Use these links to rapidly review the documentTable of Contents NaPro BioTherapeutics, Inc. and Subsidiaries Financial Statements Index to Consolidated Financial Statements



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

Form 10-K

|(Mark One) |                                                                                                                                 
|---------- | --------------------------------------------------------------------------------------------------------------------------------
|ý          | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003
|OR        
|o          | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM
 TO
:   

Commission File Number 0-24320

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

|Delaware(State or other jurisdiction of
incorporation or organization)                                                                |  | 84-1187753(I.R.S. Employer
Identification No.)
|------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------
|4840 Pearl East Circle, Suite 300W
Boulder, Colorado 80301(Address of principal executive office, including zip code)                
|(303) 516-8500(Registrant's telephone number, including area code)                                                                   
|Securities registered pursuant to Section 12(b) of the Act:None                                                                      
|Securities registered pursuant to Section 12(g) of the Act:Common Stock, Par Value $0.0075 per share; Preferred Stock Purchase Rights

Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes ý    No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K.    o

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

The approximate aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant was $44,499,000
as of July 2, 2003 (the last business day of the registrant's second fiscal quarter in 2003). For purposes of determining this number, 2,949,722 shares of common stock held by affiliates are
excluded. For purposes of making this calculation, the registrant has defined affiliates as including all directors and officers, related parties thereto, and beneficial owners of more than ten
percent of the common stock of the Company.

As
of March 1, 2004, the Registrant had 30,974,121 shares of Common Stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

None.



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Table of Contents



|Part I   |  | Item 1  |  | Business                                                                                      
|-------- |  | ------- |  | ----------------------------------------------------------------------------------------------
|         |  | Item 2  |  | Properties                                                                                    
|         |  | Item 3  |  | Legal Proceedings                                                                             
|         |  | Item 4  |  | Submission of Matters to Vote of Security Holders                                             
|Part II  |  | Item 5  |  | Market for Registrant's Common Equity and Related Stockholder Matters                         
|         |  | Item 6  |  | Selected Financial Data                                                                       
|         |  | Item 7  |  | Management's Discussion and Analysis of Financial Condition and Results of Operations         
|         |  | Item 7A |  | Quantitative and Qualitative Disclosures about Market Risk                                    
|         |  | Item 8  |  | Financial Statements and Supplementary Data                                                   
|         |  | Item 9  |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure          
|         |  | Item 9A |  | Controls and Procedures                                                                       
|Part III |  | Item 10 |  | Directors and Executive Officers of the Registrant                                            
|         |  | Item 11 |  | Executive Compensation                                                                        
|         |  | Item 12 |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
|         |  | Item 13 |  | Certain Relationships and Related Transactions                                                
|         |  | Item 14 |  | Principal Accountant Fees and Services                                                        
|Part IV  |  | Item 15 |  | Exhibits, Financial Statement Schedules, and Reports on Form 8-K                              

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Part I  Item 1  Business

General

NaPro BioTherapeutics, Inc. ("we", "NaPro" or "the Company") is a pharmaceutical company focused on research and development of novel,
anti-cancer agents, and novel genomic technologies, primarily in the area of gene editing, for applications in human therapeutics and diagnostics.

Historically,
the focus of our business has been the production and sale of paclitaxel, a naturally occurring chemotherapeutic anti-cancer agent found in certain species of
yew, orTaxus,trees. The majority of our resources had been devoted to this endeavor. We had accumulated approximately $100 million of losses
over the past 13 years, principally through research and development activities, and the development and implementation of our manufacturing capabilities so that we could supply bulk paclitaxel
to our marketing partners, Mayne Pharma (USA) Inc. (f/k/a/ Faulding Pharmaceutical Co.) ("Mayne Pharma"), a subsidiary of Mayne Group Limited, and Abbott Laboratories ("Abbott").

On
December 12, 2003, we sold our worldwide generic injectable paclitaxel business to Mayne Pharma for $71.7 million in cash minus an inventory adjustment of
$4.6 million to reflect the Company's actual inventory as of the closing. In addition, Mayne Pharma assumed certain liabilities associated with our paclitaxel business. Approximately
$21.9 million of the proceeds of the transaction were paid to Abbott to retire all outstanding debt and payables we owed to Abbott. The remaining proceeds from the sale will be used to fund the
development of products based on NaPro's proprietary oncology and gene editing platforms and for general corporate purposes.

The
assets sold to Mayne Pharma included our paclitaxel manufacturing assets, yew plantations, domestic and international issued and pending paclitaxel patents, a worldwide registration
dossier, worldwide development and supply agreements, inventories and settlement of accounts receivable.
NaPro retained all of its intellectual property not used in connection with the business sold and we retained intellectual property rights to research, develop, make, use and sell products other than
those associated with the generic injectable paclitaxel business. We also retained liabilities related to our ongoing business, including those relating to our employees, our contracts and license
agreements unrelated to the paclitaxel business and certain leases and purchase orders. In addition, we retained other liabilities related to our manufacturing and sale of paclitaxel that arose prior
to the closing of the asset sale. Upon closing of the asset sale, we exited the generic paclitaxel business, terminated the development agreements with Abbott and Mayne Pharma, and transferred our
other generic paclitaxel marketing agreements to Mayne Pharma.

Our
results of operations for 2003 reflect the fact that we were engaged in the business of manufacturing bulk paclitaxel for our two principal marketing partners, Abbott and Mayne
Pharma, for substantially all of 2003. These results are not indicative of our current operations, which are primarily limited to research and development activities. During 2003 we obtained the raw
material for our paclitaxel principally through supply contracts with third party manufacturers who processed crude paclitaxel from raw biomass materials. Using our proprietary manufacturing
technology for bulk paclitaxel, we purified the crude paclitaxel in our facilities located in Boulder, Colorado. Prior to the sale of our generic paclitaxel business to Mayne Pharma, we had alliances
with established pharmaceutical companies who assisted us in marketing these products, including Abbott for sales and distribution in the U.S., Tzamal Pharma for sales and distribution in Israel, and
Mayne Pharma for sales and distribution in Australia and more than 25 other countries in the Middle East, Latin America and Asia.

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NaPro Research and Development Activities

The following chart identifies our therapeutic products under development. All of our products are in pre-clinical research:

|Product               |  | Potential Indication(s)                                                                
|--------------------- |  | ---------------------------------------------------------------------------------------
|Oncology Products     |  |                                                                                        
|NBT-287               |  | Breast Cancer, Small Cell Lung Cancer, Pancreatic Cancer, Ovarian Cancer, Neuroblastoma
|NBT-273               |  | Breast Cancer, Multiple Myeloma, Pancreatic Cancer, Squamous Cell Carcinomas           
|BBN-Taxane            |  | Small Cell Lung Cancer, Prostate Cancer, Pancreatic Cancer, Gastrointestinal Cancers   
|HN-1 Taxane           |  | Squamous Cell Carcinomas of the head, neck and lung                                    
|Gene Editing Products |  |                                                                                        
|Oligo/Cell Therapy    |  | Sickle Cell Disease                                                                    
|Oligo Therapy         |  | Huntington's Disease                                                                   

We
have determined that the speed and probability of approval of our oncology programs in the near term is higher than for our gene-editing therapeutics and that the
timelines for development are likely to be shorter; therefore, we have decided to focus our long-term efforts and internal resources in the oncology area. We will continue over the short
term to spend resources in the gene-editing area, primarily with the intent of developing adequate data to support finding partners or purchasers of the opportunities of the
gene-editing technology. This allocation of effort and resources will continually be reviewed and is subject to change based on the data being generated by each individual program.

In
addition to oncology and gene editing research and development activities, we are also actively engaged in evaluating the in-licensing or purchase of potential new
products and/or technologies, whether or not those products or technologies are derived from natural products, are chemotherapeutic agents, or complement our gene editing technology. Our evaluation of
new products and technologies may involve the examination of individual molecules, classes of compounds, or platform technologies, in both cancer and other therapeutic areas. Acquisitions of new
products or technologies may involve the purchase of such products or technologies, or the acquisition of, or merger with, other companies. In the event we enter into any such relationships or
transactions, we may consider using available cash, issuing equity securities or increasing our debt. We also may evaluate disposing of assets or operations from time to time. Such transactions could
materially affect our capital structure.

Oncology Products

We are developing several targeted and non-targeted compounds that we believe have potential as anti-cancer agents to treat a variety of
cancers including, but not limited to, breast, small cell lung, prostate, pancreatic, and squamous cell head and neck carcinomas. Non-targeted compounds are cytotoxic chemotherapeutic
agents which are intended to be used either as single agents or in combination with other approved compounds. By contrast, our targeted compounds consist of conjugates of a cytotoxic agent coupled to
a peptide, which have potential to selectively and specifically target certain types of tumor cells. We believe that coupling cytotoxic agents with targeting agents will lead to greater safety and
efficacy when compared to the untargeted cytotoxic chemotherapy agents currently available on the market. We are testing four targeted compounds described below in variousin
vitroassays and animal models, and are currently undertaking the development work necessary to introduce these agents into human clinical trials. These targeted compound
programs are being performed at facilities contracted by NaPro in collaboration with academic researchers under the direction of our drug development team.

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We
anticipate bringing two of our oncology products into clinical trials during 2004. The clinical development of oncology drugs has many opportunities for failure. Clinical development
of these compounds are expected to take at least five years from the initiation of human clinical trials followed by a lengthy review by the U.S. Food and Drug Administration ("FDA"). FDA review will
likely add at least another year to the development timeline prior to commercialization, suggesting that commercial sales of these compounds, if fully developed and approved, would not likely commence
before 2010.

Genomics Products

In the field of genomics, we are engaged in the discovery, patenting, and development of a range of products using our proprietary gene editing technology.
Employing this technology, we are developing products that specifically and precisely edit genes. We believe these products can contribute to the prevention and treatment of many different types of
disease, both inherited and acquired.

We
have entered into a 20-year gene editing technology license with the University of Delaware and Thomas Jefferson University. The license agreement grants us exclusive,
worldwide rights to intellectual property including patent applications relating to the use of proprietary molecules designed to edit genes in humans, animals, plants, viruses and microbes. One of the
licensed technologies allows us to use proprietary oligonucleotides to make small, specifically targeted modifications in the chromosomes of a target animal or plant. With this technology, we are
attempting to develop products and processes that may allow us to effectively treat certain human genetic disorders and/or develop processes to detect genetic variations in a patient's genes.

We
have agreed to provide research and patent funding to the University of Delaware and Thomas Jefferson University, as well as an ongoing license fee paid in our common stock. As of
December 31, 2003, we have issued 301,200 shares of common stock under the license to the University of Delaware, 51,300 shares to Thomas Jefferson University and 47,500 shares to The Samuel
Roberts Noble

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Foundation, Inc.,
each of which has an ownership interest in the licensed intellectual property. Assuming we do not cancel the license, we will issue an additional 800,000 shares in 100,000
share-per-year increments on the license anniversaries and/or in 200,000 share increments upon the achievement of certain milestone events. We may, at our option, accelerate
the issuance dates. The license is terminable at our option and, if it is terminated, no further shares will be issued. We have committed to fund at least $300,000 in research at the University of
Delaware during 2004. Unless we terminate the license, we are also committed to funding at least $300,000 per year in research at the University of Delaware during 2005 and 2006 as well.

Among
the disorders we are focusing on in our genomics program for clinical treatment are Sickle Cell disease and Huntington's disease. Sickle Cell disease is a hereditary blood disorder
caused by a single point mutation of the betaglobin gene. It is characterized by a defined change in the composition of hemoglobin, the protein used to carry oxygen in the blood. The sickle hemoglobin
molecules polymerize into long fibers within red blood cells when deoxygenated, causing the cell to become deformed (sickled), rigid and adhesive. The sickled red blood cells block oxygen flow to the
tissues leading to organ damage, stroke and joint pain. The majority of current treatments for Sickle Cell disease address only the symptoms of the disease. These treatments include the use of pain
medications and blood transfusions. While all of these treatments are used to manage the disease, breakthrough crises occur in most patients. We are developing anex
vivotechnique aimed at treating this disorder. We are in the early stages of this development and our prospects for success, if any, cannot be measured at this time.

Huntington's
disease is a progressive, neurological disorder resulting in degeneration of nerve cells in the brain. It is specifically characterized by lethal aggregate formation in
neural tissue. Eventually, the patient suffers dementia, uncontrolled movements, and death. There is no known cure for this rare disease. Symptoms usually appear between the ages of 35 and 50,
although younger people can also develop the disease. The disease affects five per every one million people. We are developing an oligonucleotide, which may potentially allow the cells to survive. We
are in the early stages of this program and we can provide no assurance that we will be successful in this development effort.

Both
the Sickle Cell and the Huntington's programs are in pre-clinical development and will require significant additional work before entering the clinic. We hope to have
the Huntington's program in the clinic in 2005, assuming continued success in pre-clinical development and assuming we continue these programs. Our gene editing enables us to develop many
different products and services and, assuming continued success in developing the technology, we expect to seek funding from the federal government, private foundations and possible collaborators.

We
may also be able to develop products for diagnostics, reagents, cell lines and animal models that can be used by the scientific and medical research community to further their own
research. This technology may permit specific control over changes in any genome under examination and should help determine the function of genes and the consequences of natural variations in
chromosomes in research, therapeutic, and agricultural applications.

In
December 2002, we acquired the genomics business of Pangene Corporation for $1.3 million in cash and assumption of debt obligations totaling approximately $65,000. The
acquisition consisted primarily of patents and intellectual property relating to Pangene's homologous recombination technology and gene isolation and service business, physical assets,
instrumentation, software, customer relationships and third-party licenses. In connection with this agreement, we acquired additional patents in January 2003 for $400,000. In
December 2003, we discontinued the gene isolation and service component of this acquisition, and the revenues and costs related to this business are included in discontinued operations. In
connection with the decision to sell the gene isolation business, equipment and software with a net book value of $122,000 and intangible assets, consisting of customer

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relationships,
with a net book value of $83,000 are considered held for sale at December 31, 2003. The remaining assets we acquired are still being used in our ongoing operations.

Patents and Proprietary Technology

Our success in commercializing, producing and marketing products and technologies in the future depends in part on our ability to obtain and maintain adequate
protection of the intellectual property related to our technologies and products, both in the U.S. and other countries, and to operate without infringing the proprietary rights of third parties. We
will be able to protect our proprietary rights from unauthorized use by third parties only to the extent that our proprietary technologies are covered by valid and enforceable patents or are
effectively maintained as trade secrets. The patent positions of biotechnology companies, including our patent position, are generally uncertain and involve complex legal and factual questions.

We
cannot predict the breadth of claims that will be allowed and issued to us for patents related to biotechnology or pharmaceutical applications. Before a patent is issued, its coverage
can be significantly narrowed, either in the U.S. or abroad. We also do not know whether any of our pending or future patent applications will result in the issuance of patents. To the extent patents
have been issued or will be issued, some of these patents are subject to further proceedings that may limit their scope and once patents have been issued, we cannot predict how the claims will be
construed or enforced. It is not possible to determine which patents may provide significant proprietary protection or competitive advantage, or which patents may be circumvented or invalidated.
Furthermore, patents already issued to us, or patents that may be issued on our pending applications, may become subject to dispute, including interference proceedings in the U.S. to determine
priority of invention. If our currently issued patents are invalidated or if the claims of those patents are narrowed, our ability to prevent
competitors from marketing products that are currently protected by those patents could be reduced or eliminated. We could then face increased competition resulting in reduced market share, prices and
profit.

In
addition, the laws of some foreign countries do not protect proprietary rights to the same extent as the laws of the United States, and many companies have encountered significant
problems in protecting and defending their proprietary rights in foreign jurisdictions. For example, methods of treating humans are not patentable in many countries outside of the U.S.

Our
patents may not afford us protection against competitors, especially since there is a lengthy time between when a patent application is filed and when it is issued. We may also incur
substantial costs in asserting claims against, and defending claims asserted against us by third parties to prevent the infringement of our patents and proprietary rights by others. Participation in
such infringement proceedings may adversely affect our business and financial condition, even if the eventual outcome is favorable.

Our
commercial success also depends in part on our ability to avoid infringing patents and proprietary rights of third parties and not breaching any licenses that we have entered into
with regard to any future products. There are many genomics, pharmaceutical and chemical patents being issued every week throughout the world. Other parties have filed, and in the future are likely to
file, patent applications covering technologies we are developing. Many of those have patent claims that are difficult to categorize and interpret. Because of this, we may infringe on intellectual
property rights of others without being aware of the infringement.

If
our technology, products or activities are deemed to infringe the other companies' rights, we could be subject to damages or be prevented from using the technology that is infringing
other companies' rights, or we could be required to obtain licenses to use that technology. If patents covering technologies required by our operations are issued to others, we may have to rely on
licenses from third parties, which may not be available on commercially reasonable terms, or at all. Third parties may

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accuse
us of employing their proprietary technology without authorization. In addition, third parties may obtain patents that relate to our technologies and claim that our use of such technologies
infringes their patents, even if we have received patent protection for our technology. Such claims could require us to incur substantial costs and could have a material adverse effect on us,
regardless of the merit of the claims, including the following:



We
own issued patents and have applied for patents relating to our targeted and non-targeted oncology programs as well as our genomics programs. As of December 31,
2003, we (either alone or with Bryn Mawr College) have 5 issued patents related to non-targeted oncology and 9 related to our genomics programs. The following lists the U.S. patents the
Company holds as of December 31, 2003:

|Patent Number |  | Subject Matter                                                                                                        |  | Issued             |  | Nominal Expiration*
|------------- |  | --------------------------------------------------------------------------------------------------------------------- |  | ------------------ |  | -------------------
|Genomics      |  |                                                                                                                       |  |                    |  |                    
|5,273,881     |  | In-situ Hybridization Method                                                                                          |  | December 28, 1993  |  | September 04, 2011 
|5,506,098     |  | In-situ Hybridization Method                                                                                          |  | April 09, 1996     |  | April 09, 2013     
|5,670,316     |  | In-situ Hybridization Method                                                                                          |  | September 23, 1997 |  | September 23, 2014 
|5,719,023     |  | In-situ Hybridization Method                                                                                          |  | February 17, 1998  |  | February 17, 2015  
|5,929,043     |  | Recombinase Mediated DNA Therapies                                                                                    |  | July 27, 1999      |  | January 31, 2015   
|5,965,361     |  | In-situ Hybridization Method Using Reca Protein and Reca Protein Having Maker or Ligand for Use in Said Method        |  | October 12, 1999   |  | October 12, 2016   
|6,245,565     |  | Recombinase Mediated DNA Modifications                                                                                |  | June 12, 2001      |  | January 31, 2015   
|6,335,164     |  | Methods for Targeting, Enriching, Detecting and/or Isolating Target Nucleic Acid Sequence Using Reca-like Recombinase |  | January 01, 2002   |  | August 29, 2017    
|6,524,856     |  | The Use of Consensus Sequences for Targeting Homologous Gene Isolation and Recombination in Gene Families             |  | February 25, 2003  |  | December 11, 2018  
|              |  |                                                                                                                       |  |                    |  |                    

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|Non-Targeted Oncology |  |                                                                                                          |  |                   |  |                  
|--------------------- |  | -------------------------------------------------------------------------------------------------------- |  | ----------------- |  | -----------------
|5,696,153             |  | Therapeutic Regimen for Treating Patients with Taxol                                                     |  | December 9, 1997  |  | May 16, 2014     
|5,688,517             |  | Method for Assessing Sensitivity of Tumor Cells to Cephalomannine & 10-Deacetyl Taxol                    |  | November 18, 1997 |  | November 18, 2014
|5,688,977             |  | Method for Docetaxel Synthesis (NaPro and Bryn Mawr College)                                             |  | November 18, 1997 |  | February 29, 2016
|6,107,497             |  | Intermediate for Use in Docetaxel Synthesis and Production Method Therefor (NaPro and Bryn Mawr College) |  | August 22, 2000   |  | February 29, 2016
|6,358,996             |  | Stable Isotope Labeling of Paclitaxel                                                                    |  | March 19, 2002    |  | June 9, 2020     

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In
addition, we (either alone or with the University of Illinois, Chicago) have applied for 1 U.S. patent in relation to our targeted oncology program, 4 U.S. patents in
relation to our non-targeted oncology program and 10 related to our genomics programs.

We
have 3 issued foreign patents and 18 pending foreign applications in relation to our non-targeted oncology program and 7 pending foreign applications in relation to our
targeted-oncology program. We own (by acquisition from Pangene) 40 issued foreign patents and 18 pending foreign applications related to our genomics programs. Although we have aggressively worked to
protect our proprietary technologies through the patenting process, there is no assurance that we will have freedom to operate in the fields where we are developing commercial products.

We
have applied for and will continue to apply for patents covering our technologies, processes and products as and when we deem appropriate. However, these applications may fail to
result in issued patents.

