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, 1998

                         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 $30,011,000 as of March 15, 1999.

The number of shares outstanding of each of the registrant's classes of common
stock, as of March 15, 1999:

Common Stock                        17,687,212
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 1999 Annual Meeting of
Stockholders.


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                                          Table of Contents



          Item                                                            Page
Part I     1      Business                                                   3
           2      Properties                                                18
           3      Legal Proceedings                                         18
           4      Matters Submitted to Stockholders' Vote                   19
Part II    5      Market Information and Related Stockholder Matters        19
           6      Selected Financial Data                                   20
           7      Management's Discussion and Analysis of Financial
                  Condition and Results of Operations                       21
           7A     Quantitative and Qualitative Disclosures about
                  Market Risk                                               28
           8      Financial Statements and Supplementary Data               29
           9      Changes in and Disagreements with Accountants             29
Part III   10     Directors and Executive Officers                          29
           11     Executive Compensation                                    29
           12     Security Ownership of Certain Beneficial Owners and
                  Management                                                29
           13     Certain Relationships and Related Transactions            30
Part IV    14     Exhibits, Financial Statement Schedules, and Reports
                  on Form 8-K                                               30


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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 focused primarily on the
development, manufacture and commercializa tion 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 $1.2 billion in 1998 and approximately $941
million in 1997. BMS's paclitaxel is the only United States Food and Drug
Administration ("FDA") approved formulation of paclitaxel and is indicated for
the treatment of breast and ovarian cancers, Kaposi's Sarcoma, and non-small
cell lung cancer when used in combination with cisplatin. 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. 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 entering into the 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 companies. NaPro is in substantive
discussions with several companies aimed at forming alliances for the develop
ment, sales, marketing and distribution of NBT Paclitaxel in North America and
Europe. In 1992 NaPro entered into a 20-year exclusive agreement (the "Faulding
Agreement") with F.H. Faulding & Co., Ltd., Australia's largest domestic
pharmaceutical company with 1998 sales of approximately $1.2 billion
("Faulding"), for the clinical development, sales, marketing and distribution of
NBT Paclitaxel in Australia, New Zealand and much of southeast Asia. See
"Strategic Alliances, Faulding".

NaPro supplies NBT Paclitaxel to Faulding, which formulates it into a commercial
drug product named ANZATAX(TM). Faulding has agreed to fund and, with NaPro's
input, perform development work leading to 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. Faulding 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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From June 1993 to March 1998, NaPro was party to an exclusive agreement (the
"IVAX Agreement") with IVAX Corporation (together with its subsidiaries,
"IVAX"), 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 the IVAX Agreement, clinical trials were conducted and IVAX obtained
regulatory approval for and began marketing Taycovit, its commercial formulation
of NBT Paclitaxel, in two South American countries. IVAX filed an
Investigational New Drug ("IND") application for Paxene(R), its formulation of
paclitaxel, with the United States Food and Drug Administration (the "FDA") in
1994, subsequently completed 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. The IVAX agreement was terminated by the parties in March 1998. See
"Strategic Alliances, 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, including 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 subsequently
received approval for the sale of paclitaxel as a treatment for various other
cancer indications.

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. The concentration of
taxanes in yew trees 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 used. NaPro believes the two most prevalent processes used today are
conventional biomass extraction and semi-synthesis.


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With conventional 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 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 certain other taxanes (which are otherwise
considered waste byprod ucts) and converts these taxanes into paclitaxel through
chemical synthesis. By converting other taxanes into paclitaxel, the
semi-synthesis process increases the yield of paclitaxel from the same quantity
of biomass. Regardless of which process is used, the final product must have
levels of impurities at or below acceptable regulatory standards.

Historically, the Pacific yew tree has been the primary source of biomass. Most
species of Taxus, including the Pacific yew, grow slowly, requiring a number of
years to reach harvestable size. As a result of its slow growing pattern, Taxus
is generally found in old growth forests, frequently the habitat of endangered
species, including the spotted owl. Biomass from the 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; Manufac turing".

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
than 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 approvals 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, Europe and Southeast Asia. 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. NaPro believes this
limitation to apply in the case of Taxol(R). Taxol(R) is a registered trademark
of BMS for an anti-cancer pharmaceutical preparation containing paclitaxel. A
comparable statute to the

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Waxman-Hatch Act exists in Europe, although the related period of exclusivity is
ten years. See "Government Regulation and Product Approvals".

NaPro NaPro filed an IND in May 1998, and initiated Phase II/III clinical trials
of NBT Paclitaxel for three indications in June 1998 and March 1999. These
trials are ongoing, and it is too early to anticipate the outcome. There can be
no assurance that these trials will demonstrate NBT Paclitaxel to be safe or
effective.

Faulding In January 1995, Faulding received generic regulatory approval from the
Australian Therapeutic Goods Administration ("TGA") to market ANZATAX(TM) in
Australia. Under Australian law there is no exclusivity period comparable to
that provided by the 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. Faulding has marketing
applications pending in five other countries. There can be no assurance,
however, that Faulding will receive approval in any of these countries or will
successfully market NBT Paclitaxel in any of the countries where approvals have
been received.

Biomass; Manufacturing

Biomass Paclitaxel and other taxanes used in the production of NBT Paclitaxel
are present in many parts of various species of yew trees. 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 cultivated yew trees.

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 by planting and
propagating a reliable and renewable homogeneous biomass source. In order to
have access to such a stable, long-term supply of biomass for use in the
production of NBT Paclitaxel, NaPro entered into agreements with, among others,
Pacific BioTechnologies Inc. in 1993 and Zelenka Nursery, Inc. in 1996 (the "PBI
Agreement" and "Zelenka Agreement," respectively). NaPro made its first
small-scale harvest pursuant to the Zelenka Agreement in the second quarter of
1996, and during 1997 completed its initial harvest under the Zelenka Agreement.
In addition, during 1997 NaPro made spot orders with other vendors to obtain
sufficient biomass to support manufacturing demands. During 1998, NaPro
conducted limited harvests under the Zelenka Agreement and began research
related to enhancing paclitaxel production in cultivated yew trees. In July
1998, the PBI Agreement was terminated by notice. Under the terms of
termination, there is up to a 2 year winding down of the agreement. A fair
market value lease of the facilities and contract for ongoing maintenance of the
plantation is currently under negotiation with PBI. NaPro believes that it has
sufficient time to harvest the trees and/or to locate and contract with a new
nursery for the planting and care of the yew trees that had been planted under
the PBI Agreement.

Manufacturing The manufacture of paclitaxel occurs in three steps. In the first
step, a crude paclitaxel extract is extracted from cultivated yew trees and
delivered to one of NaPro's manufacturing facilities. At these facilities, the
extracted crude paclitaxel mixture is isolated and purified and, in the final
step, 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.

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From December 1996 to February 1999, a third party extracted crude paclitaxel
from cultivated yew trees pursuant to a manufacturing agreement with NaPro. In
February 1999 that agreement terminated under an agreement that provided for,
with certain exceptions, mutual releases from the obligations of the
manufacturing agreement and from claims related to such agreement. NaPro
believes that it has sufficient quantities of crude paclitaxel to supply
quantities due to IVAX under the IVAX Termination Agreement and to fulfill
NaPro's requirements for its clinical program. However, at such time as NaPro
needs additional crude paclitaxel, NaPro will be required to find another
third-party extractor or undertake such extraction itself. NaPro believes that
it will be able to develop or obtain adequate extraction operations when needed,
but no assurance thereof can be provided.

NaPro currently operates a pilot-scale manufacturing facility in Boulder,
Colorado and until April 1998 operated another small-scale manufacturing
facility in British Columbia, Canada. In December 1997 the FDA refused to allow
marketing of NBT Paclitaxel in the United States under an NDA previously filed
by IVAX because of a previously granted exclusive right under the Orphan Drug
Act. Such refusal resulted in a decrease in the projected demand for NBT
Paclitaxel. As a result, NaPro decided to suspend manufacturing in British
Columbia 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 requirements and NaPro's
clinical demands for the near future as well as 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 or has licensed several 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. Certain of
the taxanes are then converted into paclitaxel through a chemical synthesis
process. Because this semi-synthesis process uses both paclitaxel and other
taxanes, NaPro expects that use of a semi-synthesis process will increase the
paclitaxel yield from its biomass sources. However, the use of semi-synthesis
will require regulatory approvals, of which there can be no assurance.
Furthermore, there can be no assurance NaPro's semi-synthesis process will
perform as expected or that NaPro will be able to effectively adapt the process
to commercial-scale manufacturing. See "Patents and Proprietary Technology".

Strategic Alliances

NaPro's strategy has been to pursue and enter into strategic alliances with
large international pharmaceuti cal companies. In April 1998, NaPro initiated
discussions toward the formation of new strategic alliances. NaPro believes that
new development and marketing agreements may allow NaPro to take advantage of

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its partners' knowledge and expertise in clinical testing and sales, marketing
and distribution. There can be no assurance, however, that NaPro will be able to
enter into such an agreement or agreements or that such other objectives can be
obtained.

NaPro formed a strategic alliance through a long-term exclusive agreement with
Faulding. 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. Under
its agreement with Faulding, NaPro is able to take advantage of Faulding's
resources, including expertise in clinical testing and sales, marketing and
distribution. NaPro believes that its alliance with Faulding 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. Furthermore, if such approvals are gained,
there can be no assurance that Faulding will market NBT Paclitaxel successfully
in these additional countries.

Until March 20, 1998, NaPro and IVAX were parties to a 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, including the United States, Europe and Japan, and
NaPro is currently in negotiations to do so. 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 any such 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 1998
sales of approxi mately $1.2 billion, actively markets anti-cancer
pharmaceuticals and other health care products in Australia, Southeast Asia and
other countries throughout the world. NaPro entered into a development and
marketing agreement with Faulding in 1992. The Faulding Agreement, as amended
and restated, has an initial term of 20 years, through 2012, 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.

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;

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(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 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.

Faulding currently owns 395,000 shares of NaPro Nonvoting Common Stock. 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.
Faulding has sold 205,000 shares of Nonvoting Common Stock, which automatically
converted into NaPro common stock upon their sale.

IVAX IVAX, a diversified international health care company with 1998 sales of
$638 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 with IVAX through IVAX's subsidiary, Baker Norton
Pharmaceuticals ("BNP"). On March 20, 1998, NaPro and IVAX entered into an
agreement terminating the IVAX Agreement (the "Termination Agreement").

While effective, 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 was 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 half of 1999. In addition, the Termination Agreement grants IVAX a
royalty-free, limited, non-exclusive license, for one of NaPro's patents (the
"Patent") in the United States, Europe, and certain other world markets. See
"Competition". As consideration for this licence, NaPro received $4,070,000,
1,126,398 shares of NaPro common stock held by IVAX were returned to NaPro, and
an additional $2,000,000 was placed in escrow to be released in installments
corresponding to delivery of NBT Paclitaxel to IVAX. As a result of deliveries
of NBT Paclitaxel to IVAX, $680,000 of this escrow amount had been released to
NaPro through December 31, 1998. NaPro anticipates that the remainder of the
paclitaxel to be delivered to IVAX pursuant to the Termination Agreement will be
shipped and that, as a result, the remaining $1,320,000 will be released by June
30, 1999. In addition, during 1998 IVAX made the following payments to NaPro:
$3,750,000 upon issuance of the Patent in the United States, and $2,610,000 upon
issuance of the Patent in the European Union. On

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the same day the Termination Agreement was executed, Leonard P. Shaykin, NaPro's
Chairman of the Board of Directors, entered into an agreement with IVAX relating
to a warrant for 111,111 shares of NaPro common stock (the "Warrant Agreement")
that Mr. Shaykin acquired from IVAX in 1996. In exchange for return of the
warrant to NaPro by Mr. Shaykin, the Company agreed to indemnify IVAX for any
loss associated with such transaction.

