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

Form 10-Q

|(Mark One)                                                    |                                                                                         
|------------------------------------------------------------- | ----------------------------------------------------------------------------------------
|ý                                                             | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 
|For the quarterly period ended October 1, 2003               
|OR                                                           
|o                                                             | 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 0-24320

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

Delaware

84-1187753(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer
Identification No.)


4840 Pearl East Circle, Suite 300W
Boulder, Colorado 80301(Address of principal executive office, including zip code)

(303) 516-8500(Registrant's telephone number, including area code)

Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section13or 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 ý    No o

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

As
of October 30, 2003, the registrant had 30,801,430 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               
|           |  | Item 2               
|           |  | Item 3               
|           |  | Item 4               
|Part II    |  | Other Information    
|           |  | Item 1               
|           |  | Item 6               
|Signatures

|Exhibits     |  |                                                                                                                                                                               
|------------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit 2.1  |  | Asset Purchase Agreement dated as of August 25, 2003 between NaPro BioTherapeutics, Inc. and Faulding Pharmaceutical Co.                                                      
|Exhibit 3.1  |  | Certificate of Elimination of Convertible Preferred Stock, Series A.                                                                                                          
|Exhibit 3.2  |  | Certificate of Elimination of Series C Senior Convertible Preferred Stock.                                                                                                    
|Exhibit 3.3  |  | Certificate of Increase of Series B Junior Participating Preferred Stock.                                                                                                     
|Exhibit 10.1 |  | Form of Voting Agreement to be entered into between each of Leonard P. Shaykin and Sterling K. Ainsworth, on the one hand, and Faulding Pharmaceutical Co., on the other hand.
|Exhibit 31.1 |  | Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934, as amended.                                          
|Exhibit 31.2 |  | Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934, as amended.                                          
|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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Item 1. Financial Statements

NaPro BioTherapeutics, Inc. and Subsidiaries        Consolidated Condensed Balance Sheets        (In thousands, except per share data)

|                                                     |                                                                                                                                                              | October 1,
2003 |        | December 31,
2002 |  
|---------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------ | --------------- | ------ | ----------------- | -
|
|ASSETS                                               |                                                                                                                                                              |                 |        |                   |  
|Current assets:                                      |                                                                                                                                                              |                 |        |                   |  
|                                                     | Cash and cash equivalents                                                                                                                                    |                 | $      | 4,883             |  
|                                                     | Accounts receivable                                                                                                                                          |                 |        | 8,206             |  
|                                                     | Inventory                                                                                                                                                    |                 |        | 3,917             |  
|                                                     | Prepaid expense and other current assets                                                                                                                     |                 |        | 1,064             |  
|                                                     |                                                                                                                                                              |                 |        |                   |  
|Total current assets                                 |                                                                                                                                                              |                 | 18,070 |                   |  
|Property, plant and equipment, net                   |                                                                                                                                                              |                 | 9,760  |                   |  
|Inventoryraw materials                              |                                                                                                                                                              |                 | 6,171  |                   |  
|Other assets                                         |                                                                                                                                                              |                 | 3,048  |                   |  
|                                                     |                                                                                                                                                              |                 |        |                   |  
|Total assets                                         |                                                                                                                                                              | $               | 37,049 |                   | $
|                                                     |                                                                                                                                                              |                 |        |                   |  
|LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)       |                                                                                                                                                              |                 |        |                   |  
|Current liabilities:                                 |                                                                                                                                                              |                 |        |                   |  
|                                                     | Accounts payable and accrued liabilities                                                                                                                     |                 | $      | 6,826             |  
|                                                     | Accrued payroll and payroll taxes                                                                                                                            |                 |        | 1,783             |  
|                                                     | Notes payablecurrent portion                                                                                                                                |                 |        | 20,078            |  
|                                                     | Deferred income                                                                                                                                              |                 |        | 1,250             |  
|                                                     |                                                                                                                                                              |                 |        |                   |  
|Total current liabilities                            |                                                                                                                                                              |                 | 29,937 |                   |  
|Notes payablelong term                              |                                                                                                                                                              |                 | 63     |                   |  
|Deferred incomelong term                            |                                                                                                                                                              |                 | 5,047  |                   |  
|Convertible debentures                               |                                                                                                                                                              |                 | 5,557  |                   |  
|Stockholders' equity (deficit):                      |                                                                                                                                                              |                 |        |                   |  
|                                                     | Preferred stock, $.001 par value; 2,000,000 shares authorized at October 1, 2003 and December 31, 2002; none issued                                          |                 |        |                  |  
|                                                     | Common stock, $.0075 par value; 64,000,000 shares authorized; 30,756,384 and 29,964,292 shares issued at October 1, 2003 and December 31, 2002, respectively |                 |        | 231               |  
|                                                     | Additional paid-in capital                                                                                                                                   |                 |        | 111,016           |  
|                                                     | Accumulated deficit                                                                                                                                          |                 |        | (114,621          | )
|                                                     | Treasury stock, 54,306 shares at cost at October 1, 2003 and December 31, 2002                                                                               |                 |        | (181              | )
|                                                     |                                                                                                                                                              |                 |        |                   |  
|Total stockholders' equity (deficit)                 |                                                                                                                                                              |                 | (3,555 | )                 |  
|                                                     |                                                                                                                                                              |                 |        |                   |  
|Total liabilities and stockholders' equity (deficit) |                                                                                                                                                              | $               | 37,049 |                   | $
|                                                     |                                                                                                                                                              |                 |        |                   |  

