Table of Contents



FORM 10-Q





U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





Quarterly Report under Section 13 of the

Securities Exchange Act of 1934



Quarter ended June 30, 2002





Commission File Number 0-24320





NAPRO BIOTHERAPEUTICS, INC.



|Incorporated in Delaware | IRS ID No. 84-1187753
|------------------------ | ---------------------



6304 Spine Road, Unit A

Boulder, CO 80301

(303) 516-8500





NaPro BioTherapeutics, Inc. (1) has filed all reports
required to be filed by Section 13 of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.



The number of shares outstanding of the issuer's common stock
as of July 30, 2002:



Common Stock, $.0075 par value 29,742,383





Total number of pages in document - 21





---



NaPro BioTherapeutics, Inc.



Table of Contents

|                                                                                      | Page
|------------------------------------------------------------------------------------- | ----
|Part I Financial Information                                                          |     
|Consolidated Financial Statements                                                     |     
|Balance Sheet                                                                         | 3   
|Operations Statement                                                                  | 5   
|Cash Flow Statement                                                                   | 6   
|Notes to Consolidated Financial Statements                                            | 8   
|Management's Discussion and Analysis of Financial Condition and Results of
Operations | 11  
|Quantitative and Qualitative Disclosures about Market Risk                            | 19  
|Part II Other Information                                                             |     
|Legal Proceedings                                                                     | 19  
|Changes in Securities                                                                 | 19  
|Defaults Upon Senior Securities                                                       | 19  
|Submission of Matters to a Vote of Security Holders                                   | 19  
|Other Information                                                                     | 20  
|Exhibits and Reports on Form 8-K                                                      | 20  
|Signatures                                                                            | 21  
|                                                                                      |     









---



Part I. Financial Information



> Item 1. Consolidated Financial Statements

NaPro BioTherapeutics, Inc.

Balance Sheet

Assets

|                            | June 30, 2002(unaudited)     | December 31, 2001           
|--------------------------- | ---------------------------- | ----------------------------
|Current assets:             |                              |                             
|Cash and cash equivalents   | $ 17,178,000                 | $ 10,144,000                
|Accounts receivable         | 7,341,000                    | 3,745,000                   
|Inventory:                  |                              |                             
|Raw materials               | 4,085,000                    | 4,685,000                   
|Work-in-process             | 4,390,000                    | 1,486,000                   
|Finished goods              | 1,280,000                    | 1,927,000                   
|                            | 9,755,000                    | 8,098,000                   
|Prepaid expense and other   | 1,882,000                    | 1,165,000                   
|Total current assets        | 36,156,000                   | 23,152,000                  
|                            |                              |                             
|Property and equipment, net | 15,527,000                   | 13,454,000                  
|Other assets                | 398,000                      | 455,000                     
|Total assets                | $ 52,081,000
      ========= | $ 37,061,000
      =========



































See accompanying notes.





3

---



NaPro BioTherapeutics, Inc.

Balance Sheet

Liabilities and Stockholders' Equity

|                                                                                                                                                                                                           | June 30, 2002(unaudited)      | December 31, 2001            
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------- | -----------------------------
|Current liabilities:                                                                                                                                                                                       |                               |                              
|Accounts payable                                                                                                                                                                                           | $ 6,097,000                   | $ 6,513,000                  
|Accrued payroll and payroll taxes                                                                                                                                                                          | 1,995,000                     | 1,473,000                    
|Notes payable-current portion                                                                                                                                                                              | 222,000                       | 184,000                      
|Deferred income                                                                                                                                                                                            | 1,120,000                     | 1,400,000                    
|Total current liabilities                                                                                                                                                                                  | 9,434,000                     | 9,570,000                    
|                                                                                                                                                                                                           |                               |                              
|Notes payable-long term                                                                                                                                                                                    | 19,822,000                    | 19,846,000                   
|Deferred income-long term                                                                                                                                                                                  | 6,428,000                     | 6,508,000                    
|                                                                                                                                                                                                           |                               |                              
|Convertible debt                                                                                                                                                                                           | 4,838,000                     | ---                          
|                                                                                                                                                                                                           |                               |                              
|Stockholders' equity                                                                                                                                                                                       |                               |                              
|Preferred stock, $.001 par value:
        Authorized shares-2,000,000
        Issued-none (unaudited in 2002)                                                                                              | ---                           | ---                          
|Non-voting common stock, convertible on disposition
        into voting common stock, $.0075 par value:
        Authorized shares-1,000,000
        Issued and outstanding shares-none (unaudited in 2002) | ---                           | ---                          
|Common stock, $.0075 par value: 
        Authorized shares-45,000,000
        Issued shares-29,799,586 in 2002 (unaudited) and
        28,706,195 in 2001                                                  | 223,000                       | 215,000                      
|Additional paid-in capital                                                                                                                                                                                 | 110,138,000                   | 96,776,000                   
|Accumulated deficit                                                                                                                                                                                        | (98,621,000)                  | (95,013,000)                 
|Treasury stock-54,306 and 254,306 shares at cost
        in 2002 (unaudited) and 2001                                                                                                                      | (181,000)                     | (841,000)                    
|Total stockholders' equity                                                                                                                                                                                 | 11,559,000                    | 1,137,000                    
|Total liabilities and stockholders' equity                                                                                                                                                                 | $ 52,081,000 
      ========= | $ 37,061,000 
      =========

















See accompanying notes





4

---

NaPro BioTherapeutics, Inc.

