10-K

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                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, DC 20549

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

                                   FORM 10-K

(Mark One)

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934

                  For the fiscal year ended December 31, 2001

                                      OR

[_] 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 0-11749

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

                                  SCIOS INC.
            (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

                                                            
                           DELAWARE                                         95-3701481
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)

                    820 WEST MAUDE AVENUE
                    SUNNYVALE, CALIFORNIA                                     94085
           (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)                         (ZIP CODE)



      Registrant's telephone number, including area code: (408) 616-8200

       Securities registered pursuant to Section 12(b) of the Act: NONE
          Securities registered pursuant to Section 12(g) of the Act:
                        Common Stock, $0.001 par value

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 [X]    NO [_]

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. [_]

The approximate aggregate market value of voting stock held by nonaffiliates of
the registrant as of December 31, 2001 was $1,093,780,520.

As of December 31, 2001, 46,015,167 shares of the registrant's Common Stock
were outstanding.

                      DOCUMENTS INCORPORATED BY REFERENCE

Documents                                                        Form 10-K Part
- ---------                                                        --------------
Definitive Proxy Statement with respect to the 2002 Annual          Part III
Meeting of Stockholders

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In this Form 10-K, "Scios", "we", "us", and "our" refer to Scios Inc. The
following discussion contains forward-looking statements about our plans,
objectives and future results. These forward-looking statements are based on
our current expectations, and we assume no obligation to update this
information. Realization of these plans and results involves risks and
uncertainties, and our actual results could differ materially from those
discussed here. Factors that could cause or contribute to such differences
include, but are not limited to, those discussed under "Risk Factors".

                                    PART I

ITEM 1.  BUSINESS

OVERVIEW

We are a biopharmaceutical company developing novel treatments for
cardiovascular and inflammatory diseases. Our disease-based technology platform
integrates expertise in protein biology with computational and medicinal
chemistry to identify novel targets and rationally design small molecule
compounds for large markets with unmet medical needs. We launched Natrecor(R)
following U.S. Food and Drug Administration, or FDA, approval of Natrecor
(nesiritide) for the treatment of acute congestive heart failure, or CHF, on
August 13, 2001, and recorded sales of $14.1 million for the year ended
December 31, 2001. We are focused on the development of three product
candidates, Natrecor for the treatment of acute congestive heart failure,
SCIO-469, an oral, small molecule inhibitor of p38 kinase for the treatment of
rheumatoid arthritis (RA); and small molecule inhibitors of the receptor for
TGF-beta, a cytokine that has been implicated in diseases characterized by
chronic scar formation, or fibrosis.

We were incorporated in California in 1981 under the name California
Biotechnology Inc. and reincorporated in Delaware in 1988. We changed our name
to Scios Inc. in February 1992, and to Scios Nova Inc. in September 1992
following our acquisition of Nova Pharmaceuticals, Inc. We returned to using
the name Scios Inc. in March 1996. Since September 1999, our principal
executive offices have been located at 820 West Maude Avenue, Sunnyvale,
California 94085. Our telephone number is (408) 616-8200.

Our corporate website is located at www.sciosinc.com. We do not intend for
information found on our website to be part of this document.

We own various copyrights, trademarks and trade names used in our business
including the following: Natrecor(R) and Fiblast(R). This document also
includes trademarks, service marks and trade names of other companies,
including the following: Gliadel(R), Biodel(R), Enbrel(R), Remicade(R),
Celebrex(R), Vioxx(R), Anakinra(R), Tezosentan(R), Risperdal(R), Simdax(R),
Paxil(R), Eskalith(R), Eskalith CR(R), Stelazine(R), Thorazine(R) and
Parnate(R).

RECENT DEVELOPMENTS

Since December 31, 2000, the following significant developments have occurred
with respect to our business:

NATRECOR

 . On August 13, 2001, we received final approval from the FDA to market
  Natrecor for the intravenous treatment of patients with acutely decompensated
  congestive heart failure. We submitted an amendment to our New Drug
  Application, or NDA, for Natrecor to the FDA in January 2001. The FDA's
  Cardiovascular and Renal Drugs Advisory Committee reviewed our amended NDA on
  May 25, 2001. The recommendation of that Committee was for unanimous approval
  of Natrecor. On July 10, 2001, we received from the FDA an approvable letter
  for Natrecor. The approvable letter was issued with two items to be
  completed: the pre-approval inspection of our facility and the final
  negotiations on the drug's label. During July 2001, the District Office of
  the FDA completed the pre-approval inspection and recommended approval of the
  Natrecor NDA. During August 2001, the final negotiations on the drug's label
  were completed.

 . Since August 2001, we have sold Natrecor to about 60% of our approximately
  2000-targeted academic and community hospitals. We focused on 2000 of the
  more than 5000 hospitals in the United States because 80% of the acute heart
  failure patients in this country are treated in those targeted hospitals. In
  addition, to enhance our hospital and physician access, we aggressively
  pursued contracts with group purchasing organizations, or GPOs. These GPOs
  contract for hundreds of their member hospitals and, as a group, assist us in
  gaining access for Natrecor and our cardiovascular specialists in thousands
  of hospitals. Currently, we have signed GPO arrangements with Owen, Consorta,
  Amerinet, and Premier. In addition to GPO agreements, Kaiser Hospital has put
  Natrecor on its formulary for its Northern and Southern California

                                      2



  hospitals. We also recently finalized a purchasing agreement with the
  Veteran's Administration, which allowed Natrecor to be placed on the Federal
  Supply Schedule.

 . In January 2001, we entered into a marketing alliance with Innovex, a
  division of Quintiles, to commercialize Natrecor in North America. Innovex
  has and will continue to deliver a wide range of sales and marketing
  solutions for us, including hiring, training and deploying a dedicated cardio
  and emergency medicine sales force of approximately 168 salespeople at our
  cost. In December 2001, we amended the January 2001 agreement in relation to
  the Natrecor sales force and the infrastructure supporting it. The amendment
  will enable us, at our option, to assume control of the Natrecor sales force
  in June 2003, one year ahead of schedule. Under the amended agreement,
  PharmaBio, a corporate venture group related to Quintiles, will still provide
  the $30.0 million in funding to commercialize Natrecor, however the $5.0
  million line of credit was eliminated which PharmaBio was scheduled to
  provide.

 . In March 2001, we initiated the PROACTION, or Prospective Randomized Outcomes
  Study of Acutely Decompensated Congestive Heart Failure Treated Initially in
  an Outpatient setting with Natrecor, trial, a pilot study designed to compare
  the clinical effects, safety profile and economic impact of standard therapy
  plus Natrecor to standard therapy plus placebo. The PROACTION trial completed
  enrollment of 250 acute CHF patients in December 2001. We expect to complete
  the study period follow-up and data analysis in the first half of 2002. These
  patients were treated in the emergency department or observation unit of a
  hospital, where the majority of the approximately one million
  hospitalizations each year for acute CHF begin. A preliminary review of the
  blinded data should confirm the ease of use and beneficial safety profile of
  Natrecor when administered in a less monitored clinical setting. Review of
  the blinded data is also expected to demonstrate that the rate of admissions
  from the emergency department is much lower than assumed when the study was
  designed. Although useful clinical, safety, and economic data pertaining to
  the emergency department may result from this trial, the probability of
  finding statistically significant and pharmoeconomic differences between
  Natrecor and placebo on in-hospital costs is unlikely.

 . In May 2001, we expanded our existing research collaboration with Medtronic
  to initiate a clinical study to evaluate the hemodynamic, endrocrine and
  clinical effects of Natrecor using information collected by Medtronic's
  Chronicle Implantable Hemodynamic Monitor both during and after infusions of
  Natrecor. This study began in July 2001 at the Karolinska Hospital in
  Stockholm and is ongoing.

 . In October 2001, we launched a nationwide registry to collect and analyze
  demographic and treatment data about patients hospitalized due to acutely
  decompensated heart failure. ADHERE, the Acute Decompensated HEart failure
  national REgistry, is expected to have a unique database of information of
  tens of thousands of patients gathered from approximately 300 U.S. hospitals
  over the next several years. We believe ADHERE will help clinicians better
  determine factors associated with improved clinical outcomes in acute CHF,
  the primary cause of more than one million hospital admissions in the U.S.
  each year. ADHERE should also provide comprehensive demographic and treatment
  data on a wide range of hospitalized heart failure patients. By tracking how
  these very sick patients are treated over time, we can use this information
  to identify optimal treatment strategies for them and develop comprehensive
  acute heart failure guidelines. As of February 28, 2002, 3,064 patients have
  been enrolled in the ADHERE Registry.

 . In December 2001, we entered into a binding summary of terms with Glaxo Group
  Ltd., an affiliate of GlaxoSmithKline, or GSK, in which we will license
  Natrecor to GSK in all European markets. Under the terms of the agreement,
  GSK will have the rights to sell and distribute the product for which we will
  receive an up-front fee and milestone payments totaling (Pounds)15.0 million
  British Pounds (which at December 31, 2001 equaled approximately $22 million
  U.S. Dollars), in addition to future royalties in the identified countries.
  We will manufacture and supply the bulk product to GSK. Both companies will
  work together to continue clinical development of Natrecor in Europe. In
  order to obtain European approval for Natrecor, GSK expects to use the
  extensive clinical data we submitted to obtain approval from the FDA in
  August 2001. The companies plan to launch Natrecor in Europe in the first
  half of 2004. Scios and GSK executed the binding summary of terms in December
  2001 and expect to finalize their full agreement incorporating the terms in
  March 2002. Pending completion of the full agreement, the parties have
  commenced their respective performance obligations as required under the
  detailed terms and conditions of the binding summary of terms.

 . In January 2002, we initiated the FUSION, or Management of Patients with CHF
  After Hospitalization with Follow Up Serial Infusions Of Natrecor, study, a
  multi-center, randomized, open-label pilot study that will be conducted at
  approximately 40 U.S. sites and will enroll over 200 patients. Patients will
  be randomized to receive either their usual long-term cardiac medications,
  with or without IV inotropes, or serial infusions of Natrecor in addition to
  their usual long-term cardiac medications, excluding IV inotropes. All
  treatment groups will have weekly outpatient visits, and Natrecor patients
  will receive infusions for 4 to 6 hours at each weekly visit. Patients will
  receive study treatment for 12 weeks, followed by a one-month follow up
  period. Data from the FUSION study are expected to be available in the first
  quarter of 2003. As of February 28, 2002, 15 patients have been enrolled in
  the study.

                                      3



P38 KINASE INHIBITOR PROGRAM

 . In January 2001, we completed a Phase Ia clinical trial of SCIO-469
  evaluating single doses in healthy volunteers. In April 2001, we completed a
  Phase Ib clinical trial in 20 healthy volunteers in which we evaluated the
  safety and tolerability of multiple doses of SCIO-469 over a two-week period.
  Based on the results of these trials, we filed an Investigational New Drug
  application with FDA in November 2001 for a Phase II study with SCIO-469. The
  Phase IIa trial in rheumatoid arthritis patients began in February 2002. This
  multi-center, randomized, placebo-controlled clinical study will enroll 120
  patients who have active RA and are receiving methotrexate. The main
  objective of the study is to evaluate the safety and tolerability of six
  escalating doses of SCIO-469 in RA patients. The company expects to announce
  results from this study in the first quarter of 2003.

NATRECOR

CONGESTIVE HEART FAILURE

According to the American Heart Association's 2001 HEART AND STROKE STATISTICAL
UPDATE, approximately 4.7 million Americans currently suffer from chronic CHF
and 550,000 new cases of CHF will be diagnosed in the United States this year.
Annual expenditures for CHF are estimated to be $21.0 billion, including $15.8
billion for inpatient care.

Chronic CHF is characterized by a progressive loss in the heart's ability to
pump blood. It is attributable to weakening of the contractile cells of the
heart and accumulation of scar tissue. Different diseases can cause CHF,
including coronary artery disease, heart attacks, inflammation of the heart
tissue and diseases of the heart valves. Weakened heart muscle often results in
poor cardiac output because the heart is unable to empty blood adequately from
the ventricles to the circulation with each beat. Blood pools in the
ventricles, and the heart changes from its normal shape and becomes enlarged.
Subsequently, blood begins to back up into the blood vessels of the lungs,
causing marked increases in pulmonary vascular pressures. As pressure
increases, fluid moves from the pulmonary blood vessels into the air spaces,
causing pulmonary congestion. One frequently used measurement of pulmonary
vascular pressure is pulmonary capillary wedge pressure, or PCWP.

CHF symptoms that result from the pooling of blood include shortness of breath,
edema, or fluid retention, and swelling of the legs and feet. CHF symptoms that
result from the inefficiency of the heart to distribute or adequately pump
oxygen-rich blood to body tissues include fatigue and weakness as well as a
loss of appetite. As the disease progresses, these symptoms can severely impact
the patient's quality of life, such that even the ability to perform simple
tasks, such as walking across the room, becomes limited.

In the early stages of CHF, the body activates several hormonal pathways that
help the heart compensate in the short-term but have adverse long-term effects.
These hormones, which include adrenalin, angiotensin II, aldosterone and
endothelin, stimulate the heart to beat faster and stronger, thicken the wall
of the heart and maintain blood pressure by constricting blood vessels and
stimulating the kidney to retain sodium. If these pathways remain activated
over a sustained period of time, the beneficial effects are lost and injurious
effects develop, contributing to an eventual deterioration of heart function.
Current medications and medications under development generally focus on one or
more of these hormonal pathways.

Many CHF patients will eventually experience a rapid deterioration, or
decompensation, and require urgent treatment in the hospital. This condition is
called acute CHF. Acute CHF accounts for approximately one million hospital
admissions each year in the United States. Acute CHF is the most frequent cause
of hospitalization among Medicare patients. In addition, patients suffering
from chronic CHF have a five-year mortality rate of approximately 50%. For more
than a decade, there were no new FDA-approved drugs to treat acute CHF.