The
following lists the U.S. patents we have in-licensed as of December 31, 2003 that are owned by third parties:

|Number (Issued or Patent
Publication Number) |  | Subject Matter                                                                              |  | Issued            |  | Nominal Expiration*
|-------------------------------------------- |  | ------------------------------------------------------------------------------------------- |  | ----------------- |  | -------------------
|Genomics                                     |  |                                                                                             |  |                   |  |                    
|4,888,274                                    |  | Rec A Nucleoprotein Filament and Methods (Licensed from Yale)                               |  | December 19, 1989 |  | December 19, 2006  
|5,763,240                                    |  | In Vivo Homologous Sequence Targeting In Eukaryotic Cells (Licensed from SRI International) |  | June 9, 1998      |  | June 9, 2015       
|5,948,653                                    |  | Sequence Alterations Using Homologous Recombination (Licensed from SRI International)       |  | September 7, 1999 |  | August 13, 2017    
|6,074,853                                    |  | Sequence Alterations Using Homologous Recombination (Licensed from SRI International)       |  | June 13, 2000     |  | August 13, 2017    
|6,200,812                                    |  | Sequence Alterations Using Homologous Recombination (Licensed from SRI International)       |  | March 13, 2001    |  | August 13, 2017    
|6,255,113                                    |  | Homologous Sequence Targeting in Eukaryotic Cells (Licensed from SRI International)         |  | July 3, 2001      |  | April 24, 2012     
|                                             |  |                                                                                             |  |                   |  |                    

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|Targeted Oncology     |  |                                                                                                                                                               |  |                   |  |                  
|--------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- |  | -----------------
|6,191,290             |  | Taxane Derivatives for Targeted Therapy of Cancer (Licensed from UAB Research Foundation)                                                                     |  | February 20, 2001 |  | February 23, 2020
|Non-Targeted Oncology |  |                                                                                                                                                               |  |                   |  |                  
|6,573,296             |  | Therapeutic Quassinoid Preparations with Antineoplastic, Antiviral, and Herbistatic Activity (Licensed from Advanced Research and Technology Institute, Inc.) |  | June 3, 2003      |  | November 3, 2015 
|5,965,493             |  | Therapeutic Quassinoid Preparations with Antineoplastic, Antiviral, and Herbistatic Activity (Licensed from Advanced Research and Technology Institute, Inc.) |  | October 12, 1999  |  | November 3, 2015 
|5,849,748             |  | Therapeutic Quassinoid Preparations with Antineoplastic, Antiviral, and Herbistatic Activity (Licensed from Advanced Research and Technology Institute, Inc.) |  | December 15, 1998 |  | November 4, 2014 
|5,639,712             |  | Therapeutic Quassinoid Preparations with Antineoplastic, Antiviral, and Herbistatic Activity (Licensed from Advanced Research and Technology Institute, Inc.) |  | June 17, 1997     |  | November 4, 2014 

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In
addition, we have in-licensed 1 U.S. patent application and 3 foreign patent applications from the University of Texas M.D. Anderson Cancer Center and 6
foreign patent applications from the UAB Research Foundation, in relation to our targeted oncology program. We in-licensed 2 U.S. patent applications from the University of Mississippi and
1 U.S. patent application and 19 issued foreign patents from the Advanced Research and Technology Institute, Inc., in relation to our non-targeted oncology program. In our genomics
business, we have in-licensed 3 U.S. and 13 foreign patent applications from SRI International and 1 issued foreign patent, 19 U.S. and 6 foreign patent applications from the University of
Delaware.

We
also rely on trade secrets and other proprietary information to develop and protect our competitive position, some of which is not patented. Our success will depend in part on our
ability to protect our trade secrets related to our oncology and gene editing programs. While we believe that we have protected our trade secrets, some of our current or former employees, consultants,
scientific advisors or collaborators could make unauthorized disclosures of our confidential information to competitors or use our technology for their own benefit. Enforcing a claim alleging the
infringement of our trade secrets would be expensive and difficult to prove, making the outcome uncertain. Our competitors may also independently develop equivalent knowledge, methods and technology
or gain access to our proprietary information through some other means.

See
"Item 3. Legal Proceedings," for a description of pending patent litigation.

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Government Regulation and Product Approvals

Pharmaceutical research, pre-clinical development, clinical trials, manufacturing and marketing activities are subject to regulation for safety,
efficacy and quality by governmental authorities in the U.S. and other countries. Regulations govern, among other things, the testing, manufacture, labeling, storage, record keeping, approval,
advertising and promotion of our products and product candidates. Product development and approval within this regulatory framework take a number of years and involve the expenditure of
substantial resources.

The
steps required before a pharmaceutical agent may be marketed in the U.S. include pre-clinical laboratory tests, animal pharmacology and toxicology studies and formulation
studies, the submission of an Investigational New Drug Application ("IND") to the FDA for human clinical testing, the carrying out of adequate and well-controlled human clinical trials to
establish the safety and efficacy of the pharmaceutical agent, the submission of a New Drug Application ("NDA") to the FDA, and FDA approval of the NDA. 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
FDA regulations.

Pre-clinical
studies include the laboratory evaluation ofin vitropharmacology, product chemistry and formulation, as well as
animal studies to assess safety. Pre-clinical safety tests must be conducted by laboratories that comply with FDA regulations. The results of some of the pre-clinical tests
form a part of an IND along with the proposed clinical study, and chemistry and manufacturing information. The IND process may be costly.

Clinical
trials are typically conducted in three sequential phases. In Phase I, the initial introduction of the drug into a small number of healthy volunteers is undertaken. The drug is
evaluated for safety. The Phase I trial must also provide pharmacological data that is sufficient to design the Phase II trials. For certain drugs such as cancer drugs Phase I trials may be conducted
in patients rather than in healthy volunteers. Clinical trials must be sponsored and conducted in accordance with good clinical practice.

Phase
II trials involve studies in a limited patient population in order to obtain initial indications of the efficacy of the drug for specific, targeted indications, to determine dosage
tolerance and optimal dosage, and to identify possible adverse affects and safety risks. When a compound is determined preliminarily to be effective and to have an acceptable safety profile in Phase
II evaluation, Phase III
trials can be undertaken to evaluate safety and efficacy further in expanded patient populations at geographically diverse clinical trial sites. Positive results in Phase II are no guarantee of
positive results in Phase III.

The
results of the clinical trials and manufacturing, toxicology and pharmacology information are submitted to the FDA in the form of an NDA. The approval of an NDA permits
commercial-scale manufacturing, marketing, distribution, and sale of the drug in the U.S. The FDA may deny a new drug application filed by us or our collaborators, if any, if the applicable scientific
and regulatory criteria are not satisfied. The FDA may require additional testing or information, and may require post-approval testing, surveillance and reporting to monitor the products.
The FDA may ultimately decide that an NDA does not meet the applicable agency standards, and even if approval is granted, it can be limited or revoked.

Federal
and state laws protect the confidentiality of certain patient health information, including patient records, and restrict the use and disclosure of that protected information. In
particular, the US Department of Health and Human Services published patient privacy rules under the Health Insurance Portability and Accountability Act of 1996. These privacy rules protect medical
records and other personal health information by limiting its use and release, giving patients the right to access their medical records and limiting most disclosures of health information to the
minimum amount necessary

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to
accomplish an intended purpose. We believe that we generally have taken all necessary steps to comply with health information privacy and confidentiality statutes and regulations in all
jurisdictions, both state and Federal. However, we, or the parties with which we do business, may not be able to maintain compliance in all jurisdictions where we do business. Failure to maintain
compliance, or changes in state or Federal laws regarding privacy, could result in civil and/or criminal penalties and could have a material adverse effect on our business.

Outside
the U.S., our ability to market a product is contingent upon receiving a marketing authorization from the appropriate regulatory authority. This foreign regulatory approval
process includes many of the same steps and uncertainties associated with FDA approval described above.

Competition

The biopharmaceutical industry is an expanding and rapidly changing industry characterized by intense competition for product sales, financing, executive talent
and intellectual property. We compete with all entities developing and producing therapeutic agents, including those for cancer treatment. Our competitors vary in terms of scale from small biotech
companies to large pharmaceutical companies.
Companies developing or selling taxane products include Aventis, Bristol Myers Squibb, Wyeth, Daiichi, Abbott Laboratories and Bayer.

In
the event we develop and commercialize products and technologies in the future, we expect competition from fully integrated pharmaceutical companies and more established biotechnology
companies as well as government, universities and public and private research institutions. These companies and institutions conduct research, seek patent protection and establish collaborative
arrangements for product development and marketing. Most of these companies and institutions have significantly greater financial resources and expertise than we do in the following:



Smaller
companies may also prove to be significant competitors, particularly through collaborative arrangements with large pharmaceutical companies or other organizations. In addition,
other companies and institutions compete with us in recruiting and retaining highly qualified scientific and management personnel.

Research and Development Expenditures

During the years ended December 31, 2003, 2002 and 2001, we spent approximately $10.8 million, $15.9 million and $13.4 million,
respectively, on research and development activity for our oncology and genomics product candidates. Research and development is expected to remain a significant expense of our business. Our research
and development is expected to concentrate on the development of novel, anti-cancer agents, and the development of novel genomic technologies, primarily in the area of gene editing, for
applications in human therapeutics and diagnostics. We anticipate bringing two of our oncology products into clinical trials during 2004. Assuming success in our ongoing research, our Huntington's
disease program may go into clinical trials during 2005. However, there can be no assurance that we will be able to achieve the expected timing of these programs. We also cannot estimate the cost of
the effort necessary to complete the programs or the timing of commencement of material net cash inflows from these programs.

12

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Foreign and Domestic Operations; Export Sales

All sales relate to discontinued operations and have been included in discontinued operations for the current and prior years. The following table sets
forth, for the past three years, profitability (operating income (loss)), and identifiable assets attributable to our U.S. and foreign operations (in thousands):

|                                         |        | Year Ended December 31, |        
|---------------------------------------- | ------ | ----------------------- | -------
|
|Operating Loss                           |        | $                       | (21,914
|Discontinued Operations Income (Loss)(1) |        | $                       | 60,042 
|Identifiable Assets                      |        |                         |        
|                                         | U.S.   |                         | $      
|                                         | Canada |                         |        

---

Sales
of our paclitaxel into foreign markets accounted for approximately 51% of our 2003 revenue, 27% of our 2002 revenue, and 60% of our 2001 revenue.

Employees

As of December 31, 2003, we had 67 employees, which included 12 part-time employees. Of these employees, 14 held Ph.D. or M.D. degrees, 37
employees, including 8 part-time employees, were engaged in drug development, and 30 employees, including 4 part-time employees, were in administration, legal, information
technology and finance. We believe that our relations with our employees are good. In addition, we contract with many outside consultants for services relating to our drug development programs.

Environmental Law Compliance

We may use radioactive materials and other hazardous or biohazardous substances in our research and development. As a result, we are potentially subject to
material liabilities related to personal injuries or property damages that may be caused by the spread of radioactive contamination or by other hazardous substance releases or exposures at, or from,
our facilities. Decontamination costs associated with radioactivity releases, other clean-up costs, and related damages or liabilities could be significant and could harm our business. The
cost of this liability could exceed our resources.

We
are required to comply with increasingly stringent laws and regulations governing environmental protection and workplace safety, including requirements governing the handling, storage
and disposal of radioactive and other hazardous substances and wastes, and laboratory operating and safety procedures. These laws and regulations can impose substantial fines and criminal sanctions
for violations. Maintaining compliance with these laws and regulations with regard to our operations could require substantial additional capital. These costs could decrease our ability to conduct
operations in a cost-effective manner.

Available Information

We make available, free of charge, on or through our internet website our annual report on Form 10-K, quarterly reports on
Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission ("SEC"). Our internet
address is www.naprobio.com. Our

13

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internet
website and the information contained therein or connected thereto are not intended to be incorporated into this Annual Report on Form 10-K.

Item 2  Properties

We lease 10,000 square feet of administrative space and 5,580 square feet of space for research and development in Boulder, Colorado. We lease 13,500 square feet
in Newark, Delaware and 1,100 square feet in Allentown, Pennsylvania for research and development, and we lease 2,100 square feet of office space in New York City, New York for administration. We also
own five acres of undeveloped land in Longmont, Colorado. Our oncology research and development activities are conducted at a contract research laboratory leased to us by ChromaDex, Inc.
ChromaDex is a supplier of phytochemical reference standards to which we sold our analytical and service group in April 2003 in exchange for approximately 15% of ChromaDex's then outstanding
common stock. In addition, we sold property and equipment, valued at approximately $1.0 million to ChromaDex as well as provided rent and other subsidies of $468,000. As part of this
transaction, ChromaDex assumed the lease for our research facility in Boulder, Colorado, and we sublease a portion of this facility back from ChromaDex.

Item 3  Legal Proceedings

In June 2001, we and Abbott filed a patent infringement lawsuit in the Federal District Court in the Western District of Pennsylvania ("the court") against
Mylan Laboratories, Inc. The lawsuit alleges infringement of U.S. Patent numbers 5,733,888, 5,972,992, 5,977,164, 6,140,359 and 6,306,894, all of which relate to paclitaxel. Mylan asserted
defenses that, if successful, would result in the invalidity or unenforceability of the patents. On October 6, 2003, the Federal District Court in the Western District of Pennsylvania made a
number of rulings in favor of NaPro and against Mylan. The court ruled that Mylan infringes on NaPro patents related to both stabilized formulations of paclitaxel and methods for making stable
formulations. The court also ruled that the inventors listed on the NaPro patents were the first to invent the compositions and methods claimed in such patents. The court also adopted NaPro's
interpretations of the patent claims asserted against Mylan in this case. On December 23, 2003, the court ruled that NaPro's patents were valid and that Mylan's claims that the patents were
procured through inequitable conduct and fraud on the patent office were neither true nor justified. The Federal Circuit court has stayed an injunction which would have prevented Mylan from selling
the infringing products, pending a ruling on Mylan's appeal by the Federal Circuit court. A trial to determine damages owed by Mylan in this case, and to resolve any issues which may be remanded to
the District Court as a result of Mylan's appeal, has been set for February, 2005. The patents which are the subject of this litigation were sold in connection with the sale of the paclitaxel business
to Mayne Pharma. Mayne Pharma has full control over the damages phase of this litigation, and may direct it, or settle it upon any terms it chooses. However, the transaction with Mayne Pharma provides
that NaPro will be entitled to a portion of any cash award received with respect to this patent litigation with Mylan.

TL
Ventures Funds, one of our principal institutional investors, has advised us that it believes that the completion of the sale of our paclitaxel business to Mayne Pharma will entitle
it to have its $8.0 million of Company 4% convertible subordinated debentures redeemed. We disputed this position and engaged in discussions with TL Ventures Funds regarding this matter. On
September 8, 2003, TL Ventures Funds reasserted its position and informed us that, if we could not resolve this issue promptly, it intended to pursue legal remedies. On September 11,
2003, we filed a complaint in a case captionedNaPro BioTherapeutics, Inc. v. TL Ventures V L.P. and TL Ventures V Interfund L.P., Case
No. 2003-CV-1812, District Court, Boulder County, Colorado. In our complaint, we seek a declaratory judgment from the court that the asset sale to Mayne Pharma did not
permit TL Ventures to have the 4% convertible subordinated debentures redeemed. TL Ventures has filed a motion to dismiss the suit,

14

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and
has filed an action in a case captionedTL Ventures V L.P. and TL Ventures V Interfund L.P. v. NaPro BioTherapeutics, Inc., Case
No. 110-N, Delaware Court of Chancery, alleging that TL Ventures is entitled to redeem its 4% convertible subordinated debentures. The cases are ongoing. One of our former
directors, Marc Ostro, is a general partner in certain of the TL Ventures Funds. Dr. Ostro resigned from our Board of Directors effective March 11, 2004.

Item 4  Submission of Matters to Vote of Security Holders

At NaPro's special meeting of stockholders on December 12, 2003, the two matters listed below were submitted to a vote of, and approved by, NaPro's
stockholders.

Number of SharesFor

17,121,168Against

404,920Abstain

23,912


Number of SharesFor

16,546,693Against

875,475Abstain

127,833


15

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Part II  Item 5  Market for Registrant's Common Equity and Related Stockholder Matters

Market Information

Prior to February 28, 2003 our common stock was traded on the Nasdaq National Market. On February 6, 2003, Nasdaq informed us that our common stock
no longer met the requirements for continued listing. On February 28, 2003, we transferred our common stock listing to the Nasdaq SmallCap Market, where it trades under the symbol "NPRO." The
following table sets forth, for the periods indicated, the high and low closing sale prices for our common stock for the fiscal years ended December 31, 2003 and 2002:

High

Low2003

Fourth Quarter

$
2.15

$
1.63Third Quarter


1.88


1.09Second Quarter


3.08


0.54First Quarter


0.76


0.302002

Fourth Quarter

$
2.09

$
0.61Third Quarter


6.18


1.12Second Quarter


9.23


5.04First Quarter


12.10


8.48


Stockholders

As of December 31, 2003, we had 297 stockholders of record.

Dividends

To date, we have not paid any dividends on our common stock. We intend to retain future earnings, if any, to finance the operation and expansion of our business
and, therefore, we do not anticipate paying any cash dividends on our common stock in the foreseeable future, if at all.

Sales of Unregistered Securities

During 2003, we issued 76,725 shares of common stock to the University of Delaware, 11,400 shares of common stock to Thomas Jefferson University and 11,875 shares
of common stock to The Samuel Robert Noble Foundation, Inc., all in connection with a 20-year gene editing technology license. The shares were issued in reliance upon the exemption
provided by Section 4(2) of the Securities Act of 1933, as amended, and Regulation D thereunder. The license requires the Company to provide for research and patent funding
commitments and payments in common stock. To date, we have issued 301,200 shares of common stock under the license agreement to the University of Delaware, 51,300 shares to Thomas Jefferson University
and 47,500 shares to The Samuel Roberts Noble Foundation, Inc., each of which has an ownership interest in the licensed intellectual property. Assuming
we do not cancel the license, we will issue an additional 800,000 shares in 100,000 share-per-year increments on the license anniversaries and/or 200,000 share increments upon
the achievement of certain milestone events. We may, at our option, accelerate the issuance dates. The license is terminable at NaPro's option and, if it is terminated, no further shares would be
issued.

In
October 2003, we issued 45,046 restricted shares, valued at $45,000, to a vendor for services provided. As an issuance to a sophisticated investor not involving any public
offering, this sale was exempt from registration under Section 4(2) of the Securities Act.

16

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Item 6  Selected Financial Data

The selected financial data presented below for each year in the five years ended December 31, 2003, are derived from our 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 our consolidated financial statements at December 31, 2003 and 2002 and for each of the three years in the period ended December 31, 2003, and 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. The results of our generic
paclitaxel business, which was sold on December 12, 2003 to Mayne Pharma, have been reported as a discontinued operation.

|                                                      |                                                                                                                                                          | Year Ended December 31, |        
|----------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------- | -------
|
|
|Statement of Operations Data:                         |                                                                                                                                                          |                         |        
|Operating expenses:                                   |                                                                                                                                                          |                         |        
|                                                      | Research and development                                                                                                                                 |                         | $      
|                                                      | General and administrative                                                                                                                               |                         |        
|                                                      |                                                                                                                                                          |                         |        
|Operating loss                                        |                                                                                                                                                          |                         | 21,146 
|Other income (expense):                               |                                                                                                                                                          |                         |        
|                                                      | Interest income                                                                                                                                          |                         |        
|                                                      | Interest expense                                                                                                                                         |                         |        
|                                                      |                                                                                                                                                          |                         |        
|Net loss from continuing operations                   |                                                                                                                                                          |                         | (21,914
|Discontinued operations:                              |                                                                                                                                                          |                         |        
|                                                      | Gain (loss) from operations of paclitaxel business and gene isolation business (including gain on disposal of paclitaxel business of $54,553 in 2003)(1) |                         |        
|                                                      | Provision for federal income tax                                                                                                                         |                         |        
|                                                      |                                                                                                                                                          |                         |        
|Net income (loss)                                     |                                                                                                                                                          | $                       | 38,128 
|                                                      |                                                                                                                                                          |                         |        
|Net income (loss) attributable to common stockholders |                                                                                                                                                          | $                       | 38,128 
|                                                      |                                                                                                                                                          |                         |        
|Basic net income (loss) per common share              |                                                                                                                                                          | $                       | 1.24   
|                                                      |                                                                                                                                                          |                         |        
|Diluted net income (loss) per common share            |                                                                                                                                                          | $                       | 1.23   
|                                                      |                                                                                                                                                          |                         |        
|Basic weighted average common shares outstanding      |                                                                                                                                                          |                         | 30,801 
|                                                      |                                                                                                                                                          |                         |        
|Diluted weighted average common shares outstanding    |                                                                                                                                                          |                         | 30,955 
|                                                      |                                                                                                                                                          |                         |        

17

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|                                                 |  | Year Ended December 31, |        
|------------------------------------------------ |  | ----------------------- | -------
|
|
|Balance Sheet Data:                              |  |                         |        
|Cash, cash equivalents and short-term securities |  | $                       | 50,782 
|Working capital                                  |  |                         | 47,053 
|Total assets                                     |  |                         | 57,766 
|Long term debt, net of current maturities        |  |                         | 41     
|Deferred income, long term                       |  |                         |       
|Convertible debt                                 |  |                         | 5,702  
|Minority interest                                |  |                         |       
|Accumulated deficit                              |  |                         | (65,550
|Stockholders' equity                             |  |                         | 45,998 

---

Item 7  Management's Discussion and Analysis of Financial Condition and Results of Operations

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

General

We are a pharmaceutical company focused on research and development in two distinct areas: novel anti-cancer products, and novel genomic technologies,
primarily in the area of gene editing for applications in human therapeutics and diagnostics. We are in the preclinical stages of developing several types of compounds that we believe have promising
activity as anti-cancer agents. We believe some of these agents function by novel mechanisms, which may increase their likelihood of success as new chemotherapeutics. We are also actively
engaged in evaluating the in-licensing or purchase of potential new products and/or technologies, whether or not those products or technologies are derived from natural products. Our
evaluation of new products and technologies may involve the examination of individual molecules, classes of compounds, or platform technologies, in both cancer and other therapeutic areas.
Acquisitions of new products or technologies may involve the purchase of such products or technologies, or the acquisition of, or merger with, other companies.

On
December 12, 2003, we sold our worldwide generic injectable paclitaxel business to Mayne Pharma for $71.7 million in cash minus an inventory adjustment of
$4.6 million to reflect the Company's actual inventory as of the closing. In addition, Mayne Pharma assumed certain liabilities associated with our paclitaxel business. Approximately
$21.9 million of the proceeds of the transaction were paid to Abbott to retire all outstanding debt and payables we owed to Abbott. The remaining proceeds from the sale will be used to fund the
development of products based on NaPro's proprietary oncology and gene editing platforms and for general corporate purposes.

The
assets sold to Mayne Pharma included our paclitaxel manufacturing assets, yew plantations, domestic and international issued and pending paclitaxel patents, a worldwide registration
dossier, worldwide development and supply agreements, inventories and settlement of accounts receivable.

18

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NaPro
retained all of its intellectual property not used in connection with the business sold and we retained intellectual property rights to research, develop, make, use and sell products other than
those associated with the generic injectable paclitaxel business. We also retained liabilities related to our ongoing business, including those relating to our employees, our contracts and license
agreements unrelated to the paclitaxel business, and certain leases and purchase orders. In addition, we retained other liabilities related to our manufacturing and sale of paclitaxel that arose prior
to the closing of the asset sale. Upon closing of the asset sale, we exited the generic paclitaxel business, terminated the development agreements with Abbott and Mayne Pharma, and transferred our
other generic paclitaxel marketing agreements to Mayne Pharma.