Operations Statement

(Unaudited)

|                                            | Quarter Ended June 30,       | Six Months Ended June 30,   
|------------------------------------------- | ---------------------------- | ----------------------------
|                                            | 2002                         | 2001                        
|Product sales                               | $ 9,490,000                  | $ 2,158,000                 
|                                            |                              |                             
|Expenses:                                   |                              |                             
|Cost of products sold                       | 7,018,000                    | 4,665,000                   
|Research and development                    | 4,391,000                    | 3,534,000                   
|General and administrative                  | 2,524,000                    | 1,972,000                   
|                                            | 13,933,000                   | 10,171,000                  
|Operating loss                              | (4,443,000)                  | (8,013,000)                 
|                                            |                              |                             
|Other income (expense):                     |                              |                             
|License fee                                 | 8,010,000                    | 300,000                     
|Interest income                             | 82,000                       | 273,000                     
|Interest expense                            | (594,000)                    | (261,000)                   
|Net income (loss)                           | $ 3,055,000 
      ========= | $(7,701,000)
      =========
|                                            |                              |                             
|Basic income (loss) per share               | $ 0.10 
      =====          | $ (0.28)
      ======       
|Diluted income (loss) per share             | $ 0.10 
      =====          | $ (0.28)
      ======       
|                                            |                              |                             
|Basic weighted average shares outstanding   | 29,724,478 
      =========  | 27,422,181 
      ========= 
|Diluted weighted average shares outstanding | 31,465,206 
      =========  | 27,422,181 
      ========= 





























See accompanying notes.





5

---

NaPro BioTherapeutics, Inc.

Cash Flow Statement

(Unaudited)





|                                                                                           | Six Months Ended June 30,    
|------------------------------------------------------------------------------------------ | -----------------------------
|                                                                                           | 2002                         
|Operating activity                                                                         |                              
|Net loss                                                                                   | $(3,608,000)                 
|Adjustments to reconcile net loss to net cash provided (used) by
      operating activity: |                              
|Depreciation                                                                               | 1,030,000                    
|Accretion of debt issue cost                                                               | 32,000                       
|Amortization of debt discount                                                              | 159,000                      
|Amortization of license fee income                                                         | (360,000)                    
|Amortization of license fee expense                                                        | 468,000                      
|Biomass development cost                                                                   | ---                          
|Compensation paid with common stock, options 
           and warrants                      | 230,000                      
|Retirement contributions paid with common stock                                            | 950,000                      
|Changes in operating assets and liabilities:                                               |                              
|Accounts receivable                                                                        | (3,596,000)                  
|Inventory                                                                                  | (1,062,000)                  
|Prepaid expense and other assets                                                           | (79,000)                     
|Accounts payable                                                                           | 421,000                      
|Accrued liabilities                                                                        | 522,000                      
|Deferred income                                                                            | ---                          
|Net cash (used) provided by operating activity                                             | (4,893,000)                  
|Investing activity                                                                         |                              
|Additions to property and equipment                                                        | (3,798,000)                  
|Net cash used by investing activity                                                        | (3,798,000)                  
|Financing activity                                                                         |                              
|Proceeds from notes payable, net of issuance cost                                          | 8,010,000                    
|Payments of notes payable                                                                  | (291,000)                    
|Proceeds from private placement sale of 
           stock, net of issuance cost            | 7,823,000                    
|Proceeds from exercise of stock options and warrants                                       | 183,000                      
|Net cash provided by financing activity                                                    | 15,725,000                   
|Net increase in cash and cash equivalents                                                  | 7,034,000                    
|Cash and cash equivalents at beginning of period                                           | 10,144,000                   
|Cash and cash equivalents at end of period                                                 | $17,178,000 
      ==========





See accompanying notes.





6

---

NaPro BioTherapeutics, Inc.

Cash Flow Statement (continued)

(Unaudited)





|                                                                             | Six Months Ended June 30,
|---------------------------------------------------------------------------- | -------------------------
|                                                                             | 2002                     
|Supplemental schedule of activity                                            |                          
|                                                                             |                          
|Interest paid                                                                | $ 699,000                
|                                                                             |                          
|Noncash transactions:                                                        |                          
|Issuance of common stock to prepay retirement 
           plan contributions | 950,000                  
|Issuance of common stock to prepay license fees                              | 837,000                  
|Depletion of plantation cost to inventory                                    | 695,000                  
|                                                                             |                          
|Convert non-voting common stock to voting common                             | ---                      















































See accompanying notes.