NATRECOR: OUR SOLUTION FOR THE TREATMENT OF ACUTE CONGESTIVE HEART FAILURE

Natrecor is a recombinant form of human B-type natriuretic peptide, or BNP, a
naturally occurring hormone in the body that aids in the healthy functioning of
the heart. BNP is secreted by the ventricles of the heart as a response to CHF.
We believe that the advantage of Natrecor, compared to other forms of therapy
for acute CHF, is that it works on multiple components of the acute CHF disease
pathway. In particular, based upon pre-clinical studies and clinical trials, we
believe that Natrecor:

 . dilates veins, which decreases elevated pulmonary pressures, or prelude;

 . dilates arteries, which decreases the resistance against which the heart has
  to pump, or afterload;

 . stimulates the kidney to excrete excess sodium, or natriuresis;

                                      4



 . stimulates the kidney to excrete excess fluid, or diuresis; and

 . opposes many of the injurious consequences caused by the long-term elevation
  of hormones such as adrenalin, angiotension II, aldosterone and endothelin.

In clinical trials, Natrecor has also been shown to significantly improve blood
circulation and patient symptoms compared to IV nitroglycerin without the need
for labor-intensive monitoring, and its method of administration does not
require frequent dosing adjustments. In addition, in clinical trials, Natrecor
has not been associated with an increase in the incidence of cardiac
arrhythmias and has demonstrated no evidence of drug interactions with other
agents used concurrently in the treatment of acute CHF.

We have made significant progress since FDA approval of Natrecor. We launched
Natrecor immediately after approval with 168-person cardiovascular sales force
coupled with 2 Area Business Directors and 18 Area Business Managers. As of
February 7, 2002, we stocked Natrecor in approximately 60% of the 2000-targeted
academic and community hospitals. To enhance our hospital and physician access,
we aggressively pursued contracts with GPOs. These GPOs contract for hundreds
of their member hospitals and, as a group, assist us in gaining access for
Natrecor and our cardiovascular specialists in thousands of hospitals.
Currently, we have signed GPO arrangements with Owen, Consorta, and Amerinet,
and Premier. In addition to GPO agreements, Kaiser Hospital has put Natrecor on
its formulary for Northern and Southern California hospitals. We also recently
finalized a purchasing agreement with the Veteran's Administration, which
allowed Natrecor to be placed on the Federal Supply Schedule.

OTHER/COMPETING TREATMENTS FOR CONGESTIVE HEART FAILURE

While some cardiac risk factors such as smoking, high cholesterol, high blood
pressure, diabetes and obesity can be controlled with lifestyle changes, the
majority of patients with CHF require additional treatments to help manage
their disease. Competing medications for the treatment of CHF, including
diuretics, inotropes, vasodilators and beta-blockers, only focus on single
components of the diverse pathways contributing to CHF. For example, diuretics
help the kidneys rid the body of excess fluid, thereby reducing blood volume
and the heart's workload. Inotropes strengthen the heart's pumping action.
Vasodilators, such as ACE inhibitors, cause the peripheral arteries to dilate,
making it easier for blood to flow. Beta-blockers slow the heart rate and
reduce blood pressure by blocking the effects of adrenalin.

Upon arrival at the emergency department, patients who experience acute
episodes of CHF are typically treated with a combination of oxygen, morphine
and intravenous diuretics. A small percentage of patients respond to this
initial therapy and do not require admission to the hospital; however, the
majority of acute CHF patients require additional medical intervention and are
admitted. Additional acute CHF treatments may include intravenous
administration of inotropes, such as dobutamine, and vasodilators, such as
nitroglycerin. While each of these therapies assist in managing acute CHF, each
also has inherent limitations. Inotropes strengthen the contractility of the
heart but increase the incidence of cardiac arrhythmias, or irregular
heartbeats, and are associated with increased mortality. Intravenously
administered nitroglycerin requires careful monitoring and slow dosage
increases in small increments, resulting in delays in attaining positive
responses in acutely ill patients. Moreover, therapeutically effective doses of
IV nitroglycerin are:

 . unpredictable from patient to patient;

 . very close to toxic degrees of hypotension; and

 . associated with increased tolerance or loss of effectiveness.

These complications of IV nitroglycerin often require the transfer of acute CHF
patients to more costly treatment units within the hospital, such as the
cardiac and intensive care units, in order to provide careful patient
monitoring.

NATRECOR CLINICAL TRIALS

We have conducted numerous clinical trials evaluating Natrecor over the past
eight years. Approximately 1,000 patients have been treated with Natrecor in 12
trials, including four pivotal efficacy and safety trials. In all of these
trials, Natrecor administration has been associated with improved blood
circulation and vascular filling pressures in the heart and lungs. Two of the
efficacy trials further demonstrated statistically significant improvement of
symptoms in acute CHF patients.

                                      5



AMENDED NDA SUBMISSION TRIALS

We have completed two trials since the submission of our original NDA, the VMAC
trial, or Vasodilation in the Management of Acute CHF, and the PRECEDENT trial,
or Prospective Randomized Evaluation of Cardiac Ectopy with Dobutamine or
Nesiritide Therapy. These trials formed the basis of our amended NDA.

THE VMAC TRIAL.  We began enrollment in our VMAC trial in October 1999 and, in
July 2000, completed enrollment of 498 patients hospitalized for acute CHF in
the United States. This trial compared the effects of Natrecor, IV
nitroglycerin and placebo, when individually added to standard therapy, such as
diuretics and inotropes. The primary endpoints were a reduction in pulmonary
capillary wedge pressure, or PCWP--a measure of the pulmonary vascular pressure
of the heart, reflecting its workload--and improvement of the symptom of
shortness of breath. The VMAC trial achieved both of its primary endpoints. Key
results of the VMAC trial that were presented in November 2000 at the annual
scientific meeting of the American Heart Association include:

 . Natrecor produced a 20% decrease in PCWP at three hours, most of which
  occurred in the first 15 minutes, which was significantly better than the 7%
  decrease in PCWP at three hours for the placebo group;

 . Natrecor improved shortness of breath significantly better than placebo;

 . Natrecor decreased PCWP significantly faster and to a greater extent than IV
  nitroglycerin;

 . Natrecor significantly improved breathing in patients receiving standard
  active therapy; in contrast, IV nitroglycerin did not significantly improve
  breathing in these patients;

 . Natrecor-treated patients had significantly fewer adverse events than either
  placebo or IV nitroglycerin patients;

 . acute CHF patients experiencing active ischemia, which is impaired blood flow
  to the heart, showed no significant difference in adverse side effects in
  respect to Natrecor, compared to placebo or nitroglycerin; and

 . patients receiving Natrecor did not develop tolerance to the drug over time,
  and consequently, unlike IV nitroglycerin, the effects of Natrecor were
  sustained through 24 hours at the same dosage.

THE PRECEDENT TRIAL.  The PRECEDENT trial compared the safety of Natrecor and
dobutamine, the most commonly used inotrope treatment for acute CHF. Key
results of the PRECEDENT trial indicated that:

 . Natrecor produced fewer cardiac arrythmias than dobutamine; and

 . use of Natrecor was associated with fewer deaths than the use of dobutamine.

CURRENT CLINICAL TRIALS

In March 2001, we initiated the PROACTION, or Prospective Randomized Outcomes
Study of Acutely Decompensated Congestive Heart Failure Treated Initially in an
Outpatient setting with Natrecor, trial, a pilot study designed to compare the
clinical effects, safety profile and economic impact of standard therapy plus
Natrecor to standard therapy plus placebo. The PROACTION trial completed
enrollment of 250 acute CHF patients in December 2001. We expect to complete
the study period follow-up and data analysis in the first half of 2002. These
patients were treated in the emergency department or observation unit of a
hospital, where the majority of the approximately one million hospitalizations
each year for acute CHF begin. A preliminary review of the blinded data should
confirm the ease of use and beneficial safety profile of Natrecor when
administered in a less monitored clinical setting. Review of the blinded data
is also expected to demonstrate that the rate of admissions from the emergency
department is much lower than assumed when the study was designed. Although
useful clinical, safety, and economic data pertaining to the emergency
department may result from this trial, the probability of finding statistically
significant and pharmoeconomic differences between Natrecor and placebo on
in-hospital costs is unlikely.

In January 2002, we initiated the FUSION, or Management of Patients with CHF
After Hospitalization with Follow Up Serial Infusions Of Natrecor, study, a
multi-center, randomized, open-label pilot study that will be conducted at
approximately 40 U.S. sites and will enroll over 200 patients. Patients will be
randomized to receive either their usual long-term cardiac medications, with or
without IV inotropes, or serial infusions of Natrecor in addition to their
usual long-term cardiac medications, excluding IV inotropes. All treatment
groups will have weekly outpatient visits, and Natrecor patients will receive
infusions for 4 to 6 hours at each weekly visit. Patients will receive study
treatment for 12 weeks, followed by a one-month follow up period. Data from the
FUSION study are expected to be available in the first quarter of 2003. As of
February 28, 2002, 15 patients have been enrolled in the study.

                                      6



RESEARCH COLLABORATION WITH MEDTRONIC

In April 2000, we entered into a research collaboration agreement with
Medtronic to study the feasibility of infusing patients with Natrecor via
Medtronic's infusion products. This agreement requires Medtronic to collaborate
with us on the infusion of vasodilators using Medtronic's products until the
first patient is implanted with a Medtronic infusion product administering
Natrecor. In May 2001, we expanded this research collaboration by entering into
an agreement to conduct a clinical study to evaluate the hemodynamic, endocrine
and clinical effects of Natrecor using information collected by Medtronic's
Chronicle Implantable Hemodynamic Monitor, or IHM, both during and after
infusions of Natrecor. A pilot feasibility study began in July 2001 at the
Karolinska Hospital in Stockholm and is ongoing. The Chronicle IHM is an
implanted system designed to measure and record hemodynamic variables over time
such as right ventricular systolic and diastolic pressures, estimated pulmonary
artery diastolic pressure, heart rate and activity. The Chronicle IHM is not
approved for sale in the United States or Europe. In November 2001, Medtronic
and Scios determined the feasibility studies of infusing Natrecor with
Medtronic's implantable delivery devices to be completed. Medtronic and Scios
decided not to pursue feasibility studies concerning infusion of Natrecor with
Medtronic's implantable delivery devices.

P38 KINASE INHIBITOR PROGRAM

THE IMMUNE SYSTEM AND INFLAMMATION

The immune system is composed of multiple cell types, including white blood
cells, each with a specific functional role. This system is regulated by
cytokines, which are proteins produced by immune system cells. When the body
encounters foreign material, or when tissue injury occurs, numerous enzymes in
the immune system are activated, causing the production of various inflammatory
cytokines such as interleukin-1, or IL-1, and tumor necrosis factor-alpha, or
TNF.

One class of the immune system's family of enzymes is the mitogen-activated
protein kinases, or MAP kinases. The MAP kinases are a family of intracellular
signaling enzymes that are activated when cells are either stimulated or
stressed and mediate many beneficial and injurious cellular responses. One of
the MAP kinases, p38 kinase, is responsible for increased production of IL-1,
TNF and the inflammatory enzyme cyclooxygenase-2, or COX-2.

Autoimmune diseases occur when the immune system is abnormally activated
against its own body. In the case of rheumatoid arthritis, the immune system is
activated against joint tissues. White blood cells then invade the joint space,
and, when activated, produce proteins such as IL-1, TNF and COX-2, which result
in pain, swelling and eventual destruction of the affected joints. Other
diseases that are worsened by sustained high levels of TNF and IL-1 include
inflammatory bowel disease and CHF. We believe that patients treated with an
oral p38 kinase inhibitor could experience a reduction in both the symptoms and
the progression of inflammatory diseases since it could inhibit the production
of IL-1, TNF and COX-2.

CURRENT THERAPY FOR AUTOIMMUNE AND INFLAMMATORY DISEASES

Currently, there is no cure or prevention for autoimmune disease. Optimal
medical management requires the early introduction of therapies in order to
prevent the long-term effects of the disease. In the case of rheumatoid
arthritis, long-term effects include irreversible joint damage and hypertrophy
of joint tissues limiting a patient's ability to move the affected joints.

Traditionally, initial drug treatment of inflammatory diseases involves the use
of non-steroidal anti-inflammatory agents. Steroids, such as glucocorticoids,
are often added as the disease or symptoms progress. Although these agents help
patients increase function and improve symptoms, they do not stop progression
of the disease. Moreover, these drugs have been demonstrated to cause both
stomach and kidney problems. In addition, persistent steroid treatment may
result in excess suppression of the immune system, which can lead to infection,
decreased bone marrow function and osteoporosis. Recently, more selective
anti-inflammatory agents, or COX-2 inhibitors, such as Celebrex and Vioxx, have
been introduced for symptom relief; however, they do not alter the progression
of inflammatory disease. Sales of COX-2 inhibitors for the treatment of
inflammatory disease were approximately $4.8 billion in 2000.

More powerful drugs exist for patients that do not respond to initial drug
therapy. In the case of rheumatoid arthritis, drugs such as methotrexate,
hydroxychloroquine and sulfasalazine can have individual side effects, which
must be monitored closely, and a delay of one to six months for a clinical
response is common.

                                      7



Within the past four years, inhibition of inflammatory cytokines has become an
established treatment for autoimmune disease. In the case of rheumatoid
arthritis, two new protein therapeutics, Enbrel and Remicade, were introduced
to inhibit the effects of TNF. Combined U.S. sales of these agents totaled
approximately $956.0 million in 2000. These treatments have been shown to be
effective at arresting the progression of the disease; however, they must be
given by injection or infusion on a repeated basis. Resistance to the treatment
is also an issue with these new drugs. This is due in part to increasing
production by a patient's immune system of antibodies that neutralize
administered proteins.

