cause a decrease in the price per gram we receive from Mayne Pharma, there could be a material adverse effect on our earnings and cash flow. We currently record a reserve for potential
Mayne Pharma pricing adjustments based upon historical experience and periodic reporting provided by Mayne Pharma. Our sales to JCR, if and when they occur, will be subject to the same risk.

Certain
statements set forth in this Item 3 may constitute "forward-looking statements." See "Special Note Regarding Forward-looking Statements."

Item 4. Controls and Procedures

(a)   The
Company maintains a system of disclosure controls and procedures. The term "disclosure controls and procedures," as defined by regulations of the SEC, means controls
and other procedures that are designed to ensure that information required to be disclosed in the reports that the Company files or submits to the SEC under the Securities Exchange Act of 1934, as
amended (the Act), is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation,
controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits to the SEC under the Act is accumulated and communicated to
the Company's management,

24

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including
its principal executive officer and its principal financial officer, as appropriate to allow timely decisions to be made regarding required disclosure. Within the 90 days prior to the
date of this report, the Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures. Based upon that evaluation, the Company's Chief Executive Officer and Chief
Financial Officer concluded that the Company's disclosure controls and procedures are effective in timely alerting them to material information relating to the Company required to be included in the
Company's periodic SEC filings.

(b)   The
Company also maintains a system of internal controls. The term "internal controls," as defined by the American Institute of Certified Public Accountants'
Codification of Statement on Auditing Standards, AU Section 319, means controls and other procedures designed to provide reasonable assurance regarding the achievement of objectives in the
reliability of the Company's financial reporting, the effectiveness and efficiency of the Company's operations and the Company's compliance with applicable laws and regulations. There were no
significant changes in our internal controls or to our knowledge, in other factors that could significantly affect our internal controls and procedures subsequent to the date of such evaluation.

It
should be noted that any system of controls, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system are met. In
addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events. Because of these and other inherent limitations of control systems, there
can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.

25

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Part IIOther Information

Item 1. Legal Proceedings.

On April 28, 2003, NaPro filed a declaratory judgment action in the Federal District Court in Denver, and subsequently initiated legal action against Hande
Tech Development Co. USA, Inc. (Hande Tech). Hande Tech is a supplier of bulk paclitaxel, who formerly supplied bulk paclitaxel feedstock to NaPro. This declaratory judgment filing was in response to
allegations made by Hande Tech that NaPro had breached certain obligations to purchase paclitaxel feedstock from Hande Tech. Hande Tech has asserted that it was damaged by NaPro's failure to purchase
paclitaxel feedstock valued at approximately $2.0 million. NaPro's position is that it had no obligation to purchase such feedstock and, therefore, owes Hande Tech nothing. This litigation is
in the early stages, and no schedule has yet been set by the court.

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

At NaPro's annual meeting of stockholders on June 27, 2003, the four matters listed below were submitted to a vote of NaPro's stockholders.

1.     The
election of three Class I directors to hold office until the 2006 Annual Meeting

Number of SharesNomineeFor

WithheldArthur H. Hayes, Jr. M.D.

24,879,222

2,058,678Robert E. Pollack, Ph.D.

25,191,528

1,746,372Leonard P. Shaykin

24,214,061

2,723,839


2.     Approval
of amendment to the Company's Amended and Restated Certificate of Incorporation to effect a reverse stock split of the Company's outstanding common stock in the
range of 1:5 to 1:40, as determined in the discretion of the Board of Directors.

Number of SharesFor

23,325,973Against

3,561,621Abstain

50,305


3.     To
ratify the selection by the Board of Directors of Ernst and Young LLP as our independent auditors for the year ending December 31, 2003:

Number of SharesFor

25,845,245Against

998,328Abstain

94,326


26

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4.     Shareholder
proposal to urge the Board of Directors to significantly reduce executive compensation by eliminating bonuses, grants of new options to the Chief Executive
Officer and the other four most highly compensated executive officers. In addition, to urge the Board of Directors to reduce salaries by 30% for the Chief Executive Officer and the other four most
highly compensated executive officers.

Number of SharesFor

3,113,449Against

8,299,175Abstain

312,019Unvoted

15,213,257


Item 6. Exhibits and Reports on Form 8-K.

|Exhibit
Number |  | Description of Exhibit                                                                                                      
|-------------- |  | ----------------------------------------------------------------------------------------------------------------------------
|10.1*+         |  | Employment Agreement effective May 22, 2003 between the Company and James McChesney.                                        
|31.1*          |  | Certification of Chief Executive Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002.                      
|31.2*          |  | Certification of Chief Financial Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002.                      
|32.1*#         |  | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).
|32.2*#         |  | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).

---

*Filed
herewith.

#
This certification shall not be deemed "filed" for purposes of Section 18 of the Exchange Act, or otherwise subject to liability pursuant to that section. Such certification
shall not be deemed to be
incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the Company specifically incorporates it by reference.

+
A management compensation plan.

We
filed a Current Report on Form 8-K dated April 9, 2003 reporting on Item 5, and attaching as an exhibit to the report a press release relating to the
offering for sale of the Company's worldwide generic cremaphor injectable paclitaxel business.

We
filed a Current Report on Form 8-K dated May 15, 2003 reporting on Item 9, Regulation FD Dislosure, and attaching as an exhibit to the report a press release
announcing the Company's first quarter 2003 earnings.

27

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Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, NaPro has duly caused this report on Form 10-Q to be signed on its behalf
by the undersigned thereunto duly authorized.

|               |  | NAPRO BIOTHERAPEUTICS, INC.                                                             
|-------------- |  | ----------------------------------------------------------------------------------------
|August 8, 2003 |  | By:                                                                                     
|               |  | Leonard P. Shaykin
Chairman of the Board of Directors,
Chief Executive Officer          
|August 8, 2003 |  | By:                                                                                     
|               |  | Gordon Link
Senior Vice President,
Chief Financial Officer
(Principal Financial Officer)
|August 8, 2003 |  | By:                                                                                     
|               |  | Roger Newberry
Acting Controller
(Principal Accounting Officer)                         

28

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