SECURITIES AND EXCHANGE COMMISSION
                                              Washington, D.C. 20549

                                                     Form 10-K

     Annual Report Pursuant to Section 13 of the Securities Exchange Act of 1934

                                           Year Ended December 31, 1997

                                          Commission File Number 0-24320

                                            NAPRO BIOTHERAPEUTICS, INC.

Incorporated in Delaware                                  IRS ID No.  84-1187753

                                              6304 Spine Road, Unit A
                                              Boulder, Colorado 80301
                                                  (303) 530-3891

Securities registered pursuant to Section 12(b) of the Act:  none
Securities registered pursuant to Section 12(g) of the Act:
                         Common Stock, $0.0075 par value;
                         Preferred Stock Purchase Rights

The registrant  (1) has filed all reports  required to be filed by Section 13 or
15(b) 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.

Disclosure of delinquent  filers  pursuant to Item 405 of Regulation S-K will be
contained,  to  the  best  of  registrant's  knowledge,  in a  definitive  proxy
statement  incorporated  by  reference  in Part III of an amendment to this Form
10-K.

The  aggregate  market value of the voting stock held by  non-affiliates  of the
registrant was $19,395,896 as of March 25, 1998.

The number of shares  outstanding of each of the registrant's  classes of common
stock, as of March 25, 1998:

Common Stock                                 14,129,122
Nonvoting  Common Stock                         395,000

Incorporated  by  reference  in Part III of this  report is certain  information
contained  in  the  NaPro  Proxy  Statement  for  its  1998  Annual  Meeting  of
Stockholders.


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                                                 Table of Contents



         Item                                                              Page
Part I    1      Business                                                     3
          2      Properties                                                  18
          3      Legal Proceedings                                           19
          4      Matters Submitted to Stockholders' Vote                     19
Part II   5      Market Information and Related Stockholder Matters          19
          6      Selected Financial Data                                     21
          7      Management's Discussion and Analysis of Financial           22
                   Condition and Results of Operations
          8      Financial Statements and Supplementary Data             28, F-1
          9      Changes in and Disagreements with Accountants               28
Part III  10     Directors and Executive Officers                            28
          11     Executive Compensation                                      28
          12     Security Ownership of Certain Beneficial Owners and         28
                   Management
          13     Certain Relationships and Related Transactions              28
Part IV   14     Exhibits, Financial Statement Schedules, and Reports on     29
                   Form 8-K


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                                     Part I

                                     Item 1

                                    Business

General

NaPro  BioTherapeutics,  Inc.  (together with its subsidiaries,  "NaPro" or "the
Company")  is  a  natural  product  pharmaceutical  company  which  is  focusing
primarily on the development, manufacture and commercialization of paclitaxel, a
naturally-occurring  anti-cancer  agent found in certain  species of yew (Taxus)
trees. NaPro's paclitaxel is referred to herein as "NBT Paclitaxel."

The market for paclitaxel is dominated by Bristol-Myers  Squibb Company ("BMS").
BMS has  publicly  announced  that  worldwide  sales  of  their  formulation  of
paclitaxel  were  approximately  $813  million in 1996 and $941 million in 1997.
BMS's paclitaxel is the only United States Food and Drug Administration  ("FDA")
approved  formulation  of  paclitaxel,  which  approval is for the  treatment of
breast and  ovarian  cancers,  and  Kaposi's  Sarcoma.  NaPro  believes  that by
combining its proprietary  extraction,  isolation and  purification  ("EIP(TM)")
manufacturing technology, the renewable sources of Taxus biomass being developed
by NaPro,  and current as well as future  long-term,  exclusive  agreements with
major  international  pharmaceutical  companies,  NaPro  will be  positioned  to
participate  significantly in the worldwide  paclitaxel market. NaPro terminated
its development  and marketing  agreement with Baker Norton  Pharmaceuticals,  a
wholly owned subsidiary of IVAX Corporation,  a diversified international health
care company with 1997 sales of approximately  $602.1 million (together with its
subsidiaries,  "IVAX") on March 20, 1998, and is actively seeking pharmaceutical
alliances for marketing and  development of NBT Paclitaxel in much of the world.
There can be no  assurance,  however,  that NBT  Paclitaxel  will prove safe and
effective,  meet applicable standards necessary for regulatory approvals,  or be
successfully  marketed  or that NaPro will  succeed  in  forming  new  strategic
development and marketing agreements necessary for its success.

NaPro's  strategy for advancing the  development  and  commercialization  of NBT
Paclitaxel  has been to form strategic  alliances  through  long-term  exclusive
agreements with major pharmaceutical distributors.  In 1992 NaPro entered into a
20-year exclusive agreement with F.H. Faulding & Co., Ltd.,  Australia's largest
domestic  pharmaceutical  company with 1997 sales of approximately $1.1 billion,
("Faulding") for the clinical development,  sales, marketing and distribution of
NBT Paclitaxel in Australia, New Zealand and much of southeast Asia.

NaPro supplies NBT Paclitaxel to Faulding which  formulates it into a commercial
drug  product  named  ANZATAX(TM).  Faulding  has  agreed to fund and,  with the
Company's input,  perform  clinical trials and file for regulatory  approvals of
ANZATAX(TM) in its territory.  NaPro is responsible for supplying  Faulding with
NBT  Paclitaxel  for  clinical  and  commercial  purposes.  NaPro  is  currently
receiving payments from Faulding based on clinical sales and commercial sales in
territories where sales of ANZATAX(TM) have been approved.

Faulding  obtained  regulatory  approval and began  marketing  ANZATAX(TM)  as a
pharmaceutical  for the  treatment of refractory  breast and ovarian  cancers in
Australia in January 1995,  subsequently  obtained regulatory approval and began
marketing  ANZATAX(TM)  in several  countries  in the Middle East and  southeast
Asia, and is seeking  approvals to market  ANZATAX(TM) in other countries in its
defined territory. See "Clinical Status of NBT Paclitaxel, Faulding."


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In 1993 NaPro entered into a 20-year  exclusive  agreement with IVAX Corporation
for  the  clinical  development,   sales,  marketing  and  distribution  of  NBT
Paclitaxel in much of the world not covered by the Faulding territory, including
North America, Western Europe, and Japan.

Under this agreement,  IVAX obtained regulatory approval for and began marketing
Paxene(R),  its commercial formulation of NBT Paclitaxel,  in two South American
countries.  IVAX  filed an  Investigational  New Drug  ("IND")  application  for
Paxene(R)  with the United  States Food and Drug  Administration  (the "FDA") in
1994,  subsequently  completed  pivotal  clinical  trials of Paxene(R) for three
therapeutic  indications,  including  refractory  breast and ovarian cancers and
Kaposi's  sarcoma,  and on March  31,  1997,  submitted  a New Drug  Application
("NDA")  for  Kaposi's  sarcoma.   On  December  24,  1997  the  FDA  responded,
determining  that  Paxene(R) was safe and effective in the treatment of Kaposi's
sarcoma but under the Orphan Drug Act of 1983 (the  "Orphan Drug Act") could not
be  marketed  due to  BMS's  prior  approval  for the use of  paclitaxel  in the
treatment of Kaposi's sarcoma. See "Clinical Status of NBT Paclitaxel, IVAX."

Paclitaxel Overview

Cancer is the second  leading  cause of death in the United States with over one
million new cases diagnosed each year.  Cancer is generally  treated by surgery,
radiation or  chemotherapy  or a combination of these  therapies.  Since gaining
approval  in December  1992,  paclitaxel  has become the largest  selling of the
class of cancer chemotherapy drugs known as cytotoxic agents.

Paclitaxel  is a natural  product that was  recognized  by the  National  Cancer
Institute (the "NCI") in 1963 as showing  cytotoxic  activity  against  leukemia
cells and  inhibitory  activity  against a variety of tumors.  Over the next two
decades,  researchers  working  under grants from the NCI  conducted  studies to
determine  paclitaxel's  structure and its mechanism of action.  The NCI studies
indicated that  paclitaxel  inhibits the normal action of microtubules in cancer
cell  division.  Microtubules,  located in the cytoplasm of cells,  play a vital
role in cellular division.  Paclitaxel promotes  microtubule assembly and blocks
normal  microtubule  disassembly in cells,  thereby inhibiting cell division and
inducing death of cancer cells.  This cytoplasmic  mechanism of action contrasts
with the nuclear  mechanism of action of the  majority of cytotoxic  drugs which
kill the cell by attacking nuclear components such as DNA or RNA.

In June 1991,  the NCI  formalized  a  Collaborative  Research  and  Development
Agreement  ("CRADA") for development of paclitaxel with BMS, the world's largest
oncology  company.   BMS  assumed   development  of  paclitaxel  which  included
completion of the necessary clinical trials and manufacturing  scale-up. In June
1992,  BMS  submitted an NDA to the FDA.  BMS received  approval for the sale of
paclitaxel as a treatment  for  refractory  ovarian  cancer in December 1992 and
approval for the sale of paclitaxel as a treatment for refractory  breast cancer
in April 1994.

Paclitaxel  is one of a family of  compounds,  commonly  referred to as taxanes,
which  share  a  hydrocarbon  ring  (diterpene)  structure.  Taxanes  are  found
naturally  in many  parts of  various  species  of yew  trees  and  bushes.  The
concentration  of taxanes in yew trees and bushes is very small,  generally less
than 500 parts per million,  and accordingly,  the process of extracting taxanes
from yew  biomass is  complicated  and  challenging.  To arrive at a final stage
paclitaxel product for use in clinical trials and for commercialization, several
production  approaches  can be utilized.  NaPro  believes the two most prevalent
processes used today are conventional extraction and semi-synthesis.

In extraction,  the manufacturing  process must be designed to extract,  isolate
and  purify  paclitaxel  from  yew  biomass  leaving  behind  other  components,
including  non-paclitaxel  taxanes.  The extraction,  isolation and purification
processes,  however,  are complicated since there are over 100 different taxanes
present in


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yew biomass. In a semi-synthesis process, the initial extraction,  isolation and
purification is similar to that of the conventional  extraction process,  except
that  the  process  not  only  isolates   paclitaxel,   but  also  isolates  and
subsequently  converts through chemical  synthesis  certain other taxanes (which
are otherwise  considered waste byproducts) into paclitaxel,  thereby increasing
the yield of  paclitaxel  from the same  quantity of biomass  source.  The final
product of either  method must have  levels of  impurity at or below  acceptable
regulatory standards.

Historically,  the wild  Pacific  yew tree has been the  primary  source  of yew
biomass.  Most species of Taxus,  including  the wild Pacific yew,  grow slowly,
requiring a number of years to reach  harvestable  size. As a result of its slow
growing pattern, wild Taxus is generally found in old growth forests, frequently
the habitat of endangered  species,  including the spotted owl. Biomass from the
wild  Pacific  yew tree has  historically  been  obtained  from the bark,  which
generally  requires  destroying  the  tree.  As  a  result,  there  has  been  a
considerable  amount of public debate and  controversy  in the United States and
other countries by  environmental  groups and others regarding the harvesting of
bark from the wild tree.  NaPro  halted  harvesting  bark from wild  Pacific yew
trees in 1994. See "Corporate Strategy" and "Biomass; Manufacturing."

Other  companies  have developed  taxane  analogues  which are similar,  but not
chemically  identical,  to paclitaxel.  For example,  Rhone-Poulenc Rorer, Inc.,
("RPR"), a large international  pharmaceutical company, has developed docetaxel,
one such taxane  analog,  which is being  marketed in various parts of the world
under the trademark  Taxotere(R) . Taxotere(R) has a different  toxicity profile
from paclitaxel and has side effects not observed with paclitaxel.  In May 1996,
the FDA approved  Taxotere(R)  for treatment of  anthracycline-resistant  breast
cancer in patients without impaired liver function.

Clinical Status of NBT Paclitaxel

Pursuant to the Faulding Agreement,  Faulding has the primary responsibility for
designing and conducting clinical trials and for pursuing regulatory approval of
NBT Paclitaxel within the Faulding territory.  NaPro has primary  responsibility
for carrying out the  procedures  for  regulatory  approval  relating to NaPro's
manufacturing processes.  NaPro has filed confidential Drug Master Files ("DMF")
and other information  containing certain of NaPro's  proprietary  manufacturing
processes relating to the manufacture of NBT Paclitaxel with regulatory agencies
in the United States, Australia, Canada and Europe. In addition, NaPro performed
toxicological and preclinical  characterization  necessary for filing an IND for
extracted paclitaxel.

Existing regulatory approvals have a direct impact on the clinical and marketing
strategy being pursued by NaPro and Faulding. In December 1992, BMS obtained NDA
approval  in  the  United  States  for  its  paclitaxel   compound.   Under  the
Waxman-Hatch  Act, a non-patented  drug such as paclitaxel  which gains approval
through an NDA process is granted a five-year  period of  marketing  exclusivity
which  prevents   submission  by  another  party  of  an  Abbreviated  New  Drug
Application  ("ANDA") for generic  substitutes  until such period of exclusivity
expires.  The exclusivity  period in the United Stated expired in December 1997.
There are also  provisions  under  the  Waxman-Hatch  Act that may  result in an
additional  30 month delay in the review of an ANDA if the sponsor (in this case
BMS) has published a patent  related to the product.  The Company  believes this
limitation  to  apply in the  case of  Taxol(R).  A  comparable  statute  to the
Waxman-Hatch Act exists in Europe, although the related period of exclusivity is
ten years. See "Government Regulation and Product Approvals."

Faulding In January 1995, Faulding received generic regulatory approval from the
Australian  Therapeutic  Goods  Administration  ("TGA")  to  market  ANZATAX(TM)
(Faulding's  brand name for NBT Paclitaxel) in Australia.  Under  Australian law
there is no exclusivity  period comparable to that provided by the

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Waxman-  Hatch  Act,  and ,  therefore,  approval  of a generic  substitute  was
possible without the need for additional clinical trials. Faulding did, however,
conduct clinical  investigations  with ANZATAX(TM) in order to support marketing
in  Australia  and to support  applications  for  regulatory  approval  in other
countries. NaPro and Faulding have obtained regulatory approval from the TGA for
NaPro to supply NBT  Paclitaxel  to  Faulding  from  either its  Canadian or its
United  States  manufacturing   facilities.  In  addition  to  their  Australian
approval,  Faulding markets  ANZATAX(TM) in Cyprus,  Egypt,  Kuwait,  Hong Kong,
Lebanon,  Turkey,  Vietnam,  China and  Singapore  and  Faulding  has  marketing
applications  pending  in five  other  territories.  There can be no  assurance,
however, that Faulding will receive approval in any of these five territories or
will successfully market NBT Paclitaxel, even if such approvals are received.

IVAX Prior to  termination  of the  agreement  between IVAX and NaPro,  IVAX had
pursued a strategy to obtain NDA approval of NBT Paclitaxel in the United States
for the treatment of refractory breast and ovarian cancers and Kaposi's sarcoma.
IVAX filed an IND with the FDA in June 1994,  initiated  Phase I clinical trials
of NBT Paclitaxel in October 1994, and initiated Phase II/III clinical trials in
May 1995.  IVAX has  substantially  completed  Phase  II/III  studies  using NBT
Paclitaxel in three indications, including refractory breast and ovarian cancers
and  Kaposi's  sarcoma.  IVAX  submitted  an NDA for the  treatment  of Kaposi's
sarcoma with NBT Paclitaxel on March 31, 1997 (the "IVAX NDA").

In August 1997 BMS received approval,  with orphan drug designation,  for use of
their paclitaxel compound in the treatment of Kaposi's sarcoma. Under the Orphan
Drug Act, a drug that  receives  orphan drug  designation  by the FDA and is the
first  product  to receive  FDA  marketing  approval  for its  product  claim is
entitled  to a  seven-year  exclusive  marketing  period in the  United  States.
Despite the period of  exclusivity  held by BMS under the Orphan Drug Act,  IVAX
could have also  obtained  FDA  approval  as an orphan  drug if  Paxene(R)  were
demonstrated   to  have  "clinical   superiority"  or  if   effectiveness   were
demonstrated as to a definable  subset of the disease.  On December 24, 1997 the
FDA responded to the IVAX NDA, determining NBT Paclitaxel was safe and effective
in the  treatment  of  Kaposi's  sarcoma  but  could  not be  marketed  for that
indication during BMS's period of exclusivity under the Orphan Drug Act.

On March 20, 1998, NaPro and IVAX entered into an agreement terminating the IVAX
Agreement  (the  "Termination  Agreement").  Termination  of the IVAX  Agreement
leaves NaPro free to seek regulatory  approvals and market NBT Paclitaxel itself
or to seek a new partner or partners with which to pursue  regulatory  approvals
and  marketing  of NBT  Paclitaxel,  in either  such case in areas  outside  the
Faulding territory.  However, the termination of this agreement currently leaves
NaPro without such a partner,  and there can be no assurance  that NaPro will be
able to  secure  such  approvals  or form new  long-term  relationships  for the
approval,  marketing, and distribution of NBT paclitaxel in these areas, or that
NaPro or such a partner, if found, will be able to secure regulatory approval or
effectively market NBT Paclitaxel. See "Strategic Partners, IVAX."

Biomass; Manufacturing

Biomass  Paclitaxel  and  other  taxanes  necessary  for the  production  of NBT
Paclitaxel are present in many parts of various species of yew trees and bushes.
NaPro's EIP(TM)  technology is designed to allow  extraction and purification of
paclitaxel and other taxanes,  which can be synthesized  into  paclitaxel,  from
renewable  sources  of biomass  such as needles  and  limbstock  harvested  from
ornamental yew trees and bushes.

In order to have access to a stable  long-term  supply of biomass for use in the
production  of NBT  Paclitaxel,  NaPro  entered  into  agreements  with  Pacific
BioTechnologies  Inc.  in 1993 and  Zelenka  Nursery,  Inc.  in 1996  (the  "PBI
Agreement" and "Zelenka Agreement,"  respectively) and may enter into additional
agreements to purchase  biomass and mature yew bushes from  commercial  growers.
NaPro believes that the plantations  being developed under these  agreements can
produce adequate biomass to

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support  the  commercial  requirements  of  Faulding,  and any future  strategic
partner,  for the foreseeable future. By planting and propagating a reliable and
renewable  homogeneous  biomass  source,  NaPro  believes that it may be able to
reduce its raw material cost, while at the same time allowing it to increase the
yield of NBT Paclitaxel.  NaPro made its first  small-scale  harvest pursuant to
the PBI  Agreement  in the first  quarter of 1996 and  pursuant  to the  Zelenka
Agreement in the second quarter of 1996. During 1997 NaPro completed its initial
harvest under the Zelenka Agreement,  and made spot orders with other vendors to
obtain  sufficient  biomass to support  manufacturing  demands.  There can be no
assurance  that the use of the  ornamental yew bushes and the use of needles and
limbstock  of such bushes  will be approved by the FDA for use in  manufacturing
NBT  Paclitaxel  or that current  sources of biomass will be  sufficient to meet
NaPro's needs.

Manufacturing  Crude paclitaxel is extracted from cultivated yew bushes by third
party extractors and delivered to one of NaPro's  manufacturing  facilities.  At
these  facilities,  the impure  paclitaxel  is  isolated  and  purified  and the
resulting active drug substance is delivered to Faulding's final fill and finish
facility in Australia  where NBT  Paclitaxel is formulated by Faulding for final
packaging.  NaPro  currently  operates a pilot-scale  manufacturing  facility in
Boulder,  Colorado  and,  until April 1998,  will  operate  another  small-scale
manufacturing  facility in British Columbia,  Canada. The FDA's refusal to allow
marketing of NBT  Paclitaxel in the United States under the IVAX NDA resulted in
a decrease in the projected demand for NBT Paclitaxel.  As a result, the Company
decided to cease  manufacturing  in British  Columbia and close that facility in
April 1998. Both NaPro's  Colorado  pilot-scale  manufacturing  facility and its
British  Columbia  manufacturing  facility  have been  inspected  by the TGA and
approved for the commercial  production of NBT Paclitaxel for sale in Australia.
NaPro believes that the Boulder, Colorado facility has adequate capacity to meet
Faulding's  clinical and commercial  demand for the  foreseeable  future and the
amounts NaPro is required to supply under the  Termination  Agreement with IVAX.
See "Strategic Alliances, IVAX"

With the  possibility of NBT Paclitaxel  entering the United States market under
the  IVAX  NDA,  NaPro  pursued   construction   of  a  large-scale   commercial
manufacturing  facility in  Boulder,  Colorado.  During  1997,  NaPro  completed
necessary   structural   modifications  to  the  facility  and  began  equipment
installation. As a result of the FDA's refusal to allow marketing under the IVAX
NDA,  equipment  installation  was stopped in December 1997. NaPro believes that
construction of this  large-scale  facility can be resumed and completed at such
time,  if ever,  as the  demand  for NBT  Paclitaxel  requires  an  increase  in
production  beyond the  capacity of its pilot- scale  facility.  There can be no
assurance,  however,  that NaPro will succeed in adapting its EIP(TM) technology
for  large  scale   commercial   manufacturing,   or  that  such   facility  and
manufacturing processes will receive necessary regulatory approvals.

In order to increase its manufacturing capacity,  NaPro is also developing,  and
has  applied  for  patent   protection   for,  a   semi-synthesis   process  for
manufacturing  NBT Paclitaxel from certain other taxanes  contained in renewable
biomass  sources.  NaPro owns three issued patents  relating to this process and
has  applied  for  others.   Semi-synthesis   manufacturing  initially  involves
extraction of paclitaxel and other taxanes from yew sources.  Unlike extraction,
however,  which attempts to isolate and purify only  paclitaxel,  semi-synthesis
isolates and purifies certain additional  taxanes.  Through a chemical synthesis
process, these other taxanes are converted into paclitaxel.  Accordingly,  since
both paclitaxel and other taxanes are used in  semi-synthesis,  NaPro expects to
be able to  increase  the  paclitaxel  yield from its  biomass  sources  using a
semi-synthesis  process.  The use of  semi-synthesis  will  require  receipt  of
additional regulatory approvals, of which there can be no assurance.