We are focusing our initial drug development efforts on creating an orally
available small molecule drug for the treatment of rheumatoid arthritis. The
Arthritis Foundation estimates that approximately 2.1 million Americans
currently suffer from rheumatoid arthritis. Decision Resources, an independent
market research group, suggests that the global market for rheumatoid arthritis
therapies will be approximately $6.6 billion by 2009, up from almost $1.5
billion in 1999. Rheumatoid arthritis patients generate more than nine million
physician office visits and more than 250,000 hospitalizations each year. It is
estimated that, in aggregate, the average yearly earnings deficit for all
working individuals with rheumatoid arthritis is approximately $6.5 billion.

SCIO-469: OUR P38 KINASE INHIBITOR FOR THE TREATMENT OF INFLAMMATORY DISEASES

SCIO-469 is a novel oral, small molecule compound designed to inhibit p38
kinase. Oral administration allows for careful dosage adjustment, which may
permit the physician to inhibit TNF sufficiently to obtain a useful therapeutic
effect without subjecting the patient to the risk of infection associated with
complete TNF inhibition.

PRE-CLINICAL STUDIES.  In pre-clinical studies of acute and chronic
inflammatory arthritis, orally administered doses of SCIO-469 reduced cellular
production of COX-2 in a dose-dependent manner and reduced COX-2 and TNF levels
in whole blood assays. Statistically significant reductions in inflammation
also were observed in animal models of arthritis. In October 2000, we presented
pre-clinical data involving our p38 kinase inhibitors at the annual scientific
meeting of the American College of Rheumatology. The study demonstrated that
our p38 kinase inhibitors had statistically significant anti-inflammatory
effects in both acute and chronic animal models of inflammation.

CLINICAL TRIALS.  In January 2001, we completed a Phase Ia clinical trial of
SCIO-469 evaluating single oral doses in healthy volunteers. This Phase Ia
clinical trial enrolled 30 volunteers. In April 2001, we completed a Phase Ib
clinical trial with 20 healthy volunteers in which we evaluated the safety and
tolerability of multiple doses of SCIO-469 over a two-week period. Based on the
results of these trials, we initiated a Phase IIa clinical trial with
rheumatoid arthritis patients in February 2002. This multi-center, randomized,
placebo-controlled clinical study will enroll 120 patients who have active RA
and are receiving methotrexate. The main objective of the study is to evaluate
the safety and tolerability of six escalating doses of SCIO-469 in RA patients.
The company expects to announce results from this study in the first quarter of
2003.

TGF-BETA PROGRAM

In March 2002, we announced the addition of a new drug candidate that could
become the first oral inhibitor of transforming growth factor (TGF)-beta.
TGF-beta is a multifunctional cytokine, a signaling protein that is produced in
a broad range of diseases characterized by unregulated scarring and eventual
organ failure. Research has indicated that excessive activation of TGF-beta is
involved with driving scar tissue formation, which is thought to contribute to
the progressive loss of function seen in a variety of conditions. Diseases in
which TGF-beta may play a role include congestive heart failure, chronic
obstructive pulmonary disease, liver cirrhosis and kidney disease. Current
therapies for these conditions treat symptoms exclusively or are only modestly
effective in slowing disease progression.

Scios has developed novel and potent small molecule inhibitors that are
designed to block activation of the TGF-beta receptor. They have been shown to
be effective in reducing scar formation or fibrosis when given orally to
animals. Scios expects to advance two lead molecules representing different
chemical classes through pre-clinical development and is planning to announce
the first medical indication for this new therapeutic class in 2003.

                                      8



STRATEGY

We are focused on developing and commercializing novel pharmaceutical products
that address large market opportunities with unmet medical needs, initially in
the areas of cardiovascular and inflammatory disease. Key elements of our
strategy include:

 . MAXIMIZING THE NEAR-TERM COMMERCIAL OPPORTUNITIES FOR NATRECOR.  Natrecor is
  the first drug to be approved by the FDA for the treatment of acute CHF in
  over a decade. We have a focused 168-persons sale force dedicated to
  establishing Natrecor as the standard of care. We believe that this sales
  force is the largest in the United States exclusively dedicated to the acute
  CHF market. We also intend to expand the near-term commercial opportunities
  for Natrecor in the area of acute CHF by obtaining approvals to market
  Natrecor in European nations through a licensing agreement with GSK, and
  through collaborators outside of the European markets.

 . EXPANDING THE COMMERCIAL OPPORTUNITIES FOR NATRECOR.  We plan to expand the
  market opportunities for Natrecor including its use in additional clinical
  settings. We plan to pursue additional clinical settings for Natrecor
  including its use in serial outpatient infusions.

 . ADVANCING THE DEVELOPMENT OF OUR SMALL MOLECULE THERAPEUTICS PROGRAM.  We
  plan to continue to add state-of-the-art technologies to enhance our ability
  to develop small molecule therapeutics in addition to our traditional
  strengths in developing protein therapeutics. The major advantages of small
  molecule therapeutics are the potential for oral administration, the ability
  to adjust dosing to maximize efficacy and minimize toxicity and the ease and
  cost of manufacturing. Currently, we are developing SCIO-469, an oral, small
  molecule inhibitor of p38 kinase for the treatment of rheumatoid arthritis.
  In addition, we are focusing on the development of small molecule inhibitors
  of the TGF-beta receptor, which we hope will prove to be useful for a broad
  range of diseases characterized by unregulated scarring and eventual organ
  failure.

 . BROADENING OUR PRODUCT PORTFOLIO THROUGH LICENSE OR ACQUISITION.  We believe
  that we can leverage our Natrecor-dedicated sales force by marketing
  additional products to the acute care market. We are evaluating the licensing
  or acquisition of additional product candidates, several of which are in the
  areas of cardiovascular and inflammatory disease. We may also acquire
  additional technologies or businesses that we believe will enhance our
  research and development capabilities.

 . COLLABORATING SELECTIVELY WITH BIOTECHNOLOGY AND PHARMACEUTICAL
  COMPANIES.  As we expand certain aspects of our development pipeline, we
  intend to partner with biotechnology and pharmaceutical companies in order to
  gain access to additional research and development or marketing expertise.
  Our approach to partnership will be on a selective basis, seeking to maintain
  the highest possible value of our product candidates. In order to accomplish
  this task, we intend to delay partnering of any product until its clinical
  utility has been established.

MARKETING AND SALES--NATRECOR

NATRECOR EDUCATION

We continue to build awareness for Natrecor among key target audiences through
a variety of tactical programs, including medical seminars, continuing medical
education programs, advisory boards and publications. At December 31, 2001, we
had hired 12 Scientific Affairs Managers and a Director of Scientific Affairs
who are focused in educating physicians on diseases of the cardiovascular
system and building relationships with opinion-leading cardiologists. We
continue to identify and develop relationships with physicians and nurses who
play a leading role in the diagnosis and treatment of CHF.

In addition, we launched a nationwide registry to collect and analyze
demographic and treatment data about patients hospitalized due to acutely
decompensated heart failure. ADHERE, the Acute Decompensated HEart failure
national REgistry, is expected to have a unique database of information of tens
of thousands of patients gathered from approximately 300 U.S. hospitals over
the next several years. We believe ADHERE will help clinicians better determine
factors associated with improved clinical outcomes in acute decompensated heart
failure, the primary cause of more than one million hospital admissions in the
U.S. each year. ADHERE should also provide comprehensive demographic and
treatment data on a wide range of hospitalized heart failure patients. By
tracking how these chronically ill patients are treated over time, we can use
this information to identify optimal treatment strategies for them and develop
comprehensive acute heart failure guidelines.

SALES FORCE TEAM

In early 2001, in connection with Innovex, we built our sales force team in
anticipation of the FDA approval of Natrecor. We initially hired two Area
Business Directors, 18 Area Business Managers to manage our sales force, and a
168-person

                                      9



cardiovascular sales force. Our management team and sales force have extensive
experience in and have been involved in the successful commercialization of
hospital based products. Our team of 188-persons is the largest sales force
solely dedicated to the acute heart failure market.

GROUP PURCHASING ORGANIZATIONS (GPO)

To enhance our hospital and physician access, we have aggressively pursued
contracts with GPOs. These GPOs contract for hundreds of their member hospitals
and, as a group can assist Scios in gaining access for Natrecor and our
cardiovascular specialists in thousands of hospitals. We currently have signed
GPO arrangements with Owen, Consorta, Amerinet, and Premier. In addition to GPO
agreements, Kaiser Hospital has put Natrecor on its formulary for its Northern
and Southern California hospitals, and we have entered into a purchasing
agreement with the Veteran's Administration, which allowed Natrecor to be
placed on the Federal Supply Schedule.

GLAXOSMITHKLINE AGREEMENT (GSK)

In December 2001, we entered into a binding summary of terms with Glaxo Group
Ltd., an affiliate of GlaxoSmithKline, or GSK, in which we will license
Natrecor to GSK in all European markets. Under the terms of the agreement, GSK
will have the rights to sell and distribute the product for which we will
receive an up-front fee and milestone payments totaling (Pounds)15.0 million
British Pounds (which at December 31, 2001 equaled approximately $22 million
U.S. Dollars), in addition to future royalties in the identified countries. We
will manufacture and supply the bulk product to GSK. Both companies will work
together to continue clinical development of Natrecor in Europe. In order to
obtain European approval for Natrecor, GSK expects to use the extensive
clinical data we submitted to obtain approval from the FDA in August 2001. The
companies expect to launch Natrecor in Europe in the first half of 2004. No
revenue has been recognized related to this agreement through December 31, 2001.

OUR AGREEMENT WITH INNOVEX

In January 2001, we entered into a sales and marketing alliance with Innovex, a
subsidiary of Quintiles Transnational Corp. As part of the three and one half
year agreement, PharmaBio Development, Inc., an affiliate of Innovex, agreed to
fund $30.0 million of our costs to launch Natrecor over the first 24 months of
the commercialization of Natrecor and to loan us up to $5.0 million. Under the
agreement, Innovex identified, hired, trained and deployed a dedicated
cardiology and emergency medicine sales force of 168 persons at our cost to
launch Natrecor. In December 2001, Scios, Innovex and PharmaBio, amended the
January 2001 agreement in relation to the Natrecor sales force and the
infrastructure supporting it. The amendment will enable Scios, at its option,
to assume control of the Natrecor sales force in June 2003, one year earlier.
Of the $30.0 million in funding to be provided by PharmaBio, we received $10.0
million in the fourth quarter of 2001, and will receive the remaining $20.0
million over the following 17 months. Under the amendment, we eliminated the
$5.0 million line of credit provided by PharmaBio to Scios. As part of the
funding agreement, we will pay PharmaBio a declining royalty rate on net sales
of Natrecor through early 2008. We also granted PharmaBio a warrant to purchase
700,000 shares of our common stock at an exercise price of $20.00 per share.

LICENSING ARRANGEMENTS WITH THIRD PARTIES

We have licensed some of our product candidates to third parties, who are now
responsible for product development. Under these arrangements, we typically
receive a combination of up-front payments, milestone payments upon their
achievement of scientific and clinical benchmarks and royalties on commercial
sales of products by our partners.

BNP

In 1998, we entered into a cross-license agreement with Shionogi under which we
granted Shionogi a royalty-free, nonexclusive license to our BNP patent rights
for the diagnostic field. In exchange, Shionogi granted us a royalty-bearing,
exclusive license under Shionogi's BNP patents to develop therapeutic products.
For therapeutic products, we pay royalties on net sales for the life of the
patent in countries where Shionogi holds one or more BNP patents. In countries
where Shionogi has no issued patent covering BNP, but one or more pending
patent applications which cover BNP, we are obligated to pay a reduced royalty
on the net sales of our therapeutic products during the pendency of such
applications, up to a maximum of four years following commencement of our sales
in the country where such applications are pending, after which the royalty
obligation shall cease, unless and until the pending applications result in one
or more issued claims covering BNP, in which case we would be obligated to pay
the full royalty from the date of patent issuance until the expiration or
invalidity of the

                                      10



BNP patents in question. Shionogi holds patents relating to BNP in Japan and
Europe. We believe that Shionogi may have a patent application pending in the
United States.

We have licensed to Biosite Diagnostics and Abbott Laboratories the right to
use our patents on BNP for diagnostic purposes. Biosite has developed and is
currently marketing a point-of-care diagnostic test for BNP levels in the
United States and Europe. This test is used to identify individuals with CHF or
to monitor progression of their disease or their response to treatment. We are
currently receiving royalties from Biosite on the sales of their diagnostic
products. Abbott is continuing to develop its BNP diagnostic product.

FIBROBLAST GROWTH FACTOR

In 1982, Biotechnology Research Partners, Ltd., a California limited
partnership, or BRP, was formed primarily to conduct research and
experimentation in the field of biotechnology and to develop and produce from
genetically engineered micro-organisms or cells new products that have
potential pharmaceutical and other commercial applications. Out of this
research, Fibroblast Growth Factor, or FGF, was discovered. FGF is a naturally
occurring protein, which stimulates the growth of new blood vessels. In 1988,
we licensed the FGF technology to Kaken Pharmaceutical. In April 2001, Kaken
received approval from the Japanese Ministry of Health and Welfare to market an
FGF-based product for the treatment of recalcitrant dermal ulcers in Japan. As
part of the partnership agreement for BRP, BRP and Scios share in the royalties
from product sales of FGF. During 2001, we received royalties on sales of
FGF-based products by Kaken in Japan. The distributions of the royalty payments
were approximately 63% to Scios and 37% to the limited partners of BRP. Costs
and expenses are shared in this same percentage for audit, legal, and general
and administrative expenses. Scios R&D, Inc., a wholly owned subsidiary of
Scios, owns 100% of BRP, Inc., the general partner of BRP. Scios owns
approximately 59% of BRP and consolidates the results of BRP in its financial
statements.