7

---



NaPro BioTherapeutics, Inc.

Notes to Financial Statements

June 30, 2002

(Unaudited)

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 our
Annual Report on Form 10-K for the year ended December 31, 2001.



During the second quarter of 2002, the Company revised the
period during which it amortizes deferred revenue from license fees, due to the
potential decline in the price of paclitaxel in the European market. The Company
previously amortized the fees to income over the estimated economic life of the
license. The new amortization period results in 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 implemented FASB Statement 144, Accounting for
the Impairment of Long-Lived Assets, effective January 1, 2002. Statement 144
retains the fundamental provisions of Statement 121 for recognition and
measurement of the impairment of long-lived assets to be held and used and
measurement of long-lived assets to be disposed of by sale. The Statement also
provides guidance on accounting for discontinued operations. The Company does
not believe that an impairment of assets exists as of June 30, 2002.



2. Reclassifications

Prior to filing its financial statements on Form 10-Q, NaPro
publicly releases an unaudited condensed balance sheet and statement of
operations. Between the date of the earnings release and the filing of the Form
10-Q, reclassifications may be required. These reclassifications, when made,
have no effect on operating income (loss), net income (loss) or earnings (loss)
per share.

Certain data in the consolidated financial statements of the
prior year and the first quarter of 2002 have been reclassified to conform to
the current presentation.



3. Earnings per Share

Basic earnings per share is based upon the weighted-average
number of common shares outstanding. Diluted earnings per share is based upon
the weighted-average number of common shares and dilutive potential common
shares outstanding. Dilutive potential common shares could result from 1) the
assumed exercise of outstanding stock options, warrants and equivalents, which
are included under the treasury-stock method; and 2) convertible notes and
debentures, which are included under the if-converted method.





8

---

The following table sets forth the computation for basic and diluted earnings
per share:



|                                                           | Quarter Ended June 30,      | Six Months Ended June 30,  
|---------------------------------------------------------- | --------------------------- | ---------------------------
|                                                           | 2002                        | 2001                       
|Income (numerator):                                        |                             |                            
|Net income (loss)                                          | $ 3,055,000                 | $(7,701,000)               
|Shares (denominator):                                      |                             |                            
|Weighted-average common shares outstanding                 | 29,724,478                  | 27,422,181                 
|Stock options                                              | 1,722,857                   | ---                        
|Warrants                                                   | 17,871                      | ---                        
|Weighted-average common shares outstanding for diluted EPS | 31,465,206 
      ========= | 27,422,181 
      =========
|                                                           |                             |                            
|Basic income (loss) per share                              | $ 0.10 
      =====         | $ (0.28)
      =====       
|Diluted income (loss) per share                            | $ 0.10 
      =====         | $ (0.28)
      ======      

4. Private Placement

In February 2002, the Company sold privately $8 million of
common stock issued at $9 per share and $8 million principal of five-year 4%
debentures convertible into common stock at $15 per share to TL Ventures V, L.P.
and one of its affiliated funds. No placement agent was involved in the
transaction. The net proceeds were $15,559,000. As part of this transaction,
NaPro recorded a discount attributable to the conversion feature of the
convertible debentures in the amount of $3,057,000, which will be amortized
over the term of the note. During the first quarter of 2002, the Company filed a
registration statement with the Securities and Exchange Commission to register
the resale of the common stock, common stock issuable upon conversion of the
debentures and common stock issuable in lieu of cash interest on the debentures
under the Securities Act of 1933. In July 2002, the registration statement was
declared effective by the SEC. The Company 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 NaPro has 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. Marc Ostro, one of the Company's directors, is a managing director of
an affiliate of the investment manager of the TL Venture Funds, and a voting
limited partner in the TL Venture Funds.





9

---

5. Approval of Abbreviated New Drug Application, or ANDA

In March 2001, NaPro and Abbott Laboratories filed an ANDA
with the U.S. Food and Drug Administration, or FDA. On May 8, 2002, the FDA
approved the ANDA. With the approval of the ANDA, and upon commencement of
commercial sales, the Company received a one-time $8 million milestone payment
from Abbott.

NaPro sales of paclitaxel in the United States are dependent
upon the amount of product delivered to Abbott, and may be dependent upon both
the selling price which Abbott receives and the total annual sales recorded by
Abbott. In the recent past, the selling price of paclitaxel has fallen
significantly, and may continue to do so. NaPro receives a fixed price payment
of $500 per gram, upon delivery of paclitaxel to Abbott, plus a quarterly
royalty payment, if any. The royalty payment is a percentage of sales recorded
by Abbott less any product payment already paid to NaPro. The percentage of
sales varies each year based upon total sales in that year recorded by Abbott.
The Company does not anticipate receiving significant royalty payments in 2002
because of the current price of the drug.