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Strategic Alliances

NaPro's  strategy  has been to pursue and enter into  strategic  alliances  with
large  international  pharmaceutical  companies  that  take  responsibility  for
performing  clinical  trials,  filing for  regulatory  approvals,  and  selling,
marketing and  distributing  commercial  formulations of NBT  Paclitaxel.  NaPro
formed such a strategic  alliance  with Faulding  through a long-term  exclusive
agreement. Pursuant to this agreement, Faulding agreed to fund and, with NaPro's
input, undertake the clinical trials required to obtain regulatory approvals for
commercializing  NBT  Paclitaxel  in its  territory.  NaPro is  responsible  for
supplying  Faulding  with NBT  Paclitaxel  for  clinical  trials and  commercial
purposes and Faulding is required to purchase all of its paclitaxel requirements
from  NaPro.  Faulding  pays  a  fixed  price  for  non-commercial  sales  and a
substantial share of gross revenue for NBT Paclitaxel sold  commercially.  NaPro
believes  that  through  its  agreement  with  Faulding  it will be able to take
advantage of Faulding's  resources,  including expertise in clinical testing and
sales, marketing and distribution.  NaPro believes that this alliance enables it
to compete more  effectively,  within the  Faulding  territory,  with BMS,  RPR,
generic drug  manufacturers  and other  companies,  research  organizations  and
academic  institutions  that are  developing  paclitaxel  and are  attempting to
develop new and advanced forms of anti-cancer  drugs. There can be no assurance,
however, that Faulding will succeed in obtaining further regulatory approvals to
market NBT  Paclitaxel  within its  territory or that  Faulding  will market NBT
Paclitaxel successfully in these additional countries.

Until  March  20,  1998  NaPro  and IVAX were  parties  to a similar  long-term,
exclusive  agreement,  under which IVAX was responsible for performing  clinical
trials,  filing  for  regulatory   approvals,   and  selling,   marketing,   and
distributing commercial formulations of NBT Paclitaxel.  In March 1998 NaPro and
IVAX severed this strategic partnership by terminating the long-term,  exclusive
agreement.  The  termination of this  agreement  leaves NaPro free to pursue and
enter into a  strategic  partnership  or  partnerships  in the  territories  not
covered by the agreement with Faulding,  and NaPro is currently in  negotiations
toward this end.  However,  the termination of this agreement  currently  leaves
NaPro  without a  strategic  partner  to assist  with  regulatory  approval  and
marketing  in  countries  outside the  Faulding  territory,  and there can be no
assurance  that NaPro will be able to find a partner for these  markets on terms
acceptable  to NaPro,  or at all. In  addition,  even if such a  partnership  is
secured,  there can be no assurance  that such a partner will be  successful  in
gaining the  necessary  regulatory  approvals  to market NBT  Paclitaxel  in the
territories  not covered by the  Faulding  Agreement or that the partner will be
able to market NBT Paclitaxel successfully.

Faulding Faulding, Australia's largest domestic pharmaceutical company with 1997
sales   of   approximately   $1.1   billion,    actively   markets   anti-cancer
pharmaceuticals and other health care products in Australia,  Southeast Asia and
other countries  throughout the world. In 1992, NaPro originally  entered into a
development and marketing  agreement (the "Faulding  Agreement")  with Faulding.
The Faulding Agreement, as amended and restated, has an initial term of 20 years
and will continue  thereafter from year to year unless  terminated in writing by
either party.

The Faulding Agreement grants Faulding the exclusive right to develop and market
NBT Paclitaxel in ten countries,  including  Australia,  New Zealand and much of
Southeast Asia (the "Faulding  Territory").  The Faulding  Agreement also grants
Faulding the non-exclusive  right to sell NBT Paclitaxel in certain countries in
the Middle  East.  Pursuant to the Faulding  Agreement,  Faulding is required to
purchase all of its  requirements  of paclitaxel  from NaPro,  except in certain
circumstances where NaPro is unable to supply Faulding's requirements.

In a March 1995 amendment to the Faulding Agreement,  Faulding agreed to convert
certain prepaid  product sales and deferred  revenue  aggregating  $1.1 million,
which  would  have  become  due in 1995 and 1997,  into a note in the  aggregate
principal  amount of $1.2 million,  which matured in 1997. The terms

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of the note  provided  that NaPro would pay interest  quarterly on amounts which
would have been  payable to Faulding  had the  conversion  not  occurred,  at an
annual rate of 9%.  NaPro  retired this note with a payment of $1.2 million plus
accrued interest in September 1997.

Faulding may terminate the Faulding  Agreement:  (i) upon the  reorganization or
insolvency of NaPro;  (ii) if Faulding  becomes  controlled by a  pharmaceutical
company that sells paclitaxel in the Faulding territory;  (iii) if NaPro becomes
controlled  by IVAX or BMS;  (iv) if  NaPro  is  purchased  by a  pharmaceutical
company  which sells  paclitaxel  in the  Faulding  territory  and that  company
refuses to be bound by the terms of the Faulding  Agreement;  or (v) if NaPro is
unable  to meet the  paclitaxel  supply  requirements  of  Faulding.  NaPro  may
terminate the Faulding  Agreement:  (i) upon the reorganization or insolvency of
Faulding;  or (ii)  in  certain  circumstances,  upon a  change  in  control  of
Faulding.

NaPro is required to indemnify  Faulding pursuant to the Faulding  Agreement for
any defect in the NBT  Paclitaxel  that is shipped to  Faulding  and for uncured
breaches of NaPro's  warranties  or  obligations  under the Faulding  Agreement.
Faulding is required to indemnify  NaPro against all losses (i) resulting from a
defect in a product  containing NBT Paclitaxel  manufactured  by Faulding except
where  such  defect  is the  fault  of  NaPro,  (ii)  resulting  from a  product
containing NBT Paclitaxel formulated,  stored, handled,  promoted,  distributed,
registered  or sold by  Faulding  and (iii) for uncured  breaches of  Faulding's
representations and warranties under the Faulding Agreement.

In connection with NaPro's initial public  offering,  completed  August 1, 1994,
Faulding  purchased 400,000 shares of NaPro's Nonvoting Common Stock and 400,000
warrants to purchase Nonvoting Common Stock.

In 1996  Faulding  exercised  200,000 of the  warrants.  The  remaining  200,000
warrants were sold by Faulding in 1997.

IVAX IVAX, a  diversified  international  health care company with 1997 sales of
approximately   $602.1  million,  is  engaged  in  the  research,   development,
manufacture  and sale of branded and generic  pharmaceuticals  and other related
health care and  personal  products  and  specialty  chemicals.  In 1993,  NaPro
entered into a development and marketing  agreement (the "IVAX  Agreement") with
IVAX through IVAX's subsidiary,  Baker Norton Pharmaceuticals  ("BNP"). On March
20,  1998,  NaPro  and  IVAX  entered  into the Termination Agreement.

The IVAX  Agreement  granted IVAX the exclusive  right to develop and market NBT
Paclitaxel  in the  United  States and in every  country  outside  the  Faulding
Territory  except for the Vatican City,  China,  the former Soviet Union and the
Middle East where such right was non-exclusive.  Pursuant to the IVAX Agreement,
IVAX had been required to purchase all of its  requirements  of paclitaxel  from
NaPro  except in certain  circumstances,  if NaPro was  unable to supply  IVAX's
requirements. In addition, under certain circumstances, IVAX could have obtained
NaPro  manufacturing  information from NaPro and given such information to third
parties so they could manufacture NBT Paclitaxel for IVAX.

Under the Termination Agreement, NaPro is obligated to deliver to IVAX, and IVAX
is required to purchase at a price fixed in the Termination  Agreement,  a fixed
quantity of NBT Paclitaxel in installments with the final installment due in the
first  quarter of 1999. In addition,  the  Termination  Agreement  grants IVAX a
royalty-free, limited, non-exclusive license, for one of NaPro's pending patents
(the "Pending  Patent") in the United  States,  Europe,  and certain other world
markets.  As  consideration  for this  licence,  NaPro has received  $6,070,000,
$2,000,000  of which  was  placed  in  escrow  to be  released  in  installments
corresponding  to delivery of NBT  Paclitaxel  to IVAX.  In addition,  IVAX will
transfer to the Company  1,126,398 shares of Common Stock within 5 days of NaPro
filing its 1997 Annual  Report on Form 10-K.  In addition,  upon issuance of the
Pending Patent in various  countries,  IVAX is to make the following  additional
payments to NaPro, subject to

                                                     - 9 -

<PAGE>


certain  limitations:  $3,750,000  upon  issuance of the  Pending  Patent in the
United  States,  and  $2,610,000  upon  issuance  of the  Pending  Patent in the
European Union. On the same day the Termination Agreement was executed,  Leonard
P. Shaykin,  the Company's  Chairman of the Board of Directors,  entered into an
agreement  with IVAX  relating to a warrant for 111,111  shares of Common  Stock
(the  "Warrant  Agreement")  that Mr.  Shaykin  acquired  from IVAX in 1996.  In
exchange for remission of the Warrant to the Company by Mr. Shaykin, the Company
agreed to  indemnify  IVAX for any loss  associated  with such  transaction.  In
connection with the Termination  Agreement,  Richard C. Pfenniger,  Jr. resigned
from the NaPro Board of Directors. Mr. Pfenniger had originally been elected to
the Board at the request of IVAX.

NaPro is required to indemnify  IVAX pursuant to the  Termination  Agreement for
any defect in the NBT Paclitaxel  supplied to IVAX under either the  Termination
Agreement or the IVAX  Agreement,  for certain  claims of patent or trade secret
infringement relating to the manufacture, composition, or sale of NBT Paclitaxel
supplied to IVAX and for uncured breaches of certain of NaPro's  representations
and warranties  under the Termination  Agreement.  IVAX is required to indemnify
NaPro against all losses (i) resulting from a defect in a product containing NBT
Paclitaxel  manufactured by IVAX, (ii) resulting from the formulation,  storage,
handling, promotion, distribution, registration, or sale of a product containing
NBT Paclitaxel by IVAX, and (iii) for uncured breaches of IVAX's representations
and warranties under the Termination Agreement.

Termination of the IVAX Agreement leaves NaPro free to seek regulatory approvals
and market NBT Paclitaxel itself or to seek a new partner or partners with which
to pursue regulatory  approvals and marketing of NBT Paclitaxel,  in either such
case in areas outside the Faulding territory.  However,  the termination of this
agreement  currently  leaves NaPro  without such a partner,  and there can be no
assurance that NaPro will be able to secure such approvals or form new long-term
relationships for the approval, marketing, and distribution of NBT paclitaxel in
these areas, or that NaPro or such a partner,  if found,  will be able to secure
regulatory approval or effectively market NBT Paclitaxel.

Marketing and Sales

Marketing  and  sales  of NBT  Paclitaxel  in the  Faulding  Territory  will  be
conducted by  Faulding.  Currently,  NaPro does not have a strategic  partner to
conduct marketing and sales activities outside the Faulding Territory. NaPro has
no sales  force,  has only  limited  marketing  capabilities  and has no present
intention to establish a sales or marketing  force.  NaPro expects that sales to
Faulding  and,  until  the  first  quarter  of  1999,  sales to IVAX  under  the
Termination  Agreement will account for substantially all of NaPro's revenue for
the foreseeable future. As a result, the loss of Faulding as a customer,  in the
absence of a comparable  alternative strategic alliance arrangement,  or failure
on the  part of NaPro to  obtain  a  partner  to  conduct  marketing  and  sales
activities  outside the Faulding  Territory could have a material adverse effect
on NaPro. See "Strategic Alliances."

Competition

The  biopharmaceutical  industry is an expanding and rapidly  changing  industry
characterized   by  intense   competition  for  financing,   executive   talent,
intellectual  property  and product  sales.  NaPro  competes  with all  entities
developing and producing therapeutic agents for cancer treatment. The success of
competitors in entering the market for  paclitaxel may reduce NaPro's  potential
market share and reduce the price of NBT Paclitaxel,  each of which could have a
material adverse effect on NaPro. In addition, regulatory approval and marketing
are being handled  exclusively by Faulding within the Faulding  Territory,  and,
outside  the  Faulding  Territory,  NaPro has no  partner  to handle  regulatory
approval  and  marketing.

                                                     - 10 -

<PAGE>


Although  NaPro  believes  the  Faulding  has  capable  clinical  and  marketing
abilities,  there can be no  assurance  that the  Faulding  will be  capable  or
effective in gaining additional regulatory approval on a timely basis, if at all
or be able to compete  effectively  with existing or new competitors  within the
Faulding Territory.  In addition,  while the Company is currently pursuing a new
strategic  alliance for the  development  and marketing of NBT Paclitaxel in the
countries not covered by the Faulding Agreement,  there can be no assurance that
NaPro will be able to find such a partner or, if such a partner is found,  there
can be no  assurance  that  such a  partner  will be able to  secure  regulatory
approval or effectively market NBT Paclitaxel if approval is secured.

BMS, the world's  largest  oncology  company,  is already  marketing  paclitaxel
commercially in the United States,  Australia,  Canada, Europe and certain other
territories.  In addition, RPR has developed a proprietary analog of paclitaxel,
docetaxel, which is marketed under the trademark Taxotere(R).  Taxotere(R) has a
microtubule   binding  mechanism  of  action  similar  to  that  of  paclitaxel.
Taxotere(R) is approved in the United  States,  European  Community,  Australia,
Canada and a number of other  countries.  Taxotere(R)  is approved in the United
States  for  treatment  of  anthracycline-resistant  breast  cancer in  patients
without  impaired liver  function.  While  treatment with  Taxotere(R) may cause
certain  side effects not  observed  with  paclitaxel,  it is  anticipated  that
Taxotere(R) may compete with paclitaxel,  and thereby reduce overall  paclitaxel
sales.  In  addition,  with  the  termination  of  the  IVAX  Agreement,   NaPro
anticipates  that IVAX will  continue  to seek  entry to the  global  paclitaxel
market  independently  of  NaPro  and will  compete  with  NaPro in the  future.
Furthermore,  upon  expiration  in  December  1997  of the  five-year  marketing
protection from generic  competition  which was provided to BMS's formulation of
paclitaxel by the  Waxman-Hatch  Act, NaPro may be subject to  competition  from
generic paclitaxel  manufacturers.  In Europe, a similar exclusivity period will
end in most cases 10 years after BMS' initial  approval.  In addition,  NaPro is
aware of several pharmaceutical companies which have stated that they are in the
process of developing  generic paclitaxel in the United States,  Canada,  Mexico
and Europe. Finally,  academic and research organizations and pharmaceutical and
biotechnology companies are pursuing, among other things, genetically engineered
drugs, chemical synthesis and cell-tissue culture which may compete with NaPro's
products  or  technology.  In  addition,  certain  companies  are  pursuing  the
production  of  paclitaxel  and other  taxanes from natural  product  extraction
techniques.

Many of  NaPro's  competitors,  most  notably  BMS and RPR,  have  substantially
greater capital resources, research and development capabilities,  manufacturing
and marketing resources, and experience than NaPro. NaPro expects BMS to compete
intensely to maintain its dominance of the paclitaxel market,  including through
pursuit of an aggressive  patent  strategy.  NaPro's  competitors may succeed in
developing  products that are more effective or less costly than any that may be
developed by NaPro, or that gain regulatory  approval prior to NaPro's products.
Many  companies  and  research  institutions  are also  seeking  means to obtain
paclitaxel and taxanes from non-bark  renewable biomass  components of yew trees
and other sources in order to increase  paclitaxel yields,  avoid  environmental
concerns and reduce the cost of biomass. In addition,  NaPro is aware of several
potential competitors that have developed and patented or are developing various
processes   for   producing   paclitaxel   and   paclitaxel-related   substances
semi-synthetically,  which  may  result  in a  low-cost,  pure  paclitaxel.  The
discovery  by a third  party  of a  cost-effective  means  to  fully  synthesize
paclitaxel in commercial  quantities or the manufacture of taxane derivatives or
analogs that are more  efficacious than paclitaxel in treating cancer could have
a material adverse effect on NaPro.

Patents and Proprietary Technology

NaPro's success  depends,  in part, on its ability to obtain  patents,  maintain
trade secret protection and operate without infringing on the proprietary rights
of third parties.  Where appropriate,  NaPro seeks protection of its proprietary
technology by applying for patents in the United  States and abroad.  NaPro

                                                     - 11 -

<PAGE>


owns nine issued  United  States  patents and has several  United  States patent
applications  pending.  In addition,  NaPro owns five issued foreign patents and
has approximately 45 foreign patent applications pending.  NaPro expects to make
additional filings as it believes appropriate.  In addition,  NaPro has obtained
licenses  from third  parties  to use their  proprietary  technology,  for which
patent  applications  have been filed in the United  States and in certain other
areas of the  world.  There  can be no  assurance  that  either  NaPro's  or its
licensors'  existing patent  applications will become issued patents or that, if
issued,  the  coverage  claimed in the  applications  will not be  significantly
reduced prior to issuance or, that NaPro will be able to obtain any necessary or
desired  additional  licenses to patents or technologies of others or that NaPro
will be able to develop its own additional patentable technologies. In addition,
there can be no assurance  that future  patents  issued to NaPro,  if any,  will
provide it with competitive  advantages or that products or processes covered by
such  patents  will  not  be  challenged  as  infringing  upon  the  patents  or
proprietary  rights of others or that any such patents will not be  invalidated,
or that the  patents or  proprietary  rights of others  will not have a material
adverse effect on the ability of NaPro to do business.  Patent  applications  in
the United States are  maintained in secrecy until patents are issued and patent
applications in certain other  countries  generally are not published until more
than 18 months after they are filed.  In addition,  publication of scientific or
patent  literature  often lags behind  actual  discoveries.  As a result,  NaPro
cannot be certain it or any of its licensors was the first creator of inventions
covered by NaPro's or its licensors'  pending patent  applications or that NaPro
or its licensors were the first to file such  applications.  Furthermore,  there
can  be  no  assurance  that  others  will  not  independently  develop  similar
technology  or, if patents  are  issued to NaPro,  that  others  will not design
technology to circumvent NaPro's patents or proprietary rights.

Much  of  NaPro's  proprietary  technology,   including  much  of  its  EIP.(TM)
technology,  is not protected by patents and is held by NaPro as trade  secrets.
NaPro's  success will depend in part on its ability to protect the trade secrets
relating to extracting,  isolating and purifying  paclitaxel as well as to other
technology.  NaPro relies on proprietary  know-how and confidential  information
and  employs  various  methods,   such  as  entering  into  confidentiality  and
non-compete agreements with its current employees and with third parties to whom
it divulges proprietary information,  to protect the processes,  concepts, ideas
and  documentation  associated with its  technologies,  including its paclitaxel
production process.  Such methods may afford incomplete protection and there can
be no assurance that NaPro will be able to adequately  protect its trade secrets
or that other companies will not acquire information which NaPro considers to be
proprietary.  The  inability to maintain its trade secrets for its exclusive use
could have a material adverse effect on NaPro.

The patent position of  pharmaceutical  companies  generally is highly uncertain
and involves complex legal and factual questions. Paclitaxel is an unpatentable,
naturally-occurring  compound.  Various compositions containing paclitaxel,  and
also various  processes  and other  technologies,  including  those  relating to
extracting  paclitaxel and preparing the drug for finished  formulation,  are or
may be patented. In addition, certain methods of administering paclitaxel are or
may be patented.  Certain of these  patents are owned or  controlled  by BMS and
RPR,  two of NaPro's  primary  competitors.  NaPro is aware of  competitors  and
potential  competitors who are pursuing patent protection for various aspects of
the  extraction,  preparation,  administration  and  production  of natural  and
semi-synthetic  paclitaxel.  In the event that NaPro's  technology,  products or
activities  are deemed to  infringe  upon the rights of others,  NaPro  could be
subject to damages or  enjoined  from using such  technology,  or NaPro could be
required to obtain  licenses to utilize such  technology.  No  assurance  can be
given that any such  licenses  would be made  available on terms  acceptable  to
NaPro,  or at all. If NaPro were unable to obtain such  licenses or was enjoined
from using its  technology,  it could  encounter  significant  delays in product
market  introductions  while it attempted to design around the patents or rights
infringed upon, or could find the  development,  manufacture or sale of products
to be foreclosed,  any of which may have a material  adverse effect on NaPro. In
addition,  NaPro could  experience  a loss of revenue and may incur  substantial
cost  in  defending

                                                     - 12 -

<PAGE>

itself and indemnifying  Faulding or IVAX in patent  infringement or proprietary
rights   violation   actions  brought  against  them.  NaPro  could  also  incur
substantial  cost in the event it finds it  necessary to assert  claims  against
third parties to prevent the infringement of its patents and proprietary  rights
by others.  Participation in such infringement proceedings could have a material
adverse  effect on NaPro,  even if the  eventual  outcome  were  favorable.  See
"Strategic  Alliances,"  "European  Patent  Litigation"  and  "Australian  Petty
Patents."