We
continue to incur substantial research and development expense related to the development of anti-cancer agents, and the development of novel genomic technologies.
Historically, we also incurred substantial research and development expense related to the improvement of our paclitaxel yield, the reduction of our long-term cost of manufacturing
paclitaxel and the development of our semisynthesis process. Accordingly, we have incurred significant losses, including losses from continuing operations of $21.9 million,
$20.2 million, and $14.9 million for the years ended December 31, 2003, 2002 and 2001, respectively. Our accumulated deficit was $65.6 million as of
December 31, 2003. We anticipate that losses may continue until such time, if ever, as we are able to generate sufficient sales to support our development operations, including the research and
development activity mentioned above.

Our
ability to generate sufficient sales to support our operations currently depends primarily upon the successful development and commercialization of products based on our proprietary
oncology and gene editing platforms. We are developing an oncology program, consisting of both targeted as well as non-targeted chemical entities for the treatment of cancer. Our gene
editing platform is used to develop therapeutics which primarily addresses hereditary diseases. Currently, we are engaged in developing therapeutic programs to treat Sickle Cell disease and
Huntington's disease. All of our products and technologies are in the early development stages and we cannot assure you that our efforts will be successful.

Under
the Investment Company Act of 1940 (the "1940 Act"), companies such as mutual funds that engage in the investment business are subject to regulation by the SEC as investment
companies. The 1940 Act defines an investment company to include an issuer that (i) is engaged or proposes to engage in the business of investing, reinvesting, owning, holding or trading in
securities, and (ii) owns or proposes to acquire investment securities having a value exceeding 40% of the fair value of such issuer's total assets on an unconsolidated basis (exclusive of cash
and cash items). Investment securities are defined generally to include all securities other than those issued by majority-owned subsidiaries of the issuer. NaPro does not now, nor has it ever engaged
or intended to engage in an investment company business. Nevertheless, following the sale of our paclitaxel business to Mayne Pharma, the composition of our assets is such that it is possible that we
could be deemed to be an investment company. NaPro has taken the steps necessary to give itself the benefit of an exemption under the 1940 Act for certain companies engaged in research and
development.

Research and Development

Our current business is focused on research and development of novel anti-cancer products, and novel genomic technologies, primarily in the area of
gene editing for applications in human therapeutics and diagnostics. Historically, we have also engaged in research and development related to our paclitaxel business. During the last three
fiscal years, we have incurred the following expenses

19

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related
to research and development projects, including process improvements in our paclitaxel business, which is included in discontinued operations (in thousands):

|                        |  | 2003 |        | 2002 |   | 2001  
|----------------------- |  | ---- | ------ | ---- | - | ------
|Oncology                |  | $    | 5,580  |      | $ | 4,929 
|Genomics                |  |      | 4,310  |      |   | 5,263 
|Discontinued Operations |  |      | 899    |      |   | 5,686 
|                        |  |      |        |      |   |       
|                        |  | $    | 10,789 |      | $ | 15,878
|                        |  |      |        |      |   |       

Research
and development is expected to be the most significant expense of our business. Our research and development activity is subject to change as we develop a better understanding
of our projects and their prospects. We anticipate beginning clinical testing of two oncology products during 2004. Our Huntington's disease program is expected to begin clinical testing during 2005,
subject to the success of our preclinical activities. However, we cannot be sure that we will be able to achieve the expected timing of these programs. We also cannot estimate the cost of the effort
necessary to complete the programs or the timing of commencement of material net cash inflows from these programs. Continued development of these programs is dependent upon raising additional capital.
We cannot be certain that we will be able to obtain capital on acceptable terms. We have included a number of the risks and uncertainties associated with completing our product development plans on
schedule in the Special Note Regarding Forward-Looking Statements, below.

Year Ended December 31, 2003 Compared to Year Ended December 31, 2002

Research and Development Expense.Research and development expense for 2003 was $10.8 million, a decrease of
$5.1 million from 2002. Genomics research and development expenditures decreased $1.0 million from $5.3 million in 2002 to $4.3 million in 2003, while oncology research and
development expenditures decreased $4.1 million from $10.6 million in 2002 to $6.5 million in 2003. Oncology research and development expenditures relating to the paclitaxel
business were approximately $900,000 and $5.7 million in 2003 and 2002, respectively, and are included in discontinued operations. The decrease was primarily due to lower outside services
($2.2 million), decreased staffing ($1.3 million), lower legal costs associated with patent development ($800,000), lower supplies ($300,000), and lower travel ($200,000) expenses.
During 2002, a significant portion of our research and development expenditures were related to our semi-synthesis paclitaxel program and cost involved in obtaining regulatory approvals in
Europe. Salaries and benefits declined in 2003 due to the sale of our Analytical Services group to ChromaDex and personnel reductions in our genomics and oncology programs.

General and Administrative Expense.General and administrative expense for 2003 was $12.4 million, an increase of
$2.3 million from 2002. Approximately $1.1 million of our general and administrative expense in 2003 and $600,000 in 2002 was incurred in connection with our paclitaxel business and has
been included in discontinued operations. The $2.3 million increase was primarily due to higher compensation
expense ($1.0 million), costs associated with terminating a lease in one of our corporate facilities in Boulder, Colorado ($1.0 million) and higher depreciation resulting from a
shortened useful life of leasehold improvements at the Boulder, Colorado facility in which we terminated our lease early ($500,000). Higher compensation was due to executive bonuses
($1.8 million) and increased staffing at our genomics division partially offset by lower retirement plan contributions and reduced oncology staffing.

Interest Income.Interest income for 2003 decreased by $200,000 from the prior year. The decrease was attributable to lower
average balances of interest-bearing investments, as well as lower interest rates.

20

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Interest Expense.Interest expense for 2003 was $900,000, an increase of $200,000 from the prior year. In each of
the years 2003 and 2002, $1.4 million of interest expense was attributable to the Abbott debt and is included in discontinued operations. The increase was primarily attributable to the
amortization of the discount associated with the conversion feature of the $8.0 million in convertible debt issued in February 2002.

Discontinued Operations.Income from discontinued operations was $6.0 million in 2003 as compared with income of
$11.5 million in the prior year. Product sales decreased $8.6 million during 2003 primarily attributable to lower shipments to Abbott. Sales to Abbott for the current year were
$12.4 million, a decrease of $12.5 million from 2002. Sales to Mayne Pharma for the current year were $13.1 million, an increase of $5.8 million from the prior year. There
were no sales to Tzamal for the current year compared with sales of $1.9 million in the prior year. As a result of the sale of our paclitaxel business, we anticipate having no material sales
revenue in 2004.

Cost
of sales was $17.3 million in 2003, a decrease of $6.7 million as compared with the prior year. Cost of sales decreased due to a decrease in volume produced, partially
offset by higher unit production cost due to idle plant costs.

License
fee income was $1.0 million in 2003, a decrease of $7.9 million from 2002. The decrease was attributable to our receipt of a one-time milestone payment
of $8.0 million from Abbott upon commencement of commercial sales in the United States in 2002.

In
2003, we recorded a net gain from the sale of the paclitaxel business of $54.6 million. The provision for taxes, resulting primarily from application of the alternative minimum
tax, was approximately $600,000.

Year Ended December 31, 2002 Compared to Year Ended December 31, 2001

Research and Development Expense.Research and development expense for 2002 was $15.9 million, an increase of
$2.5 million from 2001. Genomics research and development increased $2.8 million from 2001, while oncology research and development decreased $400,000 from the prior year. Oncology
expenditures relating to the paclitaxel business were $5.7 million and $4.9 million in 2002 and 2001, respectively, and are included in discontinued operations. The increase was
primarily due to increased staffing ($1.6 million), legal costs associated with patent development ($700,000) and occupancy costs associated with development facilities ($400,000). These
amounts were partially offset by a reduction in supplies expenses ($400,000), as well as a one-time charge for development costs, which we incurred in 2001.

General and Administrative Expense.General and administrative expense for 2002 was $10.1 million, an increase of
$2.6 million from 2001. The increase was primarily due to general legal expenses ($1.7 million) and increased staffing ($1.2 million). These amounts were partially offset by
reductions in a number of areas, including supplies and recruiting expenses. Higher legal expenses were partially due to a reclassification of 2001 patent related legal costs from general and
administrative expense to research and development expense lowering the comparative 2001 expense.. Approximately $600,000 and $300,000 in 2002 and 2001, respectively, of our general and administrative
expense was incurred in connection with our paclitaxel business and has been included in discontinued operations.

Interest Income.Interest income for 2002 was $300,000, a decrease of $500,000 from the prior year. The decrease was
attributable to lower average balances of interest-bearing investments, as well as lower interest rates.

Interest Expense.Interest expense for 2002 was $700,000, an increase of approximately $700,000 from the prior year.
$1.3 million and $1.1 million of interest expense was attributable to the Abbott debt in 2002 and 2001, respectively, and included in discontinued operations. The increase was

21

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primarily
attributable to the issuance of $8.0 million in convertible debt during the first quarter of 2002, including amortization of the discount attributable to the conversion feature.

Discontinued Operations.Income from discontinued operations was $11.5 million in 2002 compared with a loss of
$10.8 million in 2001. This increase in income of $22.3 million was due to a higher gross margin and higher license fee income. Gross margin increased to 29.9% in 2002 from a negative
23.2% in the
prior year. Product sales increased $18.5 million from the prior year. The increase in product sales during 2002 was primarily attributable to shipments to Abbott as a result of our FDA
approval on May 8, 2002. Sales to Abbott during 2002 were $24.9 million, an increase of $18.8 million from 2001. Sales to Mayne Pharma in 2002 were $7.3 million, a decrease
of $200,000 from 2001. Cost of sales for 2002 was $24.0 million, an increase of $4.6 million from 2001. This increase in cost of sales was primarily attributable to an increase in
volume, which was partially offset by a decrease in unit production cost due to improved yields and increased productivity.

License
fee income for 2002 was $8.9 million, an increase of $7.8 million from 2001. The increase was attributable to our receipt of a one-time milestone
payment of $8.0 million from Abbott upon commencement of commercial sales in the United States.

Liquidity and Capital Resources

Our capital requirements for research and development have been, and will continue to be, significant. As of December 31, 2003, as a result of the sale of
the paclitaxel business, we had a working capital balance of $47.1 million compared to a working capital balance of $33.6 million at December 31, 2002. To date, we have funded our
capital requirements primarily with the net proceeds of public offerings of common stock of approximately $21.1 million, with private placements of equity securities of approximately
$62.6 million, with the exercise of warrants and options of $8.0 million and with borrowing of $8.1 million.

On
December 12, 2003, we sold our worldwide generic injectable paclitaxel business to Mayne Pharma for $71.7 million in cash minus an inventory adjustment of
$4.6 million to reflect the Company's actual inventory as of the closing. Mayne Pharma assumed certain liabilities associated with our paclitaxel business. Proceeds from the sale will be used
to fund the development of products based on NaPro's proprietary oncology and gene editing platforms and for general corporate purposes. In addition, approximately $21.9 million of the proceeds
was paid to Abbott Laboratories to retire all outstanding debt and payables we owed to Abbott.

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

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

Pursuant
to the debentures, if we incur indebtedness that is senior to the debentures, other than senior indebtedness approved by a majority in interest of the debenture holders, senior
indebtedness issued to equipment or real property lessors and certain other exceptions, then the holders of the debentures have the right to require us to repurchase, out of our cash and equivalents,
all or part of the debentures for a purchase price equal to the unpaid principal amount of the applicable debenture plus compounded interest at 35% per year less all interest amounts previously paid
on the debenture. In connection with a required repurchase of debentures, the excess of the repurchase price over our cash and cash equivalents will convert into shares of our common stock at the
average trading price of our common stock over the preceding 20 days. This provision of the debentures could limit our ability to obtain senior debt financing in the future.

TL
Ventures Funds, one of our principal institutional investors, has advised us that it believes that the completion of the sale of our paclitaxel business to Mayne Pharma will entitle
it to have its $8.0 million of Company 4% convertible subordinated debentures redeemed. We disputed this position and engaged in discussions with TL Ventures Funds regarding this matter. On
September 8, 2003, TL Ventures Funds reasserted its position and informed us that, if we could not resolve this issue promptly, it intended to pursue legal remedies. On September 11,
2003, we filed a complaint in a case captionedNaPro BioTherapeutics, Inc. v. TL Ventures V L.P. and TL Ventures V Interfund L.P., Case
No. 2003-CV-1812, District Court, Boulder County, Colorado. In our complaint, we seek a declaratory judgment from the court that the asset sale to Mayne Pharma did not
permit TL Ventures to have the 4% convertible subordinated debentures redeemed. TL Ventures has filed a motion to dismiss the suit, and has filed an action in a case captioned TL Ventures V L.P. and TL Ventures V Interfund
L.P. v. NaPro BioTherapeutics, Inc., Case No. 110-N, Delaware Court of
Chancery, alleging that TL Ventures is entitled to redeem its 4% convertible subordinated
debentures. One of our former directors, Marc Ostro, is a general partner in certain of the TL Ventures Funds. Dr. Ostro resigned from our Board of Directors effective March 11, 2004.

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

In
November 2000, we entered into a 20-year Gene Editing technology license with the University of Delaware and Thomas Jefferson University relating to the use of
proprietary oligonucleotides (DNA fragments) designed to precisely alter genes in humans, animals, plants, viruses and microbes. The license provides for research and patent funding commitments and
payments in common stock. As of December 31, 2003, we have issued 301,200 shares of common stock under the license to the University of Delaware, 51,300 shares to Thomas Jefferson University
and 47,500 shares to The Samuel Roberts Noble Foundation, Inc., each of which has an ownership interest in the licensed intellectual property. Assuming we do not cancel the license, we will
issue an additional 800,000 shares in 100,000 share-per-year increments on the license anniversaries and/or in 200,000 share increments upon the achievement of certain
milestone events. We may, at our option, accelerate the issuance dates. The license is terminable at NaPro's option and, if it is terminated, no further shares would be issued. We have committed to
fund at least $300,000 in research under the license during 2004. Unless we terminate the license, we are also committed to funding at least $300,000 per year in research at the University of Delaware
during 2005 and 2006 as well.

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We filed an effective shelf registration statement with the SEC covering the issuance of up to 6.5 million shares of our common stock and 1.0 million shares of our
preferred stock. This registration statement is intended to give us the flexibility to take advantage of financing opportunities from time to time when market conditions are favorable. We may sell the
stock covered by this registration statement in one or more transactions at prices and in a manner we determine from time to time, which may result in dilution to existing shareholders. In addition,
we filed an effective registration statement with the SEC covering the issuance of up to 500,000 shares of our common stock upon the conversion of our 4% convertible subordinated debentures and in the
event we elect to pay interest on the convertible subordinated debentures in shares of our common stock in lieu of cash.

We
believe existing capital and the conversion of current accounts receivable, will provide adequate capital to fund our operations and capital expenditures for at least the next
24 months. However, pharmaceutical development is a costly and time consuming process. We may in-license or purchase new products or technologies. The cost of acquiring and
developing such resources, and related capital expenditures, may be very large. As a result, we may seek additional capital. We cannot assure you that we will be able to obtain such capital on terms
which are acceptable to us.

Working Capital and Cash FlowAs a result of the sale of the paclitaxel business, cash and cash equivalents increased
$34.0 million to $40.8 million for the year ended December 31, 2003 from $6.8 million at December 31, 2002. During 2003, net cash provided by operating activities
and by investing activities was $334,000 and $53.7 million, respectively. The cash provided by investing activities was primarily due to the sale of the paclitaxel business. Net cash used in
financing activities was $20.0 million related to the repayment of the Abbott note which took place in conjunction with the sale of the paclitaxel business.

In
connection with the sale of the paclitaxel business, all related inventories were sold with the business. The majority of our accounts receivable were settled with the sale of the
paclitaxel business as were certain liabilities. We anticipate that the level of our accounts receivable and inventories will remain low as we do not anticipate any material sales revenue during 2004.

Capital ExpendituresWe spent $1.6 million during 2003 for capital projects. Approximately $900,000 of this amount
related to expenditures for the paclitaxel business, which was sold.

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



We
anticipate a significant reduction of capital expenditures during 2004. The primary focus of capital spending during 2004 is expected to be in our research and development areas. We
may seek additional long-term financing to fund capital expenditures. We cannot assure that we will be able to obtain such financing on terms which are acceptable to us.

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Net Operating Loss CarryforwardsAs of December 31, 2003, we had approximately $63.9 million of net operating
loss carryforwards to offset future taxable income. Tax law provides limits on the utilization of net operating loss carryforwards if there has been a "change of ownership" as described in
Section 382 of the Internal Revenue Code. Such a change of ownership may limit our utilization of our net operating loss carryforwards, and could be triggered by sales of securities by us or
our stockholders.

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

Critical Accounting Policies

We have identified certain accounting policies as critical to our business operations and the understanding of our results of operations. However, the majority of
these policies may not be applicable to us in 2004 as a result of the sale of the paclitaxel business. The impact and any associated risks related to these policies on our business operations is
discussed throughout this Item 7 where such policies affect our reported and expected financial results. For a detailed discussion on the application of these and other accounting policies, see
Note 1 in the Notes to our Consolidated Financial Statements.

Use of Estimates Policy:The preparation of financial statements in conformity with accounting principles generally accepted
in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results may differ from those
estimates.

Long-Lived Assets Policy:In accordance with Statement of Financial Accounting Standards No. 144
("SFAS 144"), Accounting for the Impairment of Long-Lived Assets, we review the carrying amount of long-lived assets 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, we
reduce the carrying amount of these long-lived assets to estimated fair value or discounted cash flow, as appropriate.

Future Contractual Obligations

The table below summarizes our future contractual obligations (in thousands):

|                       |  | Total |        | Less than
1 year |   | 1-3 years |  | 4-5 years |     | After
5 years
|---------------------- |  | ----- | ------ | ---------------- | - | --------- |  | --------- | --- | -------------
|Notes payable          |  | $     | 122    |                  | $ | 81        |  | $         | 41  |              
|Convertible debentures |  |       | 8,000  |                  |   |          |  |           |    |              
|Operating leases       |  |       | 2,078  |                  |   | 574       |  |           | 958 |              
|                       |  |       |        |                  |   |           |  |           |     |              
|Total                  |  | $     | 10,200 |                  | $ | 655       |  | $         | 999 |              
|                       |  |       |        |                  |   |           |  |           |     |              

Special Note Regarding Forward-Looking Statements

The statements in this report that are not historical facts are forward-looking statements that represent management's beliefs and assumptions as of the date of
this report, based on currently available information. Forward-looking statements can be identified by the use of words such as "believe", "intend", "estimate", "may", "will", "should", "anticipated",
"expected," "trusts" or

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comparable
terminology or by discussions of strategy. Such forward-looking statements may include, among others:



Although
we believe that the expectations reflected in such forward-looking statements are reasonable, we cannot assure you that these expectations will prove to be correct. Such
forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause our actual results, performance or achievements, or industry results, to be materially
different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among other things, the following:

Risks Related to Research and Development



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Risks Related to the Pharmaceutical Business We May Develop in the Future



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Risks Related to Financing Our Operations



Risks Related to Our Status as a Public Company



Other Risks Related to Our Business



These
and other factors related to the Company's business are described in more detail under the caption "Risk Factors" or "Special Note Regarding Forward-Looking Statements" in
the Company's documents filed from time to time with the Securities and Exchange Commission including the Company's Current Report on Form 8-K, as amended, filed February 11,
2004. Should one or more of these risks materialize (or the consequences of such a development worsen), or should the underlying assumptions prove incorrect, actual results could differ materially
from those forecasted or expected. We undertake no obligation to update any of the forward-looking statements after the date of this Annual Report on Form 10-K to conform such
statements to actual results, except to the extent required by law.

Item 7A  Quantitative and Qualitative Disclosures about Market Risk.

During 2003 and 2002, we sold a significant amount of paclitaxel to Mayne Pharma. Under the Mayne Pharma agreement, Mayne Pharma paid us a fixed percentage of
their sales price for paclitaxel. Each year, Mayne Pharma estimated the sales price it expected to receive in the upcoming year, and, based upon that estimate, we determined the price we would charge
Mayne Pharma. We recognized the corresponding sales at the time of shipment. However, Mayne Pharma's actual selling price differed

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from
that estimated. Pursuant to the agreement, Mayne Pharma provided us with their calculation of the actual sales price for sales made during the preceding year, and an adjustment was calculated
that increased or decreased our sales of products to Mayne Pharma during that year.

Mayne
Pharma's sales were made in the currencies of each of the countries in which it sold paclitaxel. As a result, our sales were affected by fluctuations in the value of these various
foreign currencies relative to the U.S. dollar. In the past, currency fluctuations were a significant factor in reductions in the price we charged Mayne Pharma.

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 on Accounting and Financial Disclosures

Not Applicable.

Item 9A  Controls and Procedures



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

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Part III  Item 10  Directors and Executive Officers of the Registrant

Directors

At December 31, 2003, our Board of Directors consisted of nine members: Sterling Ainsworth, Ph.D. (Vice Chairman); Edward Erickson; George Gould, Esq.;
Arthur Hayes, Jr., M.D.; Marc Ostro, Ph. D.; The Honorable Richard Perle; Patricia Pilia, Ph.D.; Robert Pollack, Ph.D., and Leonard Shaykin (Chairman). Effective January 1, 2004, Dr. Ainsworth
resigned from the Board of Directors and as an officer of the Company. Effective March 9, 2004, Stephen K. Carter, M.D. was appointed to the Board of Directors to fill the vacancy created by
Dr. Ainsworth's resignation. Effective March 11, 2004, Dr. Ostro resigned from the Board of Directors. Our directors are divided into three classes. Dr. Pilia and Messrs. Erickson
and Perle are Class II directors with terms of office expiring at the 2004 Annual Meeting of Stockholders. Mr. Gould and Dr. Carter are, and Drs. Ainsworth and Ostro prior to their
respective resignations from the Board were, Class III directors with terms of office expiring at the 2005 Annual Meeting of Stockholders. Mr. Shaykin and Drs. Hayes and Pollack are
Class I directors with terms of office expiring at the 2006 Annual Meeting of Stockholders.