6. Subsequent Events

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. The Company intends to appeal this
ruling and expects the appeal to be heard within the next 36 months. In
accordance with European patent law, once NaPro appeals, the patent will be
reinstated in those territories in which the European Patent Office has
jurisdiction. The Company does not believe this decision will have any effect
outside of the jurisdiction of the European Patent Office; nor will it affect
its ability to enter the market in Europe as regulatory approvals are received.
NaPro also does not believe this patent decision will affect its revenues or
earnings through calendar year 2003.

In July 2002, NaPro initiated a company-wide restructuring
plan involving a reduction of full-time staff by approximately 15%, as well as
the elimination of other operating expenses. The annual payroll cost savings is
expected to be approximately $1.5 million, and the Company expects to incur
restructuring charges of approximately $193,000 during the third quarter of
2002. NaPro will continue to focus on cost saving measures, which may result in
additional changes to its operations.

During the Annual Meeting of Stockholders in July 2002, the
shareholders approved amendments to the Company's Amended and Restated
Certificate of Incorporation, which increased the total number of authorized
shares from 45 million to 66 million, as well as removing references to
non-voting common stock from the Certificate of Incorporation. All of the
Company's non-voting common stock had previously been converted into common
stock.



10

---



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. Special Note: Certain statements 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 two distinct
research and marketing areas: the development and in-licensing of novel
pharmaceutical products, primarily in the area of anti-cancer agents, and the
development of novel genomic technologies primarily in the area of "gene
alteration," for applications in human therapeutics, diagnostics, agricultural
biotechnology and pharmacogenomics. Our lead product is paclitaxel, a naturally
occurring chemotherapeutic anti-cancer agent found in certain species of yew, or
Taxus trees. In addition to our efforts with paclitaxel and genomics, we
are also working on several types of compounds that have promising activity as
anti-cancer agents. We believe some of these agents function by novel
mechanisms, which may increase their likelihood of success as new
chemotherapeutics. We are also actively engaged in evaluating the in-licensing
or purchase of potential new products and/or technologies, whether or not those
products or technologies are derived from natural products. Our evaluation of
new products and technologies may involve the examination of individual
molecules, classes of compounds, or platform technologies, in both cancer and
other therapeutic areas. Acquisitions of new products or technologies may
involve the purchase of such products or technologies, or the acquisition of, or
merger with, other companies.

We continue to incur substantial research and development
expense related to the improvement of our paclitaxel yield, the reduction of our
long-term cost of product, the development of our semisynthesis process, our
genomics research and development, and the development of other drug candidates.
Accordingly, we have incurred significant losses, including losses of $25.8
million, $16.6 million and $9 million for the years ended December 31, 2001,
2000 and 1999, respectively. We incurred a loss of $3.6 million for the six
months ended June 30, 2002, resulting in an accumulated deficit of $98.6 million
as of June 30, 2002. While we reported net income for the quarter ended June 30,
2002, we were able to do so primarily because of our receipt of a one-time
milestone payment from Abbott of $8.0 million. Our ability to have net income in
periods in the near future will depend upon the amount of our revenues from
sales of paclitaxel to Abbott and Faulding and our ability to contain costs. 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
expanded research and development activity mentioned above.

Our ability to generate sufficient sales to support our
operations currently depends primarily upon the successful commercialization of
our worldwide paclitaxel program. Our strategy for that program has been to form
strategic alliances through long-term exclusive agreements with major
pharmaceutical companies. In 1999, we entered into an exclusive collaborative
agreement of up to 20 years covering the U.S. and Canada with Abbott
Laboratories 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 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, or ANDA, with the U.S. Food and Drug Administration, or FDA, for
paclitaxel. The FDA granted approval of this ANDA on May 8, 2002.





11

---

In connection with the Abbott agreement, we may receive total
funding of up to $118 million in the form of up to $30 million in development
milestones, up to $57 million in marketing milestones, $20 million in secured
debt, and $11 million in equity investments. Through June 30, 2002, we had
received $40 million under the agreement, including $11 million in equity
investments in exchange for 2,000,000 shares of our common stock, $9 million in
development milestones, and $20 million in secured debt.

Of the $30 million of potential development-related milestone
payments, we received $1 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 million payment in May 2002. Thus, $21 million in
possible development milestones remain. Additional development milestones will
only be available should NaPro or Abbott undertake and successfully complete new
development work.

We have received $20 million of secured debt from Abbott. The
debt bears a primary interest rate of 6.5% and is due in full on the earlier of:
(i) the second anniversary of the first sale of finished product by Abbott to a
wholesaler or end-user customer following approval of finished product by the
FDA (May 8, 2004); (ii) the termination of the Abbott agreement; or (iii)
January 1, 2007. The debt is limited to a borrowing base of collateralized
assets, recomputed monthly. The majority of our hard assets are pledged as
security for the debt.

Contingent upon achieving certain commercial sales thresholds
for all approved formulations of paclitaxel over several years, we may receive
marketing milestone payments from Abbott of up to $57 million. We can provide no
assurance that sales thresholds necessary to trigger any of the future milestone
payments will be achieved. The recent drop in the price of paclitaxel may make
it more difficult to achieve these milestones.