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, there can be no assurance
that NaPro will be able to 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 to
effectively market NBT Paclitaxel.

Marketing and Sales

Marketing and sales of NBT Paclitaxel in the Faulding Territory are conducted by
Faulding. Currently, 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, during the first half 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, the failure of Faulding to successfully market NBT Paclitaxel or
the failure 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, many of whom
have significantly greater capital resources and research and development
capabilities.

Within the paclitaxel segment of this industry 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 approvals and marketing are being
handled exclusively by Faulding within the Faulding Territory. Although NaPro
believes Faulding has capable clinical and marketing abilities, there can be no
assurance that Faulding will be capable or effective in gaining additional
regulatory approvals on a timely basis, if at all, or be able to compete
effectively with existing or new competitors within the Faulding Territory. In
addition, the Company is currently pursuing strategic alliances for the
development and marketing of NBT Paclitaxel in the countries

                                                     - 10 -

<PAGE>



not covered by the Faulding Agreement. There can be no assurance that NaPro will
be able to find any such partners or, if such a partner or partners are found,
there can be no assurance that such a partner or partners will be able to secure
regulatory approval or effectively market NBT Paclitaxel if approval is secured.

BMS, the world's largest oncology company, is 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 licensed one of its patents to
IVAX, and the benefits of the licensed patent may inure to IVAX. See "Strategic
Alliance." NaPro anticipates that IVAX will continue to seek entry to the global
paclitaxel market independently of NaPro and may compete with NaPro in the
future. Furthermore, due to the 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. 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.
In Europe, a similar exclusivity period will end in most cases 10 years after
BMS' initial approval. 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 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 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 allow such competitors to produce 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 owns
14 issued United States patents and has approximately 9 United States patent
applications pending. In addition, NaPro owns 11 issued foreign patents and has
approximately 81 foreign patent applications

                                                     - 11 -

<PAGE>



pending. NaPro expects to make additional filings as it believes appropriate.
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. There can be no assurance 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 advan
tages; 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 affect 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 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,
semi-synthetic and 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, manufac ture or sale of
products to be foreclosed, any of which would likely have a material adverse
effect on NaPro. In addition, NaPro could experience a loss of revenue and may
incur substantial cost in defending 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

                                                     - 12 -


<PAGE>



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" and "European Patent Litigation".

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, 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.

                                                     - 13 -


<PAGE>



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.

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. Notwithstand ing 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, a Supplemental NDA
("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 problems
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.

During the term of the IVAX Agreement, to the extent required by the terms of
the Termination Agreement, NaPro has supported and is required to continue to
support the IVAX NDA in the United States and an equivalent filing in the
European Union. In this capacity, NaPro has communicated with the

                                                     - 14 -


<PAGE>



FDA to discuss the biomass strategy employing plantation-grown yews and
technical issues associated with NaPro's 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, would be inspected for approval in the
IVAX NDA. NaPro communicated with the FDA regarding the commercial facility as
an alternate facility, which would have required NaPro to prepare two
"commercial" facilities for FDA approval, resulting in the expenditure of more
resources than originally planned. In addition, during 1998, NaPro's
manufacturing facilities underwent a pre- approval inspection by the European
Agency for the Evaluation of Medicinal Products (the "European Agency") in
support of IVAX's European regulatory submission. Based upon the findings of
that inspection and NaPro's responses, the inspectors recommended to the
European Agency that NaPro's Boulder, Colorado pilot-scale facility be named as
a supplier for paclitaxel.

NaPro is also subject to United States statutes and regulations applicable to
exporting drugs. Such laws 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 law, one
of which is Australia. NaPro's Paclitaxel has received valid marketing
authorization from Australia and NaPro's 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 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 governmen tal 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 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, or an
Environmental Impact Statement and Record of Decision 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 yews,
and will not harvest any Pacific yew trees to manufacture paclitaxel for a
marketed product, NaPro believes that

                                                     - 15 -


<PAGE>



the ONRC-FDA agreement requirements can be met, and that these requirements will
not jeopardize approval of any NDA which may be filed by NaPro in the future.
Even though NaPro no longer harvests biomass from the bark of the Pacific yew,
there can be no assurance that the ONRC and other environ mental 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 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.

Subsequent to termination of the IVAX Agreement, NaPro submitted an IND to the
FDA. NaPro initiated Phase II/III clinical trials pursuant to that IND in June
1998 and March 1999 for three indications. These trials are ongoing, and it is
too early to anticipate the outcome. There can be no assurance that these trials
will demonstrate NBT Paclitaxel to be safe or effective.

Research and Development

During the years ended December 31, 1996, 1997 and 1998, NaPro spent
approximately $6.8 million, $11.8 million and $10 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


                                                     - 16 -

<PAGE>



The following table sets forth, for the past three 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,
                                    1998              1997             1996
                                    ----              ----             ----

Sales to Unaffiliated Customers
         United States             $4,498            $2,684          $ 1,692
         Canada                       454             1,130            1,781 
                                   -------          --------         --------
         Total Sales (1)            4,952             3,814            3,473

Operating Loss
         United States            (12,852)          (12,854)          (6,719)
         Canada                      (526)             (952)            (384)

Identifiable Assets
         United States             23,260             26,419           20,198
         Canada                     2,406              3,939            4,823

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

(1)  Includes export sales to Australia of $2,189 in 1998, $1,303 in 1997 and
     $2,509 in 1996.

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 34% of
NaPro's revenue for the year ended December 31, 1997 and 44% of NaPro's revenue
for the year ended December 31, 1998. 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, with a
resulting 43% reduction in full time positions. As part of this downsizing,
NaPro(Canada) discontinued production at its British Columbia manufacturing
facility. It was anticipated that this downsizing would produce annualized
savings in personnel costs of about $2.8 million.

As of March 15, 1999, NaPro had 72 full-time employees, 3 part-time employees, 3
project employees, and 7 temporary employees, of whom 10 hold Ph.D. or M.D.
degrees. Two employees were engaged in biological and clinical research, 24 in
chemical research, 18 in quality control/quality assurance, 22 in

                                                     - 17 -


<PAGE>



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 manufacturing. NaPro leases a facility of approximately 3,400
square feet in British Columbia, Canada which was used for manufacturing until
April 1998, but which is currently inactive. NaPro leases an additional 10,090
square foot facility in British Columbia, Canada, which is currently unused, and
which NaPro is attempting to sublease to a third party.

As part of the downsizing announced by the Company on February 17, 1998, NaPro
temporarily closed its British Columbia manufacturing facility and suspended
construction of its commercial scale manufactur ing facility in Boulder.
Completion of the Boulder facility will require additional financing, which the
Company intends to seek at such time as NaPro anticipates sufficient product
demand to warrant completion of the facility. The British Columbia manufacturing
facility is currently inactive, but the Company believes this facility could be
reactivated, without substantial expense, at such time as additional
manufacturing capacity is required.

                                     Item 3

                                Legal Proceedings

During 1998, NaPro prevailed in an action challenging the validity of a European
Patent held by BMS. BMS has appealed  this decision and that appeal is currently
pending. See "European Patent Litigation". NaPro is not currently engaged in any
other material legal proceedings. See "Patents and Proprietary Technology".

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 subsequently sued
NaPro and Baker Norton Pharmaceuticals, Inc., a subsidiary of IVAX ("BNP") in
the United Kingdom, alleging patent infringement with respect to clinical trials
carried out in the United Kingdom involving paclitaxel. NaPro and BNP
counter-claimed to revoke the patent as invalid. The outcome of the trial of
that action, concerning EP (UK) Patent Number 0,584,001 (the "BMS Patent") (GB
Patent Number 2,269,319 was surrendered by BMS), was a judgement rendered by the
English High Court on October 1, 1998. The Judge held that the BMS Patent was
invalid on the basis of lack of novelty and obviousness.


                                                     - 18 -


<PAGE>



BMS has lodged a Notice of Appeal dated November 1998 from the High Court'
decision. It is NaPro's belief that this appeal will be heard some time in 1999.
In view of the minimal activity, if any, by NaPro in the United Kingdom, NaPro
believes that the risk of an award of substantial damages against NaPro, in the
event of an unfavorable Court of Appeal ruling, to be very low. In addition, BNP
is required to indemnify NaPro for any damages (not including payment of
attorneys' fees) suffered as a result of this legal action. However, litigation
is an uncertain process, and an adverse result of the appeal could have a
material adverse effect on NaPro.

                                     Item 4

                     Matters Submitted to Stockholders' Vote

No matters were submitted to a vote of NaPro's security holders during the
quarter ended December 1998.


                                     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
"NaPro". The following table sets forth, for the periods indicated, the high and
low sale prices for the common stock.
                                      High                       Low

1998
         First Quarter              $ 2                     $   27/32
         Second Quarter               2  7/32                1   1/16
         Third Quarter                2  7/32                   31/32
         Fourth Quarter               1 29/32                     7/8

1997
         First Quarter              $14   1/2               $ 9   3/4
         Second Quarter              13   1/4                 6   1/4
         Third Quarter               11   7/8                 5   7/8
         Fourth Quarter               8   7/8                 1   3/4

Stockholders

As of December  31, 1998 there were  approximately  163 common  stockholders  of
record.

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.


                                                     - 19 -

<PAGE>



Recent Sales of Unregistered Securities

On June 4, 1997, NaPro privately issued $10.3 million of senior convertible
notes due 2000. The notes were sold to private investors. The notes are
convertible into common stock at a 10% discount from the market price of the
common stock during specified periods prior to the conversion. In 1998 NaPro
issued 296,019 shares of common stock in payment of $295,000 interest on the
notes and 2,833,587 shares of common stock on the conversion of $2,900,000
principal of the notes. As a negotiated transaction with sophisticated investors
not involving any public offering, the sale of the notes, and the issuance of
common stock in the payment of interest and upon conversion of the 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 "C Preferred") for an aggregate
issuance price of $5 million. The C Preferred is convertible into common stock
at a 5% discount from the conversion date. In 1998 NaPro issued 986,666 shares
of common stock in conversion of the C Preferred and 186,656 shares of common
stock in payment of dividends on the C Preferred. As an issuance to a single
sophisticated investor not involving any public offering, the sale of the C
Preferred and the issuance of common stock in the payment of dividends and upon
conversion of the C Preferred was exempt under Section 4(2) of the Securities
Act and Regulation D thereunder.

Certain provisions of the C Preferred may limit the ability of NaPro to pay
dividends on its common stock and to repurchase shares of its common stock.

                                     Item 6

                             Selected Financial Data

The selected financial data presented below for each year in the five years
ended December 31, 1998, 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, 1998 and 1997 and for each of the three years in the period
ended December 31, 1998, 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.