In November 1999, we granted a license to Chiron covering rights to FGF in the
areas not previously licensed by us. We may receive up to $12.0 million in
milestone payments upon Chiron's completion of certain development objectives.
In addition, we will receive royalties based on sales of FGF products in
countries where we hold patents. Chiron has completed separate Phase II human
clinical trials evaluating FGF as a treatment for coronary artery and
peripheral vascular disease.

We have also granted nonexclusive licenses under our FGF patents and technology
to Orquest, for the development of products for the treatment of bone fractures.

We are obligated to make payments to Organon International based on amounts
received by us upon commercialization of FGF. Approximately $0.2 million
remains to be paid under this obligation, which stems from our 1989
reacquisition of certain FGF rights previously licensed to Organon.

VASCULAR ENDOTHELIAL GROWTH FACTOR\\121\\

VEGF\\121\\ is a naturally occurring protein used to stimulate the growth of
new blood vessels. In May 1996, we granted a license to GenVec for the use of
the gene encoding VEGF\\121\\ in gene therapy products. GenVec is currently
conducting Phase II clinical trials of its BIOBYPASS angiogen which
incorporates the use of our licensed technology. This product is being
evaluated to treat coronary artery disease and peripheral vascular disease. We
will receive royalties on any future sales of these products.

GLUCAGON-LIKE PEPTIDE-1

GLP-1 is a potent peptide that stimulates insulin release when blood sugar
levels are above normal. In 1988, we licensed from Massachusetts General
Hospital the exclusive use of certain patent applications for GLP-1 and certain
analogs upon which we will pay a royalty on any future sales. In 1996, we
granted Novo Nordisk an exclusive license to our GLP-1 technology and the
additional rights we acquired pursuant to the Massachusetts General Hospital
license. We will receive royalties on product sales made by Novo Nordisk. Novo
Nordisk is responsible for development activities for GLP-1 and has initiated
Phase II human clinical trials of a GLP-1 analog that they are developing as a
treatment for Type 2 diabetes.

ALZHEIMER'S DISEASE

We have concluded separate research collaborations with Eli Lilly and with
DuPont Pharmaceuticals to develop new therapies for Alzheimer's Disease. The
joint research phase of our collaboration with DuPont ended in November 2000.
The

                                      11



joint research phase of our collaboration with Eli Lilly ended December 31,
2001. Under the Eli Lilly agreement, we are entitled to receive potential
milestone payments if certain events are achieved, and Eli Lilly is entitled to
commercialize any resulting products subject to royalty payments to us. With
the termination of the DuPont and Eli Lilly collaborations, the Company has
decided to discontinue further substantial research efforts relating to
identification and characterization of proteins and biological mechanisms
implicated in Alzheimer's disease.

DRUG DELIVERY SYSTEMS

Prior to our acquisition of Nova Pharmaceuticals in 1992, Nova had been
developing several drug delivery systems, including the Gliadel implant to
treat primary brain cancer. The Gliadel technology was developed pursuant to a
license agreement with the Massachusetts Institute of Technology relating to
MIT's Biodel drug delivery technology. We licensed Gliadel to Guilford
Pharmaceuticals in 1994. Gliadel was approved for marketing in the United
States in 1996. We assigned our Biodel license rights back to MIT, which
administers the licensing of this technology, including the license with
Guilford. We and MIT are receiving royalty and milestone payments under the
license agreement with Guilford. We conducted the Gliadel project on behalf of
Nova Technology Limited Partnership, the limited partnership that funded Nova's
research and development on these projects. In December 1992, the Company
exercised its option to acquire all interests in Nova Technology Limited
Partnership for $20.4 million. The Company also issued contingent payment
rights to all limited partners of the partnership, pursuant to which the
Company is obligated until January 15, 2008 to pay royalties on the sale or
license of certain products that were under development by the partnership. The
Company had accrued $44,000 at December 31, 2001 as a result of royalties
associated with the commercialization of Guilford's Gliadel wafer.

PSYCHIATRIC SALES AND MARKETING DIVISION

Since 1990, our Psychiatric Sales and Marketing Division, or PSMD, had the
exclusive right to market certain products in the United States under a
licensing agreement with GSK, including Eskalith and Eskalith CR, Thorazine,
Stelazine, and Parnate. GSK was responsible for the manufacture and
distribution of these products. As part of our agreement with GSK, we paid GSK
40% of our net profits from the sales of these products. We sold the marketing
rights back to GSK and terminated the licensing agreement effective March 31,
2001. We received from GSK $4.0 million in 2001 and $3.0 million in 2002, and
expect to receive a final payment of $2.4 million in 2003.

RESEARCH AND DEVELOPMENT

Our technical capabilities now include disease-based gene microarrays,
bioinformatics, structural informatics and state-of-the-art medicinal
chemistry, including computational chemistry modeling, all of which have added
to our traditional technical strengths in protein cloning and expression.

In order to discover new pathways of disease, our research has assembled tissue
samples from a broad array of human and experimental diseases of the
cardiovascular system. We analyze these tissues for the expression of new genes
that may be involved in particular diseases. We do this by a technique known as
microarray gene display, in which fluorescent tags identify which genes may be
up regulated or down regulated during the course of a particular disease. We
then apply commercial and proprietary software analysis to the sequence of
these genes and to the patterns of their expression in order to highlight
cellular pathways that may be playing a particular role in a disease process.
This process is known as bioinformatics.

Particular attention is paid either to the presence of a known enzyme
participating unexpectedly in a disease process or to a novel enzyme. Our
molecular biologists then express these candidate target enzymes in an
activated state as pure proteins and develop high throughput screening assays
to discover inhibitors of those enzymes within our chemical compound library,
which we have developed over the last several years. Applying the tools of
structural informatics, our protein chemists develop computer-based,
three-dimensional structures of these enzymes that guide our chemists in
developing lead inhibitory molecules with respect to potency and selectivity.
Once we have brought a drug candidate to the optimum level of potency and
safety, we test the drug at both the cellular and animal level, again applying
gene microarray technology. This allows the rapid evaluation of the drug for
efficacy while ensuring that potential toxicities are minimized before testing
in the clinic.

We are focused on diseases of the cardiovascular system, with a particular
emphasis on inflammation in both its acute and chronic forms and scarring as a
cause of chronic organ failure. Our research has emphasized an emerging family
of protein therapeutic targets known as protein kinases. Kinases are naturally
occurring intracellular signaling "switches" that work by

                                      12



attaching phosphate groups to other proteins, thereby activating cellular
processes controlled by those proteins, including the transcription of new
proteins. While the vast majority of protein kinases are engaged in beneficial
work on behalf of the cells of the body, medical research over the last decade
has clearly demonstrated that cellular pathways abnormally activated by certain
kinases contribute to both the symptoms and progression of many diseases. By
applying the most advanced technologies available with proprietary methodology,
including the development of gene analysis software, we have dedicated
ourselves to the identification of kinases participating in diseases within our
strategic focus and developing and testing inhibitors of those enzymes for
potential therapeutic value. The rapid pre-clinical and clinical development of
our p38 kinase inhibitor, SCIO-469, and our preliminary advances in our
TGF-beta program represents the initial success of this innovative approach.

Our aggregate research and development expense totaled $48.1 million in 2001,
$39.3 million in 2000, and $34.3 in 1999.

MANUFACTURING

Our products are manufactured for us by third parties. In 1995, we entered into
an agreement with BioChemie GmbH in Austria for the manufacture of Natrecor. We
expect the agreement to run through 2009. BioChemie ships Natrecor in powder
form to Abbott Laboratories in McPherson, Kansas, where it is blended, filled
and packaged for shipment. We also maintain arrangements with several companies
to manufacture our p38 kinase inhibitor compounds and intend to enter into a
long-term supply relationship if our compounds continue to proceed through
development.

PATENTS AND PROPRIETARY RIGHTS

We seek patent protection for proprietary technology and products in the United
States and abroad to prevent others from unfairly capitalizing on our
investment in research. Other companies engaged in research and development of
new healthcare products also actively pursue patents for their technologies. We
also rely upon trade secrets and know-how to reinforce our competitive
position. However, trade secret protection will not preclude others from
independently developing technology similar to ours, nor can there be any
assurance that third parties that have signed confidentiality agreements with
us will honor those agreements.

We currently own or hold exclusive rights to 82 issued U.S. patents and 50 U.S.
pending patent applications covering our proprietary technology and products.
We also own or hold exclusive rights to foreign patents and patent applications
corresponding to most of the U.S. patents and patent applications in our
portfolio. Our issued patents include patents on Natrecor, certain of our p38
kinase inhibitors, FGF, VEGF\\121\\ and GLP-1. Our proprietary position with
respect to certain principal products under development is described below. If
a patent issues prior to marketing approval, as has been the case with all of
our issued patents to date, we can apply for extension of the patent term for a
limited period of time to make up for a portion of the patent term lost to the
regulatory approval period. The absence of a patent covering products, which we
have licensed to third parties, could reduce the royalties due to us under the
agreements with those parties.

NATRECOR

We have been issued United States, Canadian and European patents covering the
endogenous form of Natrecor, human BNP. Our U.S. patents on Natrecor are
subject to possible extension due to time taken up in the regulatory approval
process. We believe our key patent on Natrecor, which currently expires in May
2009, may be extended to late 2013 or early 2014. Pursuant to a
royalty-bearing, exclusive license granted to us by Shionogi, we also have the
exclusive right to develop therapeutic products using BNP under certain patents
and applications on BNP originally filed by Daiichi Pharmaceutical and
subsequently acquired by Shionogi. Shionogi holds patents in Japan and Europe.
We believe that Shionogi may have a patent application pending in the United
States. Although we were granted a Japanese patent on BNP, the patent was
revoked in 1998 in an opposition filed against the patent by an unidentified
party. The opposition did not challenge the originality of our BNP discovery
but based its challenge solely on an interpretation of utility requirements for
patentability peculiar to Japanese patent law. We appealed the revocation to
the Tokyo High Court. On March 13, 2001, the Tokyo high court affirmed the
revocation. Because we believe the decision is contrary to both Japanese
precedent and patentability requirements in the United States and Europe, we
have appealed the revocation to the Japanese Supreme Court. The decision does
not affect our patent rights outside of Japan, nor does the revocation impact
our ability to exclusively market BNP in Japan insofar as our exclusive license
under the patent rights of Daiichi includes several Japanese patents of Daiichi
directed to BNP.

                                      13



P38 KINASE INHIBITORS

We have filed a series of patent applications in the United States covering the
classes of p38 kinase inhibitors that we have identified. To date, we have been
issued three U.S. patents directed to certain of these p38 inhibitors. These
patents will expire in 2018, subject to possible extension for FDA regulatory
delays. While the classes of small molecule compounds identified by our
researchers appear to be unique, we are aware that other companies are also
working to develop p38 kinase inhibitor compounds, and have filed patent
applications on and received patents covering certain classes of compounds that
these competing companies have identified and covering various aspects of
identifying such compounds.

FGF

After an interference with The Salk Institute for Biological Studies, we were
awarded a U.S. patent on DNA sequences, expression vectors, and microorganisms
used in the recombinant production of human basic FGF. Our basic FGF U.S.
patent will expire in 2012, and it may be extended for FDA regulatory delays.
We also hold European and Japanese patents on human basic FGF. Synergen, now
owned by Amgen, has obtained patents directed to a form of FGF that we believe
is different from the form of FGF produced by us. A U.S. patent issued to Salk
contains claims directed to substantially pure mammalian basic FGF containing
the 146 amino acid sequence of bovine basic FGF or a naturally occurring
homologous sequence of another mammalian species. Although we have been advised
by counsel that the Salk patent would be invalid if read broadly enough to
cover our form of FGF, there is still risk that an assertion of this patent
could block our partners' ability to develop and market human basic FGF in the
absence of a license, or if such a license is granted, could reduce the royalty
income to us. We opposed Salk's European patent, which resulted in revocation
of the patent. Salk appealed the revocation. In February 2002, the Technical
Board of Appeal agreed with the grounds of appeal and entered its decision to
maintain the patent as granted. Our European patent was opposed by Chiron and
Pharmacia. Our patent was upheld and both opponents appealed. As a result of
our license to Chiron, Chiron, who is also a licensee of Salk, withdrew from
the opposition against our European patent, and we have withdrawn from our
opposition against the Salk patent.

In March 1994, we obtained a non-exclusive license to make, use and sell FGF
under a U.S. patent issued to Harvard University containing claims to purified
cationic (basic) FGF. The Harvard patent is based on a patent application
having a filing date earlier than the application, which formed the basis for
the Salk patent. Sublicense rights under this patent are included in the rights
granted by us to our FGF licensees, Kaken and Chiron.

VEGF\\121\\

Seven isoforms of human VEGF (hVEGF) are known, having 121, 145, 148, 165, 183,
189 and 206 amino acids, respectively. We believe that our researchers were the
first to identify, clone and produce by recombinant DNA technology the 121
amino acid form of hVEGF (hVEGF\\121\\). hVEGF\\121\\ is the only human VEGF
isoform known not to bind to heparin. We own two U.S. patents issued in 1993
covering hVEGF\\121\\, and in 1996 received a European patent covering this
VEGF isoform. Our U.S. patents on VEGF\\121\\ will expire 2010 but may be
extended for FDA regulatory delays. We have patent applications pending in
Canada and Japan. Other companies and institutions, including Genentech,
Pharmacia and the Regents of the University of California, hold patents and
pending patent applications claiming various isoforms of hVEGF and certain VEGF
variants.