Under terms of the agreement, Abbott purchases bulk drug from
us. Abbott may terminate the agreement at any time with or without cause. Should
Abbott terminate without cause, it is obligated to make certain payments to us
and to give us twelve months prior written notice. In the
recent past, the selling price of paclitaxel has fallen significantly, and may
continue to do so. NaPro receives a fixed price payment of $500 per gram, upon
delivery of paclitaxel to Abbott, plus a quarterly royalty payment, if any. The
royalty payment is a percentage of sales recorded by Abbott less any product
payment already paid to NaPro. 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 in 2002 because of the current price of the drug.

In 1992, we entered into a 20-year exclusive agreement with
F.H. Faulding & Co., Ltd., a large Australian pharmaceutical company, for
the clinical development, sale, marketing and distribution of paclitaxel.
Faulding 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 Faulding agreement to, among other things,
add additional countries to Faulding's exclusive territory. In 2001, we
entered into a separate agreement with Faulding covering development and sale of
paclitaxel in Europe. We cannot assure that we will receive regulatory approval
in Europe. Should we receive approval, Faulding will then market and sell our
paclitaxel in Europe. We and Faulding will share equally the net sales of the
product in Europe. Including the new agreement for Europe, the Faulding
territory includes substantially all of the world other than the U.S., Canada,
Japan, Israel, the former Soviet Union and parts of Africa. Faulding has
received marketing approval for, and is selling paclitaxel as ANZATAX





12

---

In October 2001, Faulding was acquired by Mayne-Nickless
Limited, an Australian based health care provider and logistics operator. If
Mayne-Nickless sells the pharmaceutical business of Faulding, including Faulding's
paclitaxel sales and marketing operations, we are uncertain what effect, if any,
the sale would have on Faulding's performance under our exclusive agreement
with them, and as a result on our business, financial condition and results of
operations.

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 intend to appeal this ruling and
expect the appeal to be heard within the next 36 months. In accordance with
European patent law, once we appeal, our patent will be reinstated in those
territories in which the European Patent Office has jurisdiction. 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.

In January 2001, we received approval in Israel to sell
paclitaxel under the trade name Biotax

In June 2001, we and JCR Pharmaceuticals Co., Ltd. entered
into a mutually exclusive development, supply and distribution agreement for
paclitaxel in Japan. Under the agreement, we will be responsible for
manufacturing and supplying the finished drug. JCR and we will jointly be
responsible for the clinical and regulatory program necessary for seeking
approval to market paclitaxel in Japan. JCR will fund the clinical and
regulatory program. 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.

In anticipation of final FDA approval for commercial sales,
which we received in May 2002, we made improvements to our existing
manufacturing facilities to increase capacity and improve efficiency.
Expenditures for improving efficiency are on-going and we anticipate financing
the construction with new capital, either in the form of debt or otherwise, if
available on acceptable terms, although we cannot assure that we will be able to
do so.



Research and Development

Development and research are major focuses for us. We
discussed the nature and status of our development and research in depth in our
December 31, 2001 Form 10-K annual report in Item 1-Business, in the General,
Paclitaxel Overview, Paclitaxel Development, Biomass, Manufacturing, Strategic
Alliances, Competition, Patents and Proprietary Technology, Government
Regulation and Product Approvals, and Research and Development sections, and in
the General section of this Management's Discussion and Analysis.



13

---



We have incurred the following expense on research and
development projects:

|         | Quarter Ended June 30,    | Six Months Ended June 30,
|-------- | ------------------------- | -------------------------
|         | 2002                      | 2001                     
|Oncology | $2,675,000                | $2,832,000               
|Genomics | 1,716,000                 | 702,000                  
|         | $4,391,000
      ======== | $3,534,000
      ========



Our development and research activity is subject to change as
we develop a better understanding of our projects and their prospects.
Accordingly, we cannot estimate the timing or the cost of the effort necessary
to complete the projects, the estimated completion dates or the timing of
commencement of material net cash inflows from the projects. 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.



Results of Operations

Quarter ended June 30, 2002, compared to the quarter ended
June 30, 2001. Product sales for the quarter ended June 30, 2002 were $9.5
million, an increase of $7.3 million from the 2001 quarter. The increase during
this quarter is primarily attributable to shipments to Abbott as a result of our
FDA approval on May 8, 2002. We also experienced an increased volume of
shipments to Faulding between 2001 and 2002. Abbott sales for the 2002 quarter
were $7.3 million, an increase of $6.3 million from the prior year period.
Faulding sales for the 2002 quarter were $2.1 million, an increase of $1.5
million from the prior year period. Future sales to Abbott are difficult to
predict and are expected to vary from period to period depending upon numerous
competitive factors. Among these factors are: the relationship of Abbott's
competitors with their customers, the relationship of Abbott with its customers
and the amount of competitor product in the distribution channel.