                                                     - 20 -


<PAGE>

<TABLE>
<CAPTION>


                                                                        Year Ended December 31,
                                                       1998         1997         1996         1995         1994
                                                       ----         ----         ----         ----         ----
                                                                    (In thousands, except per share data)
Statement of Operations Data:
<S>                                                  <C>          <C>          <C>            <C>         <C>
Product Sales                                        $  4,952     $  3,814     $  3,473       $ 2,623     $ 1,002
                                                     --------     --------     --------       -------     -------

Operating Expense:
     Research, development and cost of products sold    9,973       11,769        6,837        4,325        2,707
     General and administrative                         6,458        5,992        3,712        2,309        2,044
     (Gain) loss on retirement of assets                1,899         (141)          27            1           -
     Faulding royalty                                      -            -            -            -         1,000
     Plantation cost                                       -            -            -           272        1,238 
                                                 -------------------------- ------------    ---------     --------
          Total operating expense                      18,330       17,620       10,576        6,907        6,989 
                                                    ---------    ----------    ---------    ---------     --------
Operating loss                                        (13,378)     (13,806)      (7,103)      (4,284)      (5,982)
Other income (expense):
     License Fee                                       11,110           -            -            -            -
     Interest income                                      550          494          651          373          188
     Interest and other expense                          (902)      (2,161)        (373)        (160)        (340)
                                                   -----------  -----------   ----------    ---------   ----------
Loss before extraordinary item                         (2,620)     (15,473)      (6,825)      (4,071)      (6,134)
Loss on early extinguishment of debt                       -             -            -           -          (512)
                                                 ---------------------------------------- -----------   ----------
Net loss                                             $ (2,620)    $(15,473)     $(6,825)     $(4,071)     $(6,646)
                                                     =========    =========     ========     ========     ========
Loss per share:
     Before extraordinary item                      $   (0.22)   $   (1.28)    $  (0.68)     $ (0.51)     $ (0.91)
     Extraordinary item                                    -            -            -            -         (0.08)
                                                 ---------------------------------------  -----------    ---------
     Net loss                                       $   (0.22)   $   (1.28)    $  (0.68)     $ (0.51)     $ (0.99)
                                                    ==========   ==========    =========     ========     ========
Weighted average shares outstanding                     14,642      12,104        9,973        7,973        6,761 
                                                     =========    =========    =========     ========     ========


                                                                       Year Ended December 31,
                                                       1998          1997         1996        1995         1994
                                                       ----          ----         ----        ----         ----
                                                                             (In thousands)
Balance Sheet Data:
Cash, cash equivalents and short-term securities     $  7,441     $  8,102      $14,767     $  7,800      $ 1,400
Working capital                                         7,121       (2,485)      14,224        8,453        3,169
Total assets                                           25,666       30,358       25,021       11,953        4,976
Long-term obligations, net of current maturities           80          480          751        1,618        1,273
Senior convertible debt                                 5,176           -            -            -            -
Senior convertible redeemable preferred stock           3,805        4,344           -            -            -
Minority interest                                         622        2,574        3,715        3,715           -
Accumulated deficit                                   (43,618)     (40,998)     (25,525)     (18,700)     (14,629)
Stockholders' equity                                   10,884        7,262       16,569        5,424        3,037

</TABLE>

                                     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. 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 Private Securities Litigation Reform Act of 1995 (the
"Reform Act"). See "Special Note Regarding Forward Looking Statements".


                                                     - 21 -


<PAGE>



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
Faulding and IVAX for the clinical development, sales, marketing and
distribution of NBT Paclitaxel. NaPro is actively seeking one or more partners
to replace IVAX. NaPro is currently dependent for revenue exclusively on sales
of NBT Paclitaxel, on fees from licencing its technology and on amounts payable
by IVAX to NaPro under the Termination Agreement.

Through December 31, 1998, 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 $13.4 million, $13.8 million and $7.1 million for the years ended
December 31, 1998, 1997 and 1996, respectively, resulting in an accumulated
deficit of $43.6 million as of December 31, 1998. 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 enter into agreements with one or more partners for the clinical
development, sales, marketing and distribution of NBT Paclitaxel, to obtain
regulatory approval in the U.S. or another major market for the commercial sale
of NBT Paclitaxel, to obtain regulatory approval for its manufacturing
facilities and to construct manufacturing facilities that produce quantities of
NBT Paclitaxel sufficient to supply NaPro's current and any future 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 affect on NaPro's revenue and profitability.

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 cost, announcing
the planned layoff of 53 employees resulting in a one-time charge of
approximately $250,000. As part of this restructuring, NaPro discontinued
operations at its British Columbia manufacturing facility and suspended
construction of its commercial scale manufactur ing facility in Boulder,
Colorado. Completion of the Boulder facility will require additional financing,

                                                     - 22 -


<PAGE>



which NaPro intends to seek at such time as NaPro anticipates sufficient product
demand to warrant completion of the facility. NaPro incurred $434,000 of losses
on asset retirements and $110,000 of other expense as a result of the suspended
construction.

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 secure regulatory approval or 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. Failure to find such a strategic partner could have a
material adverse effect on NaPro.

Results of Operations

Year Ended December 31, 1998 Compared to Year Ended December 31, 1997 Sales.
1998 sales were $5 million, up $1.2 million from 1997. Sales to IVAX for 1998
were $2.7 million, up $400,000 from 1997. Sales to IVAX, as a result of the
Termination Agreement, are expected to end in the second 1999 quarter. Future
product sales in territory outside that covered by NaPro's agreement with
Faulding (the "Faulding Agreement") may be dependent 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 1998 were $2.2
million, up $700,000 from 1997. The increase was due primarily to the timing of
product shipments and to inventory fluctuations of NaPro's strategic partners.
Sales may vary significantly depending on a number of factors, including the
timing and size of any clinical trials, NaPro's obtaining one or more partners
to replace IVAX, changes in demand, 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.

Research, Development and Cost of Products Sold. Research and development
expense and cost of products sold for 1998 was $10 million, down by $1.8 million
from 1997. The decrease resulted primarily from the benefits of the February
1998 restructuring, a decrease in the level of process development and research,
and lower production cost. NaPro's production process is not distinct from its
research and development processes. Accordingly, the cost of products sold is
included within NaPro's research and development expense.

General and Administrative Expense. General and administrative expense for 1998
was $6.5 million, up $500,000 from 1997. The increase is attributable primarily
to increases of $700,000 in legal expense related to European litigation and
$200,000 of consulting expense primarily related to the IVAX Termination
Agreement, partially offset by a reduction in recruiting and relocation expense.

Interest Income. Interest income for 1998 was $600,000, up $100,000 from 1997.
The increase is attributable to overall higher interest rates realized on
interest bearing investments. See "Liquidity and Capital Resources".


                                                     - 23 -


<PAGE>



Interest and Other Expense. Interest and other expense for 1998 was $900,000,
down $1.3 million from 1997. The decrease is primarily attributable to the
non-recurrence of the $1.1 million 1997 expense related to the amortization of
original issue discount on the senior convertible debt, to decreased interest on
the senior convertible debt and to decreased borrowing on equipment financing.
See "Liquidity and Capital Resources".

Year Ended December 31, 1997 Compared to Year Ended December 31, 1996 Sales.
Sales for 1997 were $3.8 million, up $300,000 from 1996. Sales to IVAX for 1997
were $2.3 million, up $1.7 million from 1996. Sales other than to IVAX for 1997
were $1.5 million, down $1.3 million from 1996. The increase in total sales was
due primarily to the timing of product shipments and to inventory fluctuations
of NaPro's strategic partners.

Research, Development and Cost of Products Sold. Research and development
expense and cost of products sold for 1997 was $11.8 million, up $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.

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 cost, $100,000 of occupancy cost, 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, up $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".

Liquidity and Capital Resources

NaPro's capital requirements have been and will continue to be significant. As
of December 31, 1998, NaPro had a working capital balance of $7.1 million. This
compared to a negative working capital balance of ($2.5) million as of December
31, 1997, and reflects the 1997 classification as a current liability of $8.1
million of NaPro's senior convertible notes, which are due in 2000 but which
were redeemable by the holders during the early part of 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 approxi mately $27.8 million, on the exercise of warrants and options of $5.7
million, on net borrowings of $12 million, and on loans and advances from its
stockholders and strategic partners.

NaPro's existing capital and projected 1999 sales are expected to provide
adequate capital to fund its 1999 necessary 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.

                                                     - 24 -


<PAGE>



In June 1997 NaPro privately placed $10.3 million of senior convertible notes.
The notes mature in June 2000 and bear an interest rate of 5%. Interest on the
notes is payable in cash or in common stock at NaPro's option. The notes are
convertible into common stock at a 10% discount from the lowest market price of
the common stock during specified periods prior to the conversion. If not
converted, upon maturity, the notes will be exchanged for 13.75% 5-year
debentures. In 1998 NaPro issued 2,833,587 shares of common stock in conversion
of $2,900,000 principal of the notes, and 296,019 shares of common stock in
payment of $295,000 interest on the notes.

In January and March, 1998 and January and March, 1999 the notes were amended
(see below). In 1998 NaPro redeemed $647,000 in note principal and paid $53,000
premium and interest in connection with the redemption. In January 1999 NaPro
redeemed $633,000 in note principal and paid $162,000 premium and interest in
connection with the redemption. NaPro anticipates that it may elect to pay off
all or part of the notes during 1999.

In December 1997, NaPro closed a private placement of 5,000 shares of Series C
Senior Convertible Preferred Stock (the "C Preferred") for an aggregate issuance
price of $5 million. 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 market price during specified periods
prior to the conversion date. In December 2000, NaPro may force the conversion
of any remaining shares at the conversion price in effect as of December 8,
2000.

In January and March, 1998 and January and March, 1999, 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:
(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 through
May 14, 1999 and (b) partially remove 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 May 15, 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 5 days written
notice, for amounts ranging from 130% to 140% of the outstanding principal and
accrued dividends and interest.

In 1998 NaPro issued 986,666 shares of common stock in conversion of the C
Preferred and 186,656 shares of common stock in payment of dividends on the C
Preferred.

In June 1993, NaPro entered into an initial 20 year exclusive agreement with
IVAX to develop and market paclitaxel in the United States, Europe, and other
parts of the world (the "IVAX Agreement"). NaPro and IVAX terminated the IVAX
Agreement on March 20, 1998. Under terms of the termination agreement, IVAX
received a royalty-free, limited, non-exclusive license to one of NaPro's
patents (the "Patent") in the United States, Europe and certain other world
markets. In return, NaPro received a cash payment of $6 million, $2 million of
which was placed in escrow to be released as remaining product is delivered. In
April, 1998, IVAX returned approximately 1.1 million shares of NaPro common
stock. In addition, upon the issuance of the Patent in various countries, IVAX
made additional payments of $6.4 million. NaPro will continue to manufacture a
fixed amount of paclitaxel for delivery to IVAX periodically during the first
half of 1999. In 1998 NaPro received $680,000 of the $2 million escrow. NaPro
expects to receive the remaining $1,320,000 in the first half of 1999.

Working Capital and Cash Flow Cash and cash equivalents decreased $900,000 to
$7.2 million for the year ended December 31, 1998 from $8.1 million at December
31, 1997. Net cash provided by 1998

                                                     - 25 -


<PAGE>



operations of $2.1 million was offset by investing activity of $1.6 million and
by financing activity of $1.4 million.

Inventory remained at $4.3 million at December 31, 1998 from December 31, 1997.
The amount of work-in-progress inventory and finished goods inventory 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.

Capital Expenditures NaPro expended $500,000 during 1998 for capital projects.
These expenditures primarily included plantation cost, work on manufacturing
facilities in Boulder, and improvements to NaPro's laboratories.

Since the FDA's determination that NBT Paclitaxel could not be marketed in the
U.S. for Kaposi's Sarcoma during BMS's period of exclusivity under the Orphan
Drug Act, NaPro has significantly reduced the scope of its operations and has
reduced or delayed 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 significantly change its planned capital expenditures.

The amount and timing of future capital expenditures will depend upon numerous
factors, including the establishment of additional strategic relationships, 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 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.

Net Operating Loss Carryforwards As of December 31, 1998, NaPro had net
operating loss carry forwards for income tax purposes of approximately $34
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 incurred prior to that date. 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 Issue Until recently many computer programs used only the last two
digits to refer to a year. Such programs do not properly recognize a year that
begins with "20" instead of the familiar "19". If not corrected, many computer
applications could fail or create erroneous results. This matter is commonly
referred to as the Year 2000 issue or Y2K.

Two years ago NaPro implemented an assessment of its systems and other assets
which could be subject to Y2K. NaPro has completed the assessment of its primary
systems and has brought all but one of the systems into Y2K compliance. A
compliant upgrade currently exists for the noncompliant system, which will be
brought into compliance no later than June 1999.

                                                     - 26 -


<PAGE>



NaPro is assessing its secondary systems and other assets, including
microprocessor-controlled equipment, and expects to complete that assessment no
later than August 1999. The potential for significant interruption from
secondary systems exists, although NaPro believes that the likelihood of
interruption caused by Y2K failures in secondary systems is small.