Australian Petty Patents

In September  1993 and August 1994,  BMS received two  Australian  petty patents
claiming certain methods of administering  paclitaxel.  Australian petty patents
have a maximum term of six years,  are allowed to contain only three claims (one
independent  and two  dependent)  and are  granted  on the  basis of a prior art
search which is significantly more limited in scope than the searches done prior
to  issuance  of  standard  patents.  Following  publication  of these  patents,
Faulding instituted legal action to revoke these patents on the grounds that the
patent claims are invalid and that the subject matter claimed in the patents was
already  known prior to the claimed date of  invention.  In February  1995,  BMS
brought legal action against Faulding,  based upon these patent claims,  seeking
an injunction against Faulding to prevent Faulding from marketing NBT Paclitaxel
pursuant to Faulding's  generic  approval.  In March 1995, the Australian  court
denied BMS's request to enjoin  Faulding from  marketing NBT  Paclitaxel.  NaPro
believes,  based on communications with Faulding,  that BMS's claims will likely
be  resolved  in  conjunction  with  Faulding's  revocation  action in 1998.  No
assurance can be given,  however, that BMS will not obtain an injunction against
Faulding  which  could  prevent   Faulding  from  marketing  NBT  Paclitaxel  in
Australia. If Faulding were prevented from marketing NBT Paclitaxel in Australia
pursuant  to its  generic  approval,  Faulding  would be unable  to  market  NBT
Paclitaxel for commercial sale in Australia until such time as Faulding  obtains
its own non-generic  approval which will require substantial clinical trials and
regulatory approval. There can be no assurances, however, that Faulding would be
able to obtain its own  non-generic  approval in such  circumstances.  If BMS is
successful in enforcing its patent claims against Faulding such that Faulding is
unable  to  sell  NBT  Paclitaxel  in  Australia,  NaPro's  business,  financial
condition and results of operations could be materially and adversely  affected.
See "Patents and Proprietary Technology," and "Strategic Alliances."

European Patent Litigation

On May 14, 1997, BMS was issued a European Patent relating to certain methods of
treatment  with  paclitaxel.  On  the  same  day,  NaPro  instituted  revocation
proceedings in the United Kingdom  against this European Patent as issued in the
U.K. and a separate but related British Patent also owned by BMS. The revocation
action was not in response to any lawsuit or allegations of infringement against
NaPro relating to the patents, but BMS has subsequently instituted a countersuit
against  NaPro  alleging  infringement.  Because  of  the  early  stage  of  the
revocation  proceedings,  and issues  regarding  the scope and validity of these
patents,  it is difficult to estimate the impact which these patents may have on
NaPro's  business.  However,  in  the  event  that  NaPro  is  held  liable  for
infringement,  NaPro expects no significant liability because it is not involved
in any activity in the U.K.
involving paclitaxel.

Government Regulation and Product Approvals

The  production  and  marketing  of NBT  Paclitaxel  and  NaPro's  research  and
development   activities  are  subject  to  extensive   regulation  by  numerous
governmental authorities in the United States and other countries. In the United
States, drugs are subject to FDA regulation. The Federal Food, Drug and Cosmetic
Act ("FDC Act"), and the regulations promulgated  thereunder,  and other federal
and state  statutes and  regulations  govern,  among other things,  the testing,
manufacture,  quality,  safety,  efficacy,

                                                     - 13 -

<PAGE>


labeling, storage, advertising and promotion of pharmaceutical products. Product
development  within  this  regulatory  framework  takes a number  of  years  and
involves the expenditure of substantial resources. The marketing of drugs in the
United States may not begin without FDA approval.

The steps required before a pharmaceutical product may be marketed in the United
States  include:   (i)  preclinical   laboratory  tests,  animal   pharmacology,
toxicology studies and formulation studies; (ii) the submission to the FDA of an
IND for human  clinical  testing,  which  must  become  effective  before  human
clinical  trials  commence;  (iii) adequate and  well-controlled  human clinical
trials to establish the safety and efficacy of the drug;  (iv) the submission of
an NDA to the FDA; and (v) FDA approval of the NDA prior to any commercial  sale
or shipment of the drug.  In addition to safety and efficacy  requirements,  the
FDA requires the applicant to demonstrate to the FDA's  satisfaction that it can
manufacture  the drug in compliance  with the FDA's  current Good  Manufacturing
Practices ("cGMP")  regulations.  In addition to obtaining FDA approval for each
product, each domestic drug manufacturing  establishment must be registered with
the FDA.  Domestic  drug  manufacturing  establishments  are  subject to regular
inspections by the FDA and must comply with cGMP regulations. To supply products
for use in the United States,  foreign manufacturing  establishments must comply
with cGMP  regulations  and are subject to periodic  inspection by the FDA or by
corresponding  regulatory  agencies  in their home  countries  under  reciprocal
agreements with the FDA.

Preclinical  studies  include the laboratory  evaluation of in vitro and in vivo
cytotoxicity, pharmacology, product chemistry and formulation, as well as animal
studies to assess the  potential  safety and activity of the product.  Compounds
must be  formulated  according  to cGMP,  and  preclinical  safety tests must be
conducted  by  laboratories  that comply  with FDA  regulations  regarding  good
laboratory practices.  The results of the preclinical tests are submitted to the
FDA as part of an IND and are reviewed by the FDA prior to the  commencement  of
human  clinical  trials.  The data in an IND  consists of animal data on safety,
possibly  human  data  from  a  related  use,  and  chemistry,  formulation  and
manufacturing data. If the FDA objects, the study may not commence. There can be
no  assurance  that  submission  of an IND will result in FDA  authorization  to
commence clinical trials.

Clinical trials involve the  administration of the  investigational  new drug to
patients under the supervision of a qualified principal  investigator.  Clinical
trials must be  conducted  in  accordance  with good  clinical  practices  under
protocols that detail the objectives of the study,  the parameters to be used to
monitor safety and the efficacy criteria to be evaluated.  Each protocol must be
submitted to the FDA as part of the IND. Each  clinical  study must be conducted
under the auspices of an  Institutional  Review Board ("IRB") at the institution
at which the study will be conducted. The IRB will consider, among other things,
the safety of human subjects and the possible liability of the institution.  The
company  sponsoring the trials is required to select qualified  investigators to
supervise  the  administration  of the drug and to ensure  that the  trials  are
adequately monitored in accordance with FDA regulations.

Clinical trials  typically are conducted in three sequential  phases,  which may
overlap. In Phase I, the initial introduction of the drug into healthy subjects,
the drug is tested for safety (adverse effects),  dosage tolerance,  metabolism,
distribution,  excretion and pharmacodynamics (clinical pharmacology).  Phase II
involves studies in a limited patient  population to: (i) determine the efficacy
of the drug for specific, targeted indications;  (ii) determine dosage tolerance
and optimal  dosage;  and (iii)  identify  possible  adverse  effects and safety
risks. When a compound is found likely to be effective and to have an acceptable
safety  profile in Phase II  evaluations,  Phase III trials  are  undertaken  to
evaluate  further  clinical  efficacy and to test  further for safety  within an
expanded patient  population at geographically  dispersed  clinical study sites.
Clinical trials require  substantial time and effort.  There can be no assurance
that  Phase I,  Phase II or Phase III  testing  will be  completed  successfully
within any specific time period, if at all.

                                                     - 14 -

<PAGE>

The results of the pharmaceutical development,  preclinical studies and clinical
studies  are  submitted  to the FDA in the  form of an NDA for  approval  of the
marketing  and  commercial  shipment  of  the  drug.  An  NDA  is  a  systematic
compilation  of data,  analysis and  conclusions  on a new drug product based on
studies  conducted under an IND. The NDA testing and approval  process  requires
substantial time and effort, and there can be no assurance that approval will be
granted on a timely  basis,  if at all.  The FDA may refuse to approve an NDA if
the FDA does not view the NDA as containing  adequate evidence of the safety and
efficacy  of the  drug,  or if  other  applicable  regulatory  criteria  are not
satisfied.  In addition,  the FDA may require additional testing or information,
or  require  post-marketing   testing  and  surveillance.   Notwithstanding  the
submission of complete data, the FDA may ultimately  decide that the application
does not satisfy its criteria for approval.  Moreover, if regulatory approval of
a drug is granted,  such approval may entail  limitations  on the indicated uses
for which the drug may be marketed.  Finally, product approvals may be withdrawn
if compliance with  regulatory  standards is not maintained or if problems occur
following initial marketing or if previously unknown information  demonstrates a
lack of safety or  effectiveness.  Following  an  approved  NDA,  an SNDA may be
submitted to the FDA which requests a change in the existing  approval.  An SNDA
can be for changes in  manufacturing,  quality  control or clinical  data or for
changes in product labeling such as indications or warnings.

Manufacturers of drugs sold in the United States are required to satisfy the FDA
that their manufacturing facilities and processes adhere to applicable standards
for cGMP and to engage in extensive record keeping and reporting.  Thus, even if
regulatory  approval for NBT  Paclitaxel  is acquired,  NaPro's  current and any
future  facilities will be subject to periodic review and inspections by the FDA
or the analogous  regulatory  authorities of other countries for compliance with
cGMP or similar foreign regulatory  standards.  Compliance with cGMP regulations
requires  substantial  time,   attention  and  financial  resources.   Following
inspections of NaPro's United States and Canadian manufacturing  facilities by a
cGMP  Auditor of the  Australian  TGA,  the TGA issued  approvals to NaPro as an
Australian cGMP compliant paclitaxel manufacturer. In addition, NaPro's Boulder,
Colorado  pilot-scale  facility was found to be in compliance with United States
cGMP   regulations  by  the  FDA.  These  facilities  are  subject  to  periodic
reinspection,  and there can be no assurance that the FDA or foreign  regulatory
authorities will find NaPro's current facilities or facilities being constructed
to be in compliance  with United States cGMP  regulations  or analogous  foreign
standards  in the future.  Subsequent  discovery  of  previously  unknown with a
product  or  NaPro's  manufacturing   facilities  may  result  in  restrictions,
including withdrawal of the product from the market.  Failure to comply with the
applicable regulatory  requirements by NaPro,  Faulding, or any future strategic
partner could,  among other things,  result in criminal  prosecution  and fines,
product recalls, product seizures and operating restrictions.

NaPro has met with the FDA to discuss  technical issues  associated with the its
DMF submitted in support of the approval of its bulk drug product as part of the
IVAX NDA. In these meetings,  NaPro learned that the pilot scale facility, which
manufactured the drug which was used in the IVAX clinical  trials,  needed to be
inspected for approval in the initial NDA. The scaled-up commercial facility was
submitted in the NDA as an alternate  facility,  which required NaPro to prepare
two  "commercial"  facilities for FDA approval,  resulting in the expenditure of
more  resources  than  originally   planned.   The  biomass  strategy  employing
plantation-grown ornamental yews was also discussed with the FDA.

NaPro is also  subject  to United  States  laws and  regulations  applicable  to
exporting  drugs.  On April 26, 1996, the export  provisions in the FDC Act were
amended in Chapter 1A of Title II,  Supplemental  Appropriations  For The Fiscal
Year Ending September 30, 1996, in the "FDA Export Reform and Enhancement Act of
1996" to authorize the export of a drug before marketing approval is obtained in
the United States, to any country, if the drug (a) complies with the laws of the
importing country, and (b) has valid marketing  authorization by the appropriate
authority in a country listed by the statute, one of which is Australia. NaPro's
Paclitaxel has received valid marketing authorization from Australia and NaPro's


                                                     - 15 -

<PAGE>




Boulder,  Colorado  pilot-scale  manufacturing  facility  has  been  found to be
compliant with cGMP by the Australian TGA.

NaPro is also subject to, among others,  the regulations of Canada, the Province
of British Columbia,  the United States  Environmental  Protection  Agency,  the
Department of Interior (United States Fish and Wildlife  Services and the Bureau
of Land  Management),  the  Department  of  Agriculture  (United  States  Forest
Service) and other countries and regulatory  agencies.  Pursuant to the National
Environmental  Policy Act,  certain  United  States  agencies  have  prepared an
Environmental  Impact  Statement  that  addresses the impact of harvesting  wild
Pacific yew trees,  including  cutting down wild Pacific yew trees on federally-
managed  land.  NaPro is also  subject  to  federal,  state and  local  laws and
regulations  governing  the use and disposal of  hazardous  materials as well as
regulations  imposed  by  the  Occupational  Safety  and  Health  Administration
governing worker safety. There can be no assurance that NaPro is at all times in
complete compliance with all such requirements. NaPro has made and will continue
to make expenditures to comply with environmental requirements.  Compliance with
these  regulations is time-consuming  and expensive.  The failure to comply with
these  regulations,  however,  could have a material  adverse  effect on NaPro's
business, financial condition and results of operations.

The adoption by federal,  state or local  governments of significant new laws or
regulations or a change in the interpretation or implementation of existing laws
or  regulations  relating to  environmental  or other  regulatory  matters could
increase the cost of producing products,  delay regulatory approval or otherwise
adversely  affect  NaPro's  ability to produce or sell NBT  Paclitaxel  or other
products.  Adverse  governmental  regulations  which  might  arise  from  future
legislative or administrative  regulations or other actions cannot be predicted.
In  addition,  NaPro's  activities  have  been  opposed  by the  Oregon  Natural
Resources Council ("ONRC") because of their concern over wild Pacific yew in old
growth  forests.  The ONRC and the FDA have reached an agreement on the National
Environmental  Policy  Act  ("NEPA")  requirements  for  NDAs,  ANDAs  and  INDs
involving more than 200 patients  involving  paclitaxel  from Pacific yew trees.
The  agreement  provides  that  an  applicant  shall  include  an  Environmental
Assessment  ("EA")  which will  identify  all  sources of Pacific  yew which are
expected to be  harvested  in  connection  with the  manufacture  of  paclitaxel
relating to the application.  The FDA is to subject such EAs to the NEPA process
and shall complete and issue a Finding of No Significant Impact ("FONSI"), or an
Environmental  Impact Statement ("EIS") and Record of Decision (ROD) as required
by NEPA before  approving any NDA or ANDA involving  paclitaxel  derived from or
otherwise  involving the Pacific yew tree.  Because NaPro relies on  plantation-
grown  ornamental  yews,  and it will  not  harvest  any  Pacific  yew  trees to
manufacture  paclitaxel  for a marketed  product,  it believes that the ONRC-FDA
agreement  requirements  can be  met,  and  that  these  requirements  will  not
jeopardize  approval  of any NDA which may be filed in the  future.  Even though
NaPro no longer  harvests  biomass from the bark of the wild Pacific yew,  there
can be no assurance that the ONRC and other  environmental  activist groups will
not oppose other  activities of NaPro,  which may have the effect of delaying or
halting  production  of NBT  Paclitaxel,  each of which  could  have a  material
adverse  effect  on  NaPro's  business,   financial  condition  and  results  of
operations.

Outside the United  States,  NaPro's  ability to market a product is  contingent
upon  receiving  a  marketing  authorization  from  the  appropriate  regulatory
authority.  This foreign  regulatory  approval process includes all of the risks
associated with FDA approval set forth above.

NaPro has filed  confidential  DMFs and other  documents  containing  certain of
NaPro's  proprietary  manufacturing  processes with  regulatory  agencies in the
United States, Australia,  Canada and Europe, relating to NaPro's manufacture of
NBT  Paclitaxel.  Faulding,  referring to NaPro's  Australian  DMF, has received
marketing  approval in Australia  for NBT  Paclitaxel  for  treating  refractory
ovarian and breast cancers. Additionally, Faulding has completed clinical trials
with NBT Paclitaxel in Australia,  which may

                                                     - 16 -

<PAGE>


form the basis for applications for further marketing approvals in Australia and
other countries where Faulding has the right to market NBT Paclitaxel.

IVAX,  using NaPro's  United States DMF,  filed an IND with the FDA in June 1994
relating to NBT Paclitaxel and began its Phase I clinical trials relating to NBT
Paclitaxel  in the  United  States in October  1994.  IVAX  began  Phase  II/III
clinical trials in May 1995. In 1997, IVAX filed the IVAX NDA seeking commercial
approval to sell NBT Paclitaxel in the United States. On December  24,1997,  the
FDA ruled on the IVAX NDA, the FDA  determined  that NBT Paclitaxel was safe and
effective in the treatment of Kaposi's sarcoma, but denied IVAX the authority to
market  NBT  Paclitaxel  due to  BMS's  prior  orphan  drug  approval  for  that
indication.  No assurance can be given,  however, that NBT Paclitaxel will prove
to be safe and effective in future clinical  trials,  that NaPro will be able to
obtain  alternate  approval,  to market NBT  Paclitaxel  in the United States or
other countries.

Research and Development

During  the  years  ended  December  31,  1995,  1996  and  1997,   NaPro  spent
approximately  $4.6 million,  $6.8 million and $11.7 million,  respectively,  on
Company  sponsored  research  and  development  activities  and to  produce  NBT
Paclitaxel  sold to Faulding and IVAX.  Research and  development is expected to
remain a  significant  cost  component of NaPro's  business.  In the short term,
research and development is expected to concentrate  primarily on: (i) improving
paclitaxel  yield  and  reducing   production  cost;  (ii)  developing   NaPro's
semi-synthesis process for paclitaxel production; and (iii) improving the yields
of NaPro's production  methodology for processing  needles and limbstock.  NaPro
will focus its internal efforts on process development and plans to contract out
research considered  essential but for which it lacks facilities or staff. NaPro
also intends to engage in early stage research and development to identify other
potential natural product pharmaceuticals.

Foreign and Domestic Operations; Export Sales

The  following  table sets  forth,  for the past  three  fiscal  years  revenue,
profitability  (operating loss),and  identifiable assets attributable to NaPro's
U.S. and foreign operations (amounts in thousand dollars):

                                             Year Ended December 31,
                                    1997              1996             1995
                                    ----              ----             ----

Sales to Unaffiliated Customers
         United States              $2,684          $ 1,692           $2,054
         Canada                      1,130            1,781              569
                                 ---------         ---------         -------

         Total Sales (1)             3,814            3,473            2,623

Operating Loss
         United States            (12,854)           (6,719)          (3,851)
         Canada                      (952)             (384)            (433)

Identifiable Assets
         United States              26,419            20,198           5,133
         Canada                      3,939             4,823           6,820

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

(1) Includes  export  sales to  Australia of $1,303 in 1997,  $2,509 in 1996 and
$1,392 in 1995.

                                                     - 17 -

<PAGE>


Sales from Canada include sales of product  manufactured  and shipped from NaPro
Canada, NaPro's Canadian subsidiary. Such products sold by NaPro Canada to NaPro
are then re-sold to Faulding for use outside the United States.  Such "exported"
products never physically enter the United States.

Sales of NBT Paclitaxel into foreign markets  accounted for approximately 72% of
NaPro's  revenue for the year ended December 31, 1996 and 34% of NaPro's revenue
for the year ended  December  31, 1997.  NaPro  anticipates  that a  significant
portion of its revenue will continue to be derived from sales of its products in
foreign markets for the foreseeable future.

A substantial  portion of NaPro's  revenues and operations will thus continue to
be subject to the risks associated with foreign business,  including economic or
political  instability,   shipping  delays,  fluctuations  in  foreign  currency
exchange  rates  and  various  trade  restrictions,  all of which  could  have a
significant  impact on NaPro's ability to deliver  products on a competitive and
timely basis.  Future  imposition of, or significant  increases in, the level of
customs duties, export quotas, drug regulatory  restrictions or other regulatory
or trade restrictions could have a material adverse effect on NaPro.

Employees

On February 17, 1998,  NaPro  announced a planned layoff of 53 employees,  which
would  result  in a 43%  reduction  in  full  time  positions.  As  part of this
downsizing,  NaPro(Canada)  discontinued  operations  at  its  British  Columbia
manufacturing  facility.  This  downsizing  is  expected  to produce  annualized
savings in personnel costs of about $2.8 million.

As of March 12, 1998, NaPro had 78 full-time employees, two part-time employees,
three project employees, and two temporary employees of whom thirteen hold Ph.D.
or M.D.  degrees.  Three  employees  were  engaged in  biological  and  clinical
research, 17 in chemical research, 14 in quality  control/quality  assurance, 28
in manufacturing,  19 in general  administration and finance,  and two in legal.
NaPro believes that its relations with its employees are good.


                                                      Item 2

                                                    Properties

NaPro leases  approximately  54,000  square feet of space in Boulder,  Colorado,
which  is used  for  research  and  development  and is  planned  to be used for
commercial-scale  manufacturing upon completion of improvements and installation
and  validation of equipment.  This facility is also used for NaPro's  executive
offices  and  warehousing  of raw  materials  and  equipment.  NaPro  leases  an
additional  5,900 square feet of space in Boulder which is used for research and
development  and  small  scale   manufacturing.   NaPro  leases  a  facility  of
approximately  3,400 square feet in British  Columbia,  Canada which is used for
manufacturing. NaPro leases an additional 10,090 square foot facility in British
Columbia,  Canada,  currently unused, that the it intends to sublease to a third
party.

As part of the downsizing  announced by the Company on February 27, 1998,  NaPro
temporarily  closed its British  Columbia  manufacturing  facility and suspended
construction  of  its  commercial  scale  manufacturing   facility  in  Boulder.
Completion of the Boulder facility will require additional financing,  which the
Company intends to seek at such time as NaPro foresees sufficient product demand
to warrant completion of the facility.


                                                     - 18 -

<PAGE>



                                                      Item 3

                                                 Legal Proceedings

NaPro is  currently  engaged  in an  action  in which  NaPro  is  attempting  to
invalidate a European Patent held by Bristol-Myers Squibb Company. See "European
Patent  Litigation."  NaPro is not currently engaged in any other material legal
proceedings.  See "Patents and Proprietary  Technology"  and  "Australian  Petty
Patents."