Cost of products sold for the 2002 quarter was $7.0 million,
an increase of $2.3 million from the 2001 quarter. The increase was primarily
attributable to an increase in volume, which was partially offset by a decrease
in unit production cost. Our third party extraction vendor was fully utilized
during the quarter and plant downtime at our facility was minimized.

Research and development expense for the 2002 quarter was
$4.4 million, an increase of $900,000 from the 2001 quarter. The increase was
primarily due to increased staffing ($1.0 million) and legal costs associated
with patent development ($400,000). These amounts were partially offset by a
reduction in supplies expenses ($700,000). Genomics research and development
increased $1.0 million, and oncology research and development decreased
$100,000.

General and administrative expense for the 2002 quarter was
$2.5 million, an increase of $500,000 from the 2001 quarter. The increase was
primarily due to increased staffing ($600,000), general legal expenses
($300,000) and consulting ($100,000). These amounts were partially offset by
decreased travel expenses ($100,000).



14

---



License fee income for the 2002 quarter was $8.0 million, an
increase of $7.7 million from the 2001 quarter. The increase was primarily
attributable to our receipt of a one-time milestone payment of $8.0 million from
Abbott upon commencement of commercial sales in the United States.

Interest income for the 2002 quarter was $100,000, a decrease
of $200,000 from the 2001 quarter. The decrease was attributable to lower
average balances of interest-bearing investments and lower interest rates.

Interest expense for the quarter was $600,000, an increase of
$300,000 from the 2001 quarter. The increase was primarily attributable to the
issuance of $8.0 million in convertible debt during the first quarter of 2002.

Six months ended June 30, 2002, compared to the six months
ended June 30, 2001. Product sales for the 2002 period were $16.2 million,
an increase of $10.1 million from the 2001 period. The increase during this
period is primarily attributable to shipments to Abbott as a result of our FDA
approval on May 8, 2002. We also experienced an increased volume of shipments to
Faulding between 2001 and 2002. Abbott sales for the 2002 period were $11.4
million, an increase of $9.0 million from the 2001 period. Faulding sales for
the 2002 period were $4.4 million, an increase of $1.4 million from the 2001
period.

Cost of products sold for the 2002 period was $14.1 million,
an increase of $6.5 million from the 2001 period. The increase was primarily
attributable to an increase in volume, which was partially offset by a decrease
in unit production cost.

Research and development expense for the 2002 period was $8.3
million, an increase of $3.3 million from the 2001 period. The increase was
primarily due to increased staffing ($1.4 million), legal costs associated with
patent development ($500,000), outside services ($700,000) and occupancy costs
associated with the Genomics division ($200,000). Genomics research and
development increased $1.9 million, and oncology research and development
increased $1.4 million.

General and administrative expense for the 2002 period was
$4.9 million, an increase of $1.3 million from the 2001 period. The increase was
primarily due to increased staffing ($1.2 million), general legal expenses
($800,000) and consulting ($100,000). These amounts were partially offset by a
reduction in travel ($100,000) and recruiting expenses ($200,000).

License fee income for the 2002 period was $8.4 million, an
increase of $8.0 million from the 2001 period. The increase was attributable to
our receipt of a one-time milestone payment of $8.0 million from Abbott upon
commencement of commercial sales in the United States.

Interest income for the 2002 period was $200,000, a decrease
of $300,000 from the 2001 period. The decrease was attributable to lower average
balances of interest-bearing investments and lower interest rates.

Interest expense for the 2002 period was $1.0 million, an
increase of $500,000 from the 2001 period. The increase was primarily
attributable to the issuance of $8.0 million in convertible debt during the
first quarter of 2002.



15

---



Liquidity and Capital Resources

Our capital requirements have been and will continue to be
significant. As of June 30, 2002, we had a working capital balance of $26.7
million compared to a working capital balance of $13.6 million as of December
31, 2001. 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 $62.7 million,
with the exercise of warrants and options of $8.0 million and with net borrowing
of $27.7 million.

In February 2002, we sold privately $8 million of common
stock issued at $9 per share and $8 million principal value of five-year 4%
debentures convertible into common stock at $15 per share. No placement agent
was involved in the transaction. Our net proceeds were $15,559,000. As part of
this transaction, NaPro recorded a discount attributable to the conversion
feature of the convertible debentures in the amount of $3,057,000, which will be
amortized over the term of the note. During the first quarter of 2002, we filed
a registration statement with the Securities and Exchange Commission to register
the resale of the common stock, common stock issuable upon conversion of the
debentures and common stock issuable in lieu of cash interest on the debentures
under the Securities Act of 1933. In July 2002, the registration statement was
declared effective by the SEC. We may pay the debenture interest in cash or
common stock at our option. The debentures automatically convert into common
stock during the first two years if the average price of the common stock for 15
trading days exceeds $22, and during the last three years if the average price
for 30 trading days exceeds $16. If we have insufficient funds to repay the
debentures in full at maturity or upon acceleration, the holders of the
debentures may elect to convert the outstanding principal balance and any unpaid
accrued interest on the debentures into shares of common stock at a conversion
price equal to the then current 20 day average trading price of the common
stock. The conversion price of the common stock in such a circumstance could be
materially below the price at which we otherwise would be willing to issue our
common stock. Issuance of common stock at such a price could result in
substantial dilution to our other stockholders and could have a material adverse
effect on the market price of our common stock.