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 |        | Nine Months Ended |  
|----------------------------------------------------- | -------------------------- | ------------- | ------ | ----------------- | -
|
|Product sales                                         |                            | $             | 7,301  |                   | $
|Expenses:                                             |                            |               |        |                   |  
|                                                      | Cost of sales              |               |        | 6,535             |  
|                                                      | Research and development   |               |        | 2,253             |  
|                                                      | General and administrative |               |        | 3,275             |  
|                                                      | Loss on disposal of assets |               |        | 1,048             |  
|                                                      |                            |               |        |                   |  
|                                                      |                            |               | 13,111 |                   |  
|                                                      |                            |               |        |                   |  
|Operating loss                                        |                            |               | (5,810 | )                 |  
|Other income (expense):                               |                            |               |        |                   |  
|                                                      | License fee income         |               |        | 280               |  
|                                                      | Interest and other income  |               |        | 17                |  
|                                                      | Interest expense           |               |        | (550              | )
|                                                      |                            |               |        |                   |  
|Net loss                                              |                            | $             | (6,063 | )                 | $
|                                                      |                            |               |        |                   |  
|Basic and diluted loss per share                      |                            | $             | (0.20  | )                 | $
|                                                      |                            |               |        |                   |  
|Basic and diluted weighted average shares outstanding |                            |               | 30,759 |                   |  
|                                                      |                            |               |        |                   |  

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)

|                                                                            |                                                                 | Nine Months Ended                        |        
|--------------------------------------------------------------------------- | --------------------------------------------------------------- | ---------------------------------------- | -------
|
|Operating activities:                                                       |                                                                 |                                          |        
|Net loss                                                                    |                                                                 | $                                        | (10,943
|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                 |                                          |        
|                                                                            | Loss on disposal of assets                                      |                                          |        
|                                                                            | 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                         |                                                                 |                                          | 86     
|Investing activities:                                                       |                                                                 |                                          |        
|                                                                            | Additions to property, plant and equipment                      |                                          |        
|                                                                            | Proceeds from sale of property, plant and equipment             |                                          |        
|                                                                            | Acquisition of patents                                          |                                          |        
|                                                                            | Investment in ChromaDex                                         |                                          |        
|                                                                            |                                                                 |                                          |        
|Net cash used in investing activities                                       |                                                                 |                                          | (2,041 
|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                                   |                                                                 |                                          | 76     
|                                                                            |                                                                 |                                          |        
|Net (decrease) increase in cash and cash equivalents                        |                                                                 |                                          | (1,879 
|Cash and cash equivalents at beginning of period                            |                                                                 |                                          | 6,762  
|                                                                            |                                                                 |                                          |        
|Cash and cash equivalents at end of period                                  |                                                                 | $                                        | 4,883  
|                                                                            |                                                                 |                                          |        

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)

|                                                  |                                                                  | Nine 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    |                  
|                                                  | Issuance of common stock for payment of interest                 |                  

See
accompanying notes to Consolidated Condensed Financial Statements.

6

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NaPro BioTherapeutics, Inc.        Notes to Consolidated Condensed Financial Statements        October 1, 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 NaPro BioTherapeutics, Inc. (NaPro, or the Company) Annual Report on Form 10-K and Forms 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 defers 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

On August 26, 2003, the Company announced that it has signed a definitive agreement, subject to the approval of NaPro stockholders, to sell its worldwide
polyethoxylated castor oil formulated injectable paclitaxel business to Faulding Pharmaceutical Co. (Faulding), a subsidiary of Mayne Group Limited, for $71.7 million in cash minus an inventory
adjustment to reflect the Company's actual inventory as of the closing. Faulding would assume certain liabilities associated with our paclitaxel business. The Company currently plans to complete the
asset sale in the fourth quarter of 2003. The Company's paclitaxel is currently approved for commercial sale in the U.S., Australia, Israel and more than 25 other countries in the Middle East, Asia
and Latin America. Proceeds from the sale would be used to fund the development and commercialization of products based on NaPro's proprietary oncology and gene editing platforms and for general
corporate purposes. In addition, approximately $21.7 million of the proceeds of the purchase price will be paid to Abbott Laboratories (Abbott) or its designee to retire all outstanding debt
and payables the Company owes to Abbott. The assets to be

7

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sold
to Faulding will include paclitaxel manufacturing assets, yew plantations, domestic and international issued and pending paclitaxel patents, a worldwide registration dossier, worldwide
development and supply agreements and inventories. The Company will retain all of its intellectual property not used in connection with the business being sold. The Company will also retain certain
liabilities related to its ongoing business, including those relating to the Company's employees and stockholders, its retained contracts, license agreements unrelated to the paclitaxel business and
certain leases and purchase orders, as well as other liabilities related to the Company's manufacture and sale of paclitaxel which arose prior to the closing of the asset sale. The asset sale is
subject to some conditions that are beyond the Company's control and the Company cannot predict the exact timing of the completion of the asset sale. Upon consummation of the asset sale, the Company
will exit the generic paclitaxel business, the development agreements with Abbott and Faulding will terminate and the Company will transfer its other generic paclitaxel marketing agreements to
Faulding. If the asset sale is not approved by NaPro's stockholders or is not completed for any other reason, the Company would likely continue to operate its paclitaxel business for the foreseeable
future.