                                                      Item 4

                                      Matters Submitted to Stockholders' Vote

No matters  were  submitted  to a vote of NaPro's  security  holders  during the
quarter ended December 1997.

                                                      Part II

                                                      Item 5

                              Market Information and Related Stockholder Matters

                                                Market Information

NaPro's  Common Stock is traded in the NASDAQ  National  Market under the symbol
"NPRO." The following table sets forth,  for the fiscal periods  indicated,  the
high and low sale prices for the Common Stock.

                                                      High              Low
1996
         First Quarter                             $13  3/8         $ 8  7/8
         Second Quarter                             17  1/4          11  1/8
         Third Quarter                              15  1/4           8  5/8
         Fourth Quarter                             11  3/4           7  1/8

1997
         First Quarter                             $13  3/8        $10  1/8
         Second Quarter                             12  1/8          6  1/4
         Third Quarter                              10  7/8          6  3/8
         Fourth Quarter                               6 11/16         1 15/16

Stockholders

As of December 31, 1997 there were  approximately  138 stockholders of record of
NaPro's Common Stock.

                                                     - 19 -

<PAGE>

Dividends

To date, NaPro has not paid any dividends on the Common Stock.  NaPro intends to
retain  future  earnings,  if any, to finance the operation and expansion of its
business and,  therefore,  does not anticipate  paying any cash dividends in the
foreseeable future, if at all.

Recent Sales of Unregistered Securities

On June 4, 1997, NaPro issued $10.3 million of Senior Convertible Notes due 2000
(the  "Senior  Notes").  The Senior  Notes were sold to private  investors.  The
Senior Notes are convertible into common stock at discounts  (ranging from 5% to
10%) from the market price of the common stock during specified periods prior to
the conversion.  The net proceeds of the Senior Notes totaled $9.6 million after
the  placement  agent's fees and other  offering  cost.  The Company also issued
49,721  shares of its  common  stock in  payment of  approximately  $353,000  of
interest as permitted by the terms of the Senior Notes. In addition, the Company
issued  342,667 shares of common stock on November 19 and December 30, 1997 upon
the conversion of approximately  $1,059,000 in principal of the Senior Notes. As
a negotiated  transaction with sophisticated  investors not involving any public
offering,  the sale of the Senior  Notes,  the  issuance of common  stock in the
payment of interest  and the  issuance of common  stock upon  conversion  of the
Senior Notes was exempt under  Section 4(2) of the  Securities  Act of 1933,  as
amended (the "Securities Act") and Regulation D thereunder.

On December 8, 1997, NaPro closed a private  placement of 5,000 shares of Series
C Senior Convertible Preferred Stock (the "Series C Preferred") for an aggregate
issuance  price of $5 million.  The Series C Preferred was sold to an investment
limited partnership.  The Series C Preferred is convertible into common stock at
a 5%  discount  from the  average of the lowest  closing  trade  prices to occur
during the 15 trading days  immediately  preceding  the  conversion  date. As an
issuance to a single sophisticated  investors not involving any public offering,
the  sale of the  Series  C  Preferred  was  exempt  under  Section  4(2) of the
Securities Act and Regulation D thereunder.


                                                     - 20 -

<PAGE>


                                                      Item 6

                                              Selected Financial Data

The  selected  financial  data  presented  below for each year in the five years
ended December 31, 1997, are derived from NaPro's  financial  statements,  which
have been audited by Ernst & Young LLP, independent auditors,  and are qualified
by reference to such Financial  Statements and Notes thereto. The data presented
below should be read in conjunction with the consolidated  financial  statements
at  December  31,  1997 and 1996 and for each of the three  years in the  period
ended December 31, 1997, the related Notes thereto, "Management's Discussion and
Analysis of Financial  Condition and Results of Operations"  and other financial
information included elsewhere in this Report.
<TABLE>
<CAPTION>


                                                                                        Year Ended December 31,
                                                       1997         1996         1995         1994         1993
                                                       ----         ----         ----         ----         ----
                                                                                        (In thousands, except per share data)
<S>                                                  <C>           <C>           <C>         <C>          <C>

Statement of Operations Data:
Revenue:
     Sales of products                               $  3,814      $  3,473      $ 2,623     $ 1,002      $ 1,248
     Other                                                 -            -            -             5            1
                                                  ------------ ------------  -----------  -----------  ----------
          Total revenue                                 3,814        3,473        2,623        1,007        1,249

Operating Expense:
     Research, development and cost of products sold   11,769        6,837        4,325        2,707        3,505
     General and administrative                         5,851        3,739        2,310        2,044        2,690
     Faulding royalty                                      -            -            -         1,000           -
     Plantation cost                                       -            -           272        1,238            7
                                                -------------- ------------    ---------     --------  ----------
          Total operating expense                      17,620       10,576        6,907        6,989        6,202
                                                   -----------    ---------    ---------     --------    --------
Operating loss                                        (13,806)      (7,103)      (4,284)      (5,982)      (4,953)
Other income (expense):
     Interest Income                                      494          651          373          188           79
     Interest and other expense                        (2,161)        (373)        (160)        (340)         (34)
                                                   -----------   ----------    ---------   ----------   ----------
Loss before extraordinary item                        (15,473)      (6,825)      (4,071)      (6,134)      (4,908)
Loss on early extinguishment of debt                       -            -            -          (512)          -
                                                ---------------------------  -----------   ----------  ---------
Net loss                                              (15,473)     $(6,825)     $(4,071)     $(6,646)     $(4,908)
                                                    ==========     ========     ========     ========     ========
Loss per share:
     Before extraordinary item                      $   (1.28)    $  (0.68)     $ (0.51)     $ (0.91)     $ (0.79)
     Extraordinary item                                    -            -            -         (0.08)          -
                                                 --------------------------  -----------    ---------  ---------
     Net loss                                       $   (1.28)    $  (0.68)     $ (0.51)     $ (0.99)       (0.79)
                                                    ==========    =========     ========     ========     ========
Weighted average shares outstanding                    12,104        9,973        7,973        6,761        6,201
                                                     =========    =========     ========     ========     =======



                                                                                        Year Ended December 31,
                                                        1997         1996        1995         1994         1993
                                                        ----         ----        ----         ----         ----
                                                                                        (In thousands)
Balance Sheet Data:
Cash, cash equivalents and short-term securities     $  8,102      $14,767     $  7,800      $ 1,400     $     18
Working capital                                        (2,485)      14,224        8,453        3,169         (435)
Total assets                                           30,358       25,021       11,953        4,976        2,120
Long-term obligations, net of current maturities          480          751        1,618        1,273        1,435
Senior convertible redeemable preferred stock           4,344           -            -            -            -
Minority interest                                       2,574        3,715        3,715           -            -
Accumulated deficit                                   (40,998)     (25,525)     (18,700)     (14,629)      (7,983)
Stockholder's equity (deficit)                          7,262       16,569        5,424        3,037         (944)
</TABLE>


                                                     - 21 -

<PAGE>



                                                      Item 7

               Management's Discussion and Analysis of Financial Condition and
                                      Results of Operations

The following  discussion and analysis  provides  information  which  management
believes  is  relevant  to an  assessment  and  understanding  of the results of
operations  of NaPro  BioTherapeutics,  Inc.  (together  with its  subsidiaries,
"NaPro").  This  discussion  should be read in  conjunction  with the  Financial
Statements and Notes included  elsewhere in this Report.  Special Note:  Certain
statements set forth below constitute  "forward-looking  statements"  within the
meaning  of  the  Reform  Act.  See  "Special  Note  Regarding  Forward  Looking
Statements."


General

NaPro is a natural product pharmaceutical company which is focusing primarily on
the   development,   manufacture   and   commercialization   of  paclitaxel,   a
naturally-occurring  anti-cancer  agent found in certain  species of yew (Taxus)
trees. NaPro's paclitaxel is referred to herein as "NBT Paclitaxel."

NaPro has devoted its efforts primarily to the development and implementation of
its propriety  extraction,  isolation and purification  (EIP(TM)) technology for
producing NBT paclitaxel.  To advance the development and  commercialization  of
NBT Paclitaxel,  NaPro entered into 20-year,  exclusive  agreements with each of
F.H.  Faulding & Co., Ltd.  ("Faulding")  and IVAX  Corporation  (including  its
subsidiaries,  "IVAX")  for  the  clinical  development,  sales,  marketing  and
distribution  of NBT  Paclitaxel.  NaPro and IVAX  entered  into an agreement on
March 20, 1998 (the "Termination  Agreement")  terminating their development and
marketing  relationship , and NaPro is actively  seeking one or more partners to
replace IVAX. NaPro is currently  dependent for revenue  exclusively on sales of
NBT Paclitaxel,  on royalties from licenced technology and amounts due under the
Termination Agreement.

Through  December 31, 1997,  NaPro's  production of NBT  paclitaxel  was limited
primarily to research and  pilot-scale  production,  and much of NaPro's product
sales were for use in clinical trials and for research and development purposes.
Accordingly,  NaPro has generated only limited  revenue from such activities and
has  incurred  significant  operating  losses,  including  operating  losses  of
approximately  $13.8 million,  $7.1 million and $4.3 million for the years ended
December  31, 1997,  1996 and 1995,  respectively,  resulting in an  accumulated
deficit of $41.0  million as of December  31, 1997.  NaPro  expects that it will
continue to have a high level of operating  expense and will be required to make
significant  up-front  expenditures in connection with its biomass  procurement,
product development and research and development  activities.  NaPro anticipates
that  operating  losses will continue until such time, if ever, as NaPro is able
to generate sufficient revenue to support its operations.

NaPro  believes that its ability to generate such revenue  depends  primarily on
the ability to obtain  regulatory  approval in the U.S. or another  major market
for  the  commercial  sale of NBT  paclitaxel,  on  NaPro's  ability  to  obtain
regulatory  approval for its manufacturing  facilities and on NaPro's ability to
construct  manufacturing  facilities  that produce  quantities of NBT Paclitaxel
sufficient to supply NaPro's  strategic  partners'  requirements  for commercial
sales.

In  January  1995,   Faulding   received   approval  to  market  NBT  paclitaxel
commercially  in  Australia  under the trade name  ANZATAX(TM).  The ability of
Faulding  to  continue  to  market  NBT  paclitaxel  in  Australia  pursuant  to
Faulding's  marketing  approval and the success of these marketing  efforts will
continue to have a significant effect on NaPro's revenue and profitability.


                                                     - 22 -

<PAGE>


In February 1997,  Bristol-Myers Squibb Company ("BMS") submitted a Supplemental
New Drug  Application  with  orphan  drug  designation  for  paclitaxel  for the
treatment of Kaposi's  sarcoma  ("KS") ahead of the filing by IVAX of a New Drug
Application ("NDA") for the same indication. The BMS application was approved by
the Food and Drug  Administration  ("FDA") in August 1997. Under the Orphan Drug
Act of 1983,  this  approval  resulted  in  IVAX/NaPro  being  denied  marketing
approval for the KS indication for seven years.

In  February  1998,  due  to the  delay  in  receiving  marketing  approval  for
paclitaxel,  NaPro underwent a restructuring to decrease overall costs.  NaPro's
total number of employees will be reduced to 53, resulting in a 43% reduction in
full time  positions and an estimated  annual savings of $2.8 million in payroll
expense.  This  decrease in payroll  expense  will be  reflected  in general and
administrative,  as well as  research  and  development  expense.  In  addition,
non-payroll  expenses  are  also  expected  to  decrease  as the  result  of the
restructuring.   As  part  of  this  restructuring,   the  Company  discontinued
operations at its British Columbia manufacturing facility. This restructuring is
expected to produce annualized savings in personnel costs of about $2.8 million.
As part of the  restructuring,  NaPro  temporarily  closed its British  Columbia
manufacturing  facility  and  suspended  construction  of its  commercial  scale
manufacturing facility in Boulder, Colorado.  Completion of the Boulder facility
will require  additional  financing,  which the Company  intends to seek at such
time as NaPro foresees  sufficient  product demand to warrant  completion of the
facility.

In  March  1998,  NaPro  and  IVAX  entered  into  the  Termination   Agreement.
Termination of the IVAX Agreement leaves NaPro free to seek regulatory approvals
and market NBT Paclitaxel itself or to seek a new partner or partners with which
to pursue regulatory  approvals and marketing of NBT Paclitaxel,  in either such
case in areas outside the Faulding  territory.  However,  the termination of the
IVAX Agreement  currently leaves NaPro without such a partner,  and there can be
no  assurance  that  NaPro  will be able to secure  such  approvals  or form new
long-term  relationships  for the approval,  marketing,  and distribution of NBT
paclitaxel in these areas,  or that NaPro or such a partner,  if found,  will be
able  to  effectively   market  NBT   Paclitaxel.   NaPro's  future  growth  and
profitability  will  depend on the  success of  NaPro's  strategic  partners  in
fostering  acceptance in the oncology  market for NBT  Paclitaxel as a preferred
form  of   chemotherapy   to  be  used  alone  or  in  combination   with  other
chemotherapeutic agents.

Results of Operations

Year Ended  December 31, 1997 Compared to Year Ended  December 31, 1996 Revenue.
There were no sales to affiliate  for 1997.  Such sales for 1996 were  $600,000.
Sales to affiliate  were to IVAX,  which was not an affiliate in 1997.  Sales to
IVAX for 1997 were $2.3 million and are  included in other sales.  Sales to IVAX
are  expected to increase  substantially  in 1998;  however,  as a result of the
Termination  Agreement,  such sales are expected to end soon thereafter.  Future
product  sales in  territory  outside  that  covered by NaPro's  agreement  with
Faulding (the "Faulding  Agreement")  may be dependant upon the ability of NaPro
to secure  new  agreements  supporting  the  development  and  marketing  of NBT
Paclitaxel  within that  territory.  Sales other than to IVAX for 1997 were $1.5
million, representing a decrease of $1.3 million from 1996. Total sales for 1997
were $3.8 million,  up $300,000 from 1996. The increase was due primarily to the
timing of product  shipments and to inventory  fluctuations of NaPro's strategic
partners.  Shipments  to  NaPro's  strategic  partners  may  vary  significantly
depending on a number of factors,  including the timing and size of any clinical
trials,  the level of inventory  carried and changes in approved  markets.  This
variability  will continue until stable  commercial  demand has been established
for the product in one of NaPro's principal markets.


                                                     - 23 -

<PAGE>


Research,  Development  and Cost of  Products  Sold.  Research  and  development
expense and cost of products sold for 1997 was $11.8  million,  representing  an
increase  of $4.9  million  from 1996.  The  increase  resulted  primarily  from
expansion of NaPro's  development  and research  operations in  anticipation  of
possible  approval  of the NDA  filed by IVAX with the FDA.  NaPro's  production
process  is  not  distinct   from  its  research  and   development   processes.
Accordingly,  the cost of products  sold is included  with NaPro's  research and
development expense.

General and Administrative Expense.  General and administrative expense for 1997
was $5.9  million,  an  increase  of $2.2  million  from 1996.  The  increase is
attributable  primarily  to  increases  of $1.1  million in  administrative  and
support  staff,  $500,000 in legal  costs,  $100,000  of  occupancy  costs,  and
$400,000 in consulting and outside service expense.

Interest Income.  Interest income for 1997 was $500,000,  a decrease of $200,000
from 1996. The decrease is attributable to smaller free cash balances  available
for investment. See "Liquidity and Capital Resources."

Interest  and  Other  Expense.  Interest  and  other  expense  for 1997 was $2.2
million,  representing an increase of $1.8 million from 1996. Approximately $1.1
million  of the 1997  expense  related to the  amortization  of  original  issue
discount, a non-recurring  charge, on the senior convertible debt. The remainder
of the increase is attributable to interest on the senior  convertible  debt and
increased  borrowing  on  equipment   financing.   See  "Liquidity  and  Capital
Resources."

Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Revenue.  Sales to affiliate  increased  $100,000 to $700,000 for 1996. Sales to
affiliate were to IVAX. Other sales increased  $800,000 to $2.8 million for 1996
from $2 million for 1995. Total revenue  increased  $900,000 to $3.5 million for
1996 from $2.6 million for 1995.  Through  December  31,  1995,  the majority of
product  sales  had  been  for  use in  clinical  trials  and for  research  and
development purposes.

Research,  Development and Cost of Products Sold. Research, development and cost
of  products  sold  increased  $2.5  million to $6.8  million for 1996 from $4.6
million for 1995.  The increase was due primarily to an increase in the level of
process development and research, including higher production cost due to higher
production  volume.  This was offset by  plantation  fees which  decreased  from
$300,000 in 1995 to zero,  reflecting  the  completion  of  research  related to
plantation   development  as  of  December  31,  1995.  In  1996,   NaPro  began
capitalizing  plantation  expenditures  incurred  prior to the first  commercial
harvest  and  depletes  such  cost  over the  remaining  life of the  plantation
contract using the units-of-production method.

General and Administrative Expense. General and administrative expense increased
$1.4 million to $3.7 million for 1996 from $2.3 million for 1995.  This increase
was  due  primarily  to  an  increase  in  facility  cost  and  an  increase  in
administrative and support staff.

Interest Income.  Interest income  increased  $300,000 to $700,000 for 1996 from
$400,000 for 1995.  This  increase  was the result of larger free cash  balances
associated  with the  completion  of NaPro's  offering of Common Stock in August
1996 and its warrant call  completed in June 1996.  See  "Liquidity  and Capital
Resources."

Interest and Other  Expense.  Interest and other expense  increased  $300,000 to
$400,000 for 1996 from  $100,000 for 1995.  The  increase  was  attributable  to
interest on increased borrowings on the equipment lease line and note payable to
Faulding. See "Liquidity and Capital Resources."


                                                     - 24 -

<PAGE>


Liquidity and Capital Resources

NaPro's capital  requirements have been and will continue to be significant.  As
of December 31, 1997,  NaPro had a negative  working  capital  balance of $(2.5)
million.  This  compared  to a working  capital  balance of $14.2  million as of
December 31, 1996,  and reflects the  classification  as a current  liability of
$9.2 million of NaPro's senior convertible notes (the "Senior Notes"), which are
due in 2000 but redeemable by the holders during 1998 under certain  conditions.
To date,  the  funding  of  NaPro's  capital  requirements  has  been  dependent
primarily  on the net  proceeds  of  public  offerings  of its  common  stock of
approximately  $21.1 million,  on private placements of its equity securities of
approximately  $27.8  million,  on the  exercise of warrants and options of $5.6
million, on net borrowings of $11.8 million,  and on loans and advances from its
stockholders and strategic partners.

NaPro raised  approximately  $15 million in 1997 through the sale of convertible
securities.  The net proceeds from the sale of these  securities,  combined with
licensing fees associated with the Termination  Agreement  ranging from $6 to 12
million are expected to provide adequate capital to fund its 1998 operations and
capital expenditures.  Pharmaceutical development is, however, a costly and time
consuming  process.  NaPro  is  actively  pursuing  partners  to  assist  in the
development and marketing of its products, and may seek other forms of long-term
financing should such financing become available on acceptable terms.

In June 1997,  NaPro  privately  placed $10.3 million of the Senior  Notes.  The
Senior Notes  mature in June 2000 and bear an interest  rate of 5%. The interest
on the Senior  Notes is payable  either in cash,  or in NaPro common  stock,  at
NaPro's option.  The Senior Notes are convertible into common stock at discounts
(ranging  from 5% to 10%)  from the  market  price of the  common  stock  during
specified periods prior to the conversion.  If not converted, upon maturity, the
Senior Notes will be exchanged for 13.75% 5-year debentures. The net proceeds of
the Senior Notes totaled $9.5 million after the placement agent's fees and other
offering cost.  Under the original terms of the Senior Notes, the holders of the
Senior Notes are entitled to require partial  redemption of the notes in certain
circumstances,  including  significant  declines  in the  market  value of NaPro
common stock. In January 1998 NaPro redeemed $397,000 in principal of the Senior
Notes  and  paid  $53,000  premium  and  interest  in  connection  with  such  a
redemption.

In December 1998,  NaPro closed a private  placement of 5,000 shares of Series C
Senior  Convertible  Preferred Stock (the "Series C Preferred") for an aggregate
issuance price of $5 million. The Series C Preferred accrues dividends at 5% per
year payable in common stock or cash at NaPro's  option.  The Series C Preferred
is convertible into common stock at a 5% discount from the average of the lowest
closing trade prices to occur during the 15 trading days  immediately  preceding
the conversion date. Under certain circumstances the investor can cause NaPro to
redeem a portion of the Series C Preferred.  At December  2000,  NaPro may force
the conversion of any remaining  shares at the conversion  price in effect as of
December 8, 2000.

In January  1998,  NaPro entered into  amendments  (the  "Amendments")  with the
holder of the  Series C  Preferred  and the  holders  of the  Senior  Notes (the
"Investors").  The parties agreed to, over the period through December 31, 1998:
(i) limit the number of shares  which could be  converted in the event the stock
price is below $4.00 per share to no more than 450,000 shares per month and (ii)
suspend the ability of the Investors to force NaPro to redeem any portion of the
securities for cash. In the event there is an  unconverted  amount of securities
outstanding  on January 1, 1999,  such amount will be  convertible in accordance
with the original  terms of the  agreements.  The  Amendments  require  NaPro to
propose for approval by its stockholders,  at a meeting to be held no later than
June 1, 1998,  an  amendment  to its  Certificate  of  Incorporation  that would
increase  its  authorized  number of shares of common  stock and a  proposal  to
permit  the  issuance  of  common  stock in excess  of 20% of the  common  stock
outstanding at the dates of original


                                                     - 25 -

<PAGE>


issuance of the Series C Preferred  and the Senior Notes upon  conversion of the
Series C Preferred and the Senior Notes,  respectively.  If stockholder approval
for those matters is not obtained,  the Amendments will terminate and in certain
circumstances  the holders of the Series C Preferred  and the Senior Notes would
have the right to  require  NaPro to redeem  any  inconvertible  portion  of the
Series C Preferred and the Senior Notes, respectively. NaPro intends to seek the
stockholder approvals required by the Amendment. While there can be no assurance
that such approvals will be obtained, NaPro believes it to be in the interest of
stockholders that such approvals be given.