We believe existing cash and projected 2002 sales will
provide adequate capital to fund our operations and capital expenditures in
2002. However, pharmaceutical development is a costly and time consuming
process. We may in-license or purchase new products or technologies. The cost of
acquiring and developing such resources, and related capital expenditures, may
be very large. Moreover, we expect we will need to utilize our working capital
to support increases in inventory and accounts receivable as a result of sales
to Abbott. As a result, we may seek additional capital by issuing additional
stock or indebtedness if we can do so on commercially reasonable terms. We may
also seek loans secured by our physical assets or receivables, which may require
the consent of Abbott. We cannot assure that we will be able to obtain capital
from any of these sources.

Working Capital and Cash Flow Cash and cash equivalents
increased $7.1 million to $17.2 million for the period ended June 30, 2002, from
$10.1 million at December 31, 2001. During the 2002 period net cash provided by
financing activity of $15.7 million was partially offset by investment activity
of $3.8 million and cash used by operations of $4.8 million.

Accounts receivable increased $3.6 million to $7.3 million
for the period ended June 30, 2002, from $3.7 million at December 31, 2001
primarily due to increased sales to Abbott. NaPro anticipates that it may
utilize significant working capital to fund accounts receivable should sales
continue to increase.

Inventory increased $1.7 million to $9.8 million for the
period ended June 30, 2002, from $8.1 million at December 31, 2001. The amount
of inventory is dependent on a number of factors, including the shipping
requirements of our strategic partners, our production planning for meeting those needs, and the timing of biomass harvests. Inventory balances may vary
significantly during product development, launch periods and during seasonal
harvests.



16

---

Capital Expenditures We spent $3.8 million during the
period ending June 30, 2002 for capital projects. These expenditures primarily
included expansion of our manufacturing and other facilities, plantation cost
and laboratory equipment. We anticipate a reduction in capital expenditures for
the remainder of 2002.

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

|- | the cost of our manufacturing expansion for paclitaxel;            
|- | -------------------------------------------------------------------
|- | the development of new products;                                   
|- | the acquisition of new products or technologies;                   
|- | the cost of manufacturing resources for new products;              
|- | the nature of our relationship with our strategic
    partners;    
|- | the progress of our research and development programs;             
|- | changes in manufacturing processes;                                
|- | the magnitude and scope of these activities;                       
|- | competing technological and marketing developments; and            
|- | changes in or terminations of existing strategic
    relationships.

In 2002 we anticipate significant expenditures for improving
efficiency at our existing facilities. The expanded scope of our research and
development activity will require significant additions to laboratory equipment.
All of these factors, and others, lead us to expect that there may be
significant capital expenditures for the remainder of 2002. 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, 2001, we had
approximately $82 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.



Special Note Regarding Forward-looking Statements

This report contains forward-looking statements that involve
known and unknown risks, including, without limitation, statements containing
the words "believes", "anticipates", "estimates", "may" and
words of similar import or statements of management's opinion or statements
that are not historical fact. In addition, our representatives from time to time
may orally make forward looking statements. Such forward-looking statements may
include, among others:

|- | statements concerning our plans, objectives and future
    economic prospects, such as 
 matters relative to developing new products;
|- | -------------------------------------------------------------------------------------------------------------------------------------
|- | the timing and amount of sales of paclitaxel to Abbott;                                                                              
|- | the availability of patent and other protection for our
    intellectual property;                                                   
|- | the completion of preclinical studies, clinical trials
    and regulatory filings;                                                   
|- | the prospects for, and timing of, regulatory approvals;                                                                              

> 

1

---

|- | the need and plans for, and availability of, additional
    capital;                                                                                                                
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|- | the amount and timing of capital expenditures;                                                                                                                                      
|- | the timing of product introductions and sales;                                                                                                                                      
|- | the availability of raw materials;                                                                                                                                                  
|- | prospects for future operations; and                                                                                                                                                
|- | other statements of expectations, beliefs, future plans
    and strategies, anticipated events or trends and 
 similar expressions concerning matters that are not historical facts.