COMPETITION

For patients treated with acute CHF, many therapeutic options are available.
Competing drugs fall into three main categories: vasodilators, inotropes and
diuretics. Natrecor, approved for marketing in August of 2001, competes against
both vasodilators and inotropes in the acute CHF market. Many of the currently
marketed drugs are available in generic formulation and have an associated low
cost. In addition, milrinone, an inotrope, is currently promoted by
Sanofi-Synthelabo and is expected to lose patent protection in May 2002.
Natrecor has been priced above the cost of these existing drugs, which may harm
our competitive position relative to these drugs. While early acceptance is
encouraging, the higher cost of Natrecor may prevent us from being able to
compete effectively with these long-standing existing forms of therapy.

New drugs in development for the treatment of acute CHF would compete with
Natrecor if approved by the FDA or other regulatory agencies. Veletri
(tezosentan), a non-selective endothelin receptor antagonist, is being
developed by Actelion but the drug did not meet its primary endpoints for heart
failure. It is not clear whether Actelion will continue the development of this
product. Abbott had previously submitted an NDA for Simdax, a calcium
sensitizer described as an inotrope, but withdrew the application in 2000.
Abbott appears to be moving forward with development of this product.

                                      14



We are aware of several pharmaceutical and biotechnology companies that are
actively developing or have commercialized products addressing the same disease
indication as the p38 MAP kinase inhibitor. Current commercial competition for
rheumatoid arthritis treatments include generic methotrexate, the injectible
TNF inhibitors such as Centecor's Remicade and Immunex's Enbrel and the recent
launch of Amgen's (formally Immunex) interleukin-1 inhibitor, Anakinra. In
addition competition will result from the most often prescribed drugs to treat
rheumatoid arthritis, the non-steroidal anti-inflammatory drugs such as
ibuprofen and the COX-2 inhibitors such as Pharmacia's Celebrex and Merck's
Vioxx. These drugs are palliative and do not reverse or prevent the progression
of the disease.

In addition, we are aware of a few pharmaceutical and biotechnology companies
that are specifically developing a p38 MAP kinase inhibitors for treating
rheumatoid arthritis. In 2001, Vertex Pharmaceuticals (which recently merged
with Aurora Biosciences) suspended the development of its lead oral p38
compound indicated for rheumatoid arthritis. Vertex intends to initiate
clinical trials with two-second generation compounds in the first half of 2002.
These companies, including Beringer Ingleheim and Vertex may possess both
greater access to capital and research and development resources. We may be
unable to compete effectively with any of these development projects. If we are
successful in developing our own p38 kinase inhibitor compound we may face
intense competition.

We expect that competition for our products, when approved for sale, will be
based, among other things, on efficacy, reliability, product safety, price and
patent position. Our ability to compete effectively and develop products that
can be manufactured cost-effectively and marketed successfully will depend on
our ability to:

 . advance our technology platforms;

 . license additional technology;

 . maintain a proprietary position in our technologies and products;

 . obtain required government and other public and private approvals on a timely
  basis;

 . attract and retain key personnel; and

 . enter into corporate partnerships.

Our failure to achieve any of the above goals could impair our business.

GOVERNMENT REGULATION

Pharmaceutical drugs are subject to extensive pre- and post-market regulation
by the FDA, including regulations that govern the testing, manufacturing,
safety, efficacy, labeling, storage, record keeping, advertising, and promotion
of the products. The process required by the FDA before a new drug may be
marketed in the United States generally involves the following: completion of
pre-clinical laboratory and animal testing; submission of an investigational
new drug application, which must become effective before clinical trials may
begin; performance of adequate and well controlled human clinical trials to
establish the safety and efficacy of the proposed drug products intended use;
and approval by the FDA of an NDA.

Human clinical trials are typically conducted in three sequential phases that
may overlap. These phases generally include the following: Phase I during which
the drug is introduced into healthy human subjects or, on occasion patients,
and is tested for safety, dose tolerance and metabolism; Phase II during which
the drug is introduced into a limited patient population to determine the
efficacy of the product of specific targeted diseases, to determine dosage
tolerance and optimal dosage and to identify possible adverse effects and
safety risks; and, Phase III during which the clinical trial is expanded to a
more diverse patient group in geographically dispersed clinical trial sites to
further evaluate clinical efficacy, optimal dosage and safety. The FDA, and the
Institutional Review Board at each institution at which a clinical trial is
being performed, may suspend a clinical trial at any time for various reasons,
including a belief that the subjects are being exposed to an unacceptable
health risk.

The results of product development, pre-clinical animal studies and human
studies are submitted to the FDA as part of the NDA. The NDA also must contain
extensive manufacturing information. FDA does allow under certain circumstances
for the joint manufacturing of drug products. The FDA may approve or disapprove
the NDA if applicable FDA regulatory criteria are not satisfied or it may
require additional clinical data. Once approved, the FDA may withdraw the
product approval if compliance with pre- and post-market regulatory standards
is not maintained or if problems occur after the product reaches the
marketplace. In addition, the FDA may require post-marketing studies, referred
to as Phase IV studies, to monitor the effect of approved products, and may
limit further marketing of the product based on the results of these
post-market studies.

                                      15



The FDA has broad post-market regulatory and enforcement powers, including the
ability to levy fines and civil penalties, suspend or delay issuance of
approvals, seize or recall products, and withdraw approvals.

With respect to post-market product advertising and promotion, the FDA imposes
a number of complex regulations on entities that advertise and promote
pharmaceuticals, which include, among others, off-label promotion, industry
sponsored scientific and educational activities, standards and regulations for
direct-to-consumer advertising, and promotional activities involving the
Internet. The FDA has very broad enforcement authority under the Federal Food
Drug and Cosmetic Act, and failure to abide by these regulations can result in
penalties including the issuance of a warning letter directing a company to
correct deviations from FDA standards, a requirement that future advertising
and promotional materials be pre-cleared by the FDA, and state and federal
civil and criminal investigations and prosecutions.

We are also subject to various laws and regulations regarding laboratory
practices, product manufacturing, including FDA's current Good Manufacturing
Practice requirements, the experimental use of animals, and the use and
disposal of hazardous or potentially hazardous substances in connection with
our research. In each of these areas, the FDA has broad regulatory and
enforcement powers, including the ability to levy fines and civil penalties,
suspend or delay issuance of approvals, seize or recall products, and withdraw
approvals, any one or more of which could harm our business. Additionally,
before any of our products may be marketed in foreign countries, they are
subject to pre- and post-market regulation similar to that required in the
United States.

EMPLOYEES

We had 425 full-time employees as of December 31, 2001 as follows:

                                                                        
Sales Representatives and Management deployed in the field................ 188
Sales Operations and Marketing............................................  11
Research and Development.................................................. 178
General and Administrative................................................  48
                                                                           ---
Total..................................................................... 425
                                                                           ===



We believe our employee relations are good. None of our employees is subject to
a collective bargaining agreement.

                                      16



                                 RISK FACTORS

YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW BEFORE MAKING AN
INVESTMENT DECISION. OUR BUSINESS, FINANCIAL CONDITION OR RESULTS OF OPERATIONS
COULD BE HARMED BY ANY OF THESE RISKS. THE RISKS DESCRIBED BELOW ARE NOT THE
ONLY ONES FACING OUR COMPANY. ADDITIONAL RISKS NOT PRESENTLY KNOWN TO US OR
THAT WE CURRENTLY DEEM IMMATERIAL MAY ALSO IMPAIR OUR BUSINESS OPERATIONS. THIS
DOCUMENT ALSO CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF THE RISKS FACED
BY US, INCLUDING THOSE DESCRIBED BELOW AND ELSEWHERE IN THIS DOCUMENT.

RISKS RELATED TO NATRECOR

IF NATRECOR DOES NOT GAIN MARKET ACCEPTANCE, OUR BUSINESS WILL SUFFER.

Natrecor may not gain market acceptance among physicians, patients, healthcare
payers and the medical community. We will need to educate doctors and other
healthcare advisors of the safety and clinical efficacy of Natrecor and its
potential advantages over other treatments. The degree of market acceptance of
Natrecor will also depend on a number of factors, including:

 . the degree of clinical efficacy and safety;

 . cost-effectiveness of Natrecor;

 . its advantage over alternative treatment methods; and

 . reimbursement policies of government and third party payers.

To the extent market acceptance of Natrecor is limited, our revenues may suffer.

IF THE FDA DETERMINES THAT OUR THIRD-PARTY MANUFACTURING FACILITIES ARE NOT
ADEQUATE, WE MAY LOSE THE ABILITY TO MANUFACTURE AND SELL NATRECOR.

Periodically, the FDA is likely to inspect each of the facilities involved in
manufacturing Natrecor. Natrecor is manufactured for us by BioChemie GmbH, a
subsidiary of Novartis, in Austria and is shipped in powder form to Abbott
Laboratories in McPherson, Kansas where it is blended, filled and packaged for
shipment. Although each facility has previously passed FDA inspections, future
inspections may find deficiencies in the facilities or processes that may delay
or prevent the manufacture or sale of Natrecor. If deficiencies are identified,
we may lose the ability to supply and sell Natrecor for an extended periods of
time.

WE RELY ON THIRD-PARTY MANUFACTURERS, AND IF THEY EXPERIENCE ANY DIFFICULTIES
WITH THEIR MANUFACTURING PROCESSES, WE MAY NOT OBTAIN SUFFICIENT QUANTITIES OF
NATRECOR TO ASSURE AVAILABILITY.

We rely on third parties for the manufacture of bulk drug substances and final
drug product for clinical and commercial purposes relating to Natrecor.
BioChemie GmbH is responsible for manufacturing Natrecor in bulk quantities and
Abbott Laboratories is responsible for blending, filling and packaging
Natrecor, and if they encounter problems in these processes, our revenues from
future sales of Natrecor could decrease. Natrecor is manufactured using
industry-accepted recombinant manufacturing techniques, which must be conducted
under strict controls and tight timelines. Natrecor is subject to strict
quality control testing during all phases of production and prior to its
release to the market. Any quality control testing failures could lead to a
reduction in the available supply of Natrecor. BioChemie depends on outside
vendors for the timely supply of raw materials used to produce Natrecor. Once a
supplier's materials have been selected for use in BioChemie's manufacturing
process, the supplier in effect becomes a sole or limited source of that raw
material due to regulatory compliance procedures. We depend on these third
parties to perform their obligations effectively and on a timely basis. If
these third parties fail to perform as required, our ability to deliver
Natrecor on a timely basis would be impaired. In addition, in the event of a
natural disaster, equipment failure, power failure, strike or other difficulty,
we may be unable to replace our third party manufacturers in a timely manner
and would be unable to manufacture Natrecor to meet market needs.

                                      17



IN THE AREA OF ACUTE CHF, WE FACE COMPETITION FROM COMPANIES WITH SUBSTANTIAL
FINANCIAL, TECHNICAL AND MARKETING RESOURCES, WHICH COULD LIMIT OUR FUTURE
REVENUES FROM NATRECOR.

Many therapeutic options are available for patients with acute CHF. Competing
drugs fall into three main categories: vasodilators, inotropes and diuretics.
Natrecor would compete against both vasodilators and inotropes in the acute CHF
market. Many of these drugs are available in generic formulation with an
associated low cost. In addition, milrinone, an inotrope, is currently promoted
by Sanofi-Synthelabo Inc. We may not be able to compete effectively with these
long-standing current forms of therapy. In addition, Natrecor costs more than
many of these existing drugs, which may harm our competitive position relative
to these drugs.

New drugs in development for the treatment of acute CHF would also compete with
Natrecor if approved by the FDA or other regulatory agencies. Tezosentan, a
non-selective endothelin receptor antagonist, is being developed by Actelion
Ltd. and has been evaluated in Phase II clinical trials as a vasodilator for
the treatment of acute CHF.

In addition, Abbott had previously submitted an NDA for Simdax, a calcium
sensitizer described as an inotrope, but withdrew the application in 2000.
However, Abbott appears to be moving forward with development of this product.
If any such new drug in development is approved by the FDA or other regulatory
agencies, we may not be able to compete effectively with these new forms of
therapy.

IF WE FAIL TO GAIN APPROVAL FOR NATRECOR AND OUR OTHER PRODUCT CANDIDATES IN
INTERNATIONAL MARKETS, OUR MARKET OPPORTUNITIES WILL BE LIMITED.

We have not yet filed for marketing clearance for the use of Natrecor or any
other product candidates in foreign countries, and we may not be able to obtain
any international regulatory approvals for Natrecor or any other product we
develop. If we fail to obtain those approvals or if such approvals are delayed,
the geographic market for Natrecor or our other product candidates would be
limited.

WE WILL REQUIRE A PARTNER TO MARKET AND COMMERCIALIZE NATRECOR AND OUR OTHER
PRODUCT CANDIDATES IN MARKETS OTHER THAN EUROPE.

We plan to partner with other companies for the sale of Natrecor and our other
product candidates outside of the United States. In December 2001, we entered
into an agreement with GSK in all European markets. Under the terms of the
agreement, GSK will have the rights to sell and distribute Natrecor for which
Scios will receive an up-front fee and milestone payments, in addition to
future royalties on European sales. Scios will manufacture and supply the bulk
product (active pharmaceutical ingredient) to GSK.

We also plan to partner Natrecor in markets other than European markets. We
cannot assure you that we will be able to enter into such arrangements on
favorable terms or at all. In addition, partnering arrangements could result in
lower levels of income to us than if we marketed our products entirely on our
own. In the event that we are unable to enter into a partnering arrangement for
Natrecor or our other product candidates in international markets, we cannot
assure you we will be able to develop an effective international sales force to
successfully market and commercialize those products. If we fail to enter into
partnering arrangements for our products and are unable to develop an effective
international sales force, our revenues would be limited.

THE SUCCESS OF NATRECOR IN THE EUROPEAN MARKET IS HIGHLY DEPENDENT ON OBTAINING
EUROPEAN APPROVAL AND OUR LICENSING AGREEMENT WITH GSK FOR MARKETING, PROMOTION
AND SALES ACTIVITIES.