In
a related transaction, Faulding and Abbott entered into a separate purchase agreement pursuant to which Abbott sold to Faulding, among other things, certain assets and rights, and
Faulding assumed from Abbott certain liabilities, associated with a development, license and supply agreement between the Company and Abbott. In addition, Abbott sold its holdings of 2,000,000 shares
of our common stock to Faulding. These sales by Abbott to Faulding were consummated on September 30, 2003.

In
connection with the sale of the paclitaxel business, NaPro's Board of Directors granted a total of 1,250,000 stock options to officers of the Company under the 1994 Stock Option Plan
at an exercise price of $1.55 per share. These options vest no later than September 2, 2008. The options may vest earlier if the Company's closing stock price, on a rolling 20-day
average, exceeds $1.55. If the rolling 20-day average closing stock price exceeds $1.55 by 30%, then 16.67% of the options vest. Likewise, if the 20-day rolling average closing
stock price exceeds $1.55 by 60%, 90%, 120% and 200%, then in each case an additional 16.67% of the options vest. The additional total compensation expense that would be related to the sale
transaction if the options had
been expensed under the fair value method would have been $1,700,000 over the next five years (see Note 9).

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 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 $554,000, 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.

8

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Note 6. Inventory

Inventory consists of the following (in thousands):

October 1,
2003

December 31,
2002Raw materials

$
1,447

$
3,858Work in process


474


3,402Finished goods


1,996


2,137Total current inventory


3,917


9,397Raw materialslong-term


6,171


3,781Total inventory

$
10,088

$
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.

Note 7. Property, Plant and Equipment

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

October 1,
2003

December 31,
2002Land

$
718

$
718Furniture, fixtures and office equipment


1,483


987Laboratory and production equipment


5,844


9,140Plantation costs


4,280


4,650Leasehold improvements


1,990


3,911Construction in progress


606


56814,921


19,974Less accumulated depreciation and amortization


(5,161
)

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

$
9,760

$
13,731


In
connection with the sale of the paclitaxel business, property, plant and equipment with a net book value at October 1, 2003 of approximately $7.6 million is anticipated
to be sold to Faulding (see Note 4).

In
connection with the termination of a lease for one of the Company's facilities, the Company sold and disposed of plant and equipment with a net book value of $1.2 million. The
Company realized proceeds from the sale of certain of these assets of $168,000 during 2003.

9

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Note 8. Stockholders' Equity

The Company has filed a shelf registration statement, which has been declared effective, covering up to 6.5 million shares of its common stock and
1.0 million shares of its preferred stock. This registration statement is intended to give NaPro the flexibility to take advantage of financing opportunities from time to time when market
conditions are favorable to the Company.

Note 9. 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 October 1, 2003 and September 30, 2002, respectively: risk-free interest rates of 1.98% to 2.65% and 3.72% to
4.30%; no expected dividend; volatility factors of 1.228 and 1.091, and an estimated expected life of three to six years. For the nine months ended October 1, 2003 and
September 30, 2002, respectively: NaPro estimated the fair value of these options with the following weighted average assumptions, risk-free interest rates of 1.98% to 3.22% and
3.72% to 5.07%; no expected dividend; volatility factors of 1.187 to 1.228 and 1.090 to 1.167, and an estimated expected life of three to six years.

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 |        | Nine Months Ended |  
|--------------------------------------------------------------------------------------------------------------- |  | ------------- | ------ | ----------------- | -
|
|Net loss as reported                                                                                            |  | $             | (6,063 | )                 | $
|Deduct: Total stock based employee compensation expense determined under fair value based method for all awards |  |               | (935   | )                 |  
|                                                                                                                |  |               |        |                   |  
|Pro forma net loss                                                                                              |  | $             | (6,998 | )                 | $
|                                                                                                                |  |               |        |                   |  
|Basic and diluted loss per shareas reported                                                                    |  | $             | (0.20  | )                 | $
|                                                                                                                |  |               |        |                   |  
|Pro forma basic and diluted loss per share                                                                      |  | $             | (0.23  | )                 | $
|                                                                                                                |  |               |        |                   |  

10

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Note 10. 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 11. 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 and third quarters of 2003 the Company incurred severance costs of approximately $26,000 and $17,000, respectively, resulting from the involuntary termination of a total of nine
employees. The Company anticipates further personnel reductions as a result of the termination of the Boulder, Colorado lease (see Note 12), the sale of the paclitaxel business to Faulding (see
Note 4) and expected production process changes during the remainder of 2003.

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.

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 12. 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 approximately $200,000 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.

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. In
October 2003 the lease became noncancelable over the remaining term, which goes through January 2008. The future minimum lease payments associated with the remaining term total $437,000.