Such forward-looking statements involve known and unknown
risks, uncertainties and other factors which may cause our actual results,
performance or achievements, or industry results, to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Such factors include, among other things, the
following:

|- | competition from Bristol-Myers Squibb Company, IVAX
    Corporation, Aventis S.A., Mylan 
 Laboratories, Inc., and other producers of
    paclitaxel and other drugs;
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
|- | the inability to obtain European or Japanese regulatory
    approvals for paclitaxel or a 
 delay in such approvals;                                                 
|- | technological advances in cancer treatment and drug
    development that 
 may make paclitaxel obsolete;                                                             
|- | the risks associated with patent litigation;                                                                                                                         
|- | the ability to obtain rights to technology;                                                                                                                          
|- | the ability to obtain, maintain and enforce patents;                                                                                                                 
|- | the ability to maintain trade secrets;                                                                                                                               
|- | the ability to obtain raw materials and commercialize
    manufacturing processes;                                                                                   
|- | the effectiveness of other pharmaceuticals we develop in
    treating disease;                                                                                       
|- | the results of preclinical and clinical studies;                                                                                                                     
|- | the results of research and development activities;                                                                                                                  
|- | the ability to purchase or license new products;                                                                                                                     
|- | the successful development of new products;                                                                                                                          
|- | the business abilities and judgment of our management and
    other personnel;                                                                                       
|- | the ability to hire and retain skilled personnel to
    perform research and development 
 and to run our manufacturing operations;                                  
|- | the ability of contract manufacturers to perform
    adequately under anticipated contracts;                                                                         
|- | the decision-making processes of regulatory agencies;                                                                                                                
|- | changes in and compliance with governmental regulations;                                                                                                             
|- | the effect of capital market conditions and other factors
    on capital availability;                                                                               
|- | the ability of Abbott, Faulding, Tzamal and JCR to
    perform their obligations 
 under their existing agreements with us;                                          
|- | our ability to perform our obligations under our existing
    and future agreements;                                                                                 
|- | our limited relevant operating history upon which an
    evaluation of our prospects can be made;                                                                    
|- | the effect on sales, cash flow and earnings from foreign
    exchange rate fluctuations;                                                                             
|- | adverse economic and general business conditions; and                                                                                                                
|- | other factors referenced in this report.                                                                                                                             

These factors are not intended to be an all-inclusive
enumeration of the business risks we face. Reference is also made to the risk
factors discussed in Amendment No. 4 to our Registration Statement (No.
333-82810) filed with the Securities and Exchange Commission on July 1, 2002.
The



1

---



forward-looking statements included in this report represent our view as of
the date of this report. The reader should not assume that the statements made
herein remain accurate at any future date. We do not intend to update these
statements and undertake no duty to any person to make any update under any
circumstance.



Item 3. Quantitative and Qualitative Disclosures about Market
Risk.

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

Faulding'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 Faulding. If changes in foreign currency
markets continue to cause a decrease in the price per gram we receive from
Faulding, there could be a material adverse effect on our earnings and cash
flow. Our sales to JCR, if and when they occur, will be subject to the same
risk.



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



Part II--Other Information

Item 1. Legal Proceedings. None

Item 2. Changes in Securities. None

Item 3. Defaults upon Senior Securities. None

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

At the Annual Meeting of Stockholders held on July 16, 2002 (the "Annual
Meeting"), the following proposals were adopted by the margins indicated:

1. The election of two Class III directors to hold office
until the 2004 Annual Meeting.

|                      | Number of shares
|--------------------- | ----------------
|Nominee               | For             
|Sterling K. Ainsworth | 23,077,420      
|Mark J. Ostro         | 23,245,320      



1

---



2. Approval of amendments to our 1994 Long Term Performance
Incentive Plan (the "1994 Plan") providing for an increase in the
maximum number of shares of common stock issuable as awards under the 1994 Plan.



|        | Number of shares
|------- | ----------------
|For     | 15,772,922      
|Against | 9,640,354       
|Abstain | 24,361          

3. Approval of amendments to our Amended and Restated Certificate of
Incorporation (the "Certificate") increasing the number of total shares of
common stock issuable under the Certificate and removing the designation of
Non-Voting Common Stock from the Certificate.



|        | Number of shares
|------- | ----------------
|For     | 19,361,027      
|Against | 6,066,943       
|Abstain | 9,667           

4. To ratify the selection by the Board of Directors of Ernst & Young LLP
as our independent auditors for the year ending December 31, 2002:



|        | Number of shares
|------- | ----------------
|For     | 24,282,299      
|Against | 1,122,276       
|Abstain | 33,062          



Item 5. Other Information. None

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

We filed a current report on Form 8-K dated July 8, 2002 announcing that the
European Patent Office, Opposition Division, ruled that NaPro's currently
issued paclitaxel formulation patent in the European Patent Convention is
invalid.



20

---





Signatures

Pursuant to the requirements of the Securities Exchange Act
of 1934, we have duly caused this report to be signed on our behalf.

|               | NaPro BioTherapeutics, Inc.       
|-------------- | ----------------------------------
|               |                                   
|August 7, 2002 | /s/ Leonard P. Shaykin            
|               | Leonard P. Shaykin                
|               | Chairman of the Board of Directors
|               | Chief Executive Officer           
|               | (Principal Executive Officer)     



|August 7, 2002 | /s/ Gordon Link                             
|-------------- | --------------------------------------------
|               | Gordon Link                                 
|               | Vice President and Chief Financial Officer  
|               | (Principal Financial and Accounting Officer)