In order to obtain European Approval for Natrecor, GSK expects to use the
extensive clinical data we submitted to obtain approval from the FDA in August
2001. If we receive the necessary approvals, we expect to launch Natrecor in
Europe in the first half of 2004. However, while the clinical data used to
support the FDA submission is expected to be adequate for European approval,
further clinical trials may be necessary and adverse results from such
additional trials could result in a failure to receive European approval. Even
if additional trials are successful, a requirement to conduct further clinical
trials would delay the launch of Natrecor in Europe, which may result in lower
than anticipated revenues for Scios.

Under the terms of the agreement, GSK will have the rights to sell and
distribute Natrecor for which Scios will receive an up-front fee and milestones
payments, in addition to future royalties on European sales. Accordingly, our
revenue from sales of Natrecor in Europe will be highly dependent on GSK's
ability to effectively market and sell Natrecor.

                                      18



The companies intend to conduct a health outcomes trial, commencing in 2002,
which the companies will use to assess market acceptance of Natrecor in major
European countries. The health outcomes trial could affect the price at which
Natrecor will be sold. We cannot be assured that a preferred price for Natrecor
will be obtainable and that market acceptance of Natrecor will be achieved.

IF WE FAIL TO OBTAIN ADDITIONAL MARKETING APPROVALS FROM THE FDA FOR THE USE OF
NATRECOR FOR ADDITIONAL THERAPEUTIC INDICATIONS OR IF AFTER APPROVAL SUCH
APPROVAL IS SUBSEQUENTLY REVOKED, OUR REVENUES FROM NATRECOR WILL SUFFER.

In order to expand the medical uses, or therapeutic indications, for which we
may market Natrecor, we must successfully complete additional clinical trials,
which could be lengthy and expensive and will require the allocation of both
substantial management and financial resources. Thereafter, we will have to
apply separately to the FDA for clearance to market Natrecor for other
indications. We cannot assure you that we will be able to successfully complete
the required clinical trials or that the FDA will approve Natrecor for any
additional indications. In addition, even if Natrecor is approved by the FDA,
we cannot exclude the possibility that serious adverse events related to the
use of Natrecor might occur in the future, which could either limit its use or
cause the FDA to revoke our approval to market Natrecor.

OTHER RISKS RELATED TO SCIOS

WE HAVE A HISTORY OF LOSSES, EXPECT TO OPERATE AT A LOSS FOR THE FORESEEABLE
FUTURE AND MAY NEVER BE PROFITABLE.

We may not be able to achieve or earn a profit in the future. We began
operations in December 1981, and since that time, with the sole exception of
1983, we have not earned a profit on a full-year basis. Our losses have
historically resulted primarily from our investments in research and
development. As of December 31, 2001, we had an accumulated deficit of
approximately $473.9 million.

To date, nearly all of our revenues have come from:

 . sales of Natrecor beginning in August 2001;

 . one-time sales of bulk FGF product and royalties from Fiblast Spray sales by
  Kaken in Japan;

 . one-time signing fees from our corporate partners under agreements supporting
  the research, development and commercialization of our product candidates;

 . one-time payments from our corporate partners when we achieved regulatory or
  development milestones;

 . research funding from our corporate partners; and

 . our psychiatric sales and marketing division.

We expect that our research, development and clinical trial activities and
regulatory approvals, together with future general and administrative
activities and the costs associated with launching and commercializing our
product candidates and launching and commercializing Natrecor in the United
States, will result in significant expenses for the foreseeable future.

OUR OPERATING RESULTS ARE SUBJECT TO FLUCTUATIONS THAT MAY CAUSE OUR STOCK
PRICE TO DECLINE.

Our revenues and expenses have fluctuated significantly in the past. This
fluctuation has in turn caused our operating results to vary significantly from
quarter to quarter and year to year. We expect the fluctuations in our revenues
and expenses to continue, and thus, our operating results should also continue
to vary significantly. These fluctuations may be due to a variety of factors
including:

 . our success in selling Natrecor;

 . the timing and realization of milestone and other payments from our corporate
  partners;

 . the timing and amount of expenses relating to our research and development,
  product development and manufacturing activities; and

 . the extent and timing of costs related to our activities to obtain patents on
  our inventions and to extend, enforce and/or defend our patents and other
  rights to our intellectual property.

                                      19



Because of these fluctuations, it is possible that our operating results for a
particular quarter or quarters will not meet the expectations of public market
analysts and investors, causing the market price of our common stock to
decline. We believe that period-to-period comparisons of our operating results
are not a good indication of our future performance, and you should not rely on
those comparisons to predict our future operating or share price performance.

WE DEPEND ON OUR KEY PERSONNEL AND WE MUST CONTINUE TO ATTRACT AND RETAIN KEY
EMPLOYEES AND CONSULTANTS.

We depend on our key scientific and management personnel. Our ability to pursue
the development of our current and future product candidates depends largely on
retaining the services of our existing personnel and hiring additional
qualified scientific personnel to perform research and development. We also
rely on personnel with expertise in clinical testing, government regulation,
manufacturing and marketing. Attracting and retaining qualified personnel will
be critical to our success. We may not be able to attract and retain personnel
on acceptable terms given the competition for such personnel among
biotechnology, pharmaceutical and healthcare companies, universities and
non-profit research institutions. Failure to retain our key scientific
personnel or to attract additional highly qualified personnel could delay the
development of our product candidates and harm our business.

The success of our present and future operations will also depend to a
significant extent on the experience, abilities and continued services of
certain executive officers of Scios. In this regard, Dick Brewer, our President
and Chief Executive Officer, was diagnosed in mid-2001 with early-stage
Multiple Myeloma, a form of blood cancer. He continues to undergo treatment and
in February 2002 moved into the next phase of his treatment program. During
this phase, which is expected to last approximately two months, the Company has
expanded the role of Dr. Donald Rice, the Chairman of the Board, and
established an Office of the Chairman, composed of Dr. Rice and our senior
management team. A loss of the services of Mr. Brewer or other key management
personnel could have a material adverse effect on the Company.

OTHER THAN NATRECOR, OUR PRODUCT CANDIDATES ARE AT EARLY STAGES OF DEVELOPMENT,
AND IF WE ARE UNABLE TO DEVELOP AND COMMERCIALIZE THESE PRODUCT CANDIDATES
SUCCESSFULLY, WE WILL NOT GENERATE REVENUES FROM THESE PRODUCTS.

We face the risk of failure normally found in developing biotechnology products
based on new technologies. Successfully developing, manufacturing, introducing
and marketing our early-stage product candidates, including SCIO-469 and our
inhibitors of TGF-beta, will require several years and substantial additional
capital.

OUR OPERATIONS DEPEND ON COMPLIANCE WITH COMPLEX FDA AND COMPARABLE
INTERNATIONAL REGULATIONS. IF WE FAIL TO OBTAIN APPROVALS ON A TIMELY BASIS OR
TO ACHIEVE CONTINUED COMPLIANCE, THE COMMERCIALIZATION OF OUR PRODUCTS COULD BE
DELAYED.

We cannot assure you that we will receive the regulatory approvals necessary to
commercialize our product candidates, which could cause our business to fail.
Our product candidates are subject to extensive and rigorous government
regulation by the FDA and comparable agencies in other countries. The FDA
regulates, among other things, the development, testing, manufacture, safety,
efficacy, record keeping, labeling, storage, approval, advertising, promotion,
sale and distribution of biopharmaceutical products. If our potential products
are marketed abroad, they will also be subject to extensive regulation by
foreign governments. In addition, we have only limited experience in filing and
pursuing applications necessary to gain regulatory approvals, which may impede
our ability to obtain such approvals.

THE RESULTS OF PRE-CLINICAL STUDIES AND CLINICAL TRIALS OF OUR PRODUCTS MAY NOT
BE FAVORABLE.

In order to obtain regulatory approval for the commercial sale of any of our
product candidates, we must conduct both pre-clinical studies and human
clinical trials. These studies and trials must demonstrate that the product is
safe and effective for the clinical use for which we are seeking approval. In
the first quarter of 2002, we began Phase II clinical trials of our lead p38
kinase inhibitor small molecule compound. The results of these or other
clinical trials that we may conduct in the future may not be successful.
Adverse results from our current or any future trials would harm our business.
We also face the risk that we will not be permitted to undertake or continue
clinical trials for any of our product candidates in the future. Even if we are
able to conduct such trials, we may not be able to satisfactorily demonstrate
that the products are safe and effective and thus qualify for the regulatory
approvals needed to market and sell them. Results from pre-clinical studies and
early clinical trials are often not accurate indicators of results of
later-stage clinical trials that involve larger human populations.

                                      20



OUR PRODUCTS USE NOVEL ALTERNATIVE TECHNOLOGIES AND THERAPEUTIC APPROACHES,
WHICH HAVE NOT BEEN WIDELY STUDIED.

Our product development efforts focus on novel alternative therapeutic
approaches and new technologies that have not been widely studied. These
approaches and technologies may not be successful. We are applying these
approaches and technologies in our attempt to discover new treatments for
conditions that are also the subject of research and development efforts of
many other companies.

RAPID CHANGES IN TECHNOLOGY AND INDUSTRY STANDARDS COULD RENDER OUR POTENTIAL
PRODUCTS UNMARKETABLE.

We are engaged in a field characterized by extensive research efforts and rapid
technological development. New drug discoveries and developments in our field
and other drug discovery technologies are accelerating. Our competitors may
develop technologies and products that are more effective than any we develop
or that render our technology and potential products obsolete or
noncompetitive. In addition, our potential products could become unmarketable
if new industry standards emerge. To be successful, we will need to enhance our
product candidates and design, develop and market new product candidates that
keep pace with new technological and industry developments.

MANY OTHER COMPANIES ARE TARGETING THE SAME DISEASES AND CONDITIONS AS WE ARE.
COMPETITIVE PRODUCTS FROM OTHER COMPANIES COULD SIGNIFICANTLY REDUCE THE MARKET
ACCEPTANCE OF OUR PRODUCTS.

The markets in which we compete are well established and intensely competitive.
We may be unable to compete successfully against our current and future
competitors. Our failure to compete successfully may result in pricing
reductions, reduced gross margins and failure to achieve market acceptance for
our potential products. Our competitors include pharmaceutical companies,
biotechnology companies, chemical companies, academic and research institutions
and government agencies.

For example, many pharmaceutical and biotechnology companies have initiated
research programs similar to ours. Many of these organizations have
substantially more experience and more capital, research and development,
regulatory, manufacturing, sales, marketing, human and other resources than we
do. As a result, they may:

 . develop products that are safer or more effective than our product candidates;

 . obtain FDA and other regulatory approvals or reach the market with their
  products more rapidly than we can, reducing the potential sales of our
  product candidates;

 . devote greater resources to market or sell their products;

 . adapt more quickly to new technologies and scientific advances;

 . initiate or withstand substantial price competition more successfully than we
  can;

 . have greater success in recruiting skilled scientific workers from the
  limited pool of available talent;

 . more effectively negotiate third-party licensing and collaboration
  arrangements; and

 . take advantage of acquisition or other opportunities more readily than we can.

In addition, our product candidates, if approved and commercialized, will
compete against well-established existing therapeutic products that are
currently reimbursed by government health administration authorities, private
health insurers and health maintenance organizations. We face and will continue
to face intense competition from other companies for collaborative arrangements
with pharmaceutical and biotechnology companies, for relationships with
academic and research institutions and for licenses to proprietary technology.
In addition, we anticipate that we will face increased competition in the
future as new companies enter our markets and as scientific developments
continue to expand the understanding of various diseases. While we will seek to
expand our technological capabilities to remain competitive, research and
development by others may render our technology or product candidates obsolete
or noncompetitive or result in treatments or cures superior to any therapy
developed by us.

                                      21



IF WE ARE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS ADEQUATELY, THE
VALUE OF OUR POTENTIAL PRODUCTS COULD BE DIMINISHED.

Our success is dependent in part on obtaining, maintaining and enforcing our
patents and other proprietary rights. Patent law relating to the scope of
claims in the biotechnology field in which we operate is still evolving and
surrounded by a great deal of uncertainty. Accordingly, we cannot assure you
that our pending patent applications will result in issued patents. Because
certain U.S. patent applications may be maintained in secrecy until a patent
issues, we cannot assure you that others have not filed patent applications for
technology covered by our pending applications or that we were the first to
invent the technology.

Other companies, universities and research institutions have or may obtain
patents and patent applications that could limit our ability to use,
manufacture, market or sell our product candidates or impair our competitive
position. As a result, we may have to obtain licenses from other parties before
we could continue using, manufacturing, marketing or selling our potential
products. Any such licenses may not be available on commercially acceptable
terms, if at all. If we do not obtain required licenses, we may not be able to
market our potential products at all or we may encounter significant delays in
product development while we redesign potentially infringing products or
methods.

In addition, although we own a number of patents, including issued patents and
patent applications relating to Natrecor and certain of our p38 kinase
inhibitors, the issuance of a patent is not conclusive as to its validity or
enforceability, and third parties may challenge the validity or enforceability
of our patents. We cannot assure you how much protection, if any, will be given
to our patents if we attempt to enforce them and they are challenged in court
or in other proceedings. It is possible that a competitor may successfully
challenge our patents or that challenges will result in limitations of their
coverage. In addition, the cost of litigation to uphold the validity of patents
can be substantial. If we are unsuccessful in such litigation, third parties
may be able to use our patented technologies without paying licensing fees or
royalties to us.