In addition to its internal systems NaPro is evaluating potential impact on
NaPro of Y2K issues with its vendors and customers. NaPro cannot directly
control Y2K compliance by its vendors and customers. NaPro is communicating with
its key vendors and customers regarding this matter. NaPro knows of no vendor or
customer that has Y2K issues that have a potential of interrupting NaPro in a
manner that could significantly affect NaPro's operations. However, NaPro uses a
number of vendors that NaPro believes to be the best or the only qualified
source of a particular good or service. Sales to NaPro's customers potentially
could be interrupted by customers' Y2K issues. Should a significant customer
incur Y2K problems with its testing, release or other systems, NaPro's sales
could be materially affected. NaPro will continue to monitor the level of Y2K
compliance with respect to its key vendors and customers and will further
develop contingency plans to cover the failure of a key vendor, including
identification and qualification of alternative suppliers. Management believes
that exposure to vendor or customer Y2K issues creates no material risk to
NaPro. However, no assurance can be given with certainty that Y2K issues with
vendors or customers will not significantly affect NaPro.

NaPro's Y2K effort has caused no significant deferral of other information
technology projects.

NaPro's Y2K contingency plan includes completion of the evaluation and
remediation process discussed above, including communication with its key
vendors and customers regarding potential for Y2K issues; identification of the
best alternative vendor for sensitive goods and services; coordination and
planning with such alternative vendors.

Management believes that Y2K issues related to both internal and external
systems will have no material effect on NaPro's business, results of operations
or financial condition, and that NaPro's Y2K risk is not material. However, no
such assurance can be given with certainty. The cost of addressing Y2K has not
been material; management believes that the cost of completing Y2K compliance
will not be material.

Special Note Regarding Forward-looking Statements

Certain statements in this report constitute "forward-looking statements" within
the meaning of the federal securities laws, including the Reform Act. 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 product 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;

                                                     - 27 -


<PAGE>



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 effect on NaPro's revenue, cash flow and earnings from foreign
exchange rate fluctuations; 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.

                                     Item 7A

           Quantitative and Qualitative Disclosures about Market Risk.

During 1998 all of NaPro's revenue resulted from sales of NBT Paclitaxel to
Faulding and IVAX. NaPro anticipates that the final shipment of NBT Paclitaxel
required by the Termination Agreement will be made to IVAX during the first half
of 1999. Following this final delivery to IVAX, and in the absence of sales to
another strategic partner, sales of NBT Paclitaxel to Faulding will constitute
all or substantially all of NaPro's revenue for the foreseeable future.

Faulding purchases NBT Paclitaxel from NaPro at a price which varies in
proportion to the price at which Faulding sells NBT Paclitaxel. Under the
Faulding Agreement, NaPro is paid a fixed sum for NBT Paclitaxel supplied for
noncommercial uses, and a fixed percentage of Faulding's sales price for NBT
Paclitaxel supplied for commercial use. In March of each year, Faulding
estimates the sales price it will receive for NBT Paclitaxel in the upcoming
year, and, based upon that estimate, NaPro determines the price it will charge
Faulding for NBT Paclitaxel (the "Unadjusted Price"). NaPro recognizes the
corresponding revenue at the time of shipment of NBT Paclitaxel to Faulding,
based upon the intended use indicated by Faulding on its purchase orders.
However, Faulding may or may not use the product in accordance with the original
use stated on its purchase orders. Additionally, Faulding's actual selling price
may differ from the amounts originally budgeted and indicated to NaPro on its
purchase orders. On or about May 31, 1999, Faulding will communicate to NaPro
the final amount and type of sales made during the period beginning on April 1,
1998 and ending on March 31, 1999, and an adjustment will be calculated, which
may either increase or decrease NaPro's revenue from sales of products to
Faulding during this period.

Faulding's sales are made in the currencies of each of the countries in which it
sells NBT Paclitaxel. As a result, NaPro's revenue from sales is affected by
fluctuations in the value of these various foreign currencies relative to the
United States dollar. Faulding's largest single market is Australia, accounting
for approximately 38% of Faulding's commercial sales during the period beginning
March 31, 1997 and ending March 31, 1998. During the same period, fluctuations
in various currencies, especially the Australian dollar, were a major factor in
reducing the Unadjusted Price by 15%. If changes in foreign currency markets
continue to cause a decrease in the price per gram NaPro receives from Faulding,
there could be a material adverse effect on NaPro's earnings and cash flow. For
example, during the period beginning March 31, 1997 and ending March 31, 1998,
NaPro's revenue attributable to sales of NBT Paclitaxel to be resold
commercially by Faulding totaled $1,670,000. Had there been additional negative
pressure on the relevant exchange rates such that the Unadjusted Price had been
reduced by 30% (instead of 15%) NaPro's earnings would have been reduced by
approximately $589,000 and NaPro would have

                                                     - 28 -

<PAGE>



experienced materially reduced cash flow. However, while Faulding will continue
to have a significant impact on NaPro's revenue, NaPro's continuation of
operations is dependent upon sources other than revenue from Faulding. NaPro
anticipates that its operations will be dependent upon equity funding and
borrowing until such time, if ever, as NaPro secures one or more partnerships
for the territories outside the Faulding Agreement and secures regulator
approval and begins sales in a major market. There can be no assurance, however,
that NaPro will be able to raise such equity financing and/or find a strategic
partner or that such a partner, if found, will be able to secure regulatory
approval or effectively market NaPro's products.

Certain statements set forth in Item 7A constitute "forward-looking  statements"
within  the   meaning  of  the  Reform  Act.   See   "Special   Note   Regarding
Forward-looking Statements".

                                     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
NaPro's definitive Proxy Statement with respect to NaPro's 1999 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.

                                                     - 29 -

<PAGE>



                                     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.


                                     Part IV

                                     Item 14

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

Financial Statements

The Financial Statement Index is 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 Current Report on Form 8-K dated January 7, 1999 reporting an
agreement between NaPro and the holders of the Convertible Notes and Convertible
Preferred Stock amending the terms of such securities, and a Current Report on
Form 8-K dated January 22, 1999 reporting a letter agreement between NaPro and
holders of warrants originally issued to the underwriter of the Company's
initial public offering which amended the terms of such warrants and reflecting
corresponding changes in information to be included in a prospectus related to
the resale of shares issuable upon exercise of such warrants.




Exhibit
Number            Description of Exhibit

3.1      Amended and Restated Certificate of Incorporation of the Company, as 
         amended August 2, 1996(1)
3.2      Certificate of Amendment dated September 29, 1998 to the Amended and 
         Restated Certificate of Incorporation of the Company
3.3      Certificate of Designation for Convertible Preferred Stock, 
         Series A (1)
3.4      Certificate of Designation for Series B Junior Participating Preferred 
         Stock (2)
3.5      Certificate of Designation of Series C Senior Convertible Preferred
         Stock (3)
3.6      Bylaws of the Company (4)
4.1      Common Stock Certificate (4)
4.2      Underwriter's Warrant Agreement (4)
4.3      Warrant Agreement (4)
4.4      Warrant Certificate (4)
4.5      Rights Agreement dated as of November 8, 1996 between the Company and
         American Stock Transfer and Trust Company, as Rights Agent (5)

                                                     - 30 -


<PAGE>



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 (4)
10.2*    Company's 1994 Long-Term Performance Incentive Plan, as amended May 28,
         1998
10.3     Stock Purchase Warrant dated as of June 7, 1993 between the Company and
         Arthur D. Harrison (4)
10.4     Stock Purchase Warrant dated as of June 7, 1993 between the Company and
         D&N Holding Company (4)
10.5     Stock Purchase Warrant dated as of June 7, 1993 between the Company and
         Kirkland & Ellis (4)
10.6     Stock Purchase Warrant dated as of December 15, 1992 between the
         Company and Kirkland & Ellis (4)
10.7*    Employment Agreement effective October 5, 1998 between NaPro and
         Leonard P. Shaykin (6) 10.8* Employment Agreement effective October 5,
         1998 between NaPro and Sterling K. Ainsworth (6) 
10.9*    Employment Agreement effective October 5, 1998 between NaPro and
         Patricia A. Pilia (6)
10.10*   Employment Agreement effective October 5, 1998 between NaPro and Gordon
         Link (6) 
10.11*   Employment Agreement effective October 5, 1998 between NaPro and David
         L. Denny (6)
10.12*   Employment Agreement effective October 5, 1998 between NaPro and
         William D. Fairbairn (6)
10.13*   Employment Agreement effective October 5, 1998 between NaPro and James
         D. McChesney (6)
10.14*   Company's Stock Option Agreement with Sterling K. Ainsworth (4)
10.15*   Company's Stock Option Agreement with Patricia A. Pilia (4)
10.16    Services and Supply Agreement dated as of December 1, 1993 between the
         Company and Pacific BioTechnologies Inc. (4)
10.17    Amended and Restated Master Agreement dated as of January 19, 1994
         between the Company and F.H. Faulding & Co., Ltd. (4)
10.18    Amendment No. 1 To Amended and Restated Master Agreement dated January
         19, 1994, executed as of March 23, 1995 (7)
10.19    Agreement dated as of June 7, 1993 between the Company and Baker
         Norton Pharmaceuticals, Inc. (4)
10.20    Lease dated February 28, 1995 between the Company and the Mutual Life
         of Canada (1)
10.21    Subscription Agreement and Investment Letter between the Company and
         NaPro BioTherapeutics (Canada), Inc. (1) 
10.22    Put/Call Agreement dated July 12, 1995 between the Company and the
         Purchasers of Series A Preferred Shares of NaPro BioTherapeutics
         (Canada) Inc. (1)
10.23    Side Letter dated July 21, 1995 to Put/Call Agreement (1)
10.24    Lease between the Company and Gunbarrel Facility L.L.C. dated October
         16, 1995 (8)
10.25    First Amendment to Lease November 27, 1995, between the Company and
         Gunbarrel Facility L.L.C. (8)
10.26    Agreement between the Company and Pacific BioTechnologies Inc. dated
         March 29, 1996 (8)
10.27    Culture Agreement dated March 1, 1996 between Zelenka Nursery, Inc.
         ("Zelenka") and the Company (9)
10.28    Agreement for Sale, Harvest and Storage of Nursery Stock dated May 1,
         1996 between Zelenka and the Company (9)
10.29    Culture Agreement dated as of March 1, 1997 between Zelenka and the 
         Company (10)
10.30    Lease Agreement dated as of March 1, 1997 between Zelenka and the
         Company (10)
10.31    Agreement for Sale, Harvest and Storage of Nursery Stock dated as of
         March 1, 1997 between Zelenka and the Company (10)
10.32    Form of Note Purchase Agreement, dated as of June 4, 1997 between
         NaPro and each of the Selling Stockholders (11)
10.33    Form of 5% Senior Convertible Note (11) 
10.34    Form of Common Stock Purchase Warrant (11)

                                                     - 31 -

<PAGE>



10.35     Pledge and Security Agreement dated as of June 4, 1997 between NaPro
          and First Trust of New York, National Association, as Collateral Agent
          (11)
10.36     Subscription Agreement between the Company and Advantage Fund II,
          Ltd., as to Series C Senior Convertible Preferred Stock (3)
10.37     Common Stock Purchase Warrant between the Company and Advantage Fund
          II, Ltd. (3)
10.38     Amendment Agreement, dated as of January 28, 1998, by and among the
          Company and the noteholders' named therein (12)
10.39     Amendment Agreement, dated as of January 28, 1998, by and among the
          Company and Advan tage Fund II, Ltd. (12)
10.40     Letter Agreement, dated as of March 20, 1998, by and among the Company
          and the noteholders named therein (13)
10.41     Letter Agreement, dated as of March 31, 1998, by and among the Company
          and Advantage Fund II, Ltd. (13)
10.42     Letter Agreement, dated as of January 7, 1999, by and among the
          Company and the noteholders named therein (14)
10.43     Letter Agreement, dated as of January 7, 1999, by and among the
          Company and Advantage Fund II, Ltd. (14)
10.44     Letter Agreement, dated as of March 24, 1999, by and among the Company
          and the noteholders named therein
10.45     Letter Agreement, dated as of March 24, 1999, by and among the Company
          and Advantage Fund II, Ltd.
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") (15)
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 (15)
10.48     Letter Agreement, dated March 20, 1998, by and between the Company,
          Leonard P. Shaykin and D&N (15)
10.49     NaPro Release dated as of March 20, 1998 (15)
10.50     IVAX, BNP and D&N Release dated as of March 20, 1998 (15)
21.1      List of Subsidiaries (16)
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 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).
(2)      Incorporated herein by reference from the Company's November 8, 1996 
         Current Report Form 8-K (File No. 0-24320).
(3)      Incorporated herein by reference to the Company's Registration
         Statement on Form S-3, filed on December 16, 1997 (File No. 333-42419).
(4)      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).
(5)      Incorporated herein by reference to the Registration Statement of the
         Company on Form 8-A, filed with the Commission on November 26, 1996
         (File No. 0-24320).