11

---

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. As a result, the Company was
relieved of future minimum lease obligation payments totaling approximately $863,000.

Note 13. Subsequent Events

On October 6, 2003, the Company announced that the Federal District Court in the Western District of Pennsylvania (the court) has made a number of rulings
in favor of the Company in its patent infringement lawsuit against Mylan Laboratories, Inc. (Mylan). The court ruled that Mylan infringes on NaPro patents related to both stabilized
formulations of paclitaxel and methods for making stable formulations. The court also ruled that the inventors listed on the NaPro patents were the first to invent the compositions and methods claimed
in such patents. The court also adopted NaPro's interpretations of the patent claims asserted against Mylan in this case. NaPro expects the trial on the remaining issues in the case to begin on
December 1, 2003. The remaining issues will be focused on Mylan's claims that NaPro's patents are invalid and unenforceable. NaPro will share with Faulding any cash recovery, whether through
settlement or as a result of trial. However, even if NaPro has a favorable ruling at trial, NaPro does not expect to obtain a monetary award until after a damages phase of the litigation that would
commence an estimated 12 to 18 months later. The findings and rulings of the District Court will be subject to appeal. An appeal by Mylan could result in a reversal of the outcome in the
District Court and could also result in delays in recovery of any monetary damages.

TL
Ventures Funds, one of our principal institutional investors, has advised us that it believes that the completion of the sale of our paclitaxel business to Faulding will entitle it to
have its $8.0 million of Company subordinated debentures redeemed. The Company disputed this position and engaged in discussions with TL Ventures Funds regarding this matter. On
September 8, 2003, TL Ventures Funds reasserted its position and informed us that, if we could not resolve this issue promptly, it intended to pursue legal remedies. On September 11,
2003, we filed a complaint in Boulder County, Colorado in a case captionedNaPro BioTherapeutics, Inc. v. TL Ventures V L.P. and TL Ventures V Interfund
L.P., Case No. 2003-CV-1812, District Court, Boulder County, Colorado. We served TL Ventures with the complaint on October 1, 2003. In our
complaint, we seek a declaratory judgment from the court that the asset sale to Faulding will not permit TL Ventures to have its subordinated debentures redeemed. TL Ventures has filed a motion to
dismiss the suit. We will vigorously defend our legal position. One of our directors, Marc Ostro, is also a general partner in certain TL Ventures Funds.

12

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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 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. Historically, the
primary focus of our business has been the production and sale of paclitaxel, a naturally occurring chemotherapeutic anti-cancer agent found in certain species of yew, or Taxustrees, and a majority of
our resources have been devoted to this endeavor. In the field of oncology, we are developing several compounds that we
believe have potential as anti-cancer agents to treat a variety of cancers, including small cell lung, prostate, pancreatic and colorectal cancers and squamous cell head and neck
carcinomas. In the field of genomics, we are engaged in the discovery, patenting, development and commercialization of a range of products using our proprietary gene editing technology. In terms of
therapeutic applications within genomics, our efforts to date have been directed primarily to the development of treatments for Sickle Cell disease and Huntington's disease. In addition, we are
developing gene editing strategies for animals, plants, viruses and other microbes. In addition to oncology and gene editing research and development activities, we may also evaluate 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, or the incurrence of debt or equity financing that is dilutive to
existing stockholders.

Agreement
to Sell Our Paclitaxel Business

On
August 26, 2003, we announced that we have signed a definitive agreement, subject to the approval of our stockholders, to sell our worldwide polyethoxylated castor oil
formulated injectable paclitaxel business to Faulding Pharmaceutical Co. (Faulding), a subsidiary of Mayne Group Limited, for $71.7 million in cash minus an inventory adjustment to reflect our
actual inventory as of the closing. Faulding will assume certain liabilities associated with our paclitaxel business. We currently plan to complete the asset sale in the fourth quarter of 2003. Our
paclitaxel is currently approved for commercial sale in the U.S., Australia, Israel and more than 25 other countries in the Middle East, Asia and Latin America. Proceeds from the sale are expected to
be used to fund development and commercialization of products based on our proprietary oncology and gene editing platforms and for general corporate purposes. In addition, approximately
$21.7 million of the proceeds of the purchase price will be paid to Abbott Laboratories (Abbott) or its designee to retire all outstanding debt and payables we owe to Abbott. The assets to be
sold to Faulding will include paclitaxel manufacturing assets, yew plantations, domestic and international issued and pending paclitaxel patents, a worldwide registration dossier, worldwide
development and supply agreements and inventories. We will retain all our intellectual property not used in connection with the business being sold. We will also retain certain liabilities related to
our ongoing business, including those relating to our employees and stockholders, our retained contracts, license agreements unrelated to the paclitaxel business and certain leases and purchase
orders, as well as other liabilities related to our manufacture and sale of paclitaxel which

13

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arose
prior to the closing of the asset sale. The asset sale is subject to some conditions that are beyond our control and we cannot predict the exact timing of the completion of the asset sale. Upon
consummation of the asset sale, we will exit the generic paclitaxel business, our development agreements with Abbott and Faulding will terminate and we will transfer our other generic paclitaxel
marketing agreements to Faulding. If the asset sale is not approved by our stockholders or is not completed for any other reason, we would likely continue to operate our paclitaxel business for the
foreseeable future.