Our
Board of Directors has determined that Edward Erickson, George Gould, Esq., Arthur Hayes Jr., M.D., The Honorable Richard Perle and Robert Pollack, Ph. D., are "independent
directors," as defined by the Nasdaq Stock Market's listing standards.

Sterling
K. Ainsworth, Ph.D.,64, a co-founder of the Company, served as an executive officer and director since our inception
in March 1991 until January 1, 2004. He served as our Chief Executive Officer from November 1991 to August 1999, and served as our President from October 1992 to
January 2004 and as Vice Chairman of the Board and Chief Scientific Officer from August 1999 to January 2004. In 1990, he co-founded, with Dr. Pilia, Pacific
Biotechnology, Inc. (a predecessor of ours) and served as Chairman and President of such company until our inception. From 1972 to 1990, Dr. Ainsworth held various levels of
professorships of Pathology with tenure in the College of Medicine and Dental Medicine and Graduate Studies at the Medical University of South Carolina ("MUSC"), where he established, developed and
directed MUSC's Immunopathology Diagnostic Laboratory. Dr. Ainsworth received a Bachelor's degree from the University of Mississippi in
1963. He received a Master's degree in medical microbiology in 1965 and a Doctoral degree in medical science in 1969 from the University of Mississippi Medical School. He completed his
post-doctoral fellowship in the Department of Pathology at Harvard Medical School from 1970 to 1972. Effective January 1, 2004, Dr. Ainsworth resigned from the Board of
Directors and as an officer of the Company and he continues as an employee of the Company working on a part-time basis.

Edward
L. Erickson, 57, has served as a director since 2000. Since April 1998, he has served as Chairman of the board, of directors, of Immunicon Corporation, a venture capital
backed medical products company with technology for use in diagnostics, life science research, and therapeutic applications. He has also served as Chief Executive Officer of Immunicon since
March 1999, its President since January 2000, and was its interim Chief Executive Officer from September 1998 to March 1999. Immunicon filed a registration statement on
Form S-1 with the SEC relating to a potential initial public offering of its common stock in December 2003. From 1993 to 1998, Mr. Erickson served as President, Chief
Executive Officer and as a director of DepoTech Corporation, at that time a publicly traded pharmaceutical company in the drug delivery field. From 1991 to 1993, he served as President, Chief
Executive Officer and as a director of Cholestech Corporation, a publicly traded diagnostics company in the field of point-of-care cholesterol testing and screening. Prior to
his employment with Cholestech Corporation, Mr. Erickson held senior executive positions with The Ares-Serono Group, now Serono, and with Amersham International plc, now Amersham
plc. From 1995 to 1998, Mr. Erickson served as a director of MegaBios Corporation, a gene therapy company.

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Mr. Erickson
holds a B.S. in mathematics with a minor in Physics and an M.S. in mathematics from the Illinois Institute of Technology and an M.B.A. with high distinction from Harvard
University, where he was elected a Baker Scholar and was awarded the Loeb Rhoades Fellowship in Finance.

George
M. Gould, Esq., 66, has served as a director since January 2003. He has served as Of Counsel to the law firm Gibbons, Del Deo, Dolan, Griffinger & Vecchione since
June 1996. Mr. Gould is also a director of Protein Design Labs, Inc. a publicly traded biotechnology company engaged in the development of humanized monoclonal antibodies for the
prevention and treatment of disease. Additionally, Mr. Gould is a director of Angiogenex, Inc., a privately-held biopharmaceutical company that develops therapeutic and
diagnostic applications of Id gene and protein technologies as well as Supratek Pharma, a private Canadian biopharmaceuticals company developing novel block copolymer targeted drug formulations. From
May 1996 to December 1996, Mr. Gould was a Senior Vice President of PharmaGenics, Inc. Prior to that time Mr. Gould served as Vice President, Licensing &
Corporate Development and Chief Patent Counsel for Hoffmann-La Roche Inc. from October 1989 to May 1996. Mr. Gould received a Bachelor of Arts degree in organic
chemistry from The Johns Hopkins University, attended the New York University Graduate School of Chemistry, received a J.D. from Columbia University School of Law and an L.L.M. from New York
University School of Law.

Arthur
H. Hayes, Jr., M.D.,70, has served as a director since March 1996. He is currently President and Chief Operating Officer of
MediScience Associates, Inc., a pharmaceutical consulting company, and is a
Professor of Medicine at New York Medical College and Pennsylvania State University College of Medicine. From 1981 to 1983, Dr. Hayes served as Commissioner of the United States Food and Drug
Administration. From 1986 to 1991, he was President and Chief Executive Officer of EM Pharmaceuticals, as well as a member of its board of directors. Dr. Hayes served as Provost & Dean
at New York Medical College from 1983 to 1986, and served as the Director of the Institute of Human Values in Medical Ethics, International Health and Biomedical Sciences, and for the latter of which
he also served as Chairman. Dr. Hayes has held several posts with Pennsylvania State University, which included Professor of Medicine and Pharmacology from 1977 to 1981, Dean of Admissions from
1976 to 1979 and Associate Professor of Medicine and Pharmacology and Director of the Division of Clinical Pharmacology from 1972 to 1977. Dr. Hayes currently serves on the board of directors
of Myriad Genetics, Inc. (a publicly traded genomic research and pharmaceutical company), Celgene Corporation (a publicly traded pharmaceutical company), and Research Technology, Inc. (a
publicly traded biotechnology and medical device company). Dr. Hayes received his M.D. from Cornell University Medical College, and also attended Cornell's Graduate School of Medical Sciences,
Department of Pharmacology. He undertook premedical studies, and attended medical school at Georgetown University. Dr. Hayes received his M.S. (philosophy, politics and economics) from Oxford
University, where he was a Rhodes Scholar, and his B.A. (philosophy) from Santa Clara University.

Marc
J. Ostro, Ph.D., 54, has served as a director since 2000. He has been a partner in TL Ventures, a Pennsylvania-based venture capital firm since January 1, 2002. From
August 1997 to May 2000, he was Senior Managing Director and GroupLeader for KPMG Life Science Corporate Finance (Mergers and Acquisitions). From June 1997 to
November 1997, Dr. Ostro was a Senior Vice President at Ross Financial Group engaged in portfolio management. From May 1994 to June 1997, he was Managing Director and
Senior Biotechnology Analyst at UBS Securities. Prior to that, he was a Senior Vice President and Senior Biotechnology Analyst at Mabon Securities. In July 1981, he co-founded the
Liposome Company (Princeton) where he held various positions in that company including President, Vice Chairman and Chief Scientific Officer until May 1993. Dr. Ostro received a B.A. in
biology from Lehigh University, a Ph.D. in biochemistry from Syracuse University, and was a postdoctoral fellow and assistant professor at the University of Illinois Medical School. Effective
March 11, 2004, Dr. Ostro resigned from our Board of Directors.

The
Honorable Richard N. Perle, 62, has served as a director since 2000. He is a fellow at the American Enterprise Institute. Additionally, Mr. Perle is a director of Hollinger
International, Inc., a

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publicly
traded company that publishes English language newspapers in the United States, the United Kingdom, Canada and Israel. Mr. Perle is also a director of Autonomy, plc, a publicly traded
company engaged in the development of various software applications, as well as a director of DigitalNet Holdings, Inc., a publicly traded company providing managed network services,
information security solutions, and application development and integration services to U.S. defense, intelligence, and civilian federal government agencies. From 1981 to 1987, Mr. Perle was
the United States Assistant Secretary of Defense for International Security Policy at the United States Department of Defense. Mr. Perle attended the London School of Economics with Honors
Examinations, received a B.A. in international relations from the University of Southern California, an M.A. in politics from Princeton University, and completed various fellowships at Princeton
University, the Ford Foundation and the American Council of Learned Societies.

Patricia
A. Pilia, Ph.D., 55, a co-founder of the Company, has served as a director since our inception in March 1991. She has served as our Secretary since
November 1991, our Vice President of BioResearch and Toxicology since March 1993, and our Executive Vice President since October 1998. Additionally, in 2002, she was appointed
Acting Head, Research and Development. In 1990, she co-founded, with Dr. Ainsworth, Pacific Biotechnology, Inc. (a predecessor of ours) and served as its Vice President and
Director of Biotechnology. From 1983 to 1991, Dr. Pilia was an Assistant Professor of Pathology in the College of Medicine and Dental Medicine and the College of Graduate Studies at MUSC.
Dr. Pilia served as the Assistant Director of the MUSC Immunopathology Diagnostic and Research Laboratories from 1985 to 1991. Since 1984 she has been a consultant on the design and development
of biomedical devices and treatment modalities and the design and performance of clinical trials. Dr. Pilia received a Bachelor's degree from Boston University, a Master's degree in
immunology/microbiology and a Doctoral degree in pathology from MUSC.

Robert
E. Pollack, Ph.D., 63, has served as a director since 2000. He is currently Professor of Biological Sciences, Lecturer in Psychiatry at the Center for Psychoanalytic Training and
Research, and Director of the Center for the Study of Science and Religion, at Columbia University. He has been a Professor of Biological Sciences at Columbia since 1978, and was Dean of Columbia
College from 1982 to 1989. He received the Alexander Hamilton Medal from Columbia University, and has held a Guggenheim Fellowship. He currently serves on Advisory Boards of the John Templeton
Foundation, California Newsreels, The Fred Friendly Seminars, the Program in Religion and Ecology of the Center for the Study of World Religions at Harvard University, and as a Senior Consultant for
the Director, Program of Dialogue on Science, Ethics and Religion, American Association for the Advancement of Science. He is also currently a director and Chair of the Scientific Advisory Board of
Nutrition 21, Inc., a publicly traded company focusing on the development and marketing of proprietary nutritional products. Dr. Pollack graduated from Columbia University with a B.A. in
physics, and received a Ph.D. in biology from Brandeis University.

Leonard
P. Shaykin, 60, has served as our Chairman of the Board since June 1993, and our Chairman and Chief Executive Officer since August 1999. In 1995, Mr. Shaykin
founded Shaykin & Co., LLC, a private investment and management company. Prior to founding Shaykin & Co., Mr. Shaykin was a managing partner of Adler & Shaykin, an
investment partnership organized to sponsor management leveraged buyouts. Prior to that, Mr. Shaykin was Vice President, Director and a member of the Investment Committee of Citicorp Venture
Capital, Ltd. and Citicorp Capital Investors, Inc., the venture capital and equity investment subsidiaries of Citicorp and Citibank. He is currently a Board Member of the Friends of
Sheba Medical Center-Tel Hashomer, Israel, and a trustee of the Jackson Laboratories, a not-for-profit genetic research institute. Mr. Shaykin received a
B.A. and an M.A. from the University of Chicago, and an M.B.A. from the University of Chicago Graduate School of Business.

Stephen
K. Carter, M.D.,66, has been appointed to serve on the Board of Directors as a Class III director, effective
March 9, 2004, to serve until the Company's annual meeting in 2005 or until his

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successor
is duly elected and qualified or his earlier resignation or removal. Dr. Carter is currently a consultant to the pharmaceutical industry. From 1996 to 1999, Dr. Carter served
as a consultant to SUGEN Inc., a biopharmaceutical company focused on the discovery and development of small molecule drugs which target specific cellular signal transduction pathways, and from
1999 to 2000 was SUGEN's Senior Vice President of Clinical and Regulatory Affairs. From 1995 to 1996, he was Senior Vice President, Research and Development at Boehringer Ingelheim
Pharmaceuticals, Inc. From 1990 to 1995 Dr. Carter served as Senior Vice President, Worldwide Clinical Research and Development at Bristol-Myers Squibb Co. Dr. Carter is a former
Deputy Director at the National Cancer Institute's Division of Cancer Treatment and is a member of the American Society of Clinical Oncology. Dr. Carter received his A.B. degree in American
history from Columbia College and his M.D. degree from New York Medical College. Dr. Carter currently serves on the Board of Directors of four publicly traded companies: Cytogen Corporation,
where he is a member of its Audit Committee; Emisphere Technologies, Inc., where he is a member of its Compensation and Governance Committees; Vion Pharmaceuticals; and Alfacell Corporation,
where he is a member of its Compensation Committee.

Other Executive Officers

As of March 1, 2004, we have the following executive officers in addition to those who serve as directors:

Kai
P. Larson, Esq., 39, has served as our Vice President and General Counsel since December 1999, and previously held the position of Director of Legal Affairs from 1994 to
December 1999. Prior to joining us, he worked as an attorney in the New York office of Kirkland & Ellis. Mr. Larson received a B.A. from Brigham Young University, and a J.D. from
Columbia University School of Law.

Gordon
H. Link, Jr., 50, a certified public accountant and a certified management accountant, has served as our Senior Vice President and Chief Financial Officer since
October 2002, and previously held the position of Vice President and Chief Financial Officer from September 1993 to October 2002. Prior to that, Mr. Link served
concurrently as Corporate Controller of Synergen, Inc. and Treasurer of the Syntex-Synergen Neuroscience Joint Venture. From February 1991 to April 1993, Mr. Link was
Treasurer of Synergen Development Corporation. From October 1983 to May 1990, Mr. Link practiced as a certified public accountant, including the position of Audit Manager with
Deloitte & Touche. He attended the graduate school of the University of Denver and received undergraduate degrees in chemistry from Rensselaer Polytechnic Institute in 1976 and in accounting
from Metropolitan State College in 1983.

Bruce
Fiedler, 39, joined us as Corporate Controller in December 2003. Mr. Fiedler has over 17 years of accounting and finance experience including senior financial
leadership roles with Arrow Electronics, Inc., where he served as Vice President of Finance for the North American Computer Products Group from April 2001 through September 2003
and as Assistant Corporate Controller from June 2000 through March 2001. Prior to his work at Arrow Electronics, Mr. Fiedler served in senior financial management roles at
Corporate Express, Inc. from January 1996 through June 2000, culminating as Vice President of Corporate Systems and Shared Services from June 1998 through June 2000,
where he was responsible for integrating acquisitions into existing operations, enhancing accounting and operational controls and processes and developing finance teams. Mr. Fiedler began his
career with Baxter International, Inc. where he held various accounting and finance roles over 8 years including Site Controller for the MicroScan division, a global manufacturer and
marketer of diagnostic systems for the Microbiology industry. Mr. Fiedler has a Bachelor's degree in finance from Indiana University, Bloomington, IN and an MBA in finance from DePaul
University in Chicago, IL.

Anne
Bailey, 58, joined us as Vice President, Diagnostics and Reagents and General Manager of NaPro Genomics Division in November of 2003. Prior to joining us, from 1998 to 2003,
Ms. Bailey was

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the
VP of Diagnostics at Nuvelo, formerly Variagenics, a biotherapeutics developer, where she was responsible for implementing and directing the biomarker detection program focused on identifying a
patient's response and toxicity to chemotherapeutic agents. Ms. Bailey has over 25 years of management experience in the diagnostics, biotechnology, life science and reference laboratory
industries specializing in the development, manufacturing, quality control and assurance of products as well as the management of high throughput clinical laboratory testing facilities. Previously
Ms. Bailey held executive positions at Avitech Diagnostics, Photest Diagnostics and Quest Diagnostics. She received a B. S. in biology with a minor in chemistry from Samford University and a
M.S. in biochemistry from Johns Hopkins University.

Section 16(a) Beneficial Ownership Reporting Compliance

Under Section 16(a) of the Securities Exchange Act of 1934, our directors and certain of our officers, and persons holding more than ten percent of
our common stock are required to file forms reporting their beneficial ownership of our common stock and subsequent changes in that ownership with the Securities and Exchange Commission. Such persons
are also required to furnish us copies of forms so filed. Based solely upon a review of copies of such forms furnished to us, Edward Erickson, George Gould, Arthur Hayes, Marc Ostro, Richard Pearle
and Robert Pollack were each late in filing a Form 4 in which they reported one transaction each. No other directors or officers were late in filing any reports on Forms 3, 4 or 5.

Audit Committee

NaPro has a separately designated standing Audit Committee established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"). The members of the Audit Committee are Edward L. Erickson (acting chair), George Gould, Esq. and The Honorable Richard N. Perle.

Audit Committee Financial Expert

The Board of Directors of NaPro has determined that the Audit Committee's acting chairman, Edward L. Erickson, is an "audit committee financial expert" as defined
by applicable SEC rules, and is independent within the meaning of applicable SEC rules and applicable Nasdaq Stock Market listing standards.

Code of Ethics

NaPro has adopted a code of business conduct and ethics for senior executives (including NaPro's principal executive officer, principal financial officer and
controller), known as the Code of Ethics and Business Conduct. The Code of Ethics and Business Conduct is available on NaPro's website at http://www.naprobio.com. We intend to disclose any amendments
to our Code of Ethics and Business Conduct, and any waiver from a provision of the Code granted to our principal executive officer, principal financial officer or controller, on our Internet website
within five business days following such amendment or waiver. The information contained on or connected to our Internet website is not incorporated by reference into this
Form 10-K and should not be considered part of this or any other report that we file with or furnish to the SEC.

34

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Item 11  Executive Compensation

Summary Compensation Table

The following table shows for the years ended December 31, 2003, 2002 and 2001, compensation awarded or paid to, or earned by our chief executive
and our four most highly compensated executive officers at December 31, 2003 (the "Named Executive Officers"):

|                                                                                         |  |                |  | Annual Compensation |                         |  |   |                       
|---------------------------------------------------------------------------------------- |  | -------------- |  | ------------------- | ----------------------- |  | - | ----------------------
|
|
|Leonard P. Shaykin
Chairman of the Board, Chief Executive Officer                        |  | 2003
2002
2001 |  | $                   | 270,000
270,000
239,331 |  | $ | 417,000

200,000     
|Gordon H. Link, Jr.(2)
Senior Vice President, Chief Financial Officer                    |  | 2003
2002
2001 |  |                     | 247,154
208,731
179,615 |  |   | 250,000
28,073
125,000
|Kai P. Larson
Vice President, General Counsel                                            |  | 2003
2002
2001 |  |                     | 180,000
179,154
159,615 |  |   | 250,000
25,000
125,000
|Martin M. Batt(3)
Vice President, Chief Information Officer                              |  | 2003
2002      |  |                     | 190,000
54,808          |  |   | 225,000
35,000        
|Sterling K. Ainsworth(4)
Vice Chairman of the Board, President, Chief Scientific Officer |  | 2003
2002
2001 |  |                     | 260,000
260,000
259,423 |  |   | 115,000

100,000     

---

35

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Option Grants in Last Fiscal Year

The following table reports each grant of options to purchase common stock made during the year ended December 31, 2003 to the Named Executive Officers:

|                      |  | Number of
Securities
Underlying
Options
Granted
(#)(1) |  |       |   |   |      |  |          | Potential Realizable
Value at Assumed Annual Rates of Stock Price
Appreciation for
Option Terms($)(4)
|--------------------- |  | ------------------------------------------------------ |  | ----- | - | - | ---- |  | -------- | -----------------------------------------------------------------------------------------------------
|
|
|
|Leonard P. Shaykin    |  | 250,000                                                |  | 15.14 | % | $ | 1.55 |  | 9/2/2013 |                                                                                                      
|Gordon H. Link, Jr.   |  | 110,000                                                |  | 6.66  | % | $ | 1.55 |  | 9/2/2013 |                                                                                                      
|Kai P. Larson         |  | 110,000                                                |  | 6.66  | % | $ | 1.55 |  | 9/2/2013 |                                                                                                      
|Martin M. Batt        |  | 60,000                                                 |  | 3.63  | % | $ | 1.55 |  | 9/2/2013 |                                                                                                      
|Sterling K. Ainsworth |  | 50,000                                                 |  | 3.03  | % | $ | 1.55 |  | 9/2/2013 |                                                                                                      

---

Aggregated Options Exercises in Last Fiscal Year and Fiscal Year-End Option Values

The following table reports information, as to each of the Named Executive Officers, concerning the number of shares subject to both exercisable and unexercisable
stock options held as of December 31, 2003. Also reported are values for "in-the-money" options that represent the positive

36

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spread
between the respective exercise prices of outstanding stock options and the fair market value of our common stock as of December 31, 2003:

|                      |  |   |  |   |  | Number of Securities Underlying
Unexercised Options
at Year End(#) |  | Value of Unexercised
in-the-Money Options
at Year End($)
|--------------------- |  | - |  | - |  | ------------------------------------------------------------------ |  | --------------------------------------------------------
|
|
|
|Leonard P. Shaykin    |  |  |  |  |  | 663,768                                                            |  | 561,232                                                 
|Gordon H. Link, Jr.   |  |  |  |  |  | 322,513                                                            |  | 317,487                                                 
|Kai P. Larson         |  |  |  |  |  | 144,165                                                            |  | 230,001                                                 
|Martin M. Batt        |  |  |  |  |  |                                                                   |  | 135,000                                                 
|Sterling K. Ainsworth |  |  |  |  |  | 544,509                                                            |  | 187,491                                                 

---

Compensation of Directors

Pursuant to the 1994 Plan, each year non-employee directors are automatically granted, on the date of our annual meeting of stockholders,
non-qualified options to purchase 10,000 shares of NaPro common stock. In addition, any non-employee director who is first appointed or elected other than at an annual meeting
of stockholders automatically receives non-qualified options to purchase 10,000 shares of common stock upon such appointment or election. The 1994 Plan also provides for automatic annual
grants of non-qualified stock options to purchase 10,000 shares of common stock to directors who serve as chair of the Audit, Compensation, Nominating and Corporate Governance, and
Research and Development Committees of the Board of Directors. The 1994 Plan also provides for an automatic grant of non-qualified stock options to purchase 7,500 shares of common stock to
members of the Research and Development Committee (the "RDC") upon their initial appointment to the committee, and an automatic grant of non-qualified stock options to purchase 3,000
shares of common stock to a RDC member who continues service on the RDC after an annual meeting of stockholders. In addition, the 1994 Plan permits the discretionary grant by the Board of Directors of
non-qualified options to non-employee directors under certain circumstances. All such options are exercisable at an exercise price equal to the fair market value of the common
stock on the date of grant and are subject to certain vesting schedules.