In March 1998,  NaPro and IVAX entered  into the  Termination  Agreement,  which
terminated  their  development  and  marketing  relationship.  IVAX  paid  NaPro
approximately  $6.0  million  pursuant to the  Termination  Agreement,  and IVAX
received  a  royalty-free  limited,  non-exclusive  license  for one of  NaPro's
pending patents (the "Pending Patent") in the United States,  Europe and certain
other  markets.  Another  $6.4 million in  additional  payments is to be paid to
NaPro  contingent upon the issuance of the Pending Patent in various  countries.
While there can be no assurance these issuance will occur,  NaPro believes it is
highly  probable that they will do so. In addition,  IVAX will transfer to NaPro
within 5 days of NaPro  filing its 1997  Annual  Report on Form 10-K,  1,126,398
shares of NaPro common stock currently owned by IVAX. NaPro is actively pursuing
another strategic partner, or partners, to assist in the regulatory approval and
marketing  of NBT  Paclitaxel  in the U.S.  and other  areas not  covered by the
Faulding Agreement.

Working Capital and Cash Flow Cash and cash  equivalents  decreased $1.4 million
to $8.1  million  for the year  ended  December  31,  1997 from $9.5  million at
December 31, 1996. Net cash provided by 1997 financing activity and from the net
proceeds  from  investments  was  partially  offset  by  $10.4  million  used in
operating activities and by capital expenditures of $11.6 million.

Inventory  increased $2.0 million to $4.3 million in the year ended December 31,
1997 from $2.3  million at  December  31,  1996.  The amount of product  held as
finished goods equivalents in  work-in-progress  inventories as well as finished
goods  inventories  is dependent on a number of factors,  including the shipping
requirements of NaPro's strategic partners and NaPro's  production  planning for
meeting those needs.  Inventory balances may vary  significantly  during product
development and launch periods.  NaPro made  significant  investments in biomass
and work-in-process in anticipation of the commencement of commercial production
if the DNA filed with the FDA had been approved.

Capital  Expenditures  NaPro  expended  $11.6  million  during  1997 for capital
projects.  These expenditures  primarily included plantation cost, work on a new
large scale commercial EIP(TM) manufacturing  facility in Boulder, and expansion
and improvement to NaPro's Boulder laboratories and facilities.

Due to the FDA's  determination that NBT Paclitaxel could not be marketed in the
U.S.  during BMS's period of  exclusivity  under the Orphan Drug Act,  NaPro has
significantly  reduced  the scope of its  operations  and has  reduced  or delay
capital  expenditures.  NaPro is seeking a new strategic  partner or partners to
replace IVAX. The nature of NaPro's relationship with its strategic partners may
change significantly its planned capital expenditures.

The amount and timing of future capital  expenditures  will depend upon numerous
factors,  including the progress of NaPro's  research and development  programs,
the magnitude  and scope of these  activities,  the cost of  preparing,  filing,
prosecuting,  maintaining  and enforcing  patent  claims and other  intellectual
property rights, competing technological and marketing developments,  changes in
or  terminations  of existing  strategic  relationships,  the  establishment  of
additional strategic relationships and the cost of manufacturing scale-up. NaPro
may seek additional long-term financing to fund capital expenditures should such
financing become available on terms acceptable to NaPro.


                                                     - 26 -

<PAGE>


Net  Operating  Loss  Carryforwards  As of  December  31,  1997,  NaPro  had net
operating  loss  carryforwards  for income tax  purposes  of  approximately  $35
million to offset  future  taxable  income.  Under  Section 382 of the  Internal
Revenue  Code of  1986,  as  amended,  the  utilization  of net  operating  loss
carryforwards is limited after an ownership  change,  as defined in such Section
382,  to an  annual  amount  equal  to  the  value  of  the  loss  corporation's
outstanding stock immediately before the date of the ownership change multiplied
by the  federal  long-term  tax-exempt  rate in  effect  during  the  month  the
ownership change occurred.  Such an ownership change occurred in September 1993.
As a result, NaPro will be subject to an annual limitation on the use of its net
operating losses.  This limitation only affects net operating losses incurred up
to the  ownership  change and does not reduce the total amount of net  operating
loss which may be taken, but rather limits the amount which may be used during a
particular  year.  Therefore,  in the event NaPro achieves  profitability,  such
limitation  would  have the  effect of  increasing  NaPro's  tax  liability  and
reducing  the net income and  available  cash  resources of NaPro if the taxable
income during a year exceeded the allowable loss carried forward to that year.

Year 2000 NaPro has determined  that there no material year 2000 issues with its
own management  information system and that is unlikely there will be any issues
with its vendors that would have a material effect upon it.

Special Note Regarding Forward-looking Statements

Certain statements in this report constitute "forward-looking statements" within
the meaning of the federal securities laws. In addition, NaPro or persons acting
on its behalf  sometimes  make  forward-looking  statements in other written and
oral communications.  Such forward-looking  statements may include,  among other
things,  statements  concerning  NaPro's plans,  objectives and future  economic
prospects, such as matters relative to seeking and obtaining strategic partners;
the availability of patent and other  protection for its intellectual  property;
the completion of clinical trials and regulatory filings;  the prospects for and
timing of  regulatory  approvals;  the need for and  availability  of additional
capital;  the  amount and timing of  capital  expenditures;  timing of  products
introductions  and revenue;  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 the
actual results, performance or achievements of NaPro, 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:  adverse  economic  and  general  business
conditions;  competition  from  BMS and  other  existing  and new  producers  of
paclitaxel and other drugs;  technological advances in cancer treatment and drug
development;  the ability to obtain rights to technology;  the ability to obtain
and enforce  patents;  the  ability to obtain raw  materials  and  commercialize
manufacturing   processes;   the  effectiveness  of  NBT  Paclitaxel  and  other
pharmaceuticals  developed by NaPro in treating disease; the results of clinical
studies;  the results of  research  and  development  activities;  the  business
abilities  and  judgment  of  NaPro's   management  and  other  personnel;   the
availability of qualified  personnel  generally;  changes in and compliance with
governmental  regulations;  the effect of capital  market  conditions  and other
factors on capital availability for NaPro and other biopharmaceutical companies;
the ability of Faulding to perform its obligations under its existing  agreement
with  NaPro;  the  ability  of NaPro to  establish  relationships  with  capable
strategic  partners to develop and market NBT Paclitaxel in the  territories not
covered by the Faulding Agreement and other factors referenced in this Report.



                                                     - 27 -

<PAGE>


                                                      Item 8

                                    Financial Statements and Supplementary Data

The information required by this item begins at Page F-1.


                                                      Item 9

                                   Changes in and Disagreements with Accountants

None


                                                     Part III

                                                      Item 10

                                         Directors and Executive Officers

The  information   concerning   NaPro's  directors  and  executive  officers  is
incorporated by reference to the section entitled "Election of Directors" in the
Company's definitive Proxy Statement with respect to NaPro's 1998 Annual Meeting
of Stockholders (the "Proxy Statement").


                                                      Item 11

                                              Executive Compensation

The  section  labeled  "Executive   Compensation"  appearing  in  NaPro's  Proxy
Statement is incorporated  herein by reference,  except for such  information as
need not be incorporated by reference under rules  promulgated by the Securities
and Exchange Commission.


                                                      Item 12

                  Security Ownership of Certain Beneficial Owners and Management

The section labeled "Security  Ownership of Directors and Executive Officers and
Certain  Beneficial Owners" appearing in NaPro's Proxy Statement is incorporated
herein by reference.


                                                      Item 13

                                  Certain Relationships and Related Transactions

The section labeled "Certain  Relationships and Related Transactions"  appearing
in NaPro's Proxy Statement is incorporated herein by reference.


                                                     - 28 -

<PAGE>



                                                      Part IV

                                                      Item 14

                Exhibits, Financial Statement Schedules, and Reports on Form 8-K

Financial Statements

The Financial Statement Index is found on Page F-1.

Financial Statement Schedules

All  schedules  are omitted  because they are not  applicable or not required or
because the information is included in the consolidated  financial statements or
the notes thereto.


Exhibits and Reports on Form 8-K

NaPro filed a December 24, 1997 Current  Report on Form 8-K reporting  tentative
approval of the IVAX NDA and the resignations of Messrs.  Bewkes and Bryson from
the Company's  Board of Directors,  a January 6, 1998 Current Report on Form 8-K
reporting an  Agreement in Principle  between the Company and the holders of the
5% Senior  Convertible Notes and the Series C Convertible  Preferred Stock and a
January 28, 1998 Current  Report Form 8-K reporting  amendments  with respect to
the 5% Senior Convertible Notes and the Series C Convertible Preferred Stock.

<TABLE>
<CAPTION>

Exhibit
Number            Description of Exhibit
<S>      <C>

3.1      Amended and Restated Certificate of Incorporation of the Company, as  amended August 2,
         1996 (1)

3.2      Certificate of Designation for Convertible Preferred Stock, Series A (2)

3.3      Certificate of Designation for Series B Junior Participating Preferred Stock (3)

3.4      Certificate of Designation of Series C Senior Convertible Preferred Stock (4)

3.5      Bylaws of the Company (5)

4.1      Common Stock Certificate (5)

4.2      Underwriter's Warrant Agreement (5)

4.3      Warrant Agreement (5)

4.4      Warrant Certificate (5)

4.5      Rights Agreement dated as of November 8, 1996 between NaPro BioTherapeutics, Inc. and
         American Stock Transfer and Trust Company, as Rights Agent (9)

4.6      The Certificate of Incorporation and Bylaws of the Company are included as Exhibits 3.1 - 3.5.

10.1*    Company's 1993 Stock Option Plan (5)

10.2*    Company's 1994 Long-Term Performance Incentive Plan, as amended July 30, 1996 (1)

10.3     Common Stock Warrant dated as of June 7, 1993 between the Company and Broadmark
         Capital Corporation (5)

10.4     Stock Purchase Warrant dated as of June 7, 1993 between the Company and Arthur D.
         Harrison (5)

10.5     Stock Purchase Warrant dated as of June 7, 1993 between the Company and D&N Holding
         Company (5)


                                                     - 29-

<PAGE>


10.6     Stock Purchase Warrant dated as of June 7, 1993 between the Company and Kirkland & Ellis
         (5)

10.7     Stock Purchase Warrant dated as of December 15, 1992 between the Company and Kirkland &
         Ellis (5)

10.8     Stock Purchase Warrant dated as of June 3, 1992 between the Company and Herbert L Lucas
         (5)

10.9     Stock Purchase Warrant dated as of June 3, 1992 between the Company and H.J. Meyers &
         Co., Inc (5)

10.10    Stock Purchase Warrant dated as of June 3, 1992 between the Company and
         Freshman, Marantz, Orlanski, Cooper, and Klein 1993 Investments (5)

10.11    Stock Purchase Warrant dated as of April 30, 1993 between the Company and Pacific
         Regeneration Technologies, Inc. (5)

10.12    Registration Agreement dated as of June 7, 1993 by and among the Company, D&N Holding
         Company, Sterling K. Ainsworth, Patricia A. Pilia, Leonard P. Shaykin, and Lawrence
         Helson (5)

10.13    Amended and Restated Stockholders Agreement dated as of May 31, 1994 by and among the
         Company, D&N Holding Company, Sterling K. Ainsworth, Patricia A. Pilia, Leonard P.
         Shaykin, and Lawrence Helson (5)

10.14    Amended and Restated Employment and Executive Stock Agreement dated as of June 7,  1993
         and amended and restated as of May 31, 1994 between the Company and Leonard P. Shaykin
         (5)

10.15*   Amended and Restated  Employment and Executive Stock Agreement dated as of June 7, 1993
         and amended and restated as of May 31, 1994 between the Company and
         Sterling K.  Ainsworth (5)

10.16*   Amended and Restated  Employment and Executive Stock Agreement dated as of June 7, 1993
         and amended and restated as of May 31, 1994 between the Company and
         Patricia A. Pilia (5)

10.17*   Amended and Restated  Employment and Executive Stock Agreement dated as of June 7, 1993
         and amended and restated as of May 31, 1994 between the Company and
         Lawrence Helson (5)

10.18*   Company's Stock Option Agreement with Sterling K. Ainsworth (5)

10.19*   Company's Stock Option Agreement with Patricia A. Pilia (5)

10.20    Services and Supply Agreement dated as of December 1, 1993 between the Company and
         Pacific BioTechnologies Inc. (5)

10.21    Subscription Agreement dated as of April 29, 1993 between the Company and Pacific
         Regeneration Technologies (5)

10.22    Amended and Restated Master Agreement dated as of January 19, 1994 between the Company
         and F.H. Faulding & Co., Ltd. (5)

10.23    Amendment No. 1 To Amended and Restated Master Agreement Dated January 19, 1994,
         executed as of March 23, 1995 (6)

10.24    Agreement dated as of June 7, 1993 between the Company and Baker Norton Pharmaceuticals,
         Inc. (5)

10.25    Lease dated February 28, 1995 between the Company and the Mutual Life of Canada (2)

10.26    Subscription Agreement and Investment Letter between the Company and NaPro
         BioTherapeutics (Canada), Inc. (2)

10.27    Put/Call Agreement dated July 12, 1995 between the Company and the Purchasers of Series A
         Preferred Shares of NaPro BioTherapeutics (Canada) Inc. (2)

10.28    Side Letter dated July 21, 1995 to Put/Call Agreement (2)

10.29    Lease between the Company and Gunbarrel Facility L.L.C. dated October 16, 1995 (7)

10.30    First Amendment to Lease November 27, 1995, between the Company and Gunbarrel Facility
         L.L.C. (7)

10.31    Agreement between the Company and Pacific BioTechnologies Inc. dated March 29, 1996 (7)

10.32    Culture Agreement dated March 1, 1996 between Zelenka Nursery, Inc. ("Zelenka") and the
         Company (8)

10.33    Agreement for Sale, Harvest and Storage of Nursery Stock dated May 1, 1996 between
         Zelenka and the Company (8)

10.34    Culture Agreement dated as of March 1, 1997 between Zelenka and the Company (1)


                                                     - 30-

<PAGE>


10.35    Lease Agreement dated as of March 1, 1997 between Zelenka and the Company (1)

10.36    Agreement for Sale, Harvest and Storage of Nursery Stock dated as of March 1, 1997 between
         Zelenka and the Company (1)

10.37    Form of Note Purchase Agreement, dated as of June 4, 1997 between NaPro and each of the
         Selling Stockholders (10)

10.38    Form of 5% Senior Convertible Note (10)

10.39    Form of Common Stock Purchase Warrant (10)

10.40    Pledge and Security  Agreement  dated as of June 4, 1997 between  NaPro
         and First Trust of New York, National Association,  as Collateral Agent
         (10)

10.41    Consulting agreement dated July 2, 1997 between NaPro and Life Science Advisors, LLP. (11)

10.42    Subscription Agreement between the Company and Advantage Fund II, Ltd., as to Series C
         Senior Convertible Preferred Stock (4)

10.43    Common Stock Purchase Warrant between the Company and Advantage Fund II, Ltd. (4)

10.44    Amendment Agreement, dated as of January 28, 1998, by and among the Company and the
         noteholders names therein (12)

10.45    Amendment Agreement, dated as of January 28, 1998, by and between the Company and
         Advantage Fund II, Ltd. (12)

10.46    Termination Agreement dated as of March 20, 1998 among the Company, IVAX Baker Norton
         Pharmaceuticals, Inc. ("BNP") and D&N Holding Corporation ("D&N") (14)

10.47    Escrow Agreement dated as of March 24, 1998 by and between the Company, BNP and U.S.
         Bank National Association d/b/a Colorado National Bank (14)

10.48    Letter  Agreement,  dated March 20,  1998,  by and between the Company,
         Leonard P Shaykin and D&N (14)

10.49    NaPro Release dated as of March 20, 1998 (14)

10.50    IVAX, BNP and D&N Release dated as of March 20, 1998 (14)

21.1     List of Subsidiaries.(13)

23.1     Consent of Ernst & Young LLP

24.1     Powers of Attorney

27.1     Financial Data Schedule

--------------------------------------------------------------
*A management compensation plan.

(1)      Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year
         ended December 31, 1996 (File No.  0-24320).
(2)      Incorporated herein by reference from the Company's Quarterly Report on Form  10-Q filed
         with the Commission for the quarter ended June 30, 1995 (File No.  0-24320).
(3)      Incorporated herein by reference from the Company's November 8, 1996 Current Report Form
         8-K (File No. 0-24320).
(4)      Incorporated herein by reference to the Company's Registration Statement on Form S-3, filed
         on December 16, 1997 (File No. 333-42419).
(5)      Incorporated herein by reference from the Registration Statement on Form S-1 of the
         Company, filed with the Commission on July 24, 1994 (File No. 33-78016).
(6)      Incorporated herein by reference from the Company's Annual Report on Form 10-K for the
         year ended December 31, 1994 (File No. 0-24320).
(7)      Incorporated herein by reference from the Company's Annual Report on Form 10-K for the
         year ended December 31, 1995 (File No. 0-24320).
(8)      Incorporated herein by reference from the Registration Statement on Form S-1 of the Company
         filed with the Commission on August 1, 1996 (File No. 333-3051).


                                                     - 31-

<PAGE>



(9)      Incorporated herein by reference to the Company's Current Report on Form 8-K, dated
         November 8, 1996 (File No. 0-24320).
(10)     Incorporated herein by reference to the Company's Quarterly Report on Form 10-Q for the
         period ending June 30, 1997 (File No. 0-24320).
(11)     Incorporated herein by reference to the Company's Quarterly Report on Form 10-Q for the
         period ending September 30, 1997 (File No. 0-24320).
(12)     Incorporated herein by reference to the Company's Current Report on Form 8-K, dated
         January 28, 1998 (File No. 0-24320).
(13)     Incorporated herein by reference from the Registration Statement of the Company on Form
         S-1, filed with the Commission on May 20, 1996 (File No. 33-78016).
(14)     Incorporated  herein by reference to the  Company's  Current  Report on
         Form 8-K, dated March 20, 1998 (File No.0-24320).
</TABLE>

                                                     - 32-

<PAGE>


                                                    Signatures

Pursuant to Section 13 of the Securities Exchange Act of 1934, NaPro caused this
report to be signed on its behalf.
                                            NAPRO BIOTHERAPEUTICS, INC.
<TABLE>
<CAPTION>
<S>                                            <C>                                                  <C>

/s/ Sterling K. Ainsworth
Sterling K. Ainsworth, Ph.D                    President, Chief                                     March 30, 1997
                                               Executive Officer; Director

Pursuant to the Exchange Act, this report has been signed on behalf of NaPro and
in the capacities indicated.

              *                                Chairman of the Board of                             March 30, 1997
Leonard P. Shaykin                             Directors

/s/ Sterling K. Ainsworth                      President, Chief                                     March 30, 1997
Sterling K. Ainsworth,                         Ph.D  Executive Officer; Director

/s/ Gordon H. Link, Jr.                        Vice President, Chief                                March 30, 1997
Gordon H. Link, Jr                             Financial Officer
                                               (Principal Financial Officer)

/s/ Robert L. Poley                            Controller                                           March 30, 1997
Robert L. Poley                                (Principal Accounting Officer)

              *                                Director                                             March 30, 1997
Arthur H. Hayes, Jr., M.D.

              *                                Director                                             March 30, 1997
Mark B. Hacken

              *                                Director                                             March 30, 1997
Randolph C. Steer

/s/ Patricia A. Pilia                          Director                                            March 30, 1997
Patricia A. Pilia, Ph.D
</TABLE>

*By:/s/ Gordon H. Link, Jr
  Gordon H. Link, Jr., Attorney in Fact

                                                     - 33-

<PAGE>

                  NaPro BioTherapeutics, Inc. and Subsidiaries

                              Financial Statements


                  Years ended December 31, 1997, 1996 and 1995



Index to Financial Statements

Report of Independent Auditors..............................................F-2

Audited Consolidated Financial Statements

Consolidated Balance Sheet..................................................F-3
Consolidated Statement of Operations........................................F-5
Consolidated Statement of Stockholders' Equity..............................F-6
Consolidated Statement of Cash Flows........................................F-9
Notes to Consolidated Financial Statements.................................F-11



                                       F-1

<PAGE>



                         Report of Independent Auditors


The Board of Directors and Stockholders
NaPro BioTherapeutics, Inc.

We  have  audited  the   accompanying   consolidated   balance  sheet  of  NaPro
BioTherapeutics, Inc. and subsidiaries as of December 31, 1997 and 1996, and the
related consolidated  statements of operations,  stockholders'  equity, and cash
flows for each of the three years in the period ended  December 31, 1997.  These
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all  material   respects,   the   consolidated   financial   position  of  NaPro
BioTherapeutics,  Inc., and  subsidiaries at December 31, 1997 and 1996, and the
consolidated  results of their  operations  and their cash flows for each of the
three years in the period ended  December 31, 1997 in conformity  with generally
accepted accounting principles.