In
a related transaction, Faulding and Abbott entered into a separate purchase agreement pursuant to which Abbott sold to Faulding, among other things, certain assets and rights, and
Faulding assumed from Abbott certain liabilities, associated with a development, license and supply agreement between NaPro and Abbott. In addition, Abbott sold its holdings of 2,000,000 shares of our
common stock to Faulding. These sales by Abbott to Faulding were consummated on September 30, 2003.

In
connection with the sale of the paclitaxel business, NaPro's Board of Directors granted a total of 1,250,000 stock options to officers of the Company under the 1994 Stock Option Plan
at an exercise price of $1.55 per share. These options vest no later than September 2, 2008. The options may vest earlier if our stock price, on a rolling 20-day average, exceeds
$1.55. If the rolling 20-day average stock price exceeds $1.55 by 30%, then 16.67% of the options vest. Likewise, if the 20-day rolling average stock price exceeds $1.55 by
60%, 90%, 120% and 200%, then in each case an additional 16.67% of the options vest. The additional total compensation expense that would be related to the sale transaction if the options had been
expensed under the fair value method would have been $1,700,000 over the next five years (see Note 9).

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 cost of product and the development of our semi-synthesis 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 $10.9 million for the nine months
ended October 1, 2003, resulting in an accumulated deficit of $114.6 million as of October 1, 2003. If we sell the paclitaxel business, we anticipate recognizing a gain sufficient
to record net income in 2003, but the gain recognized will not be enough to fully offset our accumulated deficit. 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.

Agreements
with Strategic Partners

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 oncology and gene editing 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 U.S. Food and Drug
Administration (FDA) for paclitaxel. The FDA granted

14

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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.

Our
financial arrangement with Abbott included total potential 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 October 1, 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 business, we would no longer be entitled to any future milestone payments from Abbott.

Under
terms of our agreement with Abbott (which we understand that Faulding has acquired), 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 generic competition for paclitaxel
was permitted by the FDA, the market price for the drug has decreased approximately 75% from pre-generic competition levels. 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.

The
$20.0 million of secured debt we have received from Abbott 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 to these specific
assets. Under the terms of the agreement to sell the paclitaxel business, we will use a portion of the proceeds from the sale of the paclitaxel business to retire the debt to Abbott.

In
1992, we entered into a 20-year exclusive agreement with Faulding for the clinical development, finishing, sale, marketing and distribution of paclitaxel. In
October 2001, Faulding was acquired by Mayne-Nickless Limited. 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.

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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 12 to 24 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.

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, as
amended 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

Nine Months EndedOctober 1,
2003

September 30,
2002

October 1,
2003

September 30,
2002Oncology

$
1,234

$
2,667

$
4,486

$
8,427Genomics


1,019


1,232


3,257


3,790$
2,253

$
3,899

$
7,743

$
12,217


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 expect at least one oncology compound to enter clinical testing during 2004. We do
not expect to commercialize any of these products before 2008, at the earliest. Currently, we are engaged in developing therapeutic programs to treat Sickle Cell disease and Huntington's disease. We
hope to have at least one of these programs in the clinic in the next 12 to 18 months. We cannot assure you that the development and commercialization of these therapies will be completed on
the time table

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discussed
above. 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.

Quarter Ended October 1, 2003 Compared to the Quarter Ended September 30, 2002

Product Sales.Product sales for the quarter ended October 1, 2003 were $7.3 million, a decrease of
approximately $1.0 million from the prior year period. The decrease during this quarter was primarily attributable to lower shipments to Abbott and Tzamal partially offset by an increase in
sales to Mayne Pharma. Sales to Abbott for the quarter were $4.8 million, a decrease of $1.7 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 Tzamal decreased $600,000 from the same period in 2002 as Tzamal made no purchases during the 2003 period. Sales
to Mayne Pharma for the quarter were $2.6 million, an increase of $1.3 million from the prior year quarter. 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 $6.5 million, an increase of approximately
$1.0 million from the prior year quarter. The increase was attributable to higher per unit cost ($2.0 million) partially offset by lower quantities sold ($500,000) and lower idle plant
costs ($600,000). Higher per unit cost resulted primarily from the start-up of a new manufacturing process and idle plant costs resulted from ending production at the Boulder, Colorado
facility at which the lease was terminated. As a result of our higher cost of sales, our gross margin decreased to 10% in the third quarter of 2003 compared with 33% 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 $2.3 million, a
decrease of $1.6 million from the prior year quarter. Genomics research and development decreased $200,000 from the 2002 quarter, while oncology research and development decreased
$1.4 million from the prior year quarter. The decrease in 2003 was primarily attributable to reductions in our salaries and benefits ($800,000), and consulting and contract services ($700,000).
This overall decrease is primarily a result of our restructuring plan designed to control costs. 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. In the 2002 quarter, a significant portion of our contract services expenditures were related to regulatory filing costs in
Europe and in-licensing of technology.