Directors
are paid $3,000 for each meeting attended in person and $500 for each meeting attended by telephone. In addition, directors serving on committees of the Board of Directors are
paid for attendance at each committee meeting as follows: $1,000 for the committee chairperson attending in person and $500 for non-chair committee members attending in person or any
committee members attending by telephone. The RDC chairman receives $16,000 per year for service as chairman of the RDC. RDC members receive $2,500 for attendance at RDC meetings which are not held
concurrently with regularly scheduled Board of Directors meetings. Directors are also reimbursed for their cost incurred in attending Board of Directors and committee meetings.

Employment Agreements and Termination of Employment Agreements

Effective October 1, 2001, we entered into an employment agreement (the "Shaykin Employment Agreement"), with Leonard Shaykin. In addition, effective
October 1, 2001, we entered into employment agreements (collectively, the "Employment Agreements") with Gordon Link, and Kai Larson (collectively, the "Executive Officers"). The Shaykin
Employment Agreement and the other

37

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Employment
Agreements are referred to together as the "Executive Agreements", and Mr. Shaykin and the Executive Officers are referred to together as the "Executives."

The
Shaykin Employment Agreement provides for an initial three year employment term that expires on October 1, 2004 and is automatically renewed on each anniversary of the date of
the agreement for successive one-year terms unless either party terminates. No such notice of termination has been given by or to Mr. Shaykin.

The
Shaykin Employment Agreement provides for an initial annual base salary for Mr. Shaykin of $270,000. Under the Shaykin Employment Agreement, in the event a change of control
occurs or is anticipated (including the sale of substantially all of the assets of the Company) and Mr. Shaykin's employment is terminated by the Company without cause (as defined in the
Shaykin Employment Agreement) or by Mr. Shaykin for good reason (as defined in the Shaykin Employment Agreement), Mr. Shaykin is to be granted (i) a payment equal to the greater
of 100% of his prior year's bonus or 75% of his base annual salary, (ii) a payment equal to 300% of his base annual salary and (iii) a payment equal to accrued, unpaid salary and bonus
through the date of termination. As defined in the Shaykin Employment Agreement, "good reason" includes, along with other events, the board of directors' failure to grant, in each calendar year after
a change in control occurs or is anticipated, a minimum annual bonus at least equal to the average of the three years' prior annual bonuses, if such a failure is in anticipation of or following
a change in control. The sale of our paclitaxel business to Mayne Pharma, may be deemed to have been a sale of substantially all our assets. In connection with the sale, Mr. Shaykin advised the
Company that he has waived any requirement that a minimum annual bonus be paid to him insofar as the sale of the paclitaxel business could be construed to constitute a change of control pursuant to
the Shaykin Employment agreement.

In
addition, if Mr. Shaykin's employment is terminated by the Company without cause or by Mr. Skaykin for good reason, he would be entitled to receive, subject to certain
limitations, (i) a lump sum of accrued, unpaid salary and bonus, if any, through the termination date, (ii) health and welfare benefits as in effect immediately prior to termination for
a maximum of 18 months following termination, (iii) full vesting for all outstanding Company stock options owned by Mr. Skaykin that were granted prior to October 1, 2001,
and (iv) a bonus payment in an amount equal to a percentage of his base salary,
according to the terms set forth above. The forgoing benefits would be limited by the amount deductible for income tax purposes under the Internal Revenue Code of 1986, as amended.

Each
of the Employment Agreements provides for an initial two-year employment term that expires on October 1, 2003, and is automatically renewed on each anniversary of
the date of the agreement for an additional one-year term unless either party gives notice of termination to the other party at least 180 days prior to the commencement of any
additional one-year term. No such notice of termination has been given by or to any of the Executive Officers. The Employment Agreements provide for initial annual base salaries for
Mr. Link and Mr. Larson of $210,000 and $180,000 respectively. Under the Employment Agreements, in the event a change of control occurs or is anticipated (including the sale of
substantially all of the assets of the Company) and an Executive Officer's employment is terminated by the Company without cause or by the Executive Officer for good reason, such Executive Officer is
to be granted (i) a payment equal to the greater of 100% of his prior year's bonus or 75% of his base annual salary and (ii) a payment equal to 200% of the Executive Officer's base
annual salary. As defined in these agreements, "good reason" includes, along with other events, the board of directors' failure to grant, in each calendar year after a change in control occurs or is
anticipated, a minimum annual bonus at least equal to the average of the three years' prior annual bonuses, if such a failure is in anticipation of or following a change in control. The sale of
our paclitaxel business to Mayne Pharma, may be deemed to have been a sale of substantially all of our assets. In connection with the sale, each of the Executive Officers advised the Company that he
has waived any requirement that a minimum annual bonus be paid him insofar as the sale of the paclitaxel business could be construed to constitute a change of control pursuant to his Employment
Agreement.

38

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In addition, if the Executive Officer's employment is terminated by the Company without cause or by the Executive Officer for good reason, each Executive Officer would be entitled to
receive, subject to certain limitations, (i) a lump sum of accrued, unpaid salary and bonus, if any, through the termination date, (ii) health and welfare benefits as in effect
immediately prior to termination for a maximum of 18 months following termination, (iii) full vesting for all outstanding Company stock options owned by the Executive Officer that were
granted prior to October 1, 2001, and (iv) a bonus payment in an amount equal to a percentage of the individual Executive Officer's base salary, according to the terms set forth above
for each named individual. The forgoing benefits would be limited by the amount deductible for income tax purposes under the Internal Revenue Code of 1986, as amended.

Under
the Employment Agreements and the Shaykin Employment Agreement, Executives may receive an annual bonus in such amount, if any, as the Compensation Committee (or if the Board has no
Compensation Committee at the time, then the Board), in its discretion, may award to Executives, based upon the Executive's and the Company's performance during each year of the Employment Period.

The
Executive Agreements also contain provisions (i) prohibiting disclosure of confidential information, (ii) granting to the Company rights to intellectual property
developed by the Executives that relate to its business or are developed in the course of employment with NaPro, and (iii) prohibiting competition with NaPro under certain circumstances during
and for five-years after the Executive's employment.

Effective
January 1, 2004, Dr. Ainsworth and the Company entered into a new employment agreement that superseded his prior employment agreement with the Company.
Dr. Ainsworth's new employment agreement provides for a five year employment term, subject to one-year extensions upon mutual agreement. The agreement can be terminated by the
Company after December 31, 2005 if Dr. Ainsworth has not met certain benchmarks related to the targeted oncology business by that date. Dr. Ainsworth will be paid an annual base
salary of $260,000 for 2004 and 2005 and $50,000 for 2006, 2007 and 2008, for which he has agreed to be available to work for the Company in its targeted oncology business for up to 24 hours
per week. The payments for 2006, 2007 and 2008 may be accelerated and paid in a lump sum on December 31, 2005 (at Dr. Ainsworth's option upon resignation from employment) if he has not
met certain benchmarks by that date. In accordance with the agreement, Dr. Ainsworth received a bonus of $65,000 in January 2004. If Dr. Ainsworth resigns for good reason (as
defined in his employment agreement), he will be entitled to (i) a lump sum amount equal to the total of any such bonus not yet paid and the base salary that would otherwise be payable over the
remaining employment period if he had not been terminated and (ii) health and welfare benefits as in effect immediately prior to termination for a maximum of 18 months following
termination. For as long as the agreement is in effect, the Company will also reimburse Dr. Ainsworth up to $500 per month for itemized expenses of maintaining a home office to provide services
to the Company. The new employment agreement also provides for the transfer to Dr. Ainsworth of a $3.0 million key man term
life insurance policy on Dr. Ainsworth's life, of which the Company was previously the beneficiary. Under this new employment agreement, Dr. Ainsworth is not entitled to any additional
payments under his previous employment agreement.

Compensation Committee Interlocks and Insider Participation

During the year ended December 31, 2003, our compensation committee consisted of Mr. Edward Erickson, The Honorable Richard M. Perle (Chair), and
Dr. Robert Pollack. None of our executive officers serve as members of the board of directors or compensation committee of any entity that has one or more executive officers who serve on the
board of directors or compensation committee.

39

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Item 12  Security Ownership of Certain Beneficial Owners and Management

Equity Compensation Plan Information

The following table sets forth certain information as of December 31, 2003 concerning our common stock that may be issued upon the exercise of options or
the purchases of restricted stock under all of our equity compensation plans approved by stockholders and equity compensation plans not approved by stockholders:

|Plan Category                                               |  | (a)
Number of securities to be issued upon exercise of outstanding options, warrants and rights |  | (b)
Weighted-average exercise price of outstanding options, warrants and rights |      | (c)
Number of securities remaining available for future issuances under equity compensation plans (excluding securities reflected in column (a))
|----------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------- | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------
|Equity compensation plans approved by security holders:     |  |                                                                                                 |  |                                                                                 |      |                                                                                                                                                 
|1994 Long-Term Performance Incentive Plan                   |  | 5,511,816                                                                                       |  | $                                                                               | 4.22 |                                                                                                                                                 
|1993 Stock Option Plan                                      |  |                                                                                                |  |                                                                                 |     |                                                                                                                                                 
|                                                            |  |                                                                                                 |  |                                                                                 |      |                                                                                                                                                 
|Total Approved Plans                                        |  | 5,511,816                                                                                       |  | $                                                                               | 4.22 |                                                                                                                                                 
|Equity compensation plans not approved by security holders: |  |                                                                                                 |  |                                                                                 |      |                                                                                                                                                 
|Non-plan                                                    |  | 16,750                                                                                          |  | $                                                                               | 2.72 |                                                                                                                                                 
|1998 Stock Option Plan                                      |  | 1,455,892                                                                                       |  | $                                                                               | 4.44 |                                                                                                                                                 
|                                                            |  |                                                                                                 |  |                                                                                 |      |                                                                                                                                                 
|Total Unapproved Plans                                      |  | 1,472,642                                                                                       |  | $                                                                               | 4.42 |                                                                                                                                                 
|                                                            |  |                                                                                                 |  |                                                                                 |      |                                                                                                                                                 
|Total Plans                                                 |  | 6,984,458                                                                                       |  | $                                                                               | 4.26 |                                                                                                                                                 
|                                                            |  |                                                                                                 |  |                                                                                 |      |                                                                                                                                                 

Summary of Equity Compensation Plans Not Approved by Stockholders

Non-plan Stock Options

In January 1994, the Company granted to four outside directors 27,000 non-plan options to purchase shares of common stock which were
immediately exercisable at a price of $2.40 and which expired in January 2004. As a result of option exercises, 16,000 of these options remained outstanding as of December 31, 2003. In
September 1997, the Company granted to its employees 20,075 non-plan options to purchase shares of common stock which vested over two years and which expire in
September 2007. As of December 31, 2003, 750 of these options remained outstanding.

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 provided for option grants designated as either nonqualified or incentive stock options. The Plan also provided for the issuance of
up to 146,667 shares of common stock. The initial term of the Plan was ten years, which expired in September 2003, 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 the Company's common stock on the date of grant.

40

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The 1998 Stock Incentive Plan

In 1998, the Board of Directors adopted the 1998 Stock Incentive Plan (formerly known as the "1998 Stock Option Plan") (the "1998 Plan") to provide awards of
stock options, stock appreciation rights, restricted stock, performance grants, or any other type of award deemed by the Board of Directors or its designated committee to employees and other
individuals who perform services for the Company. The 1998 Plan provides for option grants designated as nonqualified stock options or incentive stock options. Originally, 125,000 shares were
authorized for issuance under the 1998 Plan. In 1999, 2000, 2001 and 2002 the Board of Directors approved increases in the number of authorized shares. There are currently 1,925,000 shares authorized
for issuance under the 1998 Plan. Under the terms of the 1998 Plan, stock options cannot be granted to persons who are NaPro officers subject to Section 16 of the Securities Exchange Act of
1934, as amended, (unless granted to officers not previously employed by NaPro, as an inducement essential to such officers entering into employment contracts with the
Company) or to NaPro directors. Options granted under the 1998 Plan typically vest 25% after each anniversary date of the grant, and expire ten years from the date of grant. The exercise price
for stock options issued under the 1998 Plan is equal to the fair market value of the Company's common stock on the date of grant.

Security Ownership by Certain Persons

The following table sets forth certain information as of March 1, 2004 regarding the ownership of our common stock by (1) persons believed by us to
be the beneficial owners of more than five percent of our outstanding common stock; (2) by each director and by each executive officer named in the Summary Compensation Table above; and
(3) by all executive officers and directors as a group. Except where otherwise indicated, the address for each of the persons listed in the table is: NaPro BioTherapeutics, Inc., 4840
Pearl East Circle, Suite 300W, Boulder, CO 80301.

|Name of Director, Officer or
Beneficial Owner(1)             |  | Number of
Shares of
Common Stock |      | Percent of
Class |  
|------------------------------------------------------------ |  | -------------------------------- | ---- | ---------------- | -
|Leonard P. Shaykin                                           |  | 1,395,230                        | (2)  | 4.50             | %
|Sterling K. Ainsworth                                        |  | 1,444,010                        | (3)  | 4.66             | %
|Edward L. Erickson                                           |  | 50,000                           | (4)  | *                |  
|George M. Gould                                              |  | 10,000                           | (5)  | *                |  
|Arthur H. Hayes, Jr.                                         |  | 90,000                           | (6)  | *                |  
|Marc J. Ostro                                                |  | 130,500                          | (7)  | *                |  
|The Honorable Richard N. Perle                               |  | 90,000                           | (8)  | *                |  
|Robert E. Pollack                                            |  | 65,500                           | (9)  | *                |  
|Kai P. Larson                                                |  | 242,815                          | (10) | *                |  
|Gordon H. Link, Jr.                                          |  | 463,376                          | (11) | 1.50             | %
|Martin M. Batt                                               |  | 73,474                           | (12) | *                |  
|All Directors and Executive Officers as a Group (15 persons) |  | 4,802,254                        | (13) | 15.50            | %
|Mayne Pharma (USA) Inc.                                      |  | 2,000,000                        | (14) | 6.46             | %

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41

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42

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Item 13  Certain Relationships and Related Transactions

Arthur H. Hayes, Jr., M.D., may provide certain consulting services to us. We are parties with MediScience Associates to a consulting agreement (the "MediScience
Agreement") whereby Dr. Hayes, who is President and Chief Operating Officer of MediScience, may provide us with consulting services in a variety of areas, including clinical research planning,
strategic positioning and regulatory guidance. When such services are provided, we are obligated to make quarterly payments to MediScience under the MediScience Agreement in the amount of $12,500.
Dr. Hayes was paid $50,000 under this agreement during 2003. Dr. Hayes is obligated to provide consulting services to us under the MediScience Agreement indefinitely, but the MediScience
Agreement is terminable by us or MediScience at any time with 90 days prior written notice.

In
February 2002, we sold privately $8.0 million of our common stock issued at $9 per share and $8.0 million principal of five-year 4% debentures
convertible into common stock at $15 per share to TL Ventures V, L.P. and one of its affiliated funds (collectively, the "TL Venture Funds"). Dr. Ostro, one of our former directors, is a
managing director of an affiliate of the investment manager of the TL Venture Funds, and a voting limited partner in the TL Venture Funds. Dr. Ostro resigned from our Board of Directors effective
March 11, 2004. No placement agent was involved in the transaction. The net proceeds of the transaction were $15.6 million. As part of this transaction, we recorded a discount
attributable to the conversion feature of the convertible debentures in the amount of $3.1 million, which is being amortized over the term of the debentures. We maintain two registration
statements with the Securities and Exchange Commission to register the resale of the common stock, common stock issuable upon conversion of the debentures and common stock issuable in lieu of cash
interest on the debentures under the Securities Act of 1933. We may pay the debenture interest in cash or common stock at our option. The debentures automatically convert into common stock during the
first two years if the average price of the common stock for 15 trading days exceeds $22 per share, and during the last three years if the average price for 30 trading days
exceeds $16 per share. If we have insufficient funds to repay the debentures in full at maturity or upon acceleration, the holders of the debentures may elect to convert the outstanding principal
balance and any unpaid accrued interest on the debentures into shares of common stock at a conversion price equal to the then current 20 day average trading price of the common stock.

See
"Item 3. Legal Proceedings," for a description of ongoing litigation with TL Ventures Funds, one of our principal institutional investors.

Item 14  Principal Accountant Fees and Services

The firm of Ernst and Young LLP ("E&Y") certified public accountants, audited our accounts and the accounts of our subsidiaries for the fiscal years ended
December 31, 2003 and 2002. E&Y have been our auditors since 1998.

E&Y
billed us approximately $102,000 for professional services rendered for the audit of our annual consolidated financial statements for our 2003 fiscal year and to review the financial
statements included in our quarterly reports on Form 10-Q filed with respect to quarterly periods in such fiscal year as compared to approximately $111,000 for such services with
respect to our 2002 fiscal year.

E&Y
billed us approximately $27,000 for professional services related to review our proxy in connection with our sale of the paclitaxel business and registration statements filed in 2003
as

43

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compared
to approximately $66,000 for review and assistance with a registration statement filed in 2002.

E&Y
billed us approximately $7,000 for tax services for fiscal 2003 and approximately $7,000 for tax services for fiscal 2002. The fees were billed for review of our tax return and
consulting related to tax matters.

No
fees were billed to us by E&Y with respect to fiscal 2003 other than for services described in Items 14 (1) and (3) herein. In 2002, we were billed approximately $44,000
for professional services related to a 2001 audit of Mayne Pharma's selling price adjustment relating to foreign currency fluctuations relative to the U.S. dollar.

The
engagement of E&Y to render the above audit and tax services was approved by our audit committee prior to the engagement. All work relating to the audit of our financial statements
for the year ended December 31, 2003 was performed by full-time employees of E&Y. Pursuant to the Audit Committee Charter, the Audit Committee shall pre-approve all
auditing services and permitted non-audit services (including the fees and terms thereof) to be performed for the Company by its independent auditor (subject to the de minimisexceptions for non-audit
services described in Section 10A(i)(1)(B) of the Exchange Act which shall be approved by
the Audit Committee prior to the completion of the audit). The Audit Committee may form and delegate authority to subcommittees consisting of one or more members when appropriate, including the
authority to grant pre-approvals of audit and permitted non-audit services, provided that decisions of such subcommittee to grant pre-approvals shall be presented
to the full Audit Committee at its next scheduled meeting.

44

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Part IV  Item 15  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

We filed a Current Report on Form 8-K dated November 3, 2003 reporting items 7 and 9.

We
filed a Current Report on Form 8-K dated November 13, 2003 reporting items 7 and 12, and containing the November 13, 2003 press release announcing
NaPro's earnings for the third quarter and nine months ended October 1, 2003.

We
filed a Current Report on Form 8-K dated December 12, 2003 reporting items 2, 5 and 7.

|Exhibit
Number |  | Description of Exhibit                                                                                                                               
|-------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------
|2.1+           |  | Asset Purchase Agreement dated as of August 25, 2003 between NaPro BioTherapeutics, Inc. and Faulding Pharmaceutical Co.(1)                          
|3.1            |  | Amended and Restated Certificate of Incorporation of the Company, as amended August 2, 1996(2)                                                       
|3.2            |  | Certificate of Amendment dated September 21, 1998 to the Amended and Restated Certificate of Incorporation of the Company(3)                         
|3.3            |  | Certificate of Amendment dated October 31, 2000 to the Amended and Restated Certificate of Incorporation of the Company(4)                           
|3.4            |  | Bylaws of the Company as amended through August 25, 2003*                                                                                            
|3.5            |  | Certificate of Designation for Convertible Preferred Stock, Series A(5)                                                                              
|3.6            |  | Certificate of Designation for Series B Junior Participating Preferred Stock(6)                                                                      
|3.7            |  | Certificate of Designation for Series C Senior Convertible Preferred Stock(7)                                                                        
|3.8            |  | Certificate of Elimination of Convertible Preferred Stock, Series A(8)                                                                               
|3.9            |  | Certificate of Elimination of Series C Senior Convertible Preferred Stock(8)                                                                         
|3.10           |  | Certificate of Increase of Series B Junior Participating Preferred Stock(8)                                                                          
|3.11           |  | Certificate of Amendment dated March 3, 2003 to the Amended and Restated Certificate of Incorporation of the Company(9)                              
|4.1            |  | Common Stock Certificate(10)                                                                                                                         
|4.2            |  | Amended and Restated Rights Agreement dated September 25, 2001 between the Company and American Stock Transfer and Trust Company, as Rights Agent(11)
|4.3            |  | Form of 4% Convertible Subordinated Debenture due 2007(12)                                                                                           
|               |  |                                                                                                                                                      

45

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|4.4     |  | The Certificate of Incorporation and Bylaws of the Company are included as Exhibits 3.13.11                                                                                     
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.1**  |  | Company's 1993 Stock Option Plan(10)                                                                                                                                             
|10.2**  |  | Amendment dated December 11, 2000 to the Company's 1993 Stock Option Plan(13)                                                                                                    
|10.3**  |  | Company's Amended and Restated 1994 Long-Term Performance Incentive Plan, as amended through March 4, 2002*                                                                      
|10.4    |  | Company's Amended and Restated 1998 Stock Incentive Plan as amended through October 15, 2002*                                                                                    
|10.5**  |  | Employment Agreement effective October 1, 2001 between the Company and Leonard Shaykin(14)                                                                                       
|10.6**  |  | Employment Agreement effective January 1, 2004 between the Company and Sterling Ainsworth*                                                                                       
|10.7**  |  | Employment Agreement effective October 1, 2001 between the Company and Patricia Pilia(14)                                                                                        
|10.8**  |  | Employment Agreement effective October 1, 2001 between the Company and Gordon Link(14)                                                                                           
|10.9**  |  | Employment Agreement effective October 1, 2001 between the Company and Kai Larson(14)                                                                                            
|10.10** |  | Amended and Restated Employment Agreement effective May 22, 2003 between the Company and James D. McChesney*                                                                     
|10.11** |  | Employment Agreement effective October 1, 2001 between the Company and Brenda Fielding(14)                                                                                       
|10.12   |  | License Agreement dated November 21, 2000 by and between the Company and The University of Delaware and Thomas Jefferson University(13)                                          
|10.13+  |  | Release and License Agreement dated November 28, 2001 by and between Bristol-Meyers Squibb Co. and the Company(14)                                                               
|10.14   |  | Form of Subscription Agreement including Registration Rights(13)                                                                                                                 
|10.15   |  | Securities Purchase Agreement dated February 13, 2002 between TL Ventures V L.P., TL Ventures V Interfund L.P. and the Company(12)                                               
|10.16   |  | Registration Rights Agreement dated February 13, 2002 between TL Ventures V L.P., TL Ventures V Interfund L.P. and the Company(12)                                               
|10.17   |  | Agreement dated November 7, 2001 between R. J. Reynolds Tobacco Company and the Company(14)                                                                                      
|10.18   |  | Agreement dated December 31, 2002 between Pangene Corporation and the Company(15)                                                                                                
|10.19   |  | Form of Voting Agreement to be entered into between each of Leonard P. Shaykin and Sterling K. Ainsworth, on the one hand, and Faulding Pharmaceutical Co., on the other hand(16)
|        |  |                                                                                                                                                                                  