ERNST & YOUNG LLP

Denver, Colorado
March 23, 1998

                                       F-2

<PAGE>



                  NaPro BioTherapeutics, Inc. and Subsidiaries

                           Consolidated Balance Sheet
<TABLE>
<CAPTION>



                                                                                        December 31,
                                                                               1997                   1996
<S>                                                                          <C>                   <C>

Assets
Current assets:
       Cash and cash equivalents                                             $ 8,102,000           $ 9,531,000
       Securities available for sale                                                 -               2,669,000
       Securities held to maturity                                                   -               2,567,000
       Accounts receivable                                                     1,508,000               662,000
       Inventory:
              Raw materials                                                      412,000               495,000
              Work-in-process                                                  1,408,000               449,000
              Finished goods                                                   1,302,000             1,337,000
                                                                             -----------          ------------
                                                                               3,122,000             2,281,000
       Prepaid expense and other                                                 481,000               500,000
                                                                            ------------          ------------
Total current assets                                                          13,213,000            18,210,000

Property and equipment, at cost:
       Plantation cost                                                         4,201,000             1,923,000
       Laboratory equipment                                                    3,874,000             2,086,000
       Leasehold improvements                                                  4,478,000             1,151,000
       Office equipment and other                                                673,000               559,000
       Construction in progress                                                4,883,000             1,645,000
                                                                            ------------          ------------
                                                                              18,109,000             7,364,000
       Accumulated depreciation                                                2,922,000             1,352,000
                                                                            ------------          ------------
Property and equipment, net                                                   15,187,000             6,012,000

Restricted cash                                                                  246,000               415,000
Inventory:
       Raw materials                                                             347,000                    -
       Work-in-process                                                           288,000                    -
       Finished goods                                                            541,000                    -
                                                                           -------------     ----------------
                                                                               1,176,000                    -
Other assets                                                                     536,000               384,000
                                                                           -------------         -------------
Total assets                                                                 $30,358,000           $25,021,000
                                                                             ===========           ===========


                                       F-3

<PAGE>



                  NaPro BioTherapeutics, Inc. and Subsidiaries

                           Consolidated Balance Sheet

                                                                                        December 31,
                                                                                1997                  1996
Liabilities and stockholders' equity Current liabilities:
       Accounts payable and accrued liabilities                             $ 4,361,000           $ 1,763,000
       Accrued payroll and payroll taxes                                        570,000               519,000
       Notes payable--current (Note 3)                                          743,000             1,669,000
       Senior convertible debt (Note 4)                                       8,134,000                    -
       Deferred revenue                                                       1,890,000                35,000
                                                                             -----------        -------------
Total current liabilities                                                    15,698,000             3,986,000

Notes payable--long term (Note 3)                                               480,000               751,000

Commitments and contingencies (Notes 1 and 9)

Minority interest  (Note 7)                                                   2,574,000             3,715,000

Senior convertible redeemable preferred stock,
       Series C (Note 5)                                                      4,344,000                    -

Stockholders' equity (Note 7):
       Preferred stock, $.001 par value:
       Authorized shares--2,000,000
              Series A:
              Issued and outstanding shares--none in
              1997; 125,000 in 1996
       Nonvoting common stock,  convertible  on  disposition  into voting common
              stock, $.0075 par value: Authorized  shares--1,000,000  Issued and
              outstanding shares--395,000
              in 1997; 595,000 in 1996                                            3,000                 4,000
       Common stock, $.0075 par value:
              Authorized shares--19,000,000
              Issued shares--13,134,021 in 1997;
              11,986,089 in 1996                                                 98,000                89,000
       Additional paid-in capital                                            50,833,000            44,670,000
       Note receivable from stockholder                                              -               (985,000)
       Deficit                                                              (40,998,000)          (25,525,000)
       Treasury stock--218,838 shares in 1997;
       144,288 in 1996                                                       (2,674,000)           (1,684,000)
                                                                           -------------         -------------
Total stockholders' equity                                                    7,262,000            16,569,000
                                                                           -------------         ------------
Total liabilities and stockholders' equity                                  $30,358,000           $ 25,021,000
                                                                            ============          ============

See accompanying notes.
</TABLE>

                                       F-4

<PAGE>



                  NaPro BioTherapeutics, Inc. and Subsidiaries

                      Consolidated Statement of Operations
<TABLE>
<CAPTION>


                                                                         Year Ended December 31,
                                                         1997                    1996                     1995
                                                         ----                    ----                     ----
<S>                                                  <C>                      <C>                      <C>

Sales of product                                     $  3,814,000             $ 3,473,000              $ 2,623,000
                                                     ------------             -----------              -----------

Expense:
       Research, development and cost of
              products sold                            11,769,000               6,837,000                4,597,000
       General and administrative                       5,851,000               3,739,000                2,310,000
                                                    -------------           -------------            -------------
                                                       17,620,000              10,576,000                6,907,000
                                                     -------------           -------------            ------------
       Operating loss                                 (13,806,000)             (7,103,000)              (4,284,000)

Other income (expense):
       Interest income                                    494,000                 651,000                  373,000
       Interest and other expense                      (2,161,000)               (373,000)                (160,000)
                                                    --------------           -------------            -------------
Net loss                                             $(15,473,000)            $(6,825,000)             $(4,071,000)
                                                     =============            ============             ============

Basic and diluted net loss per share             $          (1.28)         $        (0.68)          $        (0.51)
                                                 =================         ===============          ===============

Weighted average shares outstanding                     12,104,395              9,973,325                7,972,537
                                                     =============            ============             ===========
</TABLE>

See accompanying notes.


                                       F-5

<PAGE>




                  NaPro BioTherapeutics, Inc. and Subsidiaries

                 Consolidated Statement of Stockholders' Equity

                  Years Ended December 31, 1995, 1996 and 1997

<TABLE>
<CAPTION>



                                                      Series A      Nonvoting                     Additional
                                                      Preferred      Common         Common         Paid-in         Unearned
                                                        Stock         Stock          Stock         Capital       Compensation

                                                     ------------ -------------  ------------- ---------------- ---------------
<S>                                                   <C>         <C>             <C>            <C>              <C>

Balance as of December 31, 1994                       $    -      $    3,000      $   58,000     $ 20,124,000    $  (30,000)

Issuance of 1,364,263 shares of preferred stock at
      $8.00 per share, net of offering cost of
      $846,000 (725,513 shares in minority interest)     1,000            -              -          4,267,000         -

Conversion of 513,750 shares of preferred stock
      into 513,750 shares of common stock and
      exchange of 266,421 shares of subsidiary's
      preferred stock for 266,421 shares of common
      stock                                             (1,000)           -            6,000        2,238,000        -

Exercise of 31,651 stock options at prices ranging
      from $.75 per share to $2.40 per share               -              -              -             46,000        -

Repurchase of 144,288 shares of common stock at
      $11.675 per share in exchange for cancellation
      of indebtedness                                      -              -              -              -             -

Interest receivable on officers' notes                     -              -              -              -             -

Amortization of unearned compensation                      -              -              -              -            21,000

Net loss                                                   -              -              -              -             -
                                                    ------------- -------------  ------------- ---------------- ---------------
Balance as of December 31, 1995                            -            3,000         64,000       26,675,000        (9,000)

Exercise of warrants for 200,000 shares of nonvoting
      common stock                                         -            1,000            -            999,000        -

Exercise of 21,418 stock options at prices ranging from
      $ .75 per share to $6.57 per share                   -              -              -             66,000        -

Exercise of warrants for 1,640,389 shares of common
  stock at prices ranging from $5.00 per share to
  $9.37 per share net of offering cost of $ 37,000         -              -           12,000        3,129,000        -

Issuance of 1,790,000 shares of common stock at
      $8.75 per share net of offering cost of $1,876,000   -              -           13,000       13,773,000        -



<PAGE>


                  NaPro BioTherapeutics, Inc. and Subsidiaries

                 Consolidated Statement of Stockholders' Equity

                  Years Ended December 31, 1995, 1996 and 1997


                                                          Notes
                                                       Receivable
                                                          From                            Treasury
                                                      Stockholders        Deficit          Stock           Total

                                                    ----------------- ---------------- --------------  --------------
Balance as of December 31, 1994                         $ (2,489,000)   $ (14,629,000)       -           $  3,037,000

Issuance of 1,364,263 shares of preferred stock at
      $8.00 per share, net of offering cost of
      $846,000 (725,513 shares in minority interest)        -                -               -              4,268,000

Conversion of 513,750 shares of preferred stock
      into 513,750 shares of common stock and
      exchange of 266,421 shares of subsidiary's
      preferred stock for 266,421 shares of common stock    -                -               -              2,243,000

Exercise of 31,651 stock options at prices ranging
      from $.75 per share to $2.40 per share                -                -               -                 46,000

Repurchase of 144,288 shares of common stock at
      $11.675 per share in exchange for cancellation
      of indebtedness                                      1,684,000         -            (1,684,000)        -

Interest receivable on officers' notes                      (120,000)        -               -              (120,000)

Amortization of unearned compensation                       -                -               -                 21,000

Net loss                                                    -              (4,071,000)       -            (4,071,000)
                                                    ----------------- ---------------- --------------  --------------
Balance as of December 31, 1995                             (925,000)     (18,700,000)    (1,684,000)       5,424,000

Exercise of warrants for 200,000 shares of nonvoting
         common stock                                       -                -               -              1,000,000

Exercise of 21,418 stock options at prices ranging from
      $ .75 per share to $6.57 per share                    -                -               -                 66,000

Exercise of warrants for 1,640,389 shares of common
       stock at prices ranging from $5.00 per share to
       $9.37 per share net of offering cost of $ 37,000     -                -               -              3,141,000

Issuance of 1,790,000 shares of common stock at
      $8.75 per share net of offering cost of $1,876,000    -                -               -             13,786,000

</TABLE>

                                       F-6

<PAGE>


                  NaPro BioTherapeutics, Inc. and Subsidiaries

                 Consolidated Statement of Stockholders' Equity

                  Years Ended December 31, 1995, 1996 and 1997

<TABLE>
<CAPTION>



                                                     Series A      Nonvoting                     Additional
                                                    Preferred       Common         Common         Paid-in         Unearned
                                                      Stock          Stock          Stock         Capital       Compensation

<S>                                                     <C>          <C>              <C>            <C>               <C>

Contribution of 4,017 shares of common stock at $7.00
     per share to retirement plan                         -             -              -                28,000         -
Interest receivable on officers' notes                    -             -              -              -                -
Amortization of unearned compensation                     -             -              -              -                   9,000
Conversion of 5,000 shares of nonvoting common stock
     to 5,000 shares of common stock                      -             -              -              -                -
Net loss                                                  -             -              -              -                -

          Balance as of December 31, 1996                 -              4,000         89,000       44,670,000         -
Conversion of 200,000 shares non-voting common
     stock to 200,000 shares of common stock              -             (1,000)         1,000         -                -
Interest receivable on officers' notes                    -             -              -              -                -
Repurchase of 74,550 shares treasury
     stock at $13.275 in exchange
     for cancellation of indebtedness                     -             -              -              -                -
Issuance of 4,268 restricted shares
     of common stock for compensation                     -             -              -                 40,000        -
Exercise of employee stock options for 2,466
     shares of common stock at $2.40 per share            -             -              -                  6,000        -
Exercises of warrants for 62,326 shares of common
     stock at prices ranging from $1.125 to $7.50         -             -               1,000           256,000        -
     per share
Convertible debt allocation to conversion
     rights and warrant for 323,700 shares                -             -              -              1,773,000        -
Exercise of warrants for 200,000 shares of common
     stock at $5.00 per share                             -             -               2,000           998,000        -
Issuance of 47,482 shares of common stock in
     payment for interest on debt at prices
     ranging from $5.78 to $8.375                         -             -              -                344,000        -

<PAGE>


                  NaPro BioTherapeutics, Inc. and Subsidiaries

                 Consolidated Statement of Stockholders' Equity

                  Years Ended December 31, 1995, 1996 and 1997


                                                      Notes
                                                    Receivable
                                                       From                           Treasury
                                                    Stockholders       Deficit            Stock            Total

Contribution of 4,017 shares of common stock at $7.00
     per share to retirement plan                         -              -                 -                   28,000

Interest receivable on officers' notes                   (60,000)        -                 -                  (60,000)

Amortization of unearned compensation                     -              -                 -                    9,000

Conversion of 5,000 shares of nonvoting common stock                                                        -
     to 5,000 shares of common stock                      -              -                 -

Net loss                                                  -            (6,825,000)         -               (6,825,000)

Balance as of December 31, 1996                         (985,000)     (25,525,000)      (1,684,000)         16,569,000

Conversion of 200,000 shares non-voting common
     stock to 200,000 shares of common stock              -              -                 -                -

Interest receivable on officers' notes                    (5,000)        -                 -                   (5,000)

Repurchase of 74,550 shares treasury
     stock at $13.275 in exchange
     for cancellation of indebtedness                    990,000         -                (990,000)         -

Issuance of 4,268 restricted shares
     of common stock for compensation                     -              -                 -                   40,000

Exercise of employee stock options for 2,466
     shares of common stock at $2.40 per share            -              -                 -                    6,000

Exercises of warrants for 62,326 shares of common
     stock at prices ranging from $1.125 to $7.50         -              -                 -                  257,000
     per share

Convertible debt allocation to conversion
     rights and warrant for 323,700 shares                -              -                 -                1,773,000

Exercise of warrants for 200,000 shares of common
     stock at $5.00 per share                             -              -                 -                1,000,000

Issuance of 47,482 shares of common stock in
     payment for interest on debt at prices
     ranging from $5.78 to $8.375                         -              -                 -                  344,000

</TABLE>

                                       F-7

<PAGE>


                  NaPro BioTherapeutics, Inc. and Subsidiaries

                 Consolidated Statement of Stockholders' Equity

                  Years Ended December 31, 1995, 1996 and 1997

<TABLE>
<CAPTION>



                                                     Series A      Nonvoting                     Additional
                                                    Preferred       Common         Common         Paid-in         Unearned
                                                      Stock          Stock          Stock         Capital       Compensation
<S>                                                    <C>             <C>           <C>          <C>             <C>

Conversion of 125,000  shares of preferred  stock
      into 125,000 shares of common stock and exchange
      of 140,920 shares of subsidiary's preferred
      stock for 140,920 shares of common stock            -             -            2,000        1,139,000        -

Conversion of senior convertible note to 344,906
     shares of common stock at prices ranging from
     $2.50 to $5.78 per share                             -             -            3,000          996,000        -

Issuance of option grant to purchase 49,785 shares of
     common stock at $7.25 per share in exchange for
     consulting  services                                 -             -              -             20,000        -

Convertible preferred stock allocation to
     conversion rights and warrant for
     175,000 shares                                       -             -              -            459,000        -

Contribution of 20,564 shares of common stock
     at $2.50 per share to retirement plan                -             -              -             51,000        -

Stock option compensation                                 -             -              -            145,000        -

Accretion of conversion rights and warrant
     to convertible preferred stock                       -             -              -            (64,000)       -

Net loss                                                  -             -              -              -            -
                                                    ------------- -------------  ------------- ---------------- ---------------
Balance as of December 31, 1997                         $ -         $     3,000    $98,000      $50,833,000     $  -
                                                    ============= =============  ============= ================ ===============

<PAGE>


                  NaPro BioTherapeutics, Inc. and Subsidiaries

                 Consolidated Statement of Stockholders' Equity

                  Years Ended December 31, 1995, 1996 and 1997


                                                      Notes
                                                    Receivable
                                                       From                           Treasury
                                                    Stockholders       Deficit            Stock            Total

Conversion of 125,000  shares of preferred  stock
      into 125,000 shares of common stock and exchange
      of 140,920 shares of subsidiary's preferred
      stock for 140,920 shares of common stock            -             -                  -              1,141,000

Conversion of senior convertible note to 344,906
     shares of common stock at prices ranging from
     $2.50 to $5.78 per share                             -             -                  -                999,000

Issuance of option grant to purchase 49,785 shares of
     common stock at $7.25 per share in exchange for
     consulting  services                                 -             -                  -                 20,000

Convertible preferred stock allocation to
     conversion rights and warrant for
     175,000 shares                                       -             -                  -                459,000

Contribution of 20,564 shares of common stock
     at $2.50 per share to retirement plan                -             -                  -                 51,000

Stock option compensation                                 -             -                  -                145,000

Accretion of conversion rights and warrant
     to convertible preferred stock                       -             -                  -                (64,000)

Net loss                                                  -           (15,473,000)          -            (15,473,000)
                                                    ----------------- ---------------- --------------  --------------
Balance as of December 31, 1997                       $   -          $(40,998,000)   $(2,674,000)     $    7,262,000
                                                    ================= ================ ==============  ==============

</TABLE>
See accompanying notes.

                                      F-8
<PAGE>



                  NaPro BioTherapeutics, Inc. and Subsidiaries

                      Consolidated Statement of Cash Flows

<TABLE>
<CAPTION>

                                                                                Year Ended December 31,
                                                                        1997             1996             1995
                                                                        ----             ----             ----
<S>                                                                <C>               <C>               <C>

Operating activities
Net loss                                                           $(15,473,000)     $(6,825,000)      $(4,071,000)
Adjustments to reconcile net loss
     to net cash used by operating activities:
     Depreciation                                                     1,686,000          635,000           220,000
     Accretion of debt discount                                       1,447,000           34,000            50,000
     Compensation for common stock and options                          216,000           37,000            21,000
     (Gain)/Loss on retirement of assets                               (116,000)          28,000           163,000

     Changes in operating assets and liabilities:
         Accounts receivable                                           (846,000)        (336,000)         (177,000)
         Inventory                                                   (2,017,000)      (1,069,000)          216,000
         Prepaid expenses and other  assets                            (138,000)        (235,000)          116,000
         Accounts payable                                             2,942,000        1,100,000           245,000
         Accrued liabilities                                             91,000          181,000           226,000
         Deferred revenue                                             1,854,000          (16,000)           15,000
                                                                   -------------   --------------    -------------
     Net cash used by operating activities                          (10,354,000)      (6,466,000)       (2,976,000)
Investing activities
     Additions to property and equipment                            (11,634,000)      (4,894,000)       (1,209,000)
     Purchase of securities--available for sale                              -        (3,439,000)       (5,895,000)

     Purchase of securities--held to maturity                        (4,227,000)      (2,462,000)         (667,000)
     Proceeds from securities available for sale                      2,650,000          750,000         6,451,000
     Proceeds from securities held to maturity                        6,876,000          167,000                -
     Proceeds from sale of property and equipment                       939,000               -                 -
     Transfer of restricted cash                                         81,000          124,000          (124,000)
                                                                   -------------    -------------     -------------
     Net cash used by investing activities                           (5,315,000)      (9,754,000)       (1,444,000)
Financing activities
     Proceeds from notes payable, net of issuance costs               10,197,000        1,349,000           640,000
     Payments under notes payable                                    (1,959,000)        (555,000)         (251,000)
     Payment for compensation due officers                                   -          (169,000)               -

     Proceeds from sale of common and preferred stock                 6,262,000       19,906,000         5,156,000
     Proceeds from sale of preferred stock by subsidiary                     -                -          5,959,000
     Offering cost of common and preferred stock                       (260,000)      (1,913,000)         (843,000)
                                                                    ------------     ------------     -------------
     Net cash provided by financing activities                       14,240,000       18,618,000        10,661,000
                                                                     -----------     ------------      -----------

Net (decrease) increase in cash and cash equivalents                 (1,429,000)       2,398,000         6,241,000
Cash and cash equivalents at beginning of year                        9,531,000        7,133,000           892,000
                                                                    ------------     ------------    -------------
Cash and cash equivalents at end of year                            $ 8,102,000      $ 9,531,000       $ 7,133,000
                                                                    ============     ============      ===========

                                       F-9

<PAGE>



                  NaPro BioTherapeutics, Inc. and Subsidiaries

                Consolidated Statement of Cash Flows (continued)


                                                                                Year ended December 31,
                                                                          1997            1996             1995
                                                                          ----            ----             ----

Supplemental schedule of noncash investing and
     financing activities
     Notes and related interest receivable from stockholders          $   5,000       $   60,000        $  120,000
     Repayment of notes receivable from stockholders
         through transfer of stock to the Company treasury              990,000               -          1,684,000
     Conversion of deferred revenue to long-term debt                        -                -          1,100,000
     Conversion of preferred shares of subsidiary to
         common shares of Parent                                      1,141,000               -          2,243,000
     Reclassification of securities held to maturity,
         (from) to restricted cash                                      (88,000)         415,000                -
     Issuance of common stock for compensation
         previously accrued                                              40,000               -                 -
     Issuance of common stock in exchange for
         interest payable                                               344,000               -                 -
     Issuance of common stock in exchange for
         senior convertible debt                                      1,059,000               -                 -
     Issuance of senior convertible debt for
         placement fee                                                  300,000
</TABLE>

See accompanying notes.


                                      F-10

<PAGE>


                  NaPro BioTherapeutics, Inc. and Subsidiaries

                   Notes to Consolidated Financial Statements

                                December 31, 1997


1.       Basis of Presentation and Summary of Significant Accounting Policies

Organization

NaPro   BioTherapeutics,   Inc.   ("NaPro"  or  "the  Company")  was  originally
incorporated  in 1991 as a  Washington  corporation.  In September  1993,  NaPro
merged into a wholly-owned subsidiary, a Delaware corporation.

In November 1994,  NaPro formed a subsidiary,  NaPro  BioTherapeutics  (Canada),
Inc.,  of which the Company owns 91.2% of the voting  rights.  In February  1996
NaPro formed a wholly owned subsidiary, NaPro BioTherapeutics (Ireland) Limited.
In August  1997,  NaPro  formed a  wholly-owned  subsidiary,  NBT Ltd., a Cayman
Island
corporation.