General and Administrative Expense.General and administrative expense for the current year quarter was $3.3 million,
an increase of approximately $700,000 from the prior year quarter. The increase was primarily due to costs associated with terminating a lease in one of our corporate facilities in Boulder, Colorado
($300,000) and higher depreciation resulting from a shortened useful life of leasehold improvements at the Boulder, Colorado facility in which we terminated our lease early ($200,000), increased
staffing at our genomics division ($300,000) and higher consulting and contract services ($100,000), primarily resulting from fees associated with the sale of the paclitaxel business. These increases
were partially offset by lower legal costs ($200,000) and lower occupancy expense ($200,000).

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Loss on Disposal of Assets.Loss on disposal of assets for the current year quarter was $1.0 million compared with
none in the prior year period. This was primarily due to the sale and write off of plant and equipment in connection with the termination of a facility lease in Boulder, Colorado.

Nine Months Ended October 1, 2003 Compared to the Nine Months Ended September 30, 2002

Product Sales.Product sales for the 2003 period were $21.8 million, a decrease of approximately $2.8 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 $11.5 million, a decrease of $6.3 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 $1.1 million from the prior year period. Sales to Mayne Pharma
for the period were $10.2 million, an increase of $4.5 million from the prior year period. The increase in sales to Mayne Pharma resulted from higher sales in Europe, shipping initial
launch quantities for Europe at a higher per unit sales price ($1.6 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 $14.0 million, a decrease of $5.7 million from the 2002
period. The decrease was attributable to lower quantities sold ($3.4 million) and lower per unit cost ($1.4 million). The 2003 lower per unit cost resulted primarily from increased
production yields, implementation of our biomass strategic plan and results of our cost containment efforts, partially offset by start-up costs associated with a new manufacturing process.
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 36% for the 2003 period compared with 20% 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 $7.7 million, a
decrease of $4.5 million from the prior year period. Genomics research and development decreased $500,000 from the 2002 period, while oncology research and development decreased
$3.9 million from the prior year period. The decrease was primarily attributable to reductions in our consulting and contract services ($1.9 million), salaries and fringe benefits
($1.5 million) and supplies ($500,000). 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 costs involved obtaining regulatory approvals in Europe, and in-licensing of
technology. Salaries and benefits declined in the 2003 period due to the sale of our Analytical Services group to ChromaDex and personnel reductions in our oncology division.

General and Administrative Expense.General and administrative expense for the current year period was $9.1 million,
an increase of $1.6 million from the prior year period. The increase was primarily due to costs associated with terminating a lease in one of our corporate facilities in Boulder, Colorado
($700,000) and higher depreciation resulting from a shortened useful life of leasehold improvements at the Boulder, Colorado facility in which we terminated our lease early ($500,000), increased
staffing at our genomics division ($600,000) and higher consulting and contract services ($200,000), primarily resulting from fees associated with the sale of the paclitaxel business. These increases
were partially offset by lower legal costs ($500,000).

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Loss on Disposal of Assets.Loss on disposal of assets for the current year was $1.0 million compared with none in the
prior year. This was primarily due to the sale and write off of plant and equipment in connection with the termination of a facility lease in Boulder, Colorado.

License Fee Income.License fee income for the current year period was $800,000, 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 $1.7 million, an increase of approximately $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 October 1, 2003, we had a working capital deficit of $11.9 million compared to a working
capital balance of $18.8 million as of December 31, 2002. This deficit was primarily due to the reclassification of the Abbott note payable to current liabilities from
long-term. Our business will require substantial additional investment that we have not yet secured. 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, or if the paclitaxel business is not sold, renegotiation of
debt, or raising additional capital, as well as projected sales, the reduction of current inventory and collection of accounts receivable. We cannot assure that stockholders will approve the sale of
the paclitaxel business or that we would be able to renegotiate the payment of the Abbott debt under terms acceptable to us if the paclitaxel business was not sold. We also cannot assure that the
proceeds from the asset sale to Faulding, if realized, will be sufficient to fund our strategic plans to develop and commercialize additional products or 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 $27.9 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 (SEC) 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

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

TL
Ventures has advised us that it believes that the completion of the asset sale to Faulding will entitle it to have its $8.0 million of Company subordinated debentures redeemed.
The Company disputed this position and engaged in discussions with TL Ventures Funds regarding this matter. On September 8, 2003, TL Ventures Funds reasserted its position and informed us that,
if we could not resolve this issue promptly, it intended to pursue legal remedies. We will vigorously defend our legal position. On October 1, 2003, we served TL Ventures with a complaint that
we filed in a Colorado district court. In our complaint, we seek a declaratory judgment from the court that the asset sale will not permit TL Ventures to have its subordinated debentures redeemed. TL
Ventures has filed a motion to dismiss the suit. If we are required to redeem these debentures with the proceeds from our sale of the paclitaxel business, the amount of the proceeds would be reduced
accordingly and our ability to apply the proceeds to the benefit of our gene editing and oncology 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. The license agreement
grants us exclusive, worldwide rights to intellectual property including patent applications relating to the use of proprietary molecules designed to precisely alter genes in humans, animals, plants,
viruses and microbes. We have agreed to provide research and patent funding, as well as an ongoing license fee paid in our common stock. To date, we have issued 300,000 shares under the license
agreement to the University of Delaware, Thomas Jefferson University and The Samuel Roberts Noble Foundation, Inc., which have an ownership interest in the licensed intellectual property.
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 at the University of Delaware during 2003.