46

---

|10.20 |  | Form of Director and Officer Indemnification Agreement signed by the Company and each of Sterling Ainsworth, Martin M. Batt, Gilbert W. Carnathan, Edward L. Erickson, Brenda Fielding, George Gould, Esq, Arthur Hull Hayes, Jr., M.D., Kai Larson,
Hope Liebke, Gordon H. Link, Jr., Brian McCudden, Patricia A. Pilia, Ph.D., The Honorable Richard N. Perle, Marc J. Ostro, Ph.D., Robert E. Pollack, Ph.D., Leonard P. Shaykin and Jeff White on the dates set forth on the Schedule previously filed and
incorporated herein by reference, which Schedule is amended to include the Director and Officer Indemnification Agreement signed by Stephen Carter on March 7, 2004(9)
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.21 |  | Form of waiver agreement signed by Patricia A. Pilia, Gordon Link and Kai P. Larson on September 10, 2003, by Sterling K. Ainsworth on September 11, 2003 and by Leonard P. Shaykin on September 12, 2003 (together with Schedule
required by Instruction 2 to Item 601 Regulation S-K)*                                                                                                                                                                                                                                                                                                                                                                                             
|21.1  |  | List of Subsidiaries(14)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|23.1  |  | Consent of Ernst & Young LLP*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|31.1  |  | Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934, as amended*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|31.2  |  | Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934, as amended*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|32.1# |  | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350)*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|32.2# |  | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350)*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

---

47

---

48

---

Signatures

Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the registrant has duly caused this report on
Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.

|                                                                                                        |  |  |  |               
|------------------------------------------------------------------------------------------------------- |  |  |  | --------------
|                                                                                                        |  |  |  |               
|NAPRO BIOTHERAPEUTICS, INC.                                                                             |  |  |  |               
|By: /s/LEONARD P. SHAYKINLeonard P. Shaykin
Chairman of the Board of Directors,
Chief Executive Officer |  |  |  | March 11, 2004

Pursuant
to the requirements of Section 13 of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.

|                                                  |  |                                                                              |  |               
|------------------------------------------------- |  | ---------------------------------------------------------------------------- |  | --------------
|                                                  |  |                                                                              |  |               
|/s/LEONARD P. SHAYKINLeonard P. Shaykin           |  | Chairman of the Board of Directors, Chief Executive Officer                  |  | March 11, 2004
|/s/PATRICIA A. PILIAPatricia A. Pilia, Ph.D.      |  | Executive Vice President, Director                                           |  | March 11, 2004
|/s/GORDON LINKGordon Link                         |  | Senior Vice President, Chief Financial Officer (Principal Financial Officer) |  | March 11, 2004
|/s/BRUCE W. FIEDLERBruce W. Fiedler               |  | Controller (Principal Accounting Officer)                                    |  | March 11, 2004
|/s/STEPHEN K. CARTERStephen K. Carter, M.D.       |  | Director                                                                     |  | March 11, 2004
|/s/EDWARD L. ERICKSONEdward L. Erickson           |  | Director                                                                     |  | March 11, 2004
|/s/GEORGE M. GOULDGeorge M. Gould                 |  | Director                                                                     |  | March 11, 2004
|/s/ARTHUR H. HAYES, JR.Arthur H. Hayes, Jr., M.D. |  | Director                                                                     |  | March 11, 2004
|/s/RICHARD N. PERLEThe Honorable Richard N. Perle |  | Director                                                                     |  | March 11, 2004
|/s/ROBERT E. POLLACKRobert E. Pollack, Ph.D.      |  | Director                                                                     |  | March 11, 2004

49

---



NaPro BioTherapeutics, Inc. and Subsidiaries        Financial Statements        Index to Consolidated Financial Statements



|                                                                                                    
|----------------------------------------------------------------------------------------------------
|Report of Independent Auditors                                                                      
|Audited Consolidated Financial Statements:                                                          
|Consolidated Balance Sheets for the years ended December 31, 2003 and 2002                          
|Consolidated Statements of Operations for the years ended December 31, 2003, 2002 and 2001          
|Consolidated Statements of Stockholders' Equity for the years ended December 31, 2003, 2002 and 2001
|Consolidated Statements of Cash Flows for the years ended December 31, 2003, 2002 and 2001          
|Notes to Consolidated Financial Statements                                                          

F-1

---



Report of Independent Auditors

The Board of Directors and Stockholders
NaPro BioTherapeutics, Inc.

We
have audited the accompanying consolidated balance sheets of NaPro BioTherapeutics, Inc. and subsidiaries as of December 31, 2003 and 2002, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2003. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We
conducted our audits in accordance with auditing standards generally accepted in the United States. 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 as of December 31, 2003 and 2002, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2003 in conformity
with accounting principles generally accepted in the United States.

| |  | ERNST & YOUNG LLP
| |  | -----------------

Denver,
Colorado
February 27, 2004

F-2

---



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

|                                           |                                                                                                                                      | December 31, |       
|------------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------ | ------------ | ------
|
|ASSETS                                     |                                                                                                                                      |              |       
|Current assets:                            |                                                                                                                                      |              |       
|                                           | Cash and cash equivalents                                                                                                            |              | $     
|                                           | Short-term investments                                                                                                               |              |       
|                                           | Accounts receivable                                                                                                                  |              |       
|                                           | Prepaid expense and other current assets                                                                                             |              |       
|                                           | Assets held for sale                                                                                                                 |              |       
|                                           |                                                                                                                                      |              |       
|Total current assets                       |                                                                                                                                      |              | 53,078
|Property, plant and equipment, net         |                                                                                                                                      |              | 1,156 
|Other assets                               |                                                                                                                                      |              | 3,532 
|                                           |                                                                                                                                      |              |       
|Total assets                               |                                                                                                                                      | $            | 57,766
|                                           |                                                                                                                                      |              |       
|LIABILITIES AND STOCKHOLDERS' EQUITY       |                                                                                                                                      |              |       
|Current liabilities:                       |                                                                                                                                      |              |       
|                                           | Accounts payable and accrued liabilities                                                                                             |              | $     
|                                           | Accrued payroll and payroll taxes                                                                                                    |              |       
|                                           | Notes payablecurrent portion                                                                                                        |              |       
|                                           | Deferred income                                                                                                                      |              |       
|                                           |                                                                                                                                      |              |       
|Total current liabilities                  |                                                                                                                                      |              | 6,025 
|Notes payablelong term                    |                                                                                                                                      |              | 41    
|Deferred incomelong term                  |                                                                                                                                      |              |      
|Convertible debenturesrelated party       |                                                                                                                                      |              | 5,702 
|Commitments and contingencies              |                                                                                                                                      |              |       
|Stockholders' equity:                      |                                                                                                                                      |              |       
|                                           | Preferred stock, $.001 par value; 2,000,000 shares authorized; none issued                                                           |              |       
|                                           | Common stock, $.0075 par value; 64,000,000 shares authorized; 30,953,952 and 29,964,292 shares issued in 2003 and 2002, respectively |              |       
|                                           | Additional paid-in capital                                                                                                           |              |       
|                                           | Accumulated deficit                                                                                                                  |              |       
|                                           | Treasury stock, 54,306 shares at cost                                                                                                |              |       
|                                           |                                                                                                                                      |              |       
|Total stockholders' equity                 |                                                                                                                                      |              | 45,998
|                                           |                                                                                                                                      |              |       
|Total liabilities and stockholders' equity |                                                                                                                                      | $            | 57,766
|                                           |                                                                                                                                      |              |       

See
accompanying notes to Consolidated Financial Statements.

F-3

---

NaPro BioTherapeutics, Inc. and Subsidiaries        Consolidated Statements of Operations        (In thousands, except per share data)

|                                                                                |                                                                                                                   | Year Ended December 31, |        
|------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------- | ----------------------- | -------
|
|Operating expenses:                                                             |                                                                                                                   |                         |        
|                                                                                | Research and development                                                                                          |                         | $      
|                                                                                | General and administrative                                                                                        |                         |        
|                                                                                |                                                                                                                   |                         |        
|                                                                                | Operating loss                                                                                                    |                         |        
|                                                                                |                                                                                                                   |                         |        
|Other income (expense):                                                         |                                                                                                                   |                         |        
|                                                                                | Interest income                                                                                                   |                         |        
|                                                                                | Interest expense                                                                                                  |                         |        
|                                                                                |                                                                                                                   |                         |        
|Net loss from continuing operations                                             |                                                                                                                   |                         | (21,914
|Discontinued operations:                                                        |                                                                                                                   |                         |        
|                                                                                | Income (loss) from discontinued operations (including gain on sale of the paclitaxel business of $54,553 in 2003) |                         |        
|                                                                                | Provision for federal income tax                                                                                  |                         |        
|                                                                                |                                                                                                                   |                         |        
|Net income (loss)                                                               |                                                                                                                   | $                       | 38,128 
|                                                                                |                                                                                                                   |                         |        
|Basic and diluted loss per share from continuing operations                     |                                                                                                                   | $                       | (0.71  
|                                                                                |                                                                                                                   |                         |        
|Basic income (loss) per share from discontinued operations                      |                                                                                                                   | $                       | 1.95   
|                                                                                |                                                                                                                   |                         |        
|Diluted income (loss) per share from discontinued operations                    |                                                                                                                   | $                       | 1.94   
|                                                                                |                                                                                                                   |                         |        
|Basic income (loss) per share                                                   |                                                                                                                   | $                       | 1.24   
|                                                                                |                                                                                                                   |                         |        
|Diluted income (loss) per share                                                 |                                                                                                                   | $                       | 1.23   
|                                                                                |                                                                                                                   |                         |        
|Basic weighted average shares outstanding                                       |                                                                                                                   |                         | 30,801 
|                                                                                |                                                                                                                   |                         |        
|Diluted weighted average shares outstanding relating to discontinued operations |                                                                                                                   |                         | 30,955 
|                                                                                |                                                                                                                   |                         |        
|Diluted weighted average shares outstanding                                     |                                                                                                                   |                         | 30,955 
|                                                                                |                                                                                                                   |                         |        

See
accompanying notes to Consolidated Financial Statements.

F-4

---



NaPro BioTherapeutics, Inc. and Subsidiaries        Consolidated Statements of Stockholders' Equity        (In thousands, except share data)

|                                                                                                    |  | Nonvoting
Common
Stock |    | Common
Stock |   | Number of
Common
Shares
Issued |  | Additional
Paid-in
Capital |  | Accumulated
Deficit |         | Treasury
Stock |   | Total    |  
|--------------------------------------------------------------------------------------------------- |  | ---------------------- | -- | ------------ | - | ------------------------------ |  | -------------------------- |  | ------------------- | ------- | -------------- | - | -------- | -
|Balance at December 31, 2000                                                                        |  | $                      | 3  |              | $ | 201                            |  | 26,758,144                 |  | $                   | 88,970  |                | $ | (69,245  | )
|Contribution of 151,579 shares of common stock from treasury at $9.50 per share to retirement plans |  |                        |   |              |   |                               |  |                           |  |                     | 939     |                |   |         |  
|Issuance of common stock upon completion of milestone                                               |  |                        |   |              |   | 7                              |  | 888,889                    |  |                     | 4,993   |                |   |         |  
|Issuance of stock options in exchange for consulting services                                       |  |                        |   |              |   |                               |  |                           |  |                     | 531     |                |   |         |  
|Issuance of common stock for compensation                                                           |  |                        |   |              |   |                               |  | 4,636                      |  |                     | 29      |                |   |         |  
|Exercise of stock options and warrants                                                              |  |                        |   |              |   | 4                              |  | 659,526                    |  |                     | 1,314   |                |   |         |  
|Conversion of non-voting common stock to common stock                                               |  |                        | (3 | )            |   | 3                              |  | 395,000                    |  |                     |        |                |   |         |  
|Net loss                                                                                            |  |                        |   |              |   |                               |  |                           |  |                     |        |                |   | (25,768  | )
|                                                                                                    |  |                        |    |              |   |                                |  |                            |  |                     |         |                |   |          |  
|Balance at December 31, 2001                                                                        |  |                        |   |              |   | 215                            |  | 28,706,195                 |  |                     | 96,776  |                |   | (95,013  | )
|Contribution of 200,000 shares of common stock from treasury at $9.50 per share to retirement plans |  |                        |   |              |   |                               |  |                           |  |                     | 1,240   |                |   |         |  
|Issuance of common stock for in-licensing of genomics technology                                    |  |                        |   |              |   | 2                              |  | 200,000                    |  |                     | 961     |                |   |         |  
|Issuance of stock options in exchange for consulting services                                       |  |                        |   |              |   |                               |  |                           |  |                     | 93      |                |   |         |  
|Issuance of common stock for compensation                                                           |  |                        |   |              |   |                               |  | 19,587                     |  |                     | 164     |                |   |         |  
|Issuance of common stock for payment of interest expense                                            |  |                        |   |              |   |                               |  | 47,973                     |  |                     | 148     |                |   |         |  
|Exercise of stock options and warrants                                                              |  |                        |   |              |   | 1                              |  | 101,648                    |  |                     | 216     |                |   |         |  
|Issuance of common stock in connection with private placement, net of issuance costs                |  |                        |   |              |   | 7                              |  | 888,889                    |  |                     | 7,775   |                |   |         |  
|Discount on convertible debentures issued in connection with private placement                      |  |                        |   |              |   |                               |  |                           |  |                     | 3,057   |                |   |         |  
|Net loss                                                                                            |  |                        |   |              |   |                               |  |                           |  |                     |        |                |   | (8,665   | )
|                                                                                                    |  |                        |    |              |   |                                |  |                            |  |                     |         |                |   |          |  
|Balance at December 31, 2002                                                                        |  |                        |   |              |   | 225                            |  | 29,964,292                 |  |                     | 110,430 |                |   | (103,678 | )
|Contribution of 750,000 shares of common stock at $0.58 per share to ESOP                           |  |                        |   |              |   | 6                              |  | 750,000                    |  |                     | 429     |                |   |         |  
|Issuance of common stock for in-licensing of genomics technology                                    |  |                        |   |              |   | 1                              |  | 100,000                    |  |                     | 187     |                |   |         |  
|Issuance of common stock for payment of services                                                    |  |                        |   |              |   |                               |  | 45,046                     |  |                     | 45      |                |   |         |  
|Issuance of stock options in exchange for consulting services                                       |  |                        |   |              |   |                               |  |                           |  |                     | 77      |                |   |         |  
|Issuance of common stock for compensation                                                           |  |                        |   |              |   |                               |  | 90,189                     |  |                     | 87      |                |   |         |  
|Modification of employee stock option terms                                                         |  |                        |   |              |   |                               |  |                           |  |                     | 55      |                |   |         |  
|Tax provision relating to utilization of net operating losses created by stock option exercises     |  |                        |   |              |   |                               |  |                           |  |                     | 183     |                |   |         |  
|Exercise of stock options and warrants                                                              |  |                        |   |              |   |                               |  | 4,425                      |  |                     | 4       |                |   |         |  
|Net income                                                                                          |  |                        |   |              |   |                               |  |                           |  |                     |        |                |   | 38,128   |  
|                                                                                                    |  |                        |    |              |   |                                |  |                            |  |                     |         |                |   |          |  
|Balance at December 31, 2003                                                                        |  | $                      |   |              | $ | 232                            |  | 30,953,952                 |  | $                   | 111,497 |                | $ | (65,550  | )
|                                                                                                    |  |                        |    |              |   |                                |  |                            |  |                     |         |                |   |          |  

See accompanying notes to Consolidated Financial Statements.

F-5

---

NaPro BioTherapeutics, Inc. and Subsidiaries        Consolidated Statements of Cash Flows        (Dollars in thousands)

|                                                                            |                                                                                                                | Year Ended December 31,                  |       
|--------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------- | ---------------------------------------- | ------
|
|Operating activities:                                                       |                                                                                                                |                                          |       
|Net income (loss)                                                           |                                                                                                                | $                                        | 38,128
|Adjustments to reconcile net loss to net cash used in operating activities: |                                                                                                                |                                          |       
|                                                                            | Depreciation and amortization                                                                                  |                                          |       
|                                                                            | Accretion of debt issue cost                                                                                   |                                          |       
|                                                                            | Amortization of debt discount                                                                                  |                                          |       
|                                                                            | Accretion of license fee income                                                                                |                                          |       
|                                                                            | In-process research and development expensed in connection with acquired assets of Pangene                     |                                          |       
|                                                                            | License fees paid with common stock                                                                            |                                          |       
|                                                                            | Retirement contributions paid with common stock                                                                |                                          |       
|                                                                            | Compensation paid with common stock and options                                                                |                                          |       
|                                                                            | Interest expense paid with common stock                                                                        |                                          |       
|                                                                            | Biomass development cost                                                                                       |                                          |       
|                                                                            | Gain on sale of the paclitaxel business                                                                        |                                          |       
|                                                                            | Asset writedowns associated with discontinued operations                                                       |                                          |       
|                                                                            | Changes in operating assets and liabilities:                                                                   |                                          |       
|                                                                            |                                                                                                                | Accounts receivable                      |       
|                                                                            |                                                                                                                | Inventory                                |       
|                                                                            |                                                                                                                | Prepaid expense and other assets         |       
|                                                                            |                                                                                                                | Accounts payable and accrued liabilities |       
|                                                                            |                                                                                                                | Accrued payroll and payroll taxes        |       
|                                                                            |                                                                                                                | Deferred income                          |       
|                                                                            |                                                                                                                |                                          |       
|                                                                            | Net cash provided by (used in) operating activities                                                            |                                          |       
|Investing activities:                                                       |                                                                                                                |                                          |       
|                                                                            | Additions to plant and equipment                                                                               |                                          |       
|                                                                            | Proceeds from the sale of the paclitaxel business                                                              |                                          |       
|                                                                            | Purchases of short-term investments                                                                            |                                          |       
|                                                                            | Investment in ChromaDex                                                                                        |                                          |       
|                                                                            | Acquisition of assets from Pangene Corporation                                                                 |                                          |       
|                                                                            |                                                                                                                |                                          |       
|                                                                            | Net cash provided by (used in) investing activities                                                            |                                          |       
|Financing activities:                                                       |                                                                                                                |                                          |       
|                                                                            | Proceeds from convertible debentures, net of issuance cost                                                     |                                          |       
|                                                                            | Proceeds from notes payable                                                                                    |                                          |       
|                                                                            | Payments of notes payable                                                                                      |                                          |       
|                                                                            | Proceeds from sale of common stock and the exercise of common stock options and warrants, net of issuance cost |                                          |       
|                                                                            |                                                                                                                |                                          |       
|                                                                            | Net cash (used in) provided by financing activities                                                            |                                          |       
|                                                                            |                                                                                                                |                                          |       
|Net increase (decrease) in cash and cash equivalents                        |                                                                                                                |                                          | 34,023
|Cash and cash equivalents at beginning of year                              |                                                                                                                |                                          | 6,762 
|                                                                            |                                                                                                                |                                          |       
|Cash and cash equivalents at end of year                                    |                                                                                                                | $                                        | 40,785
|                                                                            |                                                                                                                |                                          |       
|Supplemental schedule of non-cash investing and financing activities:       |                                                                                                                |                                          |       
|                                                                            | Plantation cost harvested to inventory                                                                         |                                          | $     
|                                                                            | Issuance of common stock to prepay license fee                                                                 |                                          |       
|                                                                            | Transfer of fixed assets for investment in ChromaDex                                                           |                                          |       
|                                                                            | Insurance claim for damaged inventory                                                                          |                                          |       
|                                                                            | Non-cash exercise of warrants                                                                                  |                                          |       

See accompanying notes to Consolidated Financial Statements.

F-6

---



NaPro BioTherapeutics, Inc.        Notes to Consolidated Financial Statements

Note 1: Summary of Significant Accounting Policies

Description of Business

NaPro BioTherapeutics, Inc. (referred to herein as "NaPro" or "Company") together with its subsidiaries is a pharmaceutical company focused on the
development of novel, anti-cancer agents, and the development of novel genomic technologies, primarily in the area of gene editing, for applications in human therapeutics and diagnostics.
On December 12, 2003, NaPro sold its paclitaxel business to Mayne Pharma (USA) Inc. (f/k/a/Faulding Pharmaceutical Co.) ("Mayne Pharma"), a subsidiary of Mayne Group Limited, for
$71.7 million in cash, minus an inventory adjustment of $4.6 million (see Note 2). Except for the sale of the paclitaxel business, the Company has incurred net losses since
inception and may incur additional losses for the foreseeable future. Nearly all of NaPro's product sales have been from the paclitaxel business. NaPro is a Delaware corporation, which was
incorporated in 1991.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany balances have been eliminated in
consolidation.

Cash and Cash Equivalents

Cash and cash equivalents includes all highly liquid investments with maturities of 90 days or less when purchased.

Financial Instruments

Cash and cash equivalents, accounts receivable, accounts payable and notes are carried at cost, which approximates fair value. The convertible debentures are
carried at cost, which approximates fair market value, as NaPro recorded a discount attributable to the conversion feature (see Note 5).