                                                     - 32 -

<PAGE>



(6)      Incorporated herein by reference to the Company's Quarter Report on
         Form 10-Q for the period ending September 30, 1998 (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, 1994 (File No. 0-24320).
(8)      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).
(9)      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).
(10)     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).
(11)     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).
(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 to the Company's Current Report on
         Form 8-K dated March 20, 1998 (File No. 0-243201).
(14)     Incorporated herein by reference to the Company's Current Report on
         Form 8-K dated January 7, 1999. (File No.. 0-243201)
(15)     Incorporated herein by reference to the Company's Current Report on
         Form 8-K, dated March 20, 1998 (File No.0-24320).
(16)     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).

                                                     - 33 -

<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.

/s/ Sterling K. Ainsworth
Sterling K. Ainsworth, Ph.D.
President, Chief                        March 30, 1999
Executive Officer; Director

Pursuant to the Exchange Act, this report has been signed on behalf of NaPro and
in the capacities indicated.
<TABLE>
<CAPTION>
<S>                                            <C>                                                  <C>


                *                              Chairman of the Board of                             March 30, 1999
---------------------------------------
Leonard P. Shaykin                             Directors

/s/ Sterling K. Ainsworth                      President, Chief                                     March 30, 1999
-------------------------
Sterling K. Ainsworth, Ph.D.                   Executive Officer; Director

/s/ Gordon H. Link, Jr.                        Vice President, Chief                                March 30, 1999
-----------------------
Gordon H. Link, Jr                             Financial Officer
                                               (Principal Financial Officer)

/s/ Robert L. Poley                            Controller                                           March 30, 1999
-------------------
Robert L. Poley                                (Principal Accounting Officer)

               *                               Director                                             March 30, 1999
------------------------------------
Arthur H. Hayes, Jr., M.D.

               *                               Director                                             March 30, 1999
------------------------------------
Mark B. Hacken

               *                               Director                                             March 30, 1999
------------------------------------
Stanley Knowlton

/s/ Patricia A. Pilia                          Director                                             March 30, 1999
------------------------------------
Patricia A. Pilia, Ph.D.

               *                               Director                                             March 29, 1999
------------------------------------
Seth Rudnick, M.D.

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

                                                     - 34 -


<PAGE>


                  NaPro BioTherapeutics, Inc. and Subsidiaries

                              Financial Statements


                  Years ended December 31, 1998, 1997 and 1996



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 Flow......................................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, 1998 and 1997, and the
related consolidated statements of operations, stockholders' equity, and cash
flow for each of the three years in the period ended December 31, 1998. 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, 1998 and 1997, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1998 in conformity with generally
accepted accounting principles.


/s/ERNST & YOUNG LLP
Denver, Colorado
March 24, 1999



                                       F-2

<PAGE>

<TABLE>
<CAPTION>


                  NaPro BioTherapeutics, Inc. and Subsidiaries

                           Consolidated Balance Sheet



                                                                                        December 31,
                                                                               1998                   1997

Assets
<S>                                                                          <C>                   <C>

Current assets:
       Cash and cash equivalents                                             $ 7,244,000           $ 8,102,000
       Securities available for sale                                             197,000                   -
       Restricted cash                                                         1,320,000                   -
       Accounts receivable                                                       403,000             1,508,000
       Inventory:
              Raw materials                                                      151,000               412,000
              Work-in-process                                                    930,000             1,408,000
              Finished goods                                                   1,632,000             1,302,000
                                                                            ------------           -----------
                                                                               2,713,000             3,122,000
       Prepaid expense and other                                                 343,000               481,000
                                                                           -------------          ------------
Total current assets                                                          12,220,000            13,213,000

Property and equipment, at cost:
       Plantation cost                                                         4,234,000             4,201,000
       Laboratory equipment                                                    2,948,000             3,874,000
       Leasehold improvements                                                  4,478,000             4,478,000
       Office equipment and other                                                664,000               673,000
       Construction in progress                                                3,912,000             4,883,000
                                                                           -------------          ------------
                                                                              16,236,000            18,109,000
       Accumulated depreciation                                                4,678,000             2,922,000
                                                                           -------------          ------------
Property and equipment, net                                                   11,558,000            15,187,000

Restricted cash                                                                      -                 246,000
Inventory:
       Raw materials                                                             833,000               347,000
       Work-in-process                                                           738,000               288,000
       Finished goods                                                                -                 541,000
                                                                      ------------------         -------------
                                                                               1,571,000             1,176,000
Other assets        317,000                                                      536,000
              -------------                                                -------------
Total assets  $25,666,000                                                    $30,358,000
              ===========                                                    ===========

</TABLE>


                                       F-3

<PAGE>

<TABLE>
<CAPTION>


                  NaPro BioTherapeutics, Inc. and Subsidiaries

                           Consolidated Balance Sheet

                                                                                        December 31,
                                                                                1998                  1997
Liabilities and stockholders' equity Current liabilities:
       <S>                                                                 <C>                   <C>

       Accounts payable                                                    $  1,317,000          $  4,361,000
       Accrued payroll and payroll taxes                                        451,000               570,000
       Notes payable--current (Note 3)                                          421,000               743,000
       Senior convertible debt (Note 4)                                             -               8,134,000
       Deferred revenue                                                       2,910,000             1,890,000 
                                                                           -------------         -------------
Total current liabilities                                                     5,099,000            15,698,000

Notes payable--long term (Note 3)                                                80,000               480,000

Senior convertible debt (Note 4)                                              5,176,000                   -

Commitments and contingencies (Note 9)

Minority interest  (Note 7)                                                     622,000             2,574,000

Senior convertible redeemable preferred stock,
       Series C (Note 5)                                                      3,805,000            4,344,000

Stockholders' equity (Note 7):
       Preferred stock,$.001 par value:
              Authorized shares--2,000,000
       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 1998 and 1997                                                    3,000                 3,000
       Common stock, $.0075 par value:
              Authorized shares--30,000,000 in 1998
              and 19,000,000 in 1997
              Issued shares--17,902,407 in 1998;
              13,134,021 in 1997                                                134,000                98,000
       Additional paid-in capital                                            58,045,000            50,833,000
       Deficit                                                              (43,618,000)          (40,998,000)
       Treasury stock--1,114,525 shares in 1998;
              218,838 shares in 1997                                        ( 3,680,000)           (2,674,000)
                                                                           -------------         -------------
Total stockholders' equity                                                   10,884,000             7,262,000 
                                                                           -------------         -------------
Total liabilities and stockholders' equity                                  $25,666,000           $30,358,000 
                                                                            ============          ============
</TABLE>


See accompanying notes.


                                       F-4

<PAGE>

<TABLE>
<CAPTION>


                  NaPro BioTherapeutics, Inc. and Subsidiaries

                      Consolidated Statement of Operations


                                                                       Year Ended December 31,
                                                         1998                    1997                     1996
                                                         ----                    ----                     ----
<S>                                                  <C>                     <C>                      <C>

Product sales                                        $  4,952,000            $  3,814,000             $  3,473,000
                                                     -------------           -------------            ------------

Expense:
       Research, development and cost of
              products sold                             9,973,000              11,769,000                6,837,000
       General and administrative                       6,458,000               5,992,000                3,712,000
       (Gain) loss on retirement of assets              1,899,000                (141,000)                  27,000 
                                                    --------------          --------------          ---------------
                                                       18,330,000              17,620,000               10,576,000 
                                                     -------------           -------------            -------------
       Operating loss                                 (13,378,000)            (13,806,000)              (7,103,000)

Other income (expense):
       License fee                                     11,110,000                     -                        -
       Interest income                                    550,000                 494,000                  651,000
       Interest expense                                  (902,000)             (2,161,000)                (373,000)
                                                    --------------          --------------            -------------
Net loss                                             $ (2,620,000)           $(15,473,000)             $(6,825,000)
                                                     =============           =============             ============

Basic and diluted net loss per share              $         (0.22)       $          (1.28)          $        (0.68)
                                                  ================       =================          ===============

Weighted average shares outstanding                    14,641,769              12,104,395                9,973,325 
                                                    ==============         ===============            =============
</TABLE>

See accompanying notes.



                                       F-5

<PAGE>

<TABLE>
<CAPTION>


                  NaPro BioTherapeutics, Inc. and Subsidiaries

                       Consolidated Statement of Cash Flow


                                                                                Year Ended December 31,
                                                                        1998             1997             1996
                                                                        ----             ----             ----

Operating activity
<S>                                                                <C>              <C>                  <C>

Net loss $( 2,620,000)                                             $(15,473,000)    $ (6,825,000)
Adjustments to reconcile net loss
     to net cash provided (used) by operating activity:
     Depreciation                                                     1,732,000        1,686,000           635,000
     Accretion of debt issue cost, warrant
         allocation and conversion rights allocation                    429,000        1,447,000            34,000
     Compensation paid with common stock,
         options and warrants                                           666,000          216,000            37,000
     Interest expense paid with common stock                            295,000          344,000                -
     (Gain)/loss on retirement of assets                              1,896,000         (116,000)           28,000
     Changes in operating assets and liabilities:
         Accounts receivable                                          1,104,000         (846,000)         (336,000)
         Inventory                                                      254,000       (2,017,000)       (1,069,000)
         Prepaid expenses and other assets                              358,000         (138,000)         (235,000)
         Accounts payable                                            (2,884,000)       2,598,000         1,100,000
         Accrued liabilities                                            (95,000)          91,000           181,000
         Deferred revenue                                             1,020,000        1,854,000           (16,000)
                                                                   -------------    -------------    --------------
     Net cash provided (used) by operating activity                   2,155,000      (10,354,000)       (6,466,000)
Investing activity
     Additions to property and equipment                               (474,000)     (11,634,000)       (4,894,000)
     Proceeds from sale of property and equipment                       105,000          939,000                -
     Purchase of securities held for sale                                    -                -         (3,439,000)
     Purchase of securities held to maturity                                 -        (4,227,000)       (2,462,000)
     Proceeds from securities available for sale                             -         2,650,000           750,000
     Proceeds from securities held to maturity                               -         6,876,000           167,000
     Transfer of restricted cash                                     (1,271,000)          81,000           124,000 
                                                                   -------------    -------------     -------------
     Net cash used by investing activity                             (1,640,000)      (5,315,000)       (9,754,000)
Financing activity
     Proceeds from notes payable, net of issuance cost                  188,000       10,197,000         1,349,000
     Payments on notes payable                                       (1,556,000)      (1,959,000)         (555,000)
     Payment for compensation due officers                                   -                -           (169,000)
     Preferred stock dividend                                           (51,000)              -                 -
     Proceeds from sale of common and preferred
         stock and exercise of common stock
         warrants and options                                            46,000        6,262,000        19,906,000
     Offering cost of common and preferred stock                             -          (260,000)       (1,913,000)
                                                               -----------------     ------------      ------------
     Net cash provided (used) by financing activity                  (1,373,000)      14,240,000        18,618,000 
                                                                    ------------      -----------      ------------
Net (decrease) increase in cash and cash equivalents                   (858,000)      (1,429,000)        2,398,000
Cash and cash equivalents at beginning of year                        8,102,000        9,531,000         7,133,000 
                                                                    ------------     ------------      ------------
Cash and cash equivalents at end of year                            $ 7,244,000      $ 8,102,000       $ 9,531,000 