The
Company has filed a shelf registration statement, which has been declared effective, covering up to 6.5 million shares of its common stock and 1.0 million shares of its
preferred stock. This registration statement is intended to give NaPro the flexibility to take advantage of financing opportunities from time to time when market conditions are favorable to the
Company.

Working Capital and Cash Flow

Cash and cash equivalents decreased $1.9 million to $4.9 million for the period ended October 1, 2003 from $6.8 million as of
December 31, 2002. During the 2003 period, net cash provided by operating activities was $100,000, net cash used in investing activities was $2.0 million and financing activities
provided net cash of $100,000.

Inventory
was $10.1 million at October 1, 2003, of which $6.2 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

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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.

Accounts
receivable was $8.2 million at October 1, 2003 and $9.3 million at December 31, 2002. If we sell the paclitaxel business, we will be paid for our
accounts receivable at the date of sale and we expect
that our future accounts receivables would be significantly reduced from our current levels for the foreseeable future.

The
current portion of notes payable was $20.1 million at October 1, 2003, an increase of $20.0 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. If we sell the paclitaxel business, we will retire the note
with proceeds from the sale.

We
spent $1.3 million on capital projects during the first nine 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 oncology development area. The proceeds from the asset sale would provide a portion of the resources we will need to fund the most successful of our
therapies into the clinic. However, we cannot assure you that the proceeds from the sale our paclitaxel business to Faulding, if realized, will be sufficient to fund our strategic plans to develop and
commercialize additional products. The amount of proceeds available to the Company may also be reduced depending on the outcome of the Company's dispute with TL Ventures regarding redemption of their
debentures. If the proceeds from the asset sale to Faulding are not sufficient, we may be required to seek additional financing that could be dilutive to our existing stockholders. In addition, if we
complete the asset sale, our ability to generate sales sufficient to support our operations would depend primarily on developing and commercializing gene editing, oncology and other new products and
technologies.

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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 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. If the sale of the paclitaxel business is consummated, we
estimate that approximately $32.0 million of the net operating loss carryforwards would be utilized.

Business
Development Activities

In
the normal course of our business, we evaluate technologies, intellectual property, businesses, products and physical assets owned by others complementary to our oncology and gene
editing platforms for possible acquisition. We have not entered into any agreements, arrangements or understandings regarding any such acquisition and we do not expect any such acquisition, if
consummated, to be material. In the event we enter into any such relationships or transactions, we may consider using available cash, issuing equity securities or increasing our debt. It is possible,
however, that 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 nine month period ended October 1, 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 as of the date of this report, based on
currently available information. Forward-looking statements can be identified by the use of words such as "believe", "intend", "estimate", "may", "will", "should", "anticipated", "expected," "trusts"
or comparable terminology or by discussions of strategy. Such forward-looking statements may include, among others:



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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 risks and uncertainties.

If
the Company sells its paclitaxel business to Faulding, the Company will face certain risks associated with the sale and the operation of the Company's business after the sale. If the
sale of the paclitaxel business to Faulding is not approved by our stockholders or is not otherwise consummated, we face other risks associated with the continued operation of the paclitaxel business.

Risks Associated with Our Sale of the Paclitaxel Business

The proceeds from the sale of the paclitaxel business to Faulding would provide a portion of the resources we will need to fund the most successful of these
therapies into the clinic. However, our business will require substantial additional investment that we have not yet secured and we cannot assure you that the proceeds from the asset sale, if
realized, will be sufficient to fund our strategic plans to develop and commercialize additional products. The amount of proceeds available to the Company may also be reduced depending on the outcome
of the Company's dispute with TL Ventures regarding redemption of their debentures. If the proceeds from the asset sale to Faulding are not sufficient, we may be required to seek additional financing
that could be dilutive to our existing stockholders. In addition, if we complete the asset sale, our ability to generate sales sufficient to support our operations would depend primarily on developing
and commercializing gene editing, oncology and other new products and technologies. You should carefully consider these risks and the following additional risks related to our other potential products
and technologies, in addition to the other information included in this report:



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Risks Associated with the Company's Current Operation of the Paclitaxel Business

We are currently operating our paclitaxel business until the consummation of the asset sale to Faulding. If the asset sale is not approved by our stockholders, or
if we are otherwise unable to complete the asset sale to Faulding, we would continue to operate this business for the foreseeable future. However, if we had to continue to operate our paclitaxel
business, the Company would be exposed to various risks including:



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These
and other factors related to the Company's business are described in more detail under the caption "Risk Factors" or "Special Note Regarding Forward-Looking Statements" in
the Company's documents filed from time to time with the Securities and Exchange Commission including the Company's registration statement on Form S-3, as amended, dated
August 8, 2003, its Annual Report on Forms 10-K and 10-K/A for the year ending December 31, 2002 filed with the SEC on March 27, April 30,
August 8, and October 24, 2003. Should one or more of these risks materialize (or the consequences of such a development worsen), or should the
underlying assumptions prove incorrect, actual results could differ materially from those forecasted or expected. The Company disclaims any intention or obligation to update publicly or revise such
statements whether as a result of new information, future events or otherwise.