Accounts Receivable and Provision for Doubtful Accounts

The Company evaluates the collectibility of its accounts receivable based on a combination of factors. In circumstances when the Company is aware of a specific
customer's inability to meet its financial obligations, NaPro records a specific reserve for bad debts against amounts due. For all other instances, the Company reviews the historical collections
experience for its customers in determining if a provision for doubtful accounts is deemed necessary. As the Company's receivables primarily related to amounts due from its strategic partners and the
collection of amounts due have historically been timely (see Note 13), the Company had not recorded a provision for doubtful accounts. As a result of the sale of the paclitaxel business, the
Company expects there will be a significant reduction in accounts receivable for the foreseeable future.

Short-term Investments

The Company has marketable debt securities which are available for sale and carried at cost which approximates market value due to the short life of the
securities. Interest income is recognized when earned.

F-7

---

Long-Lived Assets

Long-lived assets consist primarily of property, plant and equipment, and inventory. In accordance with Statement of Financial Accounting Standards
No. 144 ("SFAS 144"), Accounting for the Impairment or Disposal of Long-Lived Assets, the recoverability of the carrying value of long-lived assets to be held and
used is evaluated based upon changes in the business environment or other facts and circumstances that suggest they may be impaired. If this evaluation indicates the carrying value will not be
recoverable, based on the undiscounted expected future cash flows estimated to be generated by these assets, the Company reduces the carrying amount to the estimated fair value.

Depreciation and Amortization

Depreciation of lab equipment and furniture and fixtures is computed using the straight-line method over estimated useful lives ranging from three to
seven years. Amortization of leasehold improvements is computed using the straight-line method over the lesser of the improvement's estimated useful life or remaining lease term.
Maintenance and repairs that do not materially improve or extend the lives of the respective assets are expensed as incurred.

Intangible Assets

Intangible assets are amortized using the straight-line method over their estimated period of benefit, ranging from five to fifteen years. The
Company annually evaluates the recoverability of intangible assets and takes into account events or circumstances that warrant revised estimates of useful lives or that indicate that an impairment
exists.

Stock Options

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

Pro
forma information regarding net income (loss) and earnings (loss) per share is required by SFAS 123, which also requires that the information be determined as if the Company
had accounted for employee stock options granted subsequent to December 31, 1994 under the fair value method of that statement. NaPro estimated the fair value for these options at the date of
grant using a Black-Scholes option pricing model with the following weighted-average assumptions for 2003, 2002 and 2001, respectively: risk-free interest rate ranges of 1.98% to 3.35%,
2.51% to 5.07% and 3.75% to 5.10%; no expected dividend; volatility factor of 1.187 to 1.228, 1.090 to 1.167 and 0.974 to 0.984, and an estimated expected life range of three to six years.

F-8

---

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

2003

2002

2001Net income (loss) as reported

$
38,128

$
(8,665
)
$
(25,768
)Deduct: Total stock based employee compensation expense determined under fair value based method for all awards


(3,880
)

(4,238
)

(2,829
)Pro forma net income (loss)

$
34,248

$
(12,903
)
$
(28,597
)Basic income (loss) per shareas reported

$
1.24

$
(0.29
)
$
(0.93
)Diluted income (loss) per shareas reported

$
1.23

$
(0.29
)
$
(0.93
)Pro forma basic income (loss) per share

$
1.11

$
(0.44
)
$
(1.04
)Pro forma diluted income (loss) per share

$
1.11

$
(0.44
)
$
(1.04
)


NaPro
accounts for options issued to consultants using the provisions of SFAS 123. Expense recognized in 2003, 2002 and 2001 was $77,000, $93,000 and $531,000, respectively.

Revenue Recognition

With the sale of the paclitaxel business, the Company does not anticipate having any significant product sales or license fee income for the foreseeable future.

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

License fees:Prior to 2002, NaPro capitalized license fees and amortized them to income over the estimated economic life of
the license. During the second quarter of 2002, the Company revised the period during which it amortizes deferred revenue from license fees, due to the potential decline in the price of paclitaxel in
the European market. Since the second quarter of 2002, the amortization period consists of amortizing 80% of fees to income over the first five years of the license, and the remaining 20% of the fees
to income over the remaining period of the license. The effect of this change in estimate was not material to the consolidated financial statements.

Deferred
license fee income totaling $6.0 million was recognized and included as part of the gain from the sale of the paclitaxel business.

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

Domestic and Foreign Sales, Operations and Significant Customers

All sales relate to discontinued operations, see Note 2.

F-9

---

Domestic
and foreign financial information is as follows (in thousands):

|                                                   |  | Year           |  | United
States |                      | Canada |   | Eliminations |  | Total
|-------------------------------------------------- |  | -------------- |  | ------------- | -------------------- | ------ | - | ------------ |  | -----
|Net sales to affiliated and unaffiliated customers |  | 2003
2002
2001 |  | $             | 25,580
34,193
15,711 |        | $ | 

        |  | $    
|Total identifiable assets December 31,             |  | 2003
2002      |  |               | 58,922
48,394        |        |   | 4,811
2,893  |  |      

Historically,
the Company was dependent on sales to its strategic partners, Abbott Laboratories, Mayne Pharma, and Tzamal Pharma. NaPro did not require collateral to secure accounts
receivable. Sales to these partners as a percent of total sales were as follows:

2003

2002

2001Abbott

48
%
73
%
39
%Mayne Pharma

51
%
21
%
48
%Tzamal



6
%
12
%


Export
sales were as follows (in thousands):

Sales

2003

2002

2001Australia

$
13,073

$
7,330

$
7,576Other Foreign





1,881


1,954Total Foreign


13,073


9,211


9,530United States


12,507


24,982


6,181Total Sales

$
25,580

$
34,193

$
15,711


Research and Development

Research and development costs are expensed as they are incurred.

Patent Cost

All costs incurred in prosecuting and enforcing patents are expensed.

Net Income (Loss) Per Share

Basic earnings per share is measured as the income or loss available to common stockholders divided by the weighted average outstanding common shares for the
period. Diluted earnings per share is similar to basic earnings per share but presents the dilutive effect on a per share basis of potential common shares (e.g. stock options, warrants and convertible
securities) as if they had been converted at the beginning of the periods presented. Potential common shares that have an antidilutive effect are excluded from diluted earnings per share. Net loss per
common share is computed using the weighted average number of shares of common stock outstanding. Potential common shares from stock options, warrants and convertible securities have been excluded
from the computation of diluted earnings per

F-10

---

share
for net losses in 2002 and 2001 as their effect is antidilutive. The following is a reconciliation of the shares (denominator) of the basic and diluted per share computations:

2003

2002

2001Basic weighted average common shares outstanding

30,801

29,606

27,585Effect of dilutive securities:Employee stock options

154

1,647

Warrants



15

Diluted weighted average common shares outstanding for 2003 and for income from discontinued operations in 2002

30,955

31,268

27,585


Securities
that could potentially dilute basic earnings per share that were not included in the computation of diluted earnings per share because to do so would be antidilutive, amounted
to 7,363,619, 6,181,800 and 5,154,714 at December 31, 2003, 2002 and 2001, respectively. For 2003 and 2001, the same number of potentially dilutive securities were excluded for computation of
diluted earnings per share from discontinued operations. Potentially dilutive securities excluded for computation of diluted earnings per share from discontinued operations in 2002 amounted to
4,519,979.

Use of Estimates

In preparing financial statements in conformity with generally accepted accounting principles the Company uses estimates and assumptions. Actual results could
vary from these estimates.

Recent Accounting Pronouncements

In December 2002, the FASB issued Statement of Financial Accounting Standards No.148 ("SFAS 148"), Accounting for Stock-Based
CompensationTransition and Disclosure. SFAS 148 amends SFAS 123 to provide three alternative methods of transition to SFAS 123's fair value method of accounting for
stock-based employee compensation for companies that elect to adopt the provisions of SFAS 123. Transition to SFAS 123 is not required by SFAS 148. The Company has elected to use
the intrinsic value method of accounting for stock compensation for options granted to employees and directors in accordance with APB 25.

SFAS 148
also amends the disclosure provisions of SFAS 123 and Accounting Principles Board Opinion No. 28 ("APB 28"), Interim Financial Reporting, to require
disclosure in the summary of significant accounting policies of the effects of an entity's accounting policy with respect to stock based compensation on reported net income and earnings per share in
annual and interim financial statements. The disclosure provisions of SFAS 148 are required to be adopted by all companies with stock-based employee compensation, regardless of whether they
account for that compensation using the fair value method of SFAS 123 or the intrinsic value method of APB 25. The disclosure provisions of SFAS 148, effective for fiscal years
ending after December 15, 2002, have been adopted by the Company, with the appropriate disclosures under Note 7, Common Stock Warrants and Options.

In
June 2002, the FASB issued Statement of Financial Accounting Standards No. 146 ("SFAS 146"), Accounting for Costs Associated with Exit or Disposal Activities.
SFAS 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force Issue No. 94-3 ("EITF
94-3"), Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including certain costs incurred in a restructuring). SFAS 146 requires
recognition of a liability for a cost associated with an exit or disposal activity when the liability is incurred as opposed to when the entity commits to an exit plan under EITF 94-3.
SFAS 146 is effective for exit or disposal activities initiated after December 31, 2002 and the

F-11

---

Company
recognized such costs in connection with involuntary terminations and the termination of a lease.

Reclassifications

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

Note 2. Discontinued Operations

Sale of Paclitaxel Business

On December 12, 2003, the Company sold its worldwide generic injectable paclitaxel business to Mayne Pharma for $71.7 million in cash minus an
inventory adjustment of $4.6 million to reflect the Company's actual inventory as of the closing. The sale resulted in a gain of $54.6 million before taxes (net of $183,000 tax provision
relating to utilization of net operating losses created by stock option exercises), and $54.1 million after taxes. The paclitaxel business has been reported as a discontinued operation in the
current year, and results from prior years have been reclassified to reflect this on a comparative basis. Summary results of the paclitaxel business's operations were (in thousands):

2003

2002

2001Product sales

$
25,532

$
34,193

$
15,711Net income (loss)

$
6,442

$
11,502

$
(10,844
)


As
part of the sale, Mayne Pharma assumed certain future obligations associated with the paclitaxel business. Proceeds from the sale will be used to fund the development and
commercialization of products based on NaPro's proprietary oncology and gene editing platforms and for general corporate purposes. In addition, approximately $21.9 million of the proceeds of
the purchase price was paid to Abbott Laboratories ("Abbott") to retire all outstanding debt, interest and payables the Company owed to Abbott. The assets sold to Mayne Pharma included paclitaxel
manufacturing assets, yew plantations, domestic and international issued and pending paclitaxel patents, a worldwide registration dossier, worldwide development and supply agreements, inventories and
settlement of accounts receivable. The Company retained all of its intellectual property not used in connection with the business sold. The Company also retained certain liabilities related to its
ongoing business, including those relating to its employees and stockholders, its retained contracts, license agreements unrelated to the paclitaxel business and certain leases and purchase orders. In
addition, the Company retained other liabilities related to its manufacturing and sale of paclitaxel which arose prior to the closing of the asset sale. Upon the closing of the asset sale, the Company
exited the generic paclitaxel business, the development agreements with Abbott and Mayne Pharma affiliates were terminated and the Company transferred its other generic paclitaxel marketing agreements
to Mayne Pharma.

Assets
held for sale, at December 31, 2002, which relate to the discontinued operations of the paclitaxel business were as follows (in thousands):

Accounts receivable

$
9,340Inventory


13,152Property, plant and equipment, net


10,971Assets held for sale

$
33,463


In
a related transaction, Mayne Pharma and Abbott entered into a separate purchase agreement pursuant to which Abbott sold to Mayne Pharma, among other things, certain assets and rights,
and Mayne Pharma assumed from Abbott certain liabilities, associated with a development, license and

F-12

---

supply
agreement between the Company and Abbott. In addition, Abbott sold its holdings of 2,000,000 shares of our common stock to Mayne Pharma. These sales by Abbott to Mayne Pharma were consummated
on September 30, 2003.

The
Company vested certain of its paclitaxel manufacturing employees in a previously awarded retention bonus consisting of restricted stock grants, totaling 60,689 shares of the
Company's common stock, valued at $68,000 plus related taxes of $22,000 paid by the Company.

In
connection with the sale of the paclitaxel business, NaPro's Board of Directors granted a total of 1,250,000 stock options to officers of the Company and certain consultants under the
1994 Stock Option Plan at an exercise price of $1.55 per share. Consultants received a total of 90,000 of these stock options. The options vest no later than September 2, 2008. The options may
vest earlier if the Company's closing stock price, on a rolling 20-day average, exceeds $1.55. If the rolling 20-day average closing stock price exceeds $1.55 by 30%, then
16.67% of the options vest. Likewise, if the 20-day rolling average closing stock price exceeds $1.55 by 60%, 90%, 120% and 200%, then in each case an additional 16.67% of the options
vest. The Company accounted for this transaction in accordance with APB 25 for employees and in accordance with SFAS 123 for consultants. (see Note 7).

In
2001, the Company recorded a $1.0 million writedown of paclitaxel related production equipment in the Boulder extraction facility related to operations that were transferred to
a lower cost third party vendor. The Company also expensed $900,000 related to preliminary engineering and design cost of a
paclitaxel production facility that was cancelled. This has been included in the loss from discontinued operations in 2001.

In
September 2003, in connection with the termination of a lease for one of the Company's facilities, the Company sold and disposed of paclitaxel related plant and equipment with
a net book value of $1.2 million. The Company realized proceeds from the sale of certain of these assets of $168,000. This has been included in the loss from discontinued operations in 2003.

Gene Isolation and Service Business

In December 2003, the Company made a decision to sell its gene isolation and service business, which was acquired in December 2002 as part of the
acquisition of patents and intellectual property from Pangene Corporation (see Note 12), and has been accounted for as a discontinued operation. Net operating loss related to this business
totaled $492,000 during 2003 and is included in discontinued operations.

Assets
held for sale, at December 31, 2003, which relate to the discontinued operations of the gene isolation business were as follows (in thousands):

Property, plant and equipment, net

$
122Other assets


83Assets held for sale

$
205


Note 3. Property, Plant and Equipment

In connection with the sale of the paclitaxel business, property, plant and equipment with a net book value at December 12, 2003 of $7.8 million was
sold to Mayne Pharma (see Note 2). Land, valued at $718,000, had been purchased and held for future expansion of our paclitaxel manufacturing facilities. With the sale of that business land has
been reclassified to other assets in 2003 and 2002.

F-13

---

Property
and equipment consists of the following as of December 31, (in thousands):

2003

2002Furniture, fixtures and office equipment

$
528

$
691Laboratory equipment


754


2,366Leasehold improvements


38


154Construction in progress


391


41,711


3,215Less accumulated depreciation and amortization


(555
)

(1,173
)Property, plant and equipment, net

$
1,156

$
2,042


Note 4. Notes Payable

Notes payable consists of the following as of December 31 (in thousands):

2003

2002Note payable, due in May 2004, interest at 6.5%, interest payable quarterly, net of unamortized issuance costs of $159,000 at December 31, 2002

$


$
19,841Other


122


122122


19,963Less current portion


81


102Notes payablelong term

$
41

$
19,861


The
Company repaid the $20.0 million note payable to Abbott with proceeds from the sale of the paclitaxel business on December 12, 2003. Notes payable have the following
minimum future payments (in thousands):

2004

$
812005


41Total

$
122


For
the years ended December 31, 2003, 2002, and 2001, interest paid in cash was $1,576,000, $1,651,000, and $1,051,000, respectively.

Note 5. Convertible Debentures

In February 2002, the Company sold privately $8.0 million principal of five-year 4% debentures convertible into common stock at $15 per
share to TL Ventures V, L.P. and one of its affiliated funds. No placement agent was involved in the transaction. The net proceeds were $7.8 million. As part of this transaction, NaPro recorded
a discount attributable to the fair value of the conversion feature of the convertible debentures in the amount of $3.1 million, which is being amortized over the term of the debentures. During
the first quarter of 2002, the Company filed a registration statement with the Securities and Exchange Commission to register the common stock issuable upon conversion of the debentures and common
stock issuable in lieu of cash interest on the debentures under the Securities Act of 1933. In July 2002, the registration statement was declared effective by the SEC. The Company may pay the
debenture interest in cash or common stock at its option. In 2002, the Company paid the interest in stock. In 2003, the Company paid the interest in cash. The debentures automatically convert into
common stock if the average price for 30 trading days exceeds $16. If NaPro has insufficient funds

F-14

---

to
repay the debentures in full at maturity or upon acceleration, the holders of the debentures may elect to convert the outstanding principal balance and any unpaid accrued interest on the debentures
into shares of common stock at a conversion price equal to the then current 20 day average trading price of the common stock.

TL
Ventures Funds advised the Company that it believes that the completion of the sale of the paclitaxel business to Mayne Pharma will entitle it to have its $8.0 million of
Company subordinated debentures redeemed. The Company disputed this position and engaged in discussions with TL
Ventures Funds regarding this matter. On September 8, 2003, TL Ventures Funds reasserted its position and informed NaPro that, if NaPro could not resolve this issue promptly, it intended to
pursue legal remedies. On September 11, 2003, NaPro filed a complaint in Boulder County, Colorado in a case captionedNaPro BioTherapeutics, Inc. v. TL Ventures V
L.P. and TL Ventures V Interfund L.P., Case No. 2003-CV-1812, District Court, Boulder County, Colorado. NaPro served TL Ventures with the
complaint on October 1, 2003. In the complaint, NaPro seeks a declaratory judgment from the court that the asset sale to Mayne Pharma will not permit TL Ventures to have its subordinated
debentures redeemed. TL Ventures has filed a motion to dismiss the suit in a case captionedTL Ventures V L.P. and TL Ventures V Interfund L.P. v. NaPro
BioTherapeutics, Inc., Case No. 110-N, Delaware Court of Chancery, alleging that TL Ventures is entitled to redeem its 4% convertible subordinated
debentures. One of the Company's former directors, Marc Ostro, is also a general partner in certain TL Ventures Funds. Effective March 11, 2004, Dr. Ostro resigned from NaPro's Board of
Directors.

Note 6. Stockholders' Equity

Stockholder Rights Plan

In November 1996, the Company 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 common stock. The Stockholder Rights Plan was amended and restated in September 2001. The
objective of the Stockholder 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 us to negotiate with our Board of Directors. The adoption of the Stockholder Rights Plan was not in response to any hostile takeover proposal.

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 our stock without approval of our Board of Directors, our 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.

The
Company 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.

Private Placements

In February 2002, the Company sold privately $8.0 million of common stock issued at $9 per share to TL Ventures V, L.P. and one of its affiliated
funds. No placement agent was involved in the transaction. The net proceeds were $7.8 million. See Note 5 for information concerning the convertible debentures.

F-15

---

During
2003, the Company issued 76,725 shares of common stock to the University of Delaware, 11,400 shares of common stock to Thomas Jefferson University and 11,875 shares of common
stock to The Samuel Robert Noble Foundation, Inc., all in connection with a 20-year gene editing technology license. The shares were issued in reliance upon the exemption provided
by Section 4(2) of the Securities Act of 1933, as amended, and Regulation D thereunder. The license requires the Company to provide for research and patent funding commitments and
payments in common stock. To date, NaPro has issued 301,200 shares of common stock under the license agreement to the University of Delaware, 51,300 shares to Thomas Jefferson University and 47,500
shares to The Samuel Roberts Noble Foundation, Inc., each of which has an ownership interest in the licensed intellectual property. Assuming NaPro does not cancel the license, NaPro will issue
an additional 800,000 shares in 100,000 share-per-year increments on the license anniversaries and/or in 200,000 share increments upon the achievement of certain milestone
events. NaPro may, at its option, accelerate the issuance dates. The license can be terminated at NaPro's option. If terminated, no further shares would be issued.

In
October 2003, NaPro issued 45,046 restricted shares, valued at $45,000, to a vendor for services provided. As an issuance to a sophisticated investor not involving any public
offering, this sale was exempt from registration under Section 4(2) of the Securities Act.

Authorized Shares

During the Annual Meeting of Stockholders in July 2002, the stockholders approved amendments to the Company's Amended and Restated Certificate of
Incorporation, which increased the total number of authorized shares from 45.0 million to 66.0 million, which included 2.0 million shares of preferred stock,
as well as removing references to non-voting common stock from the Certificate of Incorporation. All of the Company's previously issued non-voting common stock was converted
into common stock during 2001.

In
August 2003, the Company filed an effective shelf registration statement, with the SEC, covering the issuance of up to 6.5 million shares of its common stock and
1.0 million shares of its preferred stock. This registration statement is intended to give NaPro the flexibility to take advantage of financing opportunities from time to time when market
conditions are favorable. NaPro may sell the stock covered by this registration statement in one or more transactions at prices and in a manner it determines from time to time.

On
February 12, 2004, the Company filed an effective registration statement with the Securities and Exchange Commission covering the issuance of up to 500,000 shares of NaPro
common stock upon the conversion of the 4% convertible subordinated debentures and in the event the Company elects to pay interest on the convertible subordinated debentures in shares of NaPro common
stock, in lieu of cash (see Note 5).

Stock Options and Warrants

The Company reserved 6,984,458 unissued, authorized shares of common stock as of December 31, 2003 for future issuance of common stock options and
warrants.

F-16

---

Note 7. Common Stock Options and Warrants

The following summarizes warrant activity:

Warrants

Exercise
Price

Expiration
DatesOutstanding at December 31, 20001

457,034

$1.50  $8.75

2001  2003Exercised

(327,700
)
1.50   1.88

2001  2003Outstanding at December 31, 2001

129,334

1.88   8.75

2002  2003Expirations

(13,334
)
1.88

2002Exercised

(5,000
)
1.88

2003Outstanding at December 31, 2002

111,000

1.88   8.75

2003Expirations

(111,000
)
1.88   8.75

2003Outstanding at December 31, 2003



$


In
2001, there was a cashless exercise of 112,375 warrants resulting in the issuance of 96,913 shares.

Non-plan Stock Options

In January 1994, the Company granted to four outside directors 27,000 non-plan options to purchase shares of common stock which were
immediately exercisable at a price of $2.40 and which expired in January 2004. As a result of option exercises, 16,000 of these options remained outstanding as of December 31, 2003. In
September 1997, The Company granted to its employees 20,075 non-plan options to purchase shares of common stock which vested over two years and which expire in
September 2007. As of December 31, 2003, 750 of these options remained outstanding.