Moreover, competitors may infringe our patents or successfully avoid them
through design innovation. To prevent infringement or unauthorized use, we may
need to file infringement claims, which are expensive and time- consuming. In
addition, in an infringement proceeding, a court may decide that a patent of
ours is not valid or may refuse to stop the other party from using the
technology at issue on the grounds that its technology is not covered by our
patents. Policing unauthorized use of our intellectual property is difficult,
and we cannot assure you that we will be able to prevent misappropriation of
our proprietary rights, particularly in countries where the laws may not
protect such rights as fully as in the United States.

In addition to our patented technology, we also rely on unpatented technology,
trade secrets and confidential information. We may not be able to effectively
protect our rights to this technology or information. Other parties may
independently develop substantially equivalent information and techniques or
otherwise gain access to or disclose our technology. We require each of our
employees, consultants and corporate partners to execute a confidentiality
agreement at the commencement of an employment, consulting or collaborative
relationship with us. However, these agreements may not provide effective
protection of our technology or information or, in the event of unauthorized
use or disclosure, they may not provide adequate remedies.

IF WE FAIL TO NEGOTIATE OR MAINTAIN SUCCESSFUL ARRANGEMENTS WITH THIRD PARTIES,
OUR DEVELOPMENT AND MARKETING ACTIVITIES MAY BE DELAYED OR REDUCED.

We have entered into, and we expect to enter into in the future, arrangements
with third parties to perform research, development, regulatory compliance,
manufacturing or marketing activities relating to some or all of our product
candidates. If we fail to secure or maintain successful collaborative
arrangements, our development and marketing activities may be delayed or
reduced. We may be unable to negotiate favorable collaborative arrangements
that, if necessary, modify our existing arrangements on acceptable terms. Most
of our agreements can be terminated under certain conditions by our partners.
In addition, our partners may separately pursue competing products, therapeutic
approaches or technologies to develop treatments for the diseases targeted by
us or our efforts. Even if our partners continue their contributions to the
collaborative arrangements, they may nevertheless determine not to actively
pursue the development or commercialization of any resulting products. Also,
our partners may fail to perform their obligations under the collaborative
arrangements or may be slow in performing their obligations. In these
circumstances, our ability to develop and market potential products could be
severely limited.

                                      22



RISKS RELATED TO OUR INDUSTRY

WE FACE UNCERTAINTIES OVER REIMBURSEMENT AND HEALTHCARE REFORM.

In both domestic and foreign markets, future sales of our potential products,
if any, will depend in part on the availability of reimbursement from
third-party payers such as government health administration authorities,
private health insurers and other organizations. Third-party payers are
increasingly challenging the price and cost- effectiveness of medical products
and services. Significant uncertainty exists as to the reimbursement status of
newly approved health care products. Even if we were to obtain regulatory
approval, our product candidates may not be considered cost-effective and
adequate third-party reimbursement may not be available to enable us to
maintain price levels sufficient to realize an appropriate return on our
investments in product development. Legislation and regulations affecting the
pricing of pharmaceuticals may change before any of our product candidates is
approved for marketing. Adoption of such legislation and regulations could
further limit reimbursement for medical products and services. If the
government and third party payers fail to provide adequate coverage and
reimbursement rates for our potential products, the market acceptance of our
products may be adversely affected.

WE MAY BE REQUIRED TO DEFEND LAWSUITS OR PAY DAMAGES IN CONNECTION WITH THE
ALLEGED OR ACTUAL HARM CAUSED BY OUR PRODUCT CANDIDATES.

We face an inherent business risk of exposure to product liability claims in
the event that the use of our product candidates is alleged to have resulted in
harm to others. This risk exists in clinical trials as well as in commercial
distribution. In addition, the pharmaceutical and biotechnology industries in
general have been subject to significant medical malpractice litigation. We may
incur significant liability if product liability or malpractice lawsuits
against us are successful. Although we maintain product liability insurance, we
cannot be sure that this coverage is adequate or that it will continue to be
available to us on acceptable terms.

WE USE HAZARDOUS MATERIALS IN OUR BUSINESS, AND ANY CLAIMS RELATING TO IMPROPER
HANDLING STORAGE OR DISPOSAL OF THESE MATERIALS COULD HARM OUR BUSINESS.

Our research and development activities involve the controlled use of hazardous
materials, chemicals, biological agents and radioactive compounds. We are
subject to federal, state and local laws and regulations governing the use,
manufacture, storage, handling and disposal of such materials and certain waste
products. Although we believe that our safety procedures for handling and
disposing of such materials comply with the standards prescribed by such laws
and regulations, the risk of accidental contamination or injury from these
materials cannot be completely eliminated. In the event of such an accident, we
could be held liable for any resulting damages, and any such liability could
exceed our resources. We may be required to incur significant costs to comply
with these laws in the future. Failure to comply with these laws could result
in fines and the revocation of permits, which could prevent us from conducting
our business.

OUR STOCK PRICE CONTINUES TO EXPERIENCE LARGE FLUCTUATIONS, AND YOU COULD LOSE
SOME OR ALL OF YOUR INVESTMENT.

The market price of our stock has been and is likely to continue to be highly
volatile. These price fluctuations have been rapid and severe. The market price
of our common stock may fluctuate significantly in response to the following
factors, most of which are beyond our control:

 .  variations in our quarterly operating results;

 .  changes in securities analysts' estimates of our financial performance;

 .  changes in market valuations of similar companies;

 .  announcements by us or our competitors of significant contracts,
   acquisitions, strategic partnerships, joint ventures or capital commitments;

 .  additions or departures of key personnel;

 .  future sales of common stock;

 .  announcements by us or our competitors of technological innovations of new
   therapeutic products, clinical trial results and developments in patent or
   other proprietary rights;

 .  announcements regarding government regulations, public concern as to the
   safety of drugs developed by us or others or changes in reimbursement
   policies; and

                                      23



 .  fluctuations in stock market price and volume, which are particularly common
   among securities of biopharmaceutical companies.

WE ARE AT RISK OF SECURITIES CLASS ACTION LITIGATION.

In the past, securities class action litigation has often been brought against
a company following a decline in the market price of its securities. This risk
is especially relevant for us because biotechnology companies have experienced
greater than average stock price volatility in recent years. Several years ago,
we were the subjects of a securities class action lawsuit, which was eventually
dismissed with a determination that the plaintiffs had no basis for their
claim. If we face such litigation in the future, it could result in substantial
costs and a diversion of management's attention and resources, which could harm
our business.

WE HAVE IMPLEMENTED PROVISIONS IN OUR CHARTER DOCUMENTS THAT MAY ULTIMATELY
DELAY, DISCOURAGE OR PREVENT A CHANGE IN OUR MANAGEMENT OR CONTROL OF US.

Our certificate of incorporation and bylaws contain provisions that could make
it more difficult for our stockholders to replace or remove our directors or to
effect any other corporate action. These provisions include those which:

 . prohibit holders of less than ten percent of our outstanding capital stock
  from calling special meetings of stockholders;

 . prohibit stockholder action by written consent, thereby requiring stockholder
  actions to be taken at a meeting of our stockholders; and

 . establish advance notice requirements for nominations for election to the
  board of directors or for proposing matters that can be acted upon by
  stockholders at stockholder meetings.

Moreover, our certificate of incorporation does not provide for cumulative
voting in the election of directors, which would otherwise allow less than a
majority of stockholders to elect director candidates.

Some of the above provisions may also have possible anti-takeover effects,
which may make an acquisition of us by a third party more difficult, even if
such an acquisition could be beneficial to our stockholders. In addition, our
certificate of incorporation also authorizes us to issue up to 20,000,000
shares of preferred stock in one or more different series with terms to be
determined by our board of directors at time of issuance. As of December 31,
2001, an aggregate of 71,053 shares of preferred stock had been designated for
issuance as Series A or Series B preferred stock by the board of directors and
4,991 shares of Series B preferred stock were issued and outstanding. Issuance
of other shares of preferred stock could also be used as an anti-takeover
device.

                                      24



                       EXECUTIVE OFFICERS OF THE COMPANY

Our executive officers and their ages at February 28, 2002 are as follows:



- ------------------------------------------------------------------------------------------------------
NAME                                    AGE POSITION
- ------------------------------------------------------------------------------------------------------
                                      
Richard B. Brewer...................... 50  President, Chief Executive Officer and Director
George F. Schreiner, M.D., Ph.D........ 52  Chief Scientific Officer
David W. Gryska........................ 45  Senior Vice President, Finance and Chief Financial Officer
Patricia A. Baldwin, Ph.D.............. 46  Vice President, Quality and Product Development
Thomas L. Feldman...................... 51  Vice President, Sales and Marketing
M. Allison Herd........................ 41  Vice President, Human Resources
Matthew R. Hooper...................... 44  Vice President and General Counsel
Darlene P. Horton, M.D................. 40  Vice President, Medical Affairs
Jane A. Moffitt........................ 49  Vice President, Regulatory Affairs


RICHARD B. BREWER joined us in September 1998 as President, Chief Executive
Officer and Director. From February 1996 to June 1998, he served as the
Executive Vice President of Operations and then as Chief Operating Officer of
Heartport, Inc., a medical device company. From 1984 to 1995, Mr. Brewer served
in various capacities for Genentech Europe Ltd., Genentech Canada, Inc. and
Genentech, Inc., most recently as Senior Vice President, U.S. Sales and
Marketing. Mr. Brewer received a B.S. from Virginia Polytechnic Institute and
an M.B.A. from Northwestern University.

GEORGE F. SCHREINER, M.D., PH.D., joined us in January 1997 as Vice President,
Cardiorenal Research. He became our Chief Scientific Officer in August 2000,
responsible for leading our research group. From 1992 until January 1997, Dr.
Schreiner was with CV Therapeutics, Inc., a biopharmaceutical company, as Vice
President, Medical Science and Pre-clinical Research. From 1980 to 1992, Dr.
Schreiner served on the faculties of Harvard Medical School and Washington
University School of Medicine. Dr. Schreiner received an A.B. in
Psychology/Sociology from Harvard College, an M.D. from Harvard Medical School
and a Ph.D. in Immunology from Harvard University.

DAVID W. GRYSKA joined us in December 1998 as Vice President of Finance and
Chief Financial Officer and became our Senior Vice President of Finance in
November 2000. From 1993 to December 1998, Mr. Gryska was Vice President,
Finance and Chief Financial Officer of Cardiac Pathways Corporation, a medical
device company. Mr. Gryska was with Ernst & Young LLP from 1982 to 1993 and
served as a partner from 1989 to 1993. Mr. Gryska received a B.A. in Accounting
and a B.A. in Finance from Loyola University of Chicago and an M.B.A. from
Golden Gate University.

PATRICIA A. BALDWIN, PH.D., joined us in 1986 as a Scientist in the Novel Drug
Delivery Department. In 1990, she moved to the Pharmaceutical Research and
Development Department and in 1995, Dr. Baldwin became our Director of
Analytical Chemistry. In September 1999, she became our Senior Director of
Analytical Methods and Quality Control and in March 2000, Dr. Baldwin was
promoted to our Vice President, Quality and Product Development. Dr. Baldwin
received a B.S. in Chemistry from Stanford University and a Ph.D. in Chemistry
from the University of California, Berkeley.

THOMAS L. FELDMAN joined us in 1995 as Vice President of Commercial Operations
and in November 1999, became our Vice President, Sales and Marketing. From 1973
to 1995, Mr. Feldman held various sales and marketing positions at
pharmaceutical companies affiliated with Johnson & Johnson, including National
Sales Manager at Ortho Pharmaceutical Corporation (1993 to 1994) and National
Sales Manager at McNeil Pharmaceutical (1990 to 1993). Mr. Feldman received a
B.A. in Business and Speech from North Dakota State University.

M. ALLISON HERD joined us in March 2001 as Vice President of Human Resources.
From February 2000 to March 2001, she was Director of Human Resources with
Network ICE Corporation, a software company. From March 1998 to February 2000,
Ms. Herd was Director of Human Resources with Cardiac Pathways, a medical
device company. From November 1996 to March 1998, she was Human Resources
Manager with Progressive Angioplasty Systems, a medical device company. From
April 1996 to November 1996, Ms. Herd was Senior Human Resources Generalist
with CLONTECH Laboratories, Inc., a biotechnology company. Ms. Herd holds a
B.A. in Sociology from San Jose State University and an M.A. in Human Resources
from Golden Gate University.

MATTHEW R. HOOPER joined us in October 2000 as Senior Patent Counsel in which
he handled all intellectual property matters for the Company. In October 2001,
Mr. Hooper became Vice President, General Counsel of Scios and currently
oversees all

                                      25



legal aspects of the Company's operations. From November 1999 to September
2000, Mr. Hooper was senior counsel in the litigation group of Jones Day Reavis
and Pogue in Chicago. From 1994 to 1999, he held the position of counsel at
Abbott Laboratories in its patent and trademark department. Before joining
Abbott, Mr. Hooper served as a patent attorney at Amoco Corporation from 1985
through 1994, and an associate attorney in private practice in Chicago from
1982 through 1985. He received his J.D. from Northwestern University Law School
and his B.S. degree in Chemistry from LaSalle University.

DARLENE P. HORTON, M.D., joined us in July 1996 and is responsible for
directing and managing our clinical research programs. In August 2000, Dr.
Horton was appointed our Vice President, Medical Affairs. Prior to joining
Scios, she was a Pediatric Cardiology Fellow at UCSF's Cardiovascular Research
Institute, and she remains on the clinical faculty at the University of
California, San Francisco. Dr. Horton received a B.S. in Microbiology and an
M.D. from the University of Florida in Gainesville.