                                                                    ============     ============      ============
</TABLE>
                                      F-6
<PAGE>

<TABLE>
<CAPTION>

                                         NaPro BioTherapeutics, Inc. and Subsidiaries

                                        Consolidated Statement of Stockholders' Equity

                                         Years Ended December 31, 1996, 1997 and 1998



                                                                                                                                 
                                                          Nonvoting                     Number       Additional                  
                                                            Common       Common      of Common        Paid-in      Unearned      
                                                            Stock        Stock     Shares Issued      Capital     Compensation   
                                                            ------      --------    ----------     ------------    ----------    
<S>                                                         <C>         <C>          <C>           <C>             <C>           
Balance as of December 31, 1995                             $ 3,000     $ 64,000     8,525,265     $ 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                        -            -           21,418           66,000        -         
  per share 
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                 -          12,000     1,640,389        3,129,000        -         
  cost of $ 37,000
Issuance of 1,790,000 shares of common stock at                                                                                  
  $8.75 per share net of offering cost of                      -          13,000     1,790,000       13,773,000        -         
  $1,876,000 

Contribution of 4,017 shares of common stock                                                                                     
  at $7.00 per share to retirement plan                        -            -            4,017           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                       -            -            5,000             -           -         
  stock
Net loss                                                       -            -             -                -           -         
Balance as of December 31, 1996                               4,000       89,000    11,986,089       44,670,000        -         
Conversion of 200,000 shares non-voting 
  common stock to 200,000 shares of common                   (1,000)       1,000       200,000             -           -         
   stock
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                             -            -            4,268           40,000        -         
Exercise of employee stock options for 
  2,466 shares of common stock at $2.40                        -            -            2,466            6,000        -        
  per share

                                                         Notes
                                                        Receivable
                                                         From                              Treasury
                                                       Stockholders          Deficit        Stock            Total
                                                        ----------        -------------   ------------    -----------
<S>                                                     <C>               <C>             <C>             <C>  
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                       -                    -              -            66,000
  per share 
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                -                    -              -         3,141,000
  cost of $ 37,000
Issuance of 1,790,000 shares of common stock at                                                         
  $8.75 per share net of offering cost of                     -                    -              -        13,786,000
  $1,876,000 

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                        -                   -              -             6,000
  per share

</TABLE>
                                                      

                                      F-7
<PAGE>
<TABLE>
<CAPTION>


                                         NaPro BioTherapeutics, Inc. and Subsidiaries

                                        Consolidated Statement of Stockholders' Equity

                                         Years Ended December 31, 1996, 1997 and 1998


                                                                                                                                
                                                      Nonvoting                     Number        Additional                    
                                                        Common        Common      of Common        Paid-in         Unearned     
                                                        Stock         Stock     Shares Issued      Capital       Compensation   

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

Exercises of warrants for 62,326 shares of common
  stock at prices ranging from $1.125 to $7.50         -               1,000         62,326          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        200,000          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                         -                -            47,482          344,000        -           
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        265,920        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        344,906          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                -                -            20,564           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     13,134,021       50,833,000         -          


                                                           Notes
                                                         Receivable
                                                            From                            Treasury
                                                        Stockholders        Deficit          Stock           Total

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

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
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>

                                                            F-8


<PAGE>
<TABLE>
<CAPTION>


                                         NaPro BioTherapeutics, Inc. and Subsidiaries

                                        Consolidated Statement of Stockholders' Equity

                                         Years Ended December 31, 1996, 1997 and 1998


                                                                                                                                 
                                                      Nonvoting                     Number        Additional                     
                                                        Common        Common      of Common        Paid-in         Unearned      
                                                        Stock         Stock     Shares Issued      Capital       Compensation    

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

Issuance of option grants to purchase 30,265 shares 
  of common stock at prices ranging from $1.00 to 
  $2.00 per share in exchange for consulting services     -             -             -             23,000        -              
Issuance of 186,656 shares of common stock in payment
  for dividends on convertible preferred stock at 
  prices ranging from $0.82 to $1.43 per share            -            1,000       186,656          (1,000)       -              
Compensation relating to repricing warrants               -             -             -             97,000        -              
Receipt of 1,126,398 shares treasury stock
  as part of contract termination agreement               -             -             -          1,768,000        -              
Issuance of 4,264 restricted shares of common stock
  for compensation                                        -             -            4,264          40,000        -              
Exercise of employee stock options for 163,467
  shares of common stock at prices ranging from
  $0.188 to $0.75 per share                               -            1,000       163,467          41,000        -              
Issuance of 296,019 shares of common stock in
  payment for interest on debt at prices ranging
  from $0.84 to $1.24                                     -            2,000       296,019         293,000        -              
Contribution of 56,827 shares of common stock
  at $1.64 per share to retirement plan                   -            1,000        56,827          92,000        -              
Exchange of 240,900 shares of subsidiary's preferred 
  stock for 240,900 shares of common stock                -            2,000       240,900       1,949,000        -              
Conversion of senior convertible note to 2,833,587
  shares of common stock at prices ranging from
  $0.70 to $1.72 per share                                -           21,000     2,833,587       2,734,000        -              
Accretion of offering cost, conversion rights and 
  value of warrant as preferred dividends on  
  redeemable preferred stock                              -             -             -           (362,000)       -              

                                                            Notes
                                                         Receivable
                                                            From                            Treasury
                                                        Stockholders        Deficit          Stock           Total

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

Issuance of option grants to purchase 30,265 shares 
  of common stock at prices ranging from $1.00 to 
  $2.00 per share in exchange for consulting services      -                 -               -                 23,000
Issuance of 186,656 shares of common stock in payment
  for dividends on convertible preferred stock at 
  prices ranging from $0.82 to $1.43 per share             -                 -               -                   -
Compensation relating to repricing warrants                -                 -               -                 97,000
Receipt of 1,126,398 shares treasury stock
  as part of contract termination agreement                -                 -         (1,768,000)               -
Issuance of 4,264 restricted shares of common stock
  for compensation                                         -                 -               -                 40,000
Exercise of employee stock options for 163,467
  shares of common stock at prices ranging from
  $0.188 to $0.75 per share                                -                 -               -                 42,000
Issuance of 296,019 shares of common stock in
  payment for interest on debt at prices ranging
  from $0.84 to $1.24                                      -                 -               -                295,000
Contribution of 56,827 shares of common stock
  at $1.64 per share to retirement plan                    -                 -               -                 93,000
Exchange of 240,900 shares of subsidiary's preferred 
  stock for 240,900 shares of common stock                 -                 -               -              1,951,000
Conversion of senior convertible note to 2,833,587
  shares of common stock at prices ranging from
  $0.70 to $1.72 per share                                 -                 -               -              2,755,000
Accretion of offering cost, conversion rights and 
  value of warrant as preferred dividends on  
  redeemable preferred stock                               -                 -               -               (362,000)

</TABLE>

                                                            F-9


<PAGE>
<TABLE>
<CAPTION>


                                         NaPro BioTherapeutics, Inc. and Subsidiaries

                                        Consolidated Statement of Stockholders' Equity

                                         Years Ended December 31, 1996, 1997 and 1998

                                                                                                                                 
                                                      Nonvoting                     Number        Additional                     
                                                        Common        Common      of Common        Paid-in         Unearned      
                                                        Stock         Stock     Shares Issued      Capital       Compensation    

                                                     ------------  ------------ -------------- ---------------- ---------------  
<S>                                                      <C>              <C>          <C>               <C>          <C>        
Conversion of redeemable, convertible preferred stock
  to 986,666 shares of common stock at prices 
  ranging from $0.82 to $1.43                          -                  8,000        986,666          889,000         -           
Payment of convertible preferred stock dividends in
  cash                                                 -                -                -              (51,000)        -           
Contribution of 230,711 shares of common stock from
  the treasury at $2.00 per share to retirement        -                -                -             (300,000)        -           
  plan
Net Loss                                               -                -                -               -              -         
                                                     ------------  ------------ -------------- ---------------- ---------------  
Balance as of December 31, 1998                      $    3,000    $    134,000     17,902,407    $  58,045,000      $  -  
                                                     ============  ============ ============== ================ ===============  

                                                          Notes
                                                        Receivable
                                                           From                            Treasury
                                                       Stockholders        Deficit          Stock           Total

                                                     ----------------  ---------------  -------------- ---------------
<S>                                                        <C>           <C>             <C>                 <C>   
Conversion of redeemable, convertible preferred stock
  to 986,666 shares of common stock at prices 
  ranging from $0.82 to $1.43                            -                 -               -                897,000
Payment of convertible preferred stock dividends in
  cash                                                   -                 -               -               (51,000)
Contribution of 230,711 shares of common stock from
  the treasury at $2.00 per share to retirement          -                 -                762,000         462,000
  plan
Net Loss                                                    -              (2,620,000)        -          (2,620,000)
                                                     ----------------  ---------------  -------------- ---------------
Balance as of December 31, 1998                          $          -    $(43,618,000)   $ (3,680,000) $ 10,884,000
                                                     ================  ===============  ============== ===============
</TABLE>


See accompanying notes.



                                      F-10

<PAGE>

<TABLE>
<CAPTION>


                  NaPro BioTherapeutics, Inc. and Subsidiaries

                 Consolidated Statement of Cash Flow (continued)


                                                                                Year ended December 31,
                                                                        1998           1997              1996
                                                                        ----           ----              ----
<S>                                                                    <C>             <C>               <C>

Supplemental schedule of noncash investing and
     financing activities
     Conversion of senior convertible debt to
         common stock                                                 $2,755,000      $1,059,000       $        -
     Conversion of convertible preferred shares
         to common stock                                                 897,000              -                 -
     Exchange of preferred shares of subsidiary
         for common stock of NaPro                                     1,951,000       1,141,000                -
     Issuance of common stock for compensation
         previously accrued                                               40,000          40,000                -
     Issuance of common stock as payment of dividends                    179,000              -                 -
     Accretion of convertible preferred stock
         conversion rights valuation, offering
         cost and warrant valuation                                      362,000          64,000                -
     Receipt of common stock into treasury                             1,768,000              -                 -
     Issuance of senior convertible debt for
         placement fee                                                       -           300,000                -
     Notes and related interest receivable from
         stockholders                                                        -             5,000            60,000
     Repayment of notes receivable from stockholders
         through transfer of stock into treasury                             -           990,000                -

</TABLE>

See accompanying notes.



                                      F-11

<PAGE>



                                December 31, 1998


1.       Basis of Presentation and Summary of Significant Accounting Policies

Organization

NaPro BioTherapeutics, Inc. ("NaPro" or "the Company"), a Delaware corporation,
was incorporated in 1991. In November 1994, NaPro formed a subsidiary, NaPro
BioTherapeutics (Canada), Inc., of which the Company owns 98% 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 flow 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 pharma- ceuticals, 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 and Securities Available for Sale

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.

Fair Value of Financial Instruments

The carrying values of cash and cash equivalents, securities, accounts
receivable and payable, notes payable and senior convertible debt approximate
fair value. The fair value of notes payable and senior convertible debt are
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.