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 provided for option grants designated as either nonqualified or incentive stock options. The Plan provided for the issuance of up to
146,667 shares of common stock. The term of the Plan was ten years, which expired in September 2003, and the maximum option exercise period was no more than ten years from the
date of grant. The term of options for 667 or more shares was eight years, and the term of options for fewer than 667 shares was 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 was equal to the
fair market value of the Company's common stock on the date of grant.

1994 Long-Term Performance Incentive Plan

The Company has a 1994 Long-Term Performance Incentive Plan (the "1994 Plan") which was approved by stockholders in July 1994. The 1994 Plan
initially authorized 375,000 shares for issuance. Stockholders subsequently approved increases in the number of authorized shares. There are currently 6,600,000 shares authorized for issuance under
the 1994 Plan. The 1994 Plan provides for granting to employees and other key individuals who perform services for the Company the following types of incentive awards: stock options, stock
appreciation rights, restricted stock, performance grants and other types of awards that the Compensation Committee deems to be consistent with the purposes of the 1994 Plan. In addition, each person
who is not an employee and (i) who is elected or re-elected as a director by the stockholders at any annual meeting of stockholders, (ii) who continues as a director
following an annual meeting of stockholders at which such director is not subject to re-election or

F-17

---

(iii) is
appointed as a director in accordance with Company bylaws following 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 non-qualified option to purchase 10,000 shares of common stock. The 1994 Plan also provides for annual automatic grants of options to purchase 10,000
shares to the chairs of the Board of Directors' Audit, Compensation, Nominating and Corporate Governance Committee, and Research and Development committees. The 1994 Plan provides for an automatic
grant of non-qualified stock options to purchase 7,500 shares of common stock to members of the Research and Development committee upon their initial appointment to the committee, and an
automatic grant of non-qualified stock options to purchase 3,000 shares of common stock to a Research and Development committee member who continues to serve on the committee after an
annual meeting of stockholders.

The 1998 Stock Incentive Plan

In 1998, the Board of Directors adopted the 1998 Stock Incentive Plan (formerly known as the "1998 Stock Option Plan") (the "1998 Plan") to provide awards of
stock options, stock appreciation rights, restricted stock, performance grants, or any other type of award deemed by the Board of Directors or its designated committee to employees and other
individuals who perform services for the Company. The 1998 Plan provides for option grants designated as nonqualified stock options or incentive stock options. Originally, 125,000 shares were
authorized for issuance under the 1998 Plan. In 1999, 2000, 2001 and 2002 the Board of Directors approved increases in the number of authorized shares. There are currently 1,925,000 shares authorized
for issuance under the 1998 Plan. Under the terms of the 1998 Plan, stock options cannot be granted to persons who are NaPro officers subject to Section 16 of the Securities Exchange Act of
1934, as amended, (unless granted to officers not previously employed by NaPro, as an inducement essential to such officers entering into employment contracts with the Company) or to NaPro directors.
Options granted under the 1998 Plan typically vest 25% after each anniversary date of the grant, and expire ten years from the date of grant. The exercise price for stock
options issued under the 1998 Plan is equal to the fair market value of the Company's common stock on the date of grant.

The
following summarizes stock option activity and balances:

|                       |                        | Non Plan |         | 93 Plan |         | 94 Plan   |           | 98 Plan   |           | Total    
|---------------------- | ---------------------- | -------- | ------- | ------- | ------- | --------- | --------- | --------- | --------- | ---------
|Authorized             |                        | 212,235  |         | 146,667 |         | 6,600,000 |           | 1,925,000 |           | 8,883,902
|Less:                  |                        |          |         |         |         |           |           |           |           |          
|                       | Exercised              |          | 195,085 |         | 133,232 |           | 428,774   |           | 102,344   |          
|                       | Expired                |          |        |         | 13,435  |           |          |           |          |          
|                       | Stock grants           |          | 400     |         |        |           | 174,956   |           | 222,793   |          
|                       | Issued and unexercised |          | 16,750  |         |        |           | 5,511,816 |           | 1,455,892 |          
|                       |                        |          |         |         |         |           |           |           |           |          
|Available to be issued |                        |         |         |        |         | 484,454   |           | 143,971   |           | 628,425  
|                       |                        |          |         |         |         |           |           |           |           |          

F-18

---

Stock
Options

Exercise
Price

Weighted
Average
Exercise
PriceOutstanding at December 31, 2000

3,553,735

$
0.75  $10.13

$
3.35Granted

1,876,050


2.25  11.25


8.18Forfeited

(56,587
)

1.00   8.94


3.76Expired

(530
)

1.72   1.81


1.77Exercised

(347,288
)

0.75   8.00


2.86Outstanding at December 31, 2001

5,025,380


1.00  11.25


5.18Granted

765,300


0.72  12.10


4.85Forfeited

(139,897
)

1.00  12.10


5.58Expired

(16,668
)

2.40   6.00


4.56Exercised

(96,648
)

1.00   3.65


6.37Outstanding at December 31, 2002

5,537,467


0.72  12.10


5.17Granted

1,651,000


0.31   2.15


1.50Forfeited

(199,584
)

1.00  12.10


5.33Exercised

(4,425
)

1.00


1.00Outstanding at December 31, 2003

6,984,458

$
0.31  $11.75

$
4.26


The
weighted-average fair value of options granted during 2003, 2002 and 2001 was $1.30, $3.80, and $6.49, respectively.

|                |  | Outstanding Options |  |      |  |  
|--------------- |  | ------------------- |  | ---- |  | -
|
|
|
|$0.31  $  1.54 |  | 719,400             |  | 6.29 |  | $
|$1.55  $  1.95 |  | 2,095,255           |  | 7.87 |  | $
|$1.98  $  3.09 |  | 1,288,855           |  | 6.23 |  | $
|$3.25  $  6.50 |  | 466,774             |  | 7.36 |  | $
|$6.61  $  7.88 |  | 1,282,477           |  | 7.10 |  | $
|$8.00  $11.75  |  | 1,131,697           |  | 7.54 |  | $
|                |  |                     |  |      |  |  
|$0.31  $11.75  |  | 6,984,458           |  | 7.18 |  | $
|                |  |                     |  |      |  |  

In
November 2003, certain manufacturing employees who were part of the paclitaxel business sold to Mayne Pharma had their option expiration dates extended as a retention
incentive. The non-cash expense of this change in the terms of the options was $55,000.

Note 8. Retirement Plans

The Company sponsors a defined contribution retirement plan ("the Plan") for all eligible employees that allows participants to make contributions by salary
deduction pursuant to Section 401(k) of the Internal Revenue Code. The Company may make discretionary contributions to the Plan on behalf of the participants in the form of cash or in
shares of common stock. No contributions were made in 2003 or 2002. In 2001, the Company matched the first $2,000 in contributions of each participating employee with common stock, at a rate of 262%
totaling 25,263 shares of common stock to the Plan, valued at $240,000. In January 2003, the Board approved transferring NaPro common stock held in the Plan to the Employee Stock Ownership Plan
("ESOP").

F-19

---

The
Company adopted an ESOP for its employees, in accordance with the Internal Revenue Code. Under this plan, employees over the age of 17 are eligible to participate 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 make no
contributions to the ESOP. The Company contributes common stock to the ESOP which is allocated to all eligible employees based on their allowable pay. For 2003, 2002 and 2001 the Company contributed
750,000, 200,000, and 126,316 shares to the ESOP, valued at $435,000, $1.9 million, and $1.2 million, respectively. All shares held by the ESOP are treated as outstanding in computing
earnings per share.

As
a result of a series of restructurings occurring since July 2002, there have been partial plan terminations in both the Company's 401(k) and ESOP plans. Under a partial
plan termination, an employee whose employment was involuntarily terminated or notified that his/her employment would
be involuntarily terminated and left the Company voluntarily after receiving such notification was a qualifying employee and retroactively 100% vested in any previously issued Company contributions to
the 401(k) and ESOP plans. Any shares previously forfeited by such qualifying employees were returned to those employees. The Company did not have to issue any additional shares to either the
401(k) or the ESOP as a result of the partial plan termination and it had no effect on the Company's financial position or results of operations.

Note 9. Income Taxes

As of December 31, 2003, the Company had the following net operating loss carryforwards and research and development credits to offset future taxable
income in the U.S. (in thousands):

Expiring December 31,

Net
Operating
Losses

Research and
Development
Credits2007

$


$
522008





542009





382010





152011





492012


11,092


1412018





2052019


8,445


2302020


15,899


3402021


19,781


4492022


8,714


5652023





433$
63,931

$
2,571


The
Tax Reform Act of 1986 contains provisions that limit the utilization of net operating loss and tax credit carryforwards if there has been a "change of ownership" as described in
Section 382 of the Internal Revenue Code. Such a change of ownership may limit the utilization of the Company's net operating loss and tax credit carryforwards, and could be triggered by sales
of securities by NaPro or its stockholders.

Of
the $63,931,000 of net operating losses listed above, $3,631,000 resulted from the exercise of stock options and, as a result, the tax effect of utilizing that portion of the net
operating losses would be credited directly to stockholders' equity.

F-20

---

Significant
components of our deferred tax assets are as follows (in thousands):

Year Ended December 31,2003

2002Deferred tax assets:Tax net operating loss carryforward

$
23,974

$
32,770Deferred revenue





1,878Research and development credits


2,570


1,801Depreciation


(66
)

1,673Alternative minimum tax credit carryforward


462


Other


29


293Total deferred tax assets


26,969


38,415Valuation allowance


(26,969
)

(38,415
)Net deferred tax assets

$


$



Variations
from the federal statutory rate are as follows:

Year Ended December 31,2003

2002

2001Federal statutory income tax rate

35.00
%
35.00
%
35.00
%Effect of permanent differences

0.06

0.12

0.13State income tax rate net of federal benefit

3.07

3.07

3.07Effect of foreign operations

(3.58
)
0.75

1.09Valuation allowance

(34.55
)
(38.94
)
(39.29
)Effective income tax rate for continuing operations

0.00
%
0.00
%
0.00
%


Year Ended December 31,2003

2002

2001Federal statutory income tax rate

35.00
%
35.00
%
35.00
%Net operating loss carryforward utilized

(13.32
)


Alternative minimum tax

0.76



Valuation allowance

(21.38
)
(35.00
)
(35.00
)Effective income tax rate for discontinued operations

1.06
%
0.00
%
0.00
%


The
limitation of utilizing net operating loss carryforwards to offset current year taxable income under the alternative minimum tax provisions of the Internal Revenue Code has created a
current tax expense of $462,000. The utilization of $471,000 of net operating losses arising from the expensing of stock options for tax purposes has created a deferred tax expense of $183,000 that
has been credited directly to stockholders equity. Both of these items relate to discontinued operations. There is no income tax expense from continuing operations.

Note 10. Restructuring Plan

In July 2002, NaPro initiated a company-wide restructuring plan involving a reduction of full-time staff by 30 employees, as well
as the elimination of other operating expenses. Included in this reduction were 16 employees in manufacturing, 10 employees in research and development and 4 employees in general and administrative
positions. The annual payroll cost savings was approximately $1.5 million. During the third quarter of 2002, the Company incurred restructuring charges of approximately $199,000, which were
paid by December 31, 2002.

F-21

---

During
2003 the Company incurred severance costs of $483,000 associated with the termination of the employment of three executive officers and $158,000, resulting from the involuntary
termination of 11 employees in manufacturing, 4 employees in research and development and 5 employees in general and administrative positions.

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

The
sale of the Company's Analytical Services group, as discussed in Note 11, was also part of the Company's restructuring plan.

Note 11. Sale of Analytical Services Group

In April 2003, the Company sold its technical and analytical services group to privately held ChromaDex, Inc. in exchange for approximately 15%, on
a fully diluted basis, of the then outstanding common stock of ChromaDex, Inc. Ten Company employees transferred to ChromaDex in April as part of this transaction. In exchange for the
common stock received, the Company sold property and equipment valued at approximately $1.0 million, as well as provided rents and other subsidies of $468,000, which included a payment of
$300,000 in cash at the closing. ChromaDex assumed the lease for NaPro's research facility in Boulder, Colorado as part of this transaction, however, the Company subleases a portion of this space from
ChromaDex. ChromaDex is a supplier of phytochemical reference standards for the nutraceutical, dietary supplement and functional food industries

Note 12. Acquisition

In December 2002, NaPro acquired the genomics business of Pangene Corporation for $1.3 million in cash and assumption of debt obligations totaling
approximately $65,000. The acquisition consisted primarily of patents and intellectual property relating to Pangene's homologous recombination technology and gene isolation and service business,
physical assets, instrumentation, software, customer relationships and third-party licenses. The purchase price was allocated to intangible assets totaling $987,000, fixed assets and software of
$183,000, and other current assets of $44,000. In process research and development of $151,000 was expensed at the time of the acquisition. The Company will amortize intangible assets over 5 to
15 years, and fixed assets and software over 3 years. In connection with this agreement, the Company acquired additional patents in January 2003 in the amount of $400,000. In
December 2003, the Company made a decision to sell the gene isolation and service component of this acquisition and accounted for it as a discontinued operation (see Note 2). In
connection with the decision to sell the gene isolation business, equipment and software with a net book value of $122,000 and intangible assets, consisting of customer relationships, with a net book
value of $83,000 are considered held for sale at December 31, 2003. The remaining assets acquired by the Company are still being used in its ongoing operations.

Note 13. Strategic Alliances

Gene Editing Technology License

In November 2000, the Company entered into a 20-year gene editing technology license, with the University of Delaware and Thomas Jefferson
University, relating to the use of proprietary oligonucleotides (DNA fragments) designed to precisely alter genes in humans, animals, plants, viruses and microbes. The license provides for research
and patent funding commitments and payments in common stock. To date, the Company has issued 301,200 shares of common stock under the license to the University of Delaware, 51,300 shares to Thomas
Jefferson University and 47,500 shares to The Samuel Roberts Noble Foundation, Inc., each of which has an ownership interest in the licensed intellectual property. Assuming the Company does not
cancel the license, it will issue an additional

F-22

---

800,000
shares in 100,000 share-per-year increments on the license anniversaries and/or in 200,000 share increments upon the achievement of certain milestone events. The
Company may, at its option, accelerate the issuance dates. The license is terminable at NaPro's option. If terminated, no further shares would be issued. NaPro has committed to fund at least $300,000
in research under this agreement during 2004. Unless the Company terminates the license, the Company is also committed to funding at least $300,000 in research at the University Delaware during 2005
and 2006 as well.

In
connection with the sale of the Company's paclitaxel business, the Company's strategic alliances relating to its generic paclitaxel marketing relationships were transferred to Mayne
Pharma (see Note 2). The strategic alliances transferred were with Abbott Laboratories, Mayne Pharma, Tzamal Pharma, and JCR Pharmaceuticals Co., Ltd and are summarized below.

Abbott Laboratories Agreement

In July 1999, the Company entered into a collaborative agreement of up to 20 years with Abbott to develop and commercialize one or more formulations
of paclitaxel for the treatment of a variety of cancers. The exclusive agreement covered the U.S. and Canada. Under the agreement with Abbott, NaPro was responsible for supply of bulk drug;
development activity was conducted jointly. Abbott was responsible for finishing, regulatory filings, marketing and sale of the finished drug product. Most primary decisions related to the development
program were made by a joint Abbott-NaPro
Development Committee. In March 2001, NaPro and Abbott filed an Abbreviated New Drug Application, or ANDA, with the U.S. Food and Drug Administration ("FDA") for paclitaxel. The FDA granted
approval of this ANDA on May 8, 2002. The Company received an approval for a second ANDA on August 1, 2002, which provided for greater manufacturing flexibility for the generic
paclitaxel product.

Excluding
product sales, the Company received $40.0 million under the agreement, including $11.0 million in equity investments in exchange for 2.0 million shares of
our common stock, $9.0 million in cash for achieving development milestones, and $20.0 million in secured debt. In connection with the sale of the paclitaxel business, Mayne Pharma
acquired NaPro's marketing agreement with Abbott; Mayne Pharma acquired the 2.0 million shares of NaPro common stock from Abbott; and, NaPro used proceeds from the sale of the paclitaxel
business to retire the $20.0 million of secured debt owed to Abbott.

Mayne Pharma Agreement

In 1992, the Company entered into a 20-year exclusive agreement with F.H. Faulding & Co., Ltd. ("Faulding"), a large Australian
pharmaceutical company for the clinical development, sale, marketing and distribution of paclitaxel. In October 2001, Faulding was acquired by Mayne Nickless Limited, an Australian based health
care provider and logistics operator. In a separate agreement for Europe, dated March 2001, NaPro was responsible for regulatory filings and supplied paclitaxel exclusively to Mayne Pharma to
formulate and finish the product. NaPro shared equally the net sales of the product in Europe. Under the agreement, Mayne Pharma paid an up-front licensing fee to NaPro of
$7.5 million. NaPro deferred the $7.5 million, $5.5 million of which was being amortized 80% over the first five years to license fee income and the remaining 20% over the
remaining seven years of the license. The remaining deferred balance of $5.1 million at December 12, 2003 was recognized as part of the gain from the sale of the paclitaxel
business.

Tzamal Pharma Agreement

In January 2001, the Company received approval to sell paclitaxel in Israel. NaPro established an exclusive supply and distribution agreement with Tzamal
Pharma for the development and distribution

F-23

---

of
paclitaxel in Israel under the trade name Biotax. Mayne Pharma acquired this agreement in connection with the sale of the paclitaxel business in December 2003.

JCR Pharmaceuticals Co., Ltd. Agreement

In June 2001, NaPro and JCR Pharmaceuticals Co., Ltd. ("JCR") entered into a mutually exclusive development, supply and distribution agreement for
paclitaxel in Japan. JCR paid an up-front licensing fee to NaPro of $1.5 million. NaPro deferred the $1.5 million, which was being amortized 80% over the first
five years to license fee income and the remaining 20% over the remaining thirteen and one-half years of the license. The remaining deferred balance of $900,000 at
December 12, 2003 was recognized as part of the gain from the sale of the paclitaxel business. This agreement was transferred to Mayne Pharma in connection with the sale of the paclitaxel
business in December 2003.

Note 14. Commitments and Contingencies

Operating Leases

The Company has executed noncancellable operating lease agreements for office, research and production facilities, equipment and for plantations. As of
December 31, 2003, future minimum lease payments under noncancellable operating lease agreements are as follows (in thousands):

2004

$
5742005


4782006


4802007


3262008


212Thereafter


8Total

$
2,078


NaPro
has renewal clauses in some of these leases which range from one to ten years. Rent expense for the years ended December 31, 2003, 2002, and 2001 was $1,737,000,
$1,528,000, and $981,000, respectively.

Note 15. Research and Development

The Company has incurred the following expense on research and development projects for the years ended December 31, (in thousands):

2003

2002

2001Oncology

$
6,479

$
10,615

$
10,966Genomics


4,310


5,263


2,442Total

$
10,789

$
15,878

$
13,408


Of
the $6.5 million spent on oncology research and development during 2003, approximately $900,000 related to the paclitaxel business, which was sold, and is included in
discontinued operations. Similarly,
for the years ended December 31, 2002 and 2001, the amount of research and development expenditures related to the paclitaxel business and included in discontinued operations were
$5.7 million and $4.9 million, respectively.

Following
the sale of the paclitaxel business, research and development is the Company's primary activity. NaPro's research and development activity is subject to change as it develops a
better understanding of the feasibility of its projects. The Company expects to concentrate on the development of novel anti-cancer agents, and the development of novel genomic
technologies, primarily

F-24

---

in
the area of gene editing, for applications in human therapeutics and diagnostics. The Company anticipates beginning clinical trials with two of its oncology products during 2004. If the Company
continues the programs, it expects beginning Huntington's disease Phase I clinical trials during 2005. However, there can be no assurance that the Company will be able to achieve the timing of these
programs. The Company also cannot estimate the cost of the effort necessary to complete the programs or the timing of commencement of material net cash inflows from these programs.

Note 16. Related Party Transactions

One of the Company's former directors, Marc Ostro, is a managing director of an affiliate of the investment manager of the TL Venture Funds, and a voting limited
partner in the TL Venture Funds, which purchased $8.0 million of common stock and $8.0 million principal of five-year 4% debentures convertible into common stock (see Notes 5
and 6). Effective March 11, 2004, Dr. Ostro resigned from NaPro's Board of Directors.

Note 17. Quarterly Data (unaudited)

The Company sold its generic paclitaxel business on December 12, 2003 and discontinued its gene isolation and service business in December 2003. As
a result, sales and cost of sales are included in discontinued operations in the Consolidated Statements of Operations (see Note 2).

|Years Ended
December 31,                  |  | First
Quarter |        | Second
Quarter |   | Third
Quarter |   | Fourth
Quarter |        | Total |  
|----------------------------------------- |  | ------------- | ------ | -------------- | - | ------------- | - | -------------- | ------ | ----- | -
|
|2003                                      |  |               |        |                |   |               |   |                |        |       |  
|Product sales                             |  | $             | 6,888  |                | $ | 7,561         |   | $              | 7,301  |       | $
|Cost of sales                             |  |               | 3,334  |                |   | 4,107         |   |                | 6,535  |       |  
|Net income (loss)                         |  |               | (2,750 | )              |   | (2,130        | ) |                | (6,063 | )     |  
|Basic income (loss) per share             |  |               | (0.09  | )              |   | (0.07         | ) |                | (0.20  | )     |  
|Diluted income (loss) per share           |  |               | (0.09  | )              |   | (0.07         | ) |                | (0.20  | )     |  
|2002                                      |  |               |        |                |   |               |   |                |        |       |  
|Product sales                             |  | $             | 6,736  |                | $ | 9,490         |   | $              | 8,320  |       | $
|Cost of sales                             |  |               | 7,100  |                |   | 7,029         |   |                | 5,551  |       |  
|Net income (loss)                         |  |               | (6,663 | )              |   | 3,055         |   |                | (3,944 | )     |  
|Basic and diluted income (loss) per share |  |               | (0.23  | )              |   | 0.10          |   |                | (0.13  | )     |  

F-25

---