Basis of Presentation

The  accompanying   financial  statements  include  the  consolidated  financial
position,  consolidated  results of operations  and  consolidated  cash flows of
NaPro  and  its  subsidiaries.  All  transactions  have  been  accounted  for at
historical cost. All balances and transactions  between these entities have been
eliminated in the accompanying financial statements.

Description of Business

NaPro focuses on the development,  manufacture and  commercialization of natural
product pharmaceuticals, particularly paclitaxel (referred to in some scientific
and medical  literature  as  "taxol"*),  a naturally  occurring  cancer-fighting
compound found in certain species of yew (Taxus) trees.

Cash Equivalents, Securities Available for Sale and Securities Held to Maturity

NaPro considers all highly liquid investments purchased with a maturity of three
months  or less to be cash  equivalents.  Securities  available  for  sale  were
investment-grade  securities and were carried at fair value.  Securities held to
maturity were  investment  grade debt  securities  and were carried at amortized
cost.


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

*TAXOL(R) is a registered  trademark of Bristol-Myers  Squibb Company  (Bristol)
for an anticancer pharmaceutical preparation containing paclitaxel.


                                      F-11

<PAGE>


                  NaPro BioTherapeutics, Inc. and Subsidiaries

              Notes to Consolidated Financial Statements, continued


Fair Value of Financial Instruments

The  carrying  values  of  cash  and  cash  equivalents,   securities,  accounts
receivable and payable, and notes payable approximate fair value. The fair value
of notes  payable is estimated  using  discounted  cash flow  analysis  based on
NaPro's estimated current borrowing rate for similar types of arrangements.

Inventory

Inventory is stated at the lower of cost (first-in, first-out method) or market.

Research and Development

NaPro expenses research and development cost as it is incurred.

Plantation Cost

In 1996 NaPro  determined the cultivation of renewable  sources of biomass to be
used  in the  manufacture  of  paclitaxel  is a  technically  feasible  business
strategy.  Prior to 1996 plantation  expenditures  were expensed as research and
development.  In 1996 NaPro began capitalizing  plantation expenditures incurred
prior to the first commercial  harvest and depletes such cost over the remaining
life of the plantation contract using the units-of-production method. Plantation
expenditures  include the  acquisition  cost of trees and bushes and the related
cost of planting and growing.

Long-Lived Assets

The  carrying   amount  of   long-lived   assets  is  reviewed  when  facts  and
circumstances  suggest they may be impaired. If this review indicates long-lived
assets will not be  recoverable  as determined  based on the  undiscounted  cash
flows  estimated to be generated by these assets,  the carrying  amount of these
long-lived  assets is reduced to estimated fair value or discounted  cash flows,
as appropriate.

Depreciation and Amortization

Depreciation of property and equipment is computed on the  straight-line  method
over estimated useful lives generally  between three and seven years.  Leasehold
improvements  are  amortized  over the lesser of  estimated  useful lives or the
lease term. Depreciation and amortization expense is allocated to either general
and administrative or research and development expense,  depending on the use of
the related property and equipment.

Stock Options

NaPro  has  elected  to follow  Accounting  Principles  Board  Opinion  No.  25,
Accounting for Stock Issued to Employees  (APB 25), and related  interpretations
in accounting for  outstanding  stock  options.  Under APB 25, when the exercise
price of NaPro's stock options equals the fair value of the underlying  stock on
the date of grant, no compensation expense is recognized.

Revenue Recognition

Revenue  from  product  sales is  recognized  at the time of  shipment.  NaPro's
production process is not distinct from its research and development  processes.
Accordingly,  the cost of products  sold is included  with NaPro's  research and
development  expense.  Payments  received in advance  against  future  sales are
recorded as deferred revenue until earned.

Net Loss Per Share

Effective December 31, 1997, NaPro adopted FASB Statement No. 128, "Earnings Per
Share"  ("Statement  No. 128"),  which  replaced the  calculation of primary and
fully  diluted  earnings  per share with basic and diluted  earnings  per share.
Unlike  primary  earnings  per share,  basic  earnings  per share  excludes  any
dilutive  effects of  options,  warrants  and  convertible  securities.  Diluted
earnings per share is very similar

                                      F-12

<PAGE>


                  NaPro BioTherapeutics, Inc. and Subsidiaries

              Notes to Consolidated Financial Statements, continued


to the  previous  fully  diluted  earnings  per share.  Earnings  per share
amounts for periods presented conform to Statement No. 128.

NaPro's  basic and  diluted net loss per share is  computed  using the  weighted
average number of shares of common stock  outstanding.  Common equivalent shares
from stock options,  warrants and  convertible  securities are excluded from the
computation of diluted earnings per share as their effect is  antidilutive.  The
impact of  Statement  No. 128 on the  calculation  of net loss per share for the
years ended December 31, 1997, 1996 and 1995 was not material.

Use of Estimates

The preparation of financial  statements in conformity  with generally  accepted
accounting   principles   requires  the  use  of   management's   estimates  and
assumptions. Actual results could vary from the estimates used.

Reclassifications

Certain  reclassifications  have  been  made  to the  1996  and  1995  financial
statements to conform with the 1997 financial statement presentation.

Foreign and Domestic Operations and Export Sales; Significant Customers

Domestic and foreign financial information is as follows:
<TABLE>
<CAPTION>

                                                                    United                   Elimin-
                                                          Year     States        Canada      ations        Total
<S>                                                       <C>      <C>           <C>         <C>           <C>

Net sales to affiliated and unaffiliated customers        1997   $3,814,000   $1,130,000 $(1,130,000)   $ 3,814,000
                                                          1996    3,473,000    1,781,000  (1,781,000)     3,473,000
                                                          1995    2,623,000      569,000    (569,000)     2,623,000

Operating loss                                            1997   12,854,000      952,000           --    13,806,000
                                                          1996    6,719,000      384,000           --     7,103,000
                                                          1995    3,851,000      433,000           --     4,284,000

Identifiable assets
     December 31,                                         1997   30,054,000    3,939,000  (3,635,000)    30,358,000
                                                          1996   22,587,000    4,823,000  (2,389,000)    25,021,000
</TABLE>

NaPro is  dependent  on sales to its two  development  and  marketing  partners,
Faulding and the Baker Norton subsidiary of IVAX Corporation ("IVAX") (see Notes
9 and 12),  and does not  require  collateral  to  secure  accounts  receivable.
Substantially  all of NaPro's accounts  receivable at December 31, 1997 and 1996
were from these  partners.  Sales to these  partners as a percent of total sales
were:

                          1997       1996       1995
                          ----       ----       ----
Faulding                  34%        72%        75%
IVAX                      60%        25%        22%


                                      F-13

<PAGE>


                  NaPro BioTherapeutics, Inc. and Subsidiaries

              Notes to Consolidated Financial Statements, continued


Disclosures about Segments of an Enterprise and Related Information

In June 1997, the FASB issued Statement No. 131,  "Disclosures about Segments of
an Enterprise and Related Information"  ("Statement No. 131"). Statement No. 131
establishes  standards  for the way  that  public  business  enterprises  report
information about operating segments in annual financial  statement and requires
that those enterprises  report selected  information about operating segments in
interim financial reports. It also establishes standards for related disclosures
about products and services, geographic areas and major customers. Statement No.
131 is effective  for  financial  statements  for fiscal years  beginning  after
December  15,  1997  and,  therefore,  NaPro  will  adopt  the new  requirements
retroactively in 1998.  Management has not completed its review of Statement No.
131;  however,  the adoption of the  statement  could result in the reporting of
additional segment information and related disclosures.

Early sale of Investment

In December  1996 NaPro  purchased a $500,000 debt security that matured in June
1997, and was classified as hold-to-maturity.  NaPro sold that security in April
1997 to meet current cash requirements.
There was no material gain or loss on the early sale of the security.

2.       Other Related Party Transactions

NaPro  recorded  $2,275,000,  $882,000  and  $589,000  in 1997,  1996 and  1995,
respectively,  in sales to IVAX, a marketing and development partner which owned
8.7%, 9.4%, and 13.2% of NaPro's outstanding shares of common stock (see Notes 1
and 9) at December 31, 1997, 1996 and 1995, respectively.

In 1997 NaPro used the  services of a  consulting  firm in which a former  NaPro
director is a  principal.  NaPro paid  $107,000 in fees and services to the firm
and issued stock options for 49,785 shares of the firm (see Note 8).



                                      F-14

<PAGE>


                  NaPro BioTherapeutics, Inc. and Subsidiaries

              Notes to Consolidated Financial Statements, continued

3.       Notes Payable

Notes payable consist of:
<TABLE>
<CAPTION>
                                                                                   Year Ended December 31,
                                                                                 1997                  1996
<S>                                                                              <C>                <C>

Note payable to Faulding, paid in 1997                                  $             -             $1,184,000
Note payable, due in December 1998, interest at
       12.73%, principal and interest payable monthly                            204,000               256,000
Note payable, due in May 1999, interest at 13.50%,
       principal and interest payable monthly                                     99,000               113,000
Note payable, due in July 1999, interest at 13.78%,
       principal and interest payable monthly                                    268,000               157,000
Note payable, due in October 1999, interest at
       13.25%, principal and interest payable monthly                            176,000               406,000
Note payable, due in May 2000, interest at 11.76%,
       principal and interest payable monthly                                    416,000               250,000
Note payable, due in March 1998, interest at 7.90%,
       principal and interest payable monthly                                     57,000                    -
Note payable, due in May 1998, interest at 12.72%,
       principal and interest payable monthly                                      3,000                13,000
Note payable, paid in March 1997                                                      -                 41,000
                                                                        ----------------         -------------
                                                                               1,223,000             2,420,000
Less amounts currently payable                                                   743,000             1,669,000
                                                                            ------------           -----------
Notes payable - long term                                                    $   480,000           $   751,000
                                                                             ===========           ===========
</TABLE>

The  maturities of long term notes payable and senior  convertible  debt for the
years ended  December  31,  1998,  1999 and 2000 are  $9,586,000,  $400,000  and
$80,000  respectively.  The notes payable are collateralized by NaPro equipment.
For the years ended December 31, 1997, 1996, and 1995, cash paid in interest was
$286,000,  $197,000  and  $70,000  respectively.  Also,  1997  interest  expense
includes $407,000 paid in NaPro common stock on the senior convertible debt (see
Note 4).

NaPro has entered into an irrevocable  standby letter of credit agreement with a
financial  institution  to  support  a note  payable  for up to  $327,000  at an
interest  rate of prime plus 2%. As of  December  31,  1997,  no funds have been
drawn on the letter of credit.

NaPro is required to maintain  certificates  of deposit for 33% of the remaining
principal  outstanding  under  the  note  ($246,000  at  December  31,  1997) as
collateral as long as a letter of credit is  outstanding.  Such pledged  amounts
are classified as restricted cash in the accompanying balance sheet.

4.       Senior Convertible Debt

In June 1997 NaPro privately issued $10.3 million of senior  convertible  notes.
The  notes  mature  in June  2000 and bear  interest  at a rate of 5% per  year.
Interest on the notes may be paid in common stock or cash at NaPro's option. The
notes are convertible  into common stock at a discount  (ranging from 5% to 10%)
from the market price of the common stock during specified  periods prior to the
conversion. If not

                                      F-15

<PAGE>


                  NaPro BioTherapeutics, Inc. and Subsidiaries

              Notes to Consolidated Financial Statements, continued


converted  into common  stock,  upon  maturity  in June 2000,  the notes will be
exchanged for 13.75% 5-year debentures.  As part of this transaction,  NaPro has
issued  warrants  to purchase  up to 323,700  shares of common  stock at $10.00,
including a warrant to purchase 33,700 shares of common stock that was issued to
the placement agent.  NaPro has filed a registration  statement with the SEC for
the resale of shares  acquired on  conversion of notes and exercise of warrants.
Net proceeds from the notes  totaled $9.5 million  after the  placement  agent's
fees and other offering cost.

$300,000  of the  notes  were  issued  to the  placement  agent  as  half of the
placement  fee.  The  remaining  half of the fee was paid in cash.  The $600,000
placement  fee has been  capitalized  as a  discount  to the  notes and is being
amortized over the three-year life of the notes.  $1.1 million of the face value
of the notes has been assigned to the  conversion  rights and recorded as a note
discount. This note discount was amortized to interest expense over the 180 days
following the date of sale of the notes.

$662,000 of the face value of the notes was  assigned  to the  323,700  warrants
issued  in the  transaction  and was  recorded  as a note  discount.  This  note
discount is amortized to interest expense over the life of the notes.

Under the  original  terms of the notes,  the  holders  are  entitled to require
partial redemption of the notes in certain circumstances,  including significant
declines  in the market  value of NaPro  common  stock.  In  January  1998 NaPro
redeemed  $397,000 in note  principal  and paid $53,000  premium and interest in
connection with the redemption.  NaPro  anticipates that it may elect to pay off
all or part of the notes during 1998.  Also, under limited  circumstances  NaPro
could be  obligated to pay off the notes prior to their  maturity.  Accordingly,
the notes are classified as a current liability.

In January 1998 the notes were amended (see Note 5).

5.       Redeemable, convertible preferred stock

On December 8, 1997 NaPro privately issued $5 million at $1,000 per share (5,000
shares) of nonvoting  redeemable,  convertible preferred stock, Series C (the "C
Preferred").  The C Preferred accrues dividends at 5% per year payable in common
stock or cash at NaPro's  option.  The C Preferred  is  convertible  into common
stock at a 5% discount  from the average of the two lowest  closing trade prices
to occur during the 15 trading days  immediately  preceding the conversion  date
(the  "Variable  Conversion  Price").  Under  certain  circumstances   including
significant  declines in the market value of NaPro common stock, the C Preferred
investor  may cause NaPro to redeem for cash a portion or all of the C Preferred
at  prices  ranging  from 115% to 125% of issue  price.  The C  Preferred  has a
liquidation preference equal to issue price plus accrued dividends.  At December
8,  2000,  NaPro  may  force  the  conversion  of any  remaining  shares  at the
Conversion  Price in effect as of  December  8,  2000.  Additionally,  NaPro has
issued to the investor a warrant to purchase  175,000  shares of common stock at
$10.00 per share.

NaPro incurred offering cost of about $260,000, which was recorded as a discount
and is accreted as dividends over three years.  NaPro  assigned  $263,000 of the
proceeds  to the  value of the  conversion  rights,  which  was  recorded,  as a
discount on the C Preferred, to additional paid-in capital and is being accreted
as  preferred  dividends  over the four months  following  issuance.  NaPro also
assigned $196,000

                                      F-16

<PAGE>


                  NaPro BioTherapeutics, Inc. and Subsidiaries

              Notes to Consolidated Financial Statements, continued


of the proceeds to the value of the warrant,  which was recorded,  as a discount
on C  Preferred,  to  additional  paid-in  capital,  and is  being  accreted  as
preferred dividends over three years.

In January 1998,  NaPro entered into  amendments (the  "Amendments")  with the C
Preferred investor and the holders of the senior convertible notes (together the
"Investors").  The parties agreed to, over the period through December 31, 1998:
(a) limit the number of shares  which could be  converted in the event the stock
price is below $4.00 per share to no more than 450,000  shares per month and (b)
suspend the ability of the Investors to force NaPro to redeem any portion of the
securities for cash. In the event there is an  unconverted  amount of securities
on January 1, 1999, such amount will be convertible  under the original terms of
the agreements. At any time, NaPro, at its option, may redeem all or part of the
securities,  with 20 days written notice, for 130% of the outstanding  principal
and accrued dividends.  The exercise price of the warrants which had been issued
to the  Investors  was reduced from $10.00 to $2.50 per share.  The agreement is
subject to a vote no later than June 1, 1998 by NaPro stockholders  approving an
increase in the authorized  shares of common stock. If stockholder  approval for
those  matters is not  obtained,  the  Amendments  terminate  and the holders of
senior  convertible debt have the right to require its redemption and in certain
circumstances  the holder of the C Preferred would have the right to require its
redemtion.  NaPro  intends to seek the  stockholder  approvals  required  by the
Amendment. While there can be no assurance that such approvals will be received,
NaPro believes it to be in the interest of  stockholders  that such approvals be
given.

6.       Income Taxes

As  of  December  31,  1997,   NaPro  had  the  following  net  operating   loss
carryforwards  and research and  development  credits to offset  future  taxable
income in the United States:

                            Net              Research and
Expiring                 Operating            Development
December 31,               Losses               Credits
------------             -----------         -----------
2006                    $    282,000         $        -
2007                       1,826,000              52,000
2008                       3,328,000              54,000
2009                       4,713,000              38,000
2010                       4,960,000              15,000
2011                       7,389,000              49,000
2012                      12,308,000             177,000
                        ------------            --------

                         $34,806,000            $385,000
                         ===========            ========

The Tax Reform Act of 1986 contains provisions that limit the utilization of net
operating  loss and tax  credit  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 the  Company's  utilization  of its net operating
loss and tax credit carryforwards, and could be triggered by sales of securities
by the Company or its stockholders.

In  Canada,   NaPro  has  net  operating  loss  carryforwards  of  approximately
US$1,218,000, expiring in 2002, 2003, and 2004.


                                      F-17

<PAGE>


                  NaPro BioTherapeutics, Inc. and Subsidiaries

              Notes to Consolidated Financial Statements, continued


Significant components of NaPro's deferred tax assets are:

                                                  Year Ended December 31,
                                                1997                 1996

Deferred tax assets:
Tax net operating loss carryforward        $13,118,000            $8,437,000
Research and development credits               386,000               209,000
Deferred Revenue                               696,000                 6,000
Other                                          418,000               251,000
                                           ------------          -----------

Total deferred tax assets                   14,618,000             8,903,000
Valuation allowance                        (14,618,000)           (8,903,000)
                                           ------------          ------------
Net deferred tax assets                    $      -               $      -
                                           =================      ==============

7.       Stockholders' Equity

The IVAX Subscription Agreement and Executive Agreements

In June 1993,  NaPro entered into a Subscription  Agreement  (the  "Subscription
Agreement")  with IVAX pursuant to which NaPro sold  1,106,398  shares of common
stock and a warrant to acquire an additional  111,111 shares of common stock for
$3,000,000 in cash (see Note 9). The warrant was  exercisable  immediately  at a
nominal price,  and was scheduled to expire in June 2003. In March 1996, a NaPro
officer  acquired the warrant.  In March 1998, the warrant was returned to NaPro
in  exchange  for the  Company's  indemnification  of IVAX with  respect  to the
warrant and canceled. 1,126,398 shares of NaPro common stock will be returned by
IVAX as the result of the  termination of the IVAX strategic  alliance (see Note
12).

In connection with the Subscription Agreement, NaPro entered into Employment and
Executive Stock Agreements (the "Executive  Agreements"),  pursuant to which the
Company sold 1,526,814  shares of the Company's  common stock at $1.50 per share
to certain  officers in exchange for cash and promissory  notes in the aggregate
amount of  $2,289,000.  The notes were  secured by the common  stock and accrued
interest  at the greater of the prime rate minus 1% and the  applicable  federal
rate.  The  initial  term  of the  Executive  Agreements  is five  years.  If an
officer's  employment  is  terminated  during the initial term of the  Executive
Agreement, the shares held by that officer are subject to repurchase by NaPro at
its election.  The repurchase price is defined by the Executive Agreements,  but
in no case  will be less  than  the  original  cost  of the  shares.  The  notes
receivable and related accrued interest were recorded as a separate reduction of
stockholders' equity. In August 1995, NaPro repurchased 144,288 shares of common
stock from  certain of these  officers in  cancellation  of  $1,684,000  of this
indebtedness  (including  $193,000 of accrued interest).  In January 1997, NaPro
repurchased  74,550  shares  of  common  stock  from  one of these  officers  in
cancellation of the remaining $990,000 of this indebtedness  (including $192,000
of accrued interest).

The   Subscription   Agreement  and  Executive   Agreements  are  subject  to  a
Stockholders  Agreement  which includes  provisions  regarding  certain  matters
including the  composition of the Board of Directors,  restrictions on the sale,
transfer  or  other   disposition  of  shares  sold  in  connection  with  these
agreements,

                                      F-18

<PAGE>


                  NaPro BioTherapeutics, Inc. and Subsidiaries

              Notes to Consolidated Financial Statements, continued


and  NaPro's  first offer right for  voluntary  election to purchase  all of the
shares held by these stockholders.  The Subscription and Stockholder  Agreements
were terminated in March 1998 (see Note 12).

Initial Public Offering of Common Stock and Redeemable Warrants

In August 1994,  NaPro  completed an initial public offering of its common stock
and  redeemable  warrants to purchase  common  stock (the  "IPO").  The offering
consisted  of  1,800,000  shares of  common  stock and  redeemable  warrants  to
purchase  2,070,000  shares of common stock.  The common stock and warrants were
purchased  separately  and were  separately  transferable.  In June  1996  NaPro
completed the call of the 2,070,000 redeemable warrants,  issuing 630,620 shares
of common stock with the receipt of cash, primarily from a NaPro officer, in the
amount of $3,116,000 (net of offering cost of $37,000) pursuant to cash exercise
elections of redeemable  warrants,  and issuing 1,007,102 shares of common stock
pursuant to cashless exercise elections of 1,438,720 redeemable warrants.