JANE A. MOFFITT joined Scios in August, 2001 as Vice President of Regulatory
Affairs and is responsible for overseeing all aspects of the Company's
regulatory operations. In her previous position with Cygnus, Inc., a medical
device company, she served as Vice President, Regulatory Affairs and Quality
Assurance. Prior to Cygnus, Ms. Moffitt ran her own consulting business,
advising numerous medical device and biotechnology companies on regulatory
affairs and quality assurance. Before that, she served as Vice President,
Worldwide Regulatory Affairs, at Collagen Corporation and as Vice President,
Regulatory Affairs/Quality Assurance at Amsco International, Inc. in
Pittsburgh. She came to Amsco from Allergan, Inc., where she was Assistant
General Counsel and Director of Regulatory Affairs. She received her B.S.
degree from Dickinson College in Carlisle, Pa., and her J.D. from the Dickinson
School of Law. She earned her LL.M. in Trade Regulation from the New York
University School of Law through the Food & Drug Law Institute Fellowship
Program.

ITEM 2.  PROPERTIES

We lease a 52,000 square foot office building in Sunnyvale, California pursuant
to two leases which both expire on August 31, 2008. We also lease two
neighboring 33,600 and 7,200 square foot office buildings, which both expire on
December 31, 2003. Our annual lease payments for the Sunnyvale facilities are
approximately $1.9 million. In addition, we lease a warehouse in Mountain View,
California that expires on December 31, 2003. We believe our facilities are
sufficient for the foreseeable future.

ITEM 3.  LEGAL PROCEEDINGS

On November 29, 1995, we were notified by the United States Environmental
Protection Agency, or EPA, that we may have a liability in connection with the
clean-up of a toxic waste site arising out of the alleged disposal of hazardous
substances by a subcontractor of Nova Pharmaceutical Corporation, the Company
acquired in 1992. We are one of many potentially responsible parties that have
been identified as associated with this specific site. We held discussions with
the EPA and expected a settlement agreement pursuant to which we agreed to
contribute to site clean-up costs. We reserved $90,000 at December 31, 2000 as
provision for the settlement thereof. During 2001, we settled the liability
with a final settlement payment of $81,264.

ITEM 4.  SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.

                                      26



ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTER

PRICE RANGE OF COMMON STOCK

Since our initial public offering in 1983, our Common Stock has traded on the
NASDAQ National Market under the symbol "SCIO". The table below sets forth the
high and low sales prices (converted to decimals and rounded to the nearest
whole cent) as reported by NASDAQ for the Common Stock during the last eight
quarters. The prices appearing in the tables below reflect over the counter
market quotations, which reflect inter-dealer prices, without retail markups,
markdowns or commissions, and may not represent actual transactions.



                                                  --------------------------
                                                         COMMON STOCK
                                                  --------------------------
                                                     FY 2001      FY 2000
                                                  ------------- ------------
                                                    HIGH    LOW   HIGH   LOW
                                                  ------ ------ ------ -----
                                                           
Q1............................................... $23.81 $15.31 $ 8.63 $4.84
Q2...............................................  29.33  20.25   5.88  4.00
Q3...............................................  23.01  14.94  11.00  5.44
Q4............................................... $28.70 $16.58 $23.06 $9.13


DIVIDEND POLICY

We have not paid any cash and do not anticipate paying cash dividends in the
foreseeable future.

HOLDERS OF COMMON STOCK

As of December 31, 2001, there were 3,835 record owners of our common stock.

ITEM 6.  SELECTED FINANCIAL DATA

The following selected consolidated historical information has been derived
from the audited consolidated financial statements of the Company. The
financial information as of December 31, 2001, 2000, 1999, 1998, and 1997 and
for each of the five years in the period ended December 31, 2001 are derived
from audited consolidated financial statements and are included elsewhere in
this Annual Report on Form 10-K. The following Selected Consolidated Financial
Data should be read in conjunction with "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Item 8.
Consolidated Financial Statements and Supplementary Data" included elsewhere in
this Annual Report on Form 10-K. The historical results are not necessarily
indicative of the results of operations to be expected in the future.



                                        ------------------------------------------------
                                                     YEAR ENDED DECEMBER 31,
                                        ------------------------------------------------
                                            2001      2000      1999      1998      1997
STATEMENT OF OPERATIONS DATA:           --------  --------  --------  --------  --------
                                            (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                                                 
Revenues (1)........................... $ 47,345  $ 12,624  $ 28,355  $ 44,668  $ 14,459
Loss from operations...................  (65,176)  (42,372)  (24,333)  (11,991)  (39,737)
Other income (expense) net.............    3,006      (147)    4,283    11,102     2,254
Net loss...............................  (62,497)  (42,522)  (20,064)   (2,363)  (38,667)
Net loss per common share and per
  common share assuming dilution....... $  (1.47) $  (1.12) $  (0.53) $  (0.06) $  (1.07)
Pro forma effect of adopting SAB 101:
  Net loss.............................      N/A       N/A  $   (916) $(21,511) $(38,667)
  Basic and diluted loss per share.....      N/A       N/A  $  (0.02) $  (0.57) $  (1.07)
                                        ------------------------------------------------
                                                          DECEMBER 31,
                                        ------------------------------------------------
                                            2001      2000      1999      1998      1997
BALANCE SHEET DATA:                     --------  --------  --------  --------  --------
                                                         (IN THOUSANDS)
Cash and securities.................... $129,316  $ 71,531  $100,712  $ 97,311  $ 64,700
Working capital........................   18,411    13,057     1,706     8,083     4,524
Total assets...........................  156,178    88,669   118,272   138,829   116,871
Long term obligations..................   15,479    39,095    42,866    34,573    31,919
Stockholders' equity................... $ 81,148  $ 18,045  $ 42,787  $ 74,926  $ 60,142

- --------
(1)as reclassified for EITF 99-19

                                      27



ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
        RESULTS OF OPERATIONS

THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH OUR CONSOLIDATED
FINANCIAL STATEMENTS, INCLUDING THE RELATED NOTES, CONTAINED ELSEWHERE IN THIS
REPORT ON FORM 10-K. THE FOLLOWING DISCUSSION ALSO CONTAINS FORWARD-LOOKING
STATEMENTS ABOUT OUR PLANS, OBJECTIVES AND FUTURE RESULTS. THESE
FORWARD-LOOKING STATEMENTS ARE BASED ON OUR CURRENT EXPECTATIONS, AND WE ASSUME
NO OBLIGATION TO UPDATE THIS INFORMATION. REALIZATION OF THESE PLANS AND
RESULTS INVOLVES RISKS AND UNCERTAINTIES, AND OUR ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE DISCUSSED HERE. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO
SUCH DIFFERENCES INCLUDE, BUT ARE LIMITED TO THOSE SET FORTH UNDER "RISK
FACTORS" IN THIS REPORT ON FORM 10-K.

OVERVIEW

We are a biopharmaceutical company developing novel treatments for
cardiovascular and inflammatory diseases. Our disease-based technology platform
integrates expertise in protein biology with computational and medicinal
chemistry to identify novel targets and rationally design small molecule
compounds for large markets with unmet medical needs. We launched Natrecor
following U.S. Food and Drug Administration, or FDA, approval of Natrecor for
the treatment of acute congestive heart failure, or CHF, on August 13, 2001,
and recorded sales of $14.1 million for the year ended December 31, 2001.

We are focused on the development of three product candidates, Natrecor for the
treatment of acute congestive heart failure; SCIO-469, an oral, small molecule
inhibitor of p38 kinase for the treatment of rheumatoid arthritis (RA); and
novel small molecule inhibitors of the receptor for TGF-beta, a cytokine that
has been implicated in diseases characterized by chronic scar formation, or
fibrosis.

RESULTS OF OPERATIONS

YEARS ENDED DECEMBER 31, 2001, 2000, AND 1999

REVENUES

PRODUCT SALES.  Total product sales were $30.0 million for the year ended
December 31, 2001, and none for the years ended December 31, 2000 and 1999. In
2001, $15.9 million of product sales were derived from one-time sales of bulk
FGF to Kaken following the product approval of Fiblast Spray in Japan. These
sales are not expected to recur. The remaining product sales resulted from the
launch of Natrecor following FDA approval in August 2001 and recorded $14.1
million of product sales in 2001.

RESEARCH AND DEVELOPMENT CONTRACT REVENUES AND ROYALTIES.  Research and
development contract revenues and royalties were $4.8 million, $5.7 million,
and $18.4 million for the years ended December 31, 2001, 2000, and 1999,
respectively. In 2001, contract revenues primarily reflect our research
collaboration agreements with Eli Lilly & Company of $3.0 million. In addition,
we received royalty payments totaling $1.8 million from sales of Fiblast Spray
in Japan by Kaken, and from sales of diagnostic BNP testing by Biosite and
Abbott Laboratories. The decrease from 2000 to 2001 of $0.9 million was
primarily due to the end of our research collaboration agreement with DuPont
Pharmaceutical Company, effective November 2000. The $12.7 million decrease
from 1999 to 2000 was primarily attributable to $9.0 million in one-time
milestone payments received in 1999 from corporate partners Chiron Corporation
and Novo Nordisk A/S, $2.3 million in clinical research funding from Bayer AG
and $1.4 million in royalty payments from GenVec, Guilford Pharmaceuticals and
other research collaboration agreements. Research and development contract
revenues tend to fluctuate based on the amount of research services performed,
the status of projects under collaboration and the achievement of milestones.
Due to the nature of the Company's collaborative agreement revenues, results in
any one-year are not necessarily indicative of results to be achieved in the
future. The Company's ability to generate additional collaborative agreement
revenues may depend, in part, on its ability to initiate and maintain
relationships with potential and current collaborative partners. There can be
no assurance that such relationships will be established or that current
research and development contract revenues will not decline.

PSYCHIATRIC PRODUCT SALES AND CO-PROMOTION COMMISSIONS.  Psychiatric product
sales and co-promotion commissions for the years ended December 31, 2001, 2000,
and 1999 were $3.1 million, $6.9 million, and $10.0 million. The decrease of
$3.8 million from 2000 to 2001 was primarily due to the sale of marketing
rights for certain psychiatric products to GSK and the termination of the
license agreement in March 2001. At the same time, the Company dissolved its
Psychiatric Sales and Marketing Division, and deployment of the PSMD sales
force. The decline in product sales from 1999 to 2000 of $3.0 million was
largely the result of reduced distributor inventories caused by manufacturing
and product shelf life issues of Eskalith CR (one of five products manufactured
by GSK that were sold by the Company), coupled with the erosion of sales as a
result of new market entrants and generic drugs.

                                      28



GAIN ON SALE OF MARKETING RIGHTS.  Commencing in the fourth quarter of 2000, we
solicited and received bids regarding the sale of our exclusive marketing
rights for certain GSK psychiatric products sold by us. The marketing rights
were eventually sold to GSK. The marketing rights were originally licensed from
GSK under a 1990 licensing agreement. In order to effect the sale, the
licensing agreement was terminated effective March 31, 2001, and we received
from GSK $4.0 million in 2001 and $3.0 million in 2002 and expect to receive a
final payment of $2.4 million in 2003. We recognized a gain on the sale of the
marketing rights of $9.4 million related to the sale in 2001.

COSTS AND EXPENSES

COST OF PRODUCT SALES.  Cost of product sales were $1.9 million for the year
ended December 31, 2001 and none for the years ended December 31, 2000 and
1999. The expenses were mainly due to the cost to manufacture and distribute
Natrecor and royalty on a cross license agreement. In addition, we classified
in cost of product sales royalty payments to the limited partners of
Biotechnology Research Partners, Ltd. on revenues generated from the one-time
sales of bulk FGF shipments to Kaken, and the cost of shipping bulk FGF to
Kaken in Japan. All costs associated with the manufacture of Natrecor bulk drug
product and finished products to which title transferred to us prior to FDA
approval, on August 13, 2001, was expensed as research and development.

RESEARCH AND DEVELOPMENT.  Research and development expenses were $48.1
million, $39.3 million, and $34.3 million for the years ended December 31,
2001, 2000 and 1999, respectively. The $8.8 million increase from 2000 to 2001
was primarily due to increased expenses related to our p38 kinase inhibitor,
TGF-beta, and Natrecor programs. The $5.0 million increase from 1999 to 2000
was primarily attributable to the increased clinical expenses related to
Natrecor and increased research expenses related to our p38 kinase inhibitor
program.

During 2001, 2000, and 1999, we spent $48.1 million, $39.3 million, and $34.3
million, respectively on research and development. Below is a summary of these
costs by major project (in millions).



                                                            -----------------
                                                             2001  2000  1999
                                                            ----- ----- -----
                                                               
Natrecor................................................... $22.5 $19.2 $14.1
SCIO-469...................................................  17.5  11.8   3.8
TGF-beta...................................................   3.7   2.8   1.6
Alzheimer's................................................   1.9   2.3   2.4
FGF........................................................    --   0.2   2.9
Other research.............................................   2.5   3.0   9.5
                                                            ----- ----- -----
Total Research and Development............................. $48.1 $39.3 $34.3
                                                            ===== ===== =====


We spent $22.5 million on Natrecor in 2001. The cost in 2001 was primarily for
the development of Natrecor for the treatment of CHF for new indications and
costs to approve the drug with the FDA. Future costs are unknown, as we will
continuously develop other therapeutic uses of Natrecor for CHF and FDA
approval of clinical study programs is difficult to estimate. If we are not
successful we will not be able to expand the market potential for Natrecor. We
have spent approximately $130 million in research and development expenses on
the development of Natrecor since the program began in 1988.

We spent $17.5 million on the SCIO-469 program in 2001. The cost to complete
the research for SCIO-469 is unknown because it is a new clinical candidate.
This program is highly dependent on FDA approval of the clinical study programs
and ultimate FDA approval to market the drug. We recently started Phase IIa
trials and have spent approximately $33.9 million in research and development
expenses since the program began in 1998. If we are not successful we will not
be able to expand into the rheumatoid arthritis market.

We spent $3.7 million in the TGF-beta program in 2001. The cost to complete the
research for TGF-beta is unknown because it is a new clinical candidate and we
have