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

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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

The Company maintains disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act")) that are designed to ensure that information required to be disclosed in the Company's reports under the
Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and
communicated to the Company's management, including its Chief
Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. Any controls and procedures, no matter how well designed and operated, can
provide only reasonable assurance of achieving the desired control objectives. The Company's management, with the participation of the Company's Chief Executive Officer and Chief Financial Officer,
has evaluated the effectiveness of the design and operation of the Company's disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation and
subject to the foregoing, the Company's Chief Executive Officer and Chief Financial Officer concluded that the design and operation of the Company's disclosure controls and procedures provided
reasonable assurance that the disclosure controls and procedures are effective to accomplish their objectives.

In
addition, there was no change in the Company's internal control over financial reporting (as that term is defined in Rules 13a-15(f) and
15d-15(f) under the Exchange Act) that occurred during the quarter covered by this report that has materially affected, or is reasonably likely to materially affect, the Company's
internal control over financial reporting.

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Part IIOther Information

Item 1. Legal Proceedings

On October 6, 2003, the Company announced that the Federal District Court in the Western District of Pennsylvania (the court) has made a number of rulings
in favor of the Company in its patent infringement lawsuit against Mylan Laboratories, Inc. (Mylan). The court ruled that Mylan infringes on NaPro patents related to both stabilized
formulations of paclitaxel and methods for making stable formulations. The court also ruled that the inventors listed on the NaPro patents were the first to invent the compositions and methods claimed
in such patents. The court also adopted NaPro's interpretations of the patent claims asserted against Mylan in this case. NaPro expects the trial on the remaining issues in the case to begin on
December 1, 2003. The remaining issues will be focused on Mylan's claims that NaPro's patents are invalid and unenforceable.

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, which 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. This litigation was settled during the third quarter of 2003 with no
adverse consequences to the Company.

TL
Ventures Funds, one of our principal institutional investors, has advised us that it believes that the completion of the sale of our paclitaxel business to Faulding will entitle it to
have its $8.0 million of Company subordinated debentures redeemed. The Company disputed this position and engaged in discussions with TL Ventures Funds regarding this matter. On
September 8, 2003, TL Ventures Funds reasserted its position and informed us that, if we could not resolve this issue promptly, it intended to pursue legal remedies. On September 11,
2003, we filed a complaint in Boulder County, Colorado in a case captionedNaPro BioTherapeutics, Inc. v. TL Ventures V L.P. and TL Ventures V Interfund
L.P., Case No. 2003-CV-1812, District Court, Boulder County, Colorado. We served TL Ventures with the complaint on October 1, 2003. In our
complaint, we seek a declaratory judgment from the court that the asset sale to Faulding will not permit TL Ventures to have its subordinated debentures redeemed. TL Ventures has filed a motion to
dismiss the suit. We will vigorously defend our legal position. One of our directors, Marc Ostro, is also a general partner in certain TL Ventures Funds.

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Item 6. Exhibits and Reports on Form 8-K

|Exhibit
Number |  | Description of Exhibit                                                                                                                                                           
|-------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2.1+           |  | Asset Purchase Agreement dated as of August 25, 2003 between NaPro BioTherapeutics, Inc. and Faulding Pharmaceutical Co.(1)                                                      
|3.1            |  | Certificate of Elimination of Convertible Preferred Stock, Series A.(2)                                                                                                          
|3.2            |  | Certificate of Elimination of Series C Senior Convertible Preferred Stock.(2)                                                                                                    
|3.3            |  | Certificate of Increase of Series B Junior Participating Preferred Stock.(2)                                                                                                     
|10.1           |  | Form of Voting Agreement to be entered into between each of Leonard P. Shaykin and Sterling K. Ainsworth, on the one hand, and Faulding Pharmaceutical Co., on the other hand.(3)
|31.1*          |  | Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934, as amended.                                             
|31.2*          |  | Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934, as amended.                                             
|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).                                                     

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We
filed a Current Report on Form 8-K dated August 7, 2003 reporting on Item 12, and attaching as an exhibit to the report a press release
announcing the Company's second quarter and six months 2003 earnings.

We
filed a Current Report on Form 8-K dated August 25, 2003 reporting on Item 5 and Item 7, and attaching as exhibits to the reports an Asset Purchase Agreement
between NaPro BioTherapeutics, Inc. and Faulding Pharmaceutical Co. and a Form of Voting Agreement to be entered into between each of Leonard P. Shaykin and Sterling K. Ainsworth and
Faulding Pharmaceutical Co.

We
filed a Current Report on Form 8-K dated August 26, 2003 reporting on Item 5, Item 7, and Item 9, and attaching as an exhibit to the report a press release
announcing that we entered into a definitive agreement to sell our worldwide paclitaxel business to Faulding Pharmaceutical Co., a subsidiary of Mayne Group Limited, for $71.7 million plus
outstanding receivables; and a script that was used by the Company's executives during a conference call on August 26, 2003.

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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.
|----------------- |  | ---------------------------
|November 13, 2003 |  | By:                        
|November 13, 2003 |  | By:                        
|November 13, 2003 |  | By:                        

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