Faulding Private Placement

Contemporaneously  with  consummation  of the IPO,  NaPro sold to  Faulding in a
private transaction (the "Faulding Private Placement") 400,000 shares of NaPro's
nonvoting  common stock (the "Nonvoting  Common") at a price of $5.00 per share,
the initial  public  offering  price per share in the IPO, and 400,000  warrants
(the "Faulding  Warrants") to purchase an additional 400,000 shares of Nonvoting
Common at a price of $.10 per warrant,  the initial  public  offering  price per
warrant.  In 1996 Faulding  exercised 200,000 of the warrants.  In 1997 Faulding
sold the remaining  200,000 warrants to an independent third party who exercised
them for common stock. Shares of Nonvoting Common will automatically  convert to
common  stock  (with full  voting  rights),  on a  share-for-share  basis,  upon
Faulding's  disposition  thereof. The Nonvoting Common and the Faulding Warrants
are  identical in all respects to the common stock and warrants  which were sold
in the IPO, except that, other than in limited  circumstances,  Faulding, as the
holder,  has no voting  rights with  respect to the  Nonvoting  Common,  and the
Faulding  Warrants are exercisable for Nonvoting  Common instead of common stock
until Faulding's disposition thereof.

Preferred Stock Private Placement

In July 1995, NaPro closed a private  placement of 638,750 shares of Convertible
Preferred Stock, Series A (the "US Preferred") of NaPro  BioTherapeutics,  Inc.,
for net proceeds of $4,268,000.  At December 31, 1997, all 638,750 shares of the
U.S. Preferred had been converted into 638,750 shares of common stock of NaPro.

In July and August 1995,  NaPro closed a private  placement of 725,513 shares of
Exchangeable  Preferred  Stock,  Series A (the "Canadian  Preferred") of NaPro's
Canadian subsidiary,  NaPro BioTherapeutics (Canada), Inc. ("NaPro Canada"), for
net proceeds of $5,959,000.

The Canadian  Preferred has a  liquidation  preference of CD$11.00 per share and
may be  exchanged  for common stock of NaPro on a  share-for-share  basis at any
time after  December  1, 1995.  NaPro has the  option to  acquire  the  Canadian
Preferred at its  liquidation  value  beginning  one year after  issuance if the
average  trading  price for the NaPro  common stock over a 20 trading day period
has equaled or exceeded

                                      F-19

<PAGE>


                  NaPro BioTherapeutics, Inc. and Subsidiaries

              Notes to Consolidated Financial Statements, continued


the  equivalent  of CD$22.00 and  beginning  three years after  issuance if such
trading price has equaled or exceeded the  equivalent  of CD$13.75.  Holders may
elect to exchange their Canadian Preferred for common stock of NaPro at any time
prior to 15  business  days  prior to the date  fixed for NaPro to  acquire  the
shares under the foregoing  option.  Holders have the option to require NaPro to
purchase the Canadian Preferred for its liquidation preference at any time after
September  30, 2000.  NaPro may elect to pay the purchase  price of the Canadian
Preferred by issuing its common  stock  valued at 95% of its then market  price.
The Canadian Preferred is entitled to one vote per share in NaPro Canada.

At  December  31,  1997,  407,341  shares  of the  Canadian  Preferred  had been
exchanged for 407,341 shares of common stock of NaPro.

NaPro has  registered  under the Securities Act of 1933 the shares of its common
stock to be  issued  upon  exchange  of the  Canadian  Preferred.  The  Canadian
Preferred has no dividend requirement.

Public Offering of Common Stock

In August 1996 NaPro closed a public offering of 1,790,000  shares of its common
stock, including 190,000 shares issued to cover over allotments,  which resulted
in net proceeds of $13,786,000 to the Company.

Stockholder Rights Plan

In November  1996,  NaPro  adopted a Stockholder  Rights Plan and  distributed a
dividend of one Right to purchase one  one-hundredth  of a share of a new series
of junior  participating  preferred  stock,  Series  B, for each  share of NaPro
common stock. The objective of the Rights Plan is to secure for stockholders the
long term value of their  investment and to protect  stockholders  from coercive
takeover  attempts by strongly  encouraging  anyone  seeking to acquire NaPro to
negotiate  with its Board of Directors.  The adoption of the Rights Plan was not
in response to any hostile takeover proposal or any other recent events.

The  Rights  trade  with  common  stock  as a  unit  unless  the  Rights  become
exercisable  upon the occurrence of certain  triggering  events  relating to the
acquisition  of 20% or more of common stock.  In certain events after the Rights
become  exercisable they will entitle each holder,  other than the acquirer,  to
purchase,  at the Rights' then current  exercise price (currently set at $60), a
number of  shares  of common  stock  having  market  value of twice the  Right's
exercise  price or a number of the  acquiring  company's  common shares having a
market value at the time of twice the Rights'  exercise price.  For example,  in
the event of an acquisition  of greater than 20% of the Company's  stock without
approval of the NaPro Board of Directors, the Company's stockholders (other than
the 20% acquirer)  would have the right to purchase $120 worth of stock for $60.
A stockholder would have one such right for each share of stock held at the time
the rights become exercisable.

NaPro may amend the Rights  except in  certain  limited  respects  or redeem the
Rights at $0.01 per Right, in each case at any time prior to the Rights becoming
exercisable. The Rights will expire on November 8, 2006.

                                      F-20

<PAGE>


                  NaPro BioTherapeutics, Inc. and Subsidiaries

              Notes to Consolidated Financial Statements, continued


All  5,865,979  unissued,  authorized  shares of common  stock are  reserved for
future issuance for senior convertible debt;  redeemable,  convertible preferred
stock; common stock options and warrants.

8.       Common Stock Warrants and Options

Common Stock Warrants

NaPro has granted warrants to purchase shares of its common stock. The following
summarizes warrant activity:
                                                    Exercise         Expiration
                                    Warrants          Price             Dates

Outstanding at December 31, 1995    2,610,446    $0.075 -  $9.370   1997 - 2004
Granted                                    -
Forfeited                                  -
Exercised                          (2,072,007)    5.000 -   9.370   1996 - 1998
                                   -----------
Outstanding at December 31, 1996     538, 439     0.075 -   7.500   1997 - 2004
Granted                               498,700              10.000          2001
Forfeited                                (660)              5.000          1996
Exercised                             (62,326)    1.125 -   7.500   1997 - 1999
                                   ------------
 Outstanding at December 31, 1997     974,153    $0.075 -  $7.500   1999 - 2003
                                    ===========

Nonplan Stock Options

In November  1990,  Pacific  Biotechnology,  Inc.  ("PB"),  one of the Company's
predecessors,  granted options to purchase  613,333 shares (reduced to 199,233.6
shares in  September  1991) of its common  stock to two  officers.  The exercise
price is $.1875  per share and the  options  are fully  exercisable  during  the
period from January 1, 1992 to December 31, 1999. In December  1991,  when NaPro
acquired all of the  outstanding  common stock of PB, all options to purchase PB
common stock were  exchanged for options to purchase  159,467  shares of NaPro's
common  stock  under the same  terms as the PB  options.  In January  1994,  the
Company  granted to the four  outside  directors of the Company  27,000  nonplan
options to purchase shares of common stock which are immediately  exercisable at
a price of $2.40 and which  expire in  January  2004.  In  September  1997,  the
Company  granted to its employees  20,075 nonplan  options to purchase shares of
common stock which vest over two years and which  expire in September  2007 (see
also Note 2).

The 1993 Stock Option Plan

During 1993, the Board of Directors adopted the NaPro BioTherapeutics, Inc. 1993
Stock Option Plan (the "Plan") to provide  stock  options to employees and other
individuals  as  determined  by the Board of  Directors.  The Plan  provides for
option grants designated as either nonqualified or incentive stock options.  The
Plan provides for the issuance of up to 146,667  shares of NaPro's common stock.
The  initial  term of the Plan is ten years,  and the  maximum  option  exercise
period  shall be no more  than ten  years  from the date of  grant.  The term of
options for 667 or more shares is eight years, and the term of

                                      F-21

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                  NaPro BioTherapeutics, Inc. and Subsidiaries

              Notes to Consolidated Financial Statements, continued


options for fewer than 667 shares is five years.  Options for 667 shares or more
vest 25% after each  anniversary  date of the grant,  and options for fewer than
667 shares vest 50% after each anniversary date of the grant. The exercise price
for stock  options  issued  under the Plan is equal to the fair market  value of
NaPro's common stock.

1994 Long-Term Performance Incentive Plan

In July 1994,  NaPro's  stockholders  approved  the 1994  Long-Term  Performance
Incentive  Plan (the  "Incentive  Plan").  An aggregate  of 375,000  shares were
authorized  for issuance under the Incentive  Plan,  increased to 875,000 shares
with  stockholders'  approval in July 1996.  The  Incentive  Plan  provides  for
granting to employees and other key individuals  who perform  services for NaPro
("Participants") the following types of incentive awards:  stock options,  stock
appreciation rights ("SARs"),  restricted stock,  performance units, performance
grants and other types of awards  that the  Compensation  Committee  deems to be
consistent with the purposes of the Incentive Plan. In addition, each person who
is not an  employee  of NaPro or one of its  subsidiaries  and who is elected or
re-elected as a director of NaPro by the  stockholders  at any annual meeting of
stockholders  commencing with the 1994 annual meeting,  and, if first elected or
appointed  other than at an annual  meeting,  upon such election or appointment,
will receive, as of the business day following the date of each such election or
appointment,  a  nonqualified  option to purchase  5,000 shares of the Company's
common stock. In July 1996 the stockholders increased this option provision from
5,000 to 10,000 shares.

The following summarizes stock option activity and balances:

                                                                       Weighted
                                                                       Average
                                      Stock           Exercise         Exercise
                                     Options           Price           Price

Outstanding at December 31, 1994     364,134     $  .188 - $  6.000
Granted                              241,792       6.250 -   11.750
Canceled                              (6,667)                 2.400
Exercised                            (31,652)     0.750 -     2.400
                                   ----------

Outstanding at December 31, 1995     567,607       0.188 -   11.750
Granted                              440,700       7.125 -   11.125     $8.28
Canceled                              (5,500)      6.000 -   10.125      8.57
Exercised                            (21,418)     0.750 -     6.570      3.11
                                   ----------

Outstanding at December 31, 1996     981,389       0.188 -   11.750      6.55
Granted                              262,310       7.125 -   10.250      7.58
Canceled                             (50,450)      7.125 -   10.125      7.50
Exercised                             (2,466)                 2.400      2.40
                                   ----------

Outstanding at December 31, 1997    1,190,783      $0.188 - $11.750     $6.57
                                    =========

                                      F-22

<PAGE>


                  NaPro BioTherapeutics, Inc. and Subsidiaries

              Notes to Consolidated Financial Statements, continued


The  weighted-average  fair  value of  options  granted  during  1997 was $5.59.
Exercisable  shares at December 31, 1997 were  671,680  with a  weighted-average
exercise price of $5.67. The weighted-average  remaining contractual life of the
outstanding options was 7.4 years.

Pro forma information regarding net income and earnings per share is required by
Statement 123, which also requires that the  information be determined as if the
Company had  accounted  for its employee  stock  options  granted  subsequent to
December 31, 1994 under the fair value method of that statement.  The fair value
for these  options  was  estimated  at the date of grant  using a  Black-Scholes
option pricing model with the following  weighted-average  assumptions for 1995,
1996 and 1997  respectively:  risk-free  interest rate ranges of 5.47% to 6.89%,
5.84% to 6.64% and 6.20% to 6.46%; no expected  dividend;  volatility  factor of
 .58, .58 and .591 to .596; and an estimated  expected life range of three to six
years.

For purposes of pro forma  disclosures,  the estimated fair value of the options
is amortized to expense over the options'  vesting  period.  The  Company's  pro
forma information follows:

                                 1997               1996              1995
                                 ----               ----              ----

Pro forma net loss           $(16,711,000)       $(7,610,000)       $(4,813,000)
                             =============       ============       ============

Pro forma loss per share  $         (1.38)    $        (0.76)    $        (0.52)
                          ================    ===============    ===============

Statement 123 is applicable only to options  granted  subsequent to December 31,
1994.  Because  options  vest over  periods of up to four  years,  the pro forma
effect of the Statement will not be fully reflected until 1998.

9.   Strategic Alliances

NaPro  entered  into  strategic  alliances  with two  pharmaceutical  companies,
Faulding and IVAX, that have the capabilities to obtain commercial  approval for
NaPro's paclitaxel and to establish NaPro's paclitaxel as a major product in the
market.  The IVAX  Agreement  was  terminated  in March 1998 (See Note 12).  The
remaining  strategic partner has assumed  responsibility for funding the cost of
all aspects of the required  clinical and  regulatory  processes in its markets.

The Faulding Agreement

In  1992,  NaPro  entered  into an  initial  20 year  exclusive  agreement  with
Faulding,  which was  amended  in June  1993,  January  1994 and March 1995 (the
"Faulding  Agreement"),  to develop  and  market  paclitaxel  in ten  countries,
including  Australia,  New  Zealand,  and much of Southeast  Asia.  The Faulding
Agreement  also  grants  Faulding  the  nonexclusive  right  to sell  paclitaxel
supplied  by NaPro  in  certain  countries  in the  Middle  East.  The  Faulding
Agreement  provides that NaPro shall supply all of Faulding's  requirements  for
paclitaxel.  NaPro is paid a fixed sum for paclitaxel supplied for noncommercial
uses, and a fixed  percentage of Faulding's  original sales price for paclitaxel
supplied for commercial use (see Notes 3 and 7).

                                      F-23

<PAGE>


                  NaPro BioTherapeutics, Inc. and Subsidiaries

              Notes to Consolidated Financial Statements, continued


The IVAX Agreement (terminated in March 1998 (See Note 12))

In June 1993,  NaPro entered into an initial 20 year  exclusive  agreement  with
IVAX to develop and market  paclitaxel in the United States,  Europe,  Japan and
the  rest  of the  world  not  covered  by the  Faulding  Agreement  (the  "IVAX
Agreement"),  with the  exception of the former Soviet Union  countries,  China,
certain countries in the Middle East, and the Vatican, territories to which IVAX
had  nonexclusive  rights.  The IVAX  Agreement  was  terminated  in March 1998.
Simultaneously  with  entering into the IVAX  Agreement,  IVAX made a $3 million
equity  investment in NaPro for 19.8% of NaPro's then outstanding  common stock.
These  shares  will  be  returned  to  NaPro  as part  of the  1998  termination
agreement.  The IVAX  Agreement  provided that NaPro was to supply all of IVAX's
requirements for paclitaxel.  NaPro was paid a fixed sum for paclitaxel supplied
for noncommercial uses, and a manufacturing  payment plus a percentage of IVAX's
sales profit (as defined by the agreement)  for  paclitaxel  sold for commercial
uses (see Notes 7 and 12). Under the 1998 termination agreement, all material is
to be sold to IVAX at a fixed price.

The PBI Agreement

In March 1994, NaPro entered into a ten-year  initial-term contract with Pacific
BioTechnologies,   Inc.  ("PBI"),  a  subsidiary  of  PRT,  one  of  the  larger
reforestation  companies  in  Canada  (the  "PBI  Agreement").   Under  the  PBI
Agreement,  PBI is planting and maintaining a plantation of yew trees and bushes
designed to provide NaPro with a long-term  renewable  supply of Taxus  biomass.
Pursuant to such agreement, NaPro is obligated to pay PBI an annual fee equal to
its cost in performing its  obligations  under the agreement plus overhead and a
specified profit.

10.  Commitments and Contingencies

Operating Leases

NaPro  has  executed  noncancellable  operating  lease  agreements  for  office,
research and  production  facilities.  As of December 31, 1997,  future  minimum
lease payments under noncancellable operating lease agreements are as follows:

                           1998                        $   575,000
                           1999                            488,000
                           2000                            392,000
                                                      ------------

                                  Total                 $1,455,000
                                                        ==========
Rent expense for the years ended  December 31, 1997,  1996 and 1995  amounted to
$629,000, $564,000 and $262,000, respectively.



                                      F-24

<PAGE>


                  NaPro BioTherapeutics, Inc. and Subsidiaries

              Notes to Consolidated Financial Statements, continued


Intellectual Property Contingency

NaPro's  intellectual  property is a key asset.  NaPro's  intellectual  property
rights are subject to legal  challenge.  Such rights are  uncertain  and involve
complex legal and factual  questions for which  important  legal  principles are
largely unresolved.  A number of other entities have developed technologies that
may be related to NaPro's technology. Many of these entities are larger and have
significantly  greater  resources  than  NaPro.  Some  of the  technologies  may
conflict  with NaPro's  technologies,  and  therefore  increase the potential of
legal challenge.

NaPro relies on trade secret  protection for its  confidential  and  proprietary
information. There can be no assurance that competitors or potential competitors
of NaPro will not independently  develop  substantially  equivalent  proprietary
information  and techniques or otherwise gain access to NaPro's trade secrets or
disclose  such  technology,  or that NaPro can  meaningfully  protect  its trade
secrets.

Faulding--Bristol-Myers Squibb Litigation

NaPro's customer,  Faulding,  distributes a paclitaxel-based  drug in Australia.
Faulding's main competitor in the Australian market,  Bristol-Myers  Squibb, has
brought legal action against  Faulding on the basis of  infringement  of certain
Bristol-Myers  Squibb  patents,  which  Faulding  is  claiming  are invalid in a
separate suit.  Based upon its review of the prior art and its discussions  with
Faulding,  NaPro  management  believes the  Bristol-Myers  Squibb action will be
successfully resisted.

Uncertainty Over the Selling Price Under the Faulding Agreement

Under  the  Faulding  Agreement  (see  Note 9),  NaPro  is paid a fixed  sum for
paclitaxel supplied for noncommercial uses, and a fixed percentage of Faulding's
sales price for  paclitaxel  supplied for commercial  use. NaPro  recognizes the
corresponding  revenue at the time of shipment of paclitaxel to Faulding,  based
upon the intended use  indicated  by Faulding on its purchase  orders.  However,
Faulding  may or may not use the  paclitaxel  in  accordance  with the  original
intent indicated on its purchase orders. Additionally, Faulding's actual selling
price may differ from the amounts originally budgeted and indicated to NaPro. On
or about April 30, 1998,  Faulding will communicate to NaPro the final amount of
sales,  and an  adjustment  will be  calculated,  which may either  increase  or
decrease NaPro's revenue from sales of products to Faulding for 1997 and 1998.

Purchase Commitments

NaPro's purchase  commitments  total  approximately  $2,200,000 in 1998. Of that
amount,  $1,600,000  is  for  processing  of raw  materials.  The  remainder  is
committed to plantation maintenance and acquisition of additional yew trees.

11.      Retirement Plan

During  1996  NaPro  adopted  a  defined  contribution  retirement  plan for its
employees established in accordance with the provisions of Internal Revenue Code
section 401(k) (the "Plan"). Employees over the

                                      F-25

<PAGE>


                  NaPro BioTherapeutics, Inc. and Subsidiaries

              Notes to Consolidated Financial Statements, continued

age of 17 are eligible to  participate in the Plan on the first day of the month
immediately  following the  completion  of six months of  continuous  service or
1,000 hours of service during a 12 continuous month period.

Participants  may contribute up to 15% of their pay to the Plan.  NaPro may make
additional  contributions  to the Plan on behalf of the participants in the form
of cash or in shares of NaPro's common stock. In 1997 and 1996, NaPro elected to
match 50% of the first $2,000 in contributions of each participating employee as
of the end of the year with NaPro  common  stock  valued at $51,000 for 1997 and
$28,000 for 1996.

12.      Subsequent Events

On  February  17,  1998,  NaPro  announced  the planned  layoff of 53  employees
resulting  in a one-time  charge of  approximately  $250,000.  The layoff was in
response  to the  December  24, 1997 ruling by the FDA that IVAX and NaPro could
not market  paclitaxel in the U.S. for the treatment of Kaposi's  sarcoma due to
Bristol's prior  approval,  under the Orphan Drug Act, for the use of paclitaxel
in the treatment of Kaposi's sarcoma.  As part of the layoff,  NaPro temporarily
closed  its  British  Columbia  manufacturing  facility.  NaPro  also  suspended
construction of a  manufacturing  facility in Boulder,  Colorado.  Completion of
this facility  will require  additional  financing  which will be sought at such
time as NaPro foresees  sufficient  product demand to warrant  completion of the
facility.

NaPro and IVAX  terminated  the IVAX  Agreement  on March 20, 1998 (see Note 9).
Under terms of the termination agreement, IVAX received a royalty-free, limited,
non-exclusive  license to one of NaPro's pending patents (the "Pending  Patent")
in the United States,  Europe and certain other world markets. In return,  NaPro
received  a  cash  payment  of  approximately  $6  million.   IVAX  will  return
approximately  1.1 million shares of NaPro common stock within 5 days of NaPro's
filing its 1997 Annual  Report on Form 10-K.  In addition,  upon the issuance of
the Pending Patent in various countries,  IVAX is to make additional payments of
up to $6.4  million.  NaPro  will  continue  to  manufacture  a fixed  amount of
paclitaxel for delivery to IVAX  periodically  over not more than twelve months.
The termination of the IVAX Agreement leaves NaPro free to seek a new partner or
partners  with  which  to  pursue  regulatory  approval  and  marketing  of  its
paclitaxel in the area outside the Faulding territory.  However, the termination
of this agreement  currently leaves NaPro without such a partner,  and there can
be no  assurance  that NaPro will be able to find a strategic  partner or form a
new  long-term  agreement  for the  approval,  marketing,  and  distribution  of
paclitaxel in these territories,  or that such a partner, if found, will be able
to secure regulatory  approval or effectively market its paclitaxel.  Failure to
find such a strategic partner or form such a new long-term  agreement could have
a material adverse effect on NaPro.


                                      F-26

<PAGE>