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

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


                                      F-12

<PAGE>


                  NaPro BioTherapeutics, Inc. and Subsidiaries

              Notes to Consolidated Financial Statements, continued


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 to be 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. Plantation expenditures include the
acquisition cost of trees and the related cost of planting and growing. NaPro
depletes such cost evenly over the expected number of annual harvests, six to
eight, and retains a 20% residual value to be depleted at the time the whole
tree is harvested. If in any year a harvest is not performed, the depletion
would be deferred and added to the depletion that would otherwise be charged to
the next actual harvest, as the harvest would benefit from an additional year's
growth.

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 flow
estimated to be generated by these assets, the carrying amount of these
long-lived assets is reduced to estimated fair value or discounted cash flow, 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
research, development and cost of products sold, or general and administrative
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 or if shipped
on consignment, at time of draw-down from consignment. 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.


                                      F-13

<PAGE>


                  NaPro BioTherapeutics, Inc. and Subsidiaries

              Notes to Consolidated Financial Statements, continued


Net Loss Per Share

NaPro's basic and diluted net loss per share is computed using the weighted
average number of shares of common stock outstanding. Potential common shares
from stock options, warrants and convertible securities are excluded from the
computation of diluted earnings per share as their effect is antidilutive.

The following table sets forth the computation of basic and diluted net loss per
share:
<TABLE>
<CAPTION>


                                                             1998                 1997                 1996
                                                             ----                 ----                 ----
<S>                                                    <C>                  <C>                 <C>
Numerator:
   Net loss                                           $(2,620,000)         $(15,473,000)       $(6,825,000)
   Preferred stock dividends                             (592,000)              (64,000)           -
                                                      ------------         ------------        -----------
   Numerator for loss per share--
    loss available to common stockholders             $(3,212,000)         $(15,537,000)       $(6,825,000)
                                                      ===========          ============        ===========

Denominator:
   Denominator for loss per share --
      weighted average shares                          14,641,769            12,104,395          9,973,325
                                                      ===========          ============        ===========

Basic and diluted net loss per share                  $     (0.22)       $        (1.28)     $      (0.68)
                                                      =============        ============        ===========
</TABLE>

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 1997 and 1996 financial
statements to conform with the 1998 financial statement presentation.

Foreign and Domestic Operations and Export Sales; Significant Customers

Domestic and foreign financial information follows:

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


                                      F-14

<PAGE>


                  NaPro BioTherapeutics, Inc. and Subsidiaries

              Notes to Consolidated Financial Statements, continued


public business enterprises report information about operating segments in
annual financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. Statement No. 131 is effective for
financial statements for fiscal years beginning after December 15, 1997 and,
therefore, NaPro adopted the new requirements retroactively in 1998. The
adoption of the statement resulted in the reporting of no additional segment
information.
<TABLE>
<CAPTION>

Domestic and foreign financial information follows:
                                                                    United                   Elimin-
                                                          Year     States        Canada      ations        Total
<S>                                                       <C>     <C>         <C>        <C>            <C> 

Net sales to affiliated and unaffiliated customers        1998   $4,952,000  $   454,000 $  (454,000)   $ 4,952,000
                                                          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

Operating loss                                            1998   12,852,000      526,000          -      13,378,000
                                                          1997   12,854,000      952,000          -      13,806,000
                                                          1996    6,719,000      384,000          -       7,103,000

Identifiable assets
     December 31,                                         1998   27,976,000    2,406,000  (4,716,000)    25,666,000
                                                          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 development and marketing partner, Faulding,
and its former marketing partner, the Baker Norton subsidiary of IVAX
Corporation ("IVAX") (see Note 9), and does not require collateral to secure
accounts receivable. Substantially all of NaPro's accounts receivable at
December 31, 1998 and 1997 were from these partners. Sales to these partners as
a percent of total sales were:

                          1998       1997       1996
                          ----       ----       ----
Faulding                  44%        34%        72%
IVAX                      55%        60%        25%

Export sales follow:

Sales                              1998            1997             1996
                                   ----            ----             ----
Australia                         $2,189           $1,303           $2,509
Other Foreign                        193              193                -
                                 -------           ------         --------
Total Foreign                      2,382            1,496            2,509
United States                      2,570            2,318              964
                                  ------           ------           ------
Total Sales                       $4,952           $3,814           $3,473
                                  ======           ======           ======


2.       Other Related Party Transactions



                                      F-15

<PAGE>


                  NaPro BioTherapeutics, Inc. and Subsidiaries

              Notes to Consolidated Financial Statements, continued


NaPro recorded $2,722,000, $2,275,000 and $882,000 in 1998, 1997, and 1996,
respectively, in sales to IVAX, a marketing and development partner which owned
0%, 8.7%, and 9.4% of NaPro's outstanding shares of common stock (see Notes 1
and 9) at December 31, 1998, 1997, and 1996, 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 common stock (see Note 8).

3.       Notes Payable

Notes payable consist of:
<TABLE>
<CAPTION>

                                                                      Year Ended December 31,
                                                              1998             1997
<S>                                                           <C>              <C>

Note payable, due in December 1998, interest at
       12.73%, principal and interest payable monthly    $          -       $   204,000
Note payable, due in May 1999, interest at 13.50%,
       principal and interest payable monthly                   26,000           99,000
Note payable, due in July 1999, interest at 13.78%,
       principal and interest payable monthly                   96,000          268,000
Note payable, due in October 1999, interest at
       13.25%, principal and interest payable monthly           85,000          176,000
Note payable, due in May 2000, interest at 11.76%,
       principal and interest payable monthly                  257,000          416,000
Note payable, due in March 1999, interest at 7.16%,
       principal and interest payable monthly                   37,000              -
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
                                                         -------------    -------------
                                                               501,000        1,223,000
Less amounts currently payable                                 421,000          743,000
                                                             ---------      -----------
Notes payable - long term                                    $  80,000       $  480,000
                                                             =========       ==========
</TABLE>

Debt maturities, including long term notes payable and senior convertible debt
(see Note 4), for the years ended December 31, 1999 and 2000 are $421,000 and
$5,774,000 respectively. The notes payable are collateralized by NaPro
equipment. For the years ended December 31, 1998, 1997, and 1996, interest paid
in cash was $189,000, $286,000 and $197,000 respectively. Also, 1998 and 1997
interest expense includes $295,000 and $407,000 paid in NaPro common stock on
the senior convertible debt.

NaPro has entered into an irrevocable standby letter of credit agreement with a
financial institution to support a note payable for up to $200,000 at an
interest rate of prime plus 2%. As of December 31, 1998, no funds have been
drawn on the letter of credit.



                                      F-16

<PAGE>


                  NaPro BioTherapeutics, Inc. and Subsidiaries

              Notes to Consolidated Financial Statements, continued


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 10% discount from the lowest market
price of the common stock during specified periods prior to the conversion,
subject to a maximum conversion price of $1.92. If not 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. The $10.00
exercise price was subse quently reduced to $1.50 in amendments to the terms of
the notes (see Note 5). 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. Under limited circumstances, NaPro could
be obligated to pay off the notes prior to their maturity.

The placement agent was issued $300,000 of the notes 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 amount of the notes was
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 amount 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 being amortized to interest expense over the life of the notes.

In 1998 and 1997, respectively, NaPro issued 2,833,587 and 344,906 shares of
common stock in conversion of NaPro's senior convertible debt, and 296,019 and
47,482 shares of common stock in payment of interest on the senior convertible
debt.

In January and March, 1998 and January and March, 1999, the notes were amended
(see Note 5). In 1998, NaPro redeemed $647,000 in note principal and paid
$53,000 premium and interest in connection with the redemption. In January 1999,
NaPro redeemed $633,000 in note principal and paid $162,000 premium and interest
in connection with the redemption. NaPro anticipates that it may elect to pay
off all or part of the notes during 1999, although there can be no assurance
that it will have the cash resources necessary to do so.

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, which are
cumulative, payable in common stock or cash at NaPro's option. The C Preferred
is convertible into common stock at a 5% discount from the market price during
specified periods prior to the conversion date (the "Variable Conversion Price")
subject to a maximum conversion price of $1.90. The C Preferred has a
liquidation preference equal to issue price plus accrued dividends.


                                      F-17

<PAGE>


                  NaPro BioTherapeutics, Inc. and Subsidiaries

              Notes to Consolidated Financial Statements, continued


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
issued to the investor a warrant to purchase 175,000 shares of common stock at
$10.00 per share, subsequently amended to $2.50 per share. Under certain
circumstances 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.

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 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 and March, 1998 and January and March, 1999, NaPro entered into
amendments (the "Amendments") with the C Preferred investor and the holders of
the convertible notes (together the "Investors"). The parties agreed to limit:
(a) 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 through May
14, 1999, and (b) 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 May 15, 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 5 days written notice, for amounts ranging
from 130% to 140% of the outstanding principal and accrued dividends or
interest.

In 1998 NaPro issued 986,666 shares of common stock in conversion of the C
Preferred and 186,656 shares of common stock in payment of dividends on the C
Preferred.

6.       Income Taxes

As of December 31, 1998, 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    

   2007                         1,692,000              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                        11,952,000             140,000
   2013                               -               315,000
                        -----------------           ---------

                              $34,034,000            $663,000
                              ===========            ========



                                      F-18

<PAGE>


                  NaPro BioTherapeutics, Inc. and Subsidiaries

              Notes to Consolidated Financial Statements, continued


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 NaPro's utilization of its net operating loss and
tax credit carryforwards, and could be triggered by sales of securities by NaPro
or its stockholders.

In Canada, NaPro has net operating loss carryforwards of approximately
US$1,442,000, expiring in 2002, 2003, 2004, 2005 and 2006.

Significant components of NaPro's deferred tax assets are:
<TABLE>
<CAPTION>

                                                               Year Ended December 31,
                                              1998            1997               1996
                                              ----            ----               ----
<S>                                        <C>               <C>              <C>

Deferred tax assets:
Tax net operating loss carryforward       $12,763,000      $13,118,000        $8,437,000
Research and development credits              663,000          386,000           209,000
Depreciation                                  637,000          108,000            64,000
Deferred Revenue                              596,000          696,000             6,000
Other                                         217,000          310,000           187,000 
                                         -------------     ------------      ------------

Total deferred tax assets                  14,876,000       14,618,000         8,903,000
Valuation allowance                       (14,876,000)     (14,618,000)       (8,903,000)
                                          ------------     ------------      ------------
Net deferred tax assets              $             -  $             -    $            -  
                                     ==================================  ================
</TABLE>

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
and canceled in exchange for the Company's indemnification of IVAX with respect
to the warrant. 1,126,398 shares of NaPro common stock were returned by IVAX as
the result of the termination of the IVAX strategic alliance (see Note 9).

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 NaPro 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 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,


                                      F-19

<PAGE>


                  NaPro BioTherapeutics, Inc. and Subsidiaries

              Notes to Consolidated Financial Statements, continued


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 were subject to a
Stockholders Agreement that included 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, 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 9).

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. Nonvoting Common shares automatically convert to common
stock (with full voting rights), on a share-for-share basis, upon Faulding's
disposition thereof. The Nonvoting Common is identical in all respects to the
common stock which was 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. Faulding has sold 205,000 shares of the Nonvoting Common.

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.



                                      F-20

<PAGE>


                  NaPro BioTherapeutics, Inc. and Subsidiaries

              Notes to Consolidated Financial Statements, continued


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. NaPro has
the option to acquire the Canadian Preferred at its liquidation value beginning
in 1998 if the average trading price for the NaPro common stock over a 20
trading day period 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, 1998, 648,241 shares of the Canadian Preferred had been
exchanged for 648,241 shares of common stock of NaPro and 77,272 shares of the
Canadian Preferred remained outstanding.

NaPro has registered under the Securities Act of 1933 the resale of 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.



                                      F-21

<PAGE>


                  NaPro BioTherapeutics, Inc. and Subsidiaries

              Notes to Consolidated Financial Statements, continued


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.

9,420,631 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

Warrant Restructuring

On December 4, 1998, NaPro entered into letter agreements with each of the
holders of certain warrants to purchase NaPro common stock (the "Warrants") and
warrants to purchase Warrants (the "Other Warrants"), modifying the terms of the
Warrants and Other Warrants. The Warrants and the Other Warrants were issued to
the underwriters of NaPro's initial public offering in 1994. Pursuant to these
letter agreements, the number of shares of common stock underlying the Warrants
and Other Warrants was reduced by 50%, the exercise price of the Warrants was
reduced from $7.50 to $1.90 and the exercise price of the Other Warrants was
reduced from $.30 to $.15. As a result of these changes, the number of shares of
common stock underlying the Warrants and the Other Warrants was reduced from
331,008 to 165,504.

During 1998 changes were made to warrants issued in connection with the senior
convertible debt and the C Preferred (see Notes 4 and 5).

The following summarizes warrant activity:
<TABLE>
<CAPTION>

                                                                                    Exercise        Expiration
                                                              Warrants                 Price            Dates   
         <S>                                                  <C>               <C>                 <C>
          
         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                                             63,326)           1.125 -  7.500     1997 - 1999
                                                               ------

         Outstanding at December 31, 1997                         974,153       $ 0.075 -  7.500     1999 - 2003
         Canceled in restructuring                             (1,153,408)        2.500 - 10.500     1999 - 2001
         Issued in restructuring                                  987,904         1.500 -  2.500     1999 - 2001
         Remitted (see Note 7)                                   (111,111)        0.075                     2003
                                                                -----------

         Outstanding at December 31, 1998                         697,538         1.125 -  2.500     1999 - 2003 
                                                                ===========
</TABLE>

Option Restructuring

On March 25, 1998 the compensation committee of NaPro's board of directors (the
"Compensation Committee") reviewed the status of NaPro's outstanding options.
The compensation committee deter mined that as a result of the drop in the value
of the common stock at the end of 1997 and beginning of 1998, which was the
result of regulatory issues not within the control of the grantees, the existing
options did not effectively serve their purpose of helping to retain directors,
officers, employees and consultants and to closely align the interests of these
groups with those of NaPro. In order to renew these incentives, the Compensation
Committee approved and recommended to the Board of Directors the Option
Restructur ing Plan. The Option Restructuring Plan gave holders of NaPro's
options the opportunity to change the terms of their existing options having an
exercise price above $3.00 (the "Covered Options"). If the holder of Covered
Options chose to participate, the following changes were made to all that
person's Covered Options: (i) the number of shares of common stock underlying
such options was reduced by 20% or 50% (depending on the participant's
relationship to NaPro); (ii) the exercise price was set at $1.8175 (the closing
price of NaPro's common stock on March 27, 1998); (iii) the vesting schedule of
such options recommenced as of March 27, 1998, with the result that all time
toward vesting was lost as of that date; and (iv) the termination dates of such
options were reset from March 27, 1998, and in the case of consultants no longer
providing services to NaPro and former directors of NaPro, the period during
which such options could be exercised was shortened. Holders of an aggregate of
1,225,910 Covered Options elected to participate in the Option Restructuring
Plan, with the effect that the number of shares of common stock underlying such
options was reduced to 944,899.

Nonplan Stock Options

In November 1990, Pacific Biotechnology, Inc. ("PB"), one of the NaPro'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 (the "Formation Options") under the same terms as the PB options.
In 1998, 143,467 of the Formation Options were exercised, with the result that
16,000 Formation Options remain outstanding.

In January 1994, NaPro granted to the four NaPro outside directors 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, NaPro 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).
 As a result of the option restructuring and of employees leaving NaPro, 19,012
of these options were canceled or forfeited, with the result that 1,063 of these
options remained outstanding on December 31, 1998. In addition, during 1997,
third parties were granted nonplan options to purchase an aggregate of 49,785
shares of common stock at an exercise price of $7.25. As a result of the option
restructuring, those options were exchanged for nonplan options to purchase
24,893 shares of common stock at an exercise price of $1.8125.

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.


                                      F-22

<PAGE>


                  NaPro BioTherapeutics, Inc. and Subsidiaries

              Notes to Consolidated Financial Statements, continued


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 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 on the day of grant.

1994 Long-Term Performance Incentive Plan

In July 1994, NaPro's stockholders approved the 1994 Long-Term Performance
Incentive Plan (the "Incentive Plan"). Originally, an aggregate of 375,000
shares were authorized for issuance under the Incentive Plan. In July 1996 and
May 1998 NaPro's stockholders approved increases in the number of authorized
shares, and, as a result of these increases, there are currently 1,575,000
shares authorized for issuance under the Incentive Plan. 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 (i) who is elected or re-elected as a director of NaPro by the stockholders
at any annual meeting of stockholders, (ii) who continues as a director
following an annual meeting of NaPro's stockholders at which such director is
not subject to re-election or (iii) is appointed as a director of NaPro in
accordance with its bylaws 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 10,000 shares of
NaPro's common stock. The Incentive Plan also provides for annual automatic
grants of options to purchase 10,000 shares to the chairs of the board of
directors' Audit, Compensation and Strategic Planning Committees.

The 1998 Stock Option Plan

In March 1998, the board of directors adopted the 1998 Stock Option Plan (the
"1998 Plan") to provide stock options for employees and other individuals
performing services for NaPro. An aggregate of 125,000 shares are authorized for
issuance under the 1998 Plan. Under the terms of the 1998 Plan, non-qualified
stock options cannot be granted to persons who are NaPro officers or directors,
as defined by Section 16 of the Securities Exchange Act of 1934.

The following summarizes stock option activity and balances:


                                      F-23

<PAGE>
<TABLE>
<CAPTION>


                  NaPro BioTherapeutics, Inc. and Subsidiaries

              Notes to Consolidated Financial Statements, continued


                                                                                                           Weighted
                                                                                                            Average
                                                                    Stock                 Exercise         Exercise
                                                                  Options                   Price           Price  
         <S>                                                      <C>              <C>                        <C>

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

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

         Outstanding at December 31, 1997                       1,190,783           $0.188 - $11.750         $6.57
         Granted                                                  978,705            1.000 -   8.313
         Forfeited                                                (67,968)            1.000 - 10.250
         Exercised                                               (163,467)            0.188 -  0.750
         Canceled in restructuring                               (836,785)            3.650 - 11.750
         Issued in restructuring                                  632,799                      1.813          1.81
                                                                                         -----------

         Outstanding at December 31, 1998                       1,734,067           $0.188 - $10.250          1.71
                                                               ===========
</TABLE>

The weighted-average fair value of options granted during 1998 was $.97.
Exercisable options at December 31, 1998 were 237,565 with a weighted-average
exercise price of $2.72 and a weighted-aver age remaining contractual life of
8.6 years.

Pro forma information regarding net income and earnings per share is required by
FASB Statement 123, which also requires that the information be determined as if
NaPro 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 1998,
1997 and 1996 respectively: risk-free interest rate ranges of 4.24% to 5.67%,
6.20% to 6.46% and 5.84% to 6.64%; no expected dividend; volatility factor of
 .858, .591 to .596, and .580; 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. NaPro's pro forma
information follows:



                                      F-24

<PAGE>


                  NaPro BioTherapeutics, Inc. and Subsidiaries

              Notes to Consolidated Financial Statements, continued
<TABLE>
<CAPTION>


                                       1998                  1997                    1996
                                       ----                  ----                    ----
<S>                                 <C>                   <C>                      <C>

Pro forma net loss                  $(3,104,000)          $(16,711,000)           $(7,610,000)
                                    ============          =============           ============
Pro forma net loss attributable
  to common stockholders            $(3,696,000)          $(16,775,000)           $(7,610,000)
                                    ============          =============           ============
Pro forma loss per share            $     (0.25)          $      (1.38)           $     (0.76)
                                    ============          =============           ============
</TABLE>

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 was not 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. Faulding has
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 Agree
ment 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 Note 7).

The IVAX Agreement (terminated in March 1998)

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. 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 were 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 noncommer cial 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 Note 7). Under the 1998 termination agreement, all
material is to be sold to IVAX at a fixed price.



                                      F-25

<PAGE>


                  NaPro BioTherapeutics, Inc. and Subsidiaries

              Notes to Consolidated Financial Statements, continued


NaPro and IVAX terminated the IVAX Agreement on March 20, 1998. Under the
termination agreement, IVAX received a royalty-free, limited, non-exclusive
license to one of NaPro's patents (the "Patent") in the United States, Europe
and certain other world markets. In return, NaPro received a cash payment of $6
million, $2 million of which was placed in escrow to be released as remaining
product is delivered. In April, 1998, IVAX returned approximately 1.1 million
shares of NaPro common stock. In addition, upon the issuance of the Patent in
various countries, IVAX made additional payments of $6.4 million. NaPro will
continue to manufacture a fixed amount of paclitaxel for delivery to IVAX
periodically during the first half of 1999. In 1998 NaPro received $680,000 of
the $2 million escrow. NaPro expects to receive the remaining $1,320,000 in the
first half of 1999. 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.

The PBI Agreement

In March 1994, NaPro entered into a contract with Pacific BioTechnologies, Inc.
("PBI"), a subsidiary of Pacific Regeneration Technologies, Inc., one of the
largest reforestation companies in Canada (the "PBI Agreement"). Under the PBI
Agreement, PBI planted and is maintaining a plantation of yew trees. Pursuant to
such agreement, NaPro is obligated to pay PBI an annual fee equal to its
budgeted (estimated) cost in performing its obligations under the agreement plus
overhead and a specified profit. NaPro and PBI have agreed to wind down the
relationship by July 2001 by harvesting the trees and/or transplanting them to
other properties.

10.      Commitments and Contingencies

Operating Leases

NaPro has executed noncancellable operating lease agreements for office,
research and production facilities and for plantations. As of December 31, 1998,
future minimum lease payments under noncancel lable operating lease agreements
are as follows:

                           1999                       $    709,000
                           2000                            640,000
                           2001                             81,000
                           2002                             12,000
                           2003                             12,000
                           Thereafter                       25,000
                                                      ------------

                                  Total                 $1,479,000



                                      F-26

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                  NaPro BioTherapeutics, Inc. and Subsidiaries

              Notes to Consolidated Financial Statements, continued


Rent expense for the years ended December 31, 1998, 1997 and 1996 was $600,000,
$629,000, and $564,000, respectively.

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.

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 commer cial 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 May 31, 1999, Faulding will communicate to NaPro the final amount of
sales for the period April 1, 1998 to March 31, 1999, and an adjustment will be
calculated, which may either increase or decrease NaPro's revenue from sales of
products to Faulding for 1998 and 1999.

Purchase Commitments

NaPro's purchase commitments total approximately $420,000 in 1999, primarily for
acquisition of additional yew trees and plantation maintenance.

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 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 1998, 1997 and 1996, NaPro
elected to match the first $2,000 in contributions of each participating


                                      F-27

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                  NaPro BioTherapeutics, Inc. and Subsidiaries

              Notes to Consolidated Financial Statements, continued

employee with NaPro common stock at a rate of 200% for 1998, valued at $164,000;
at a rate of 50% for 1997, valued at $51,000; and at a rate of 50% for 1996,
valued at $28,000. NaPro elected to make a discretionary contribution in the
form of NaPro common stock at the rate of 10% of all eligible employees' pay for
1998, valued at $391,000.

12.      Restructuring

On February 17, 1998, NaPro announced the planned layoff of 53 employees
resulting in a one-time charge of approximately $250,000, which reflects the
actual cost incurred, charged to research, develop ment and cost of products
sold expense and to general and administrative expense. 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 the time
NaPro has sufficient product demand to warrant completion of the facility. NaPro
incurred $434,000 of losses on asset retirements and $110,000 of other expense
as a result of the suspended construction.




                                      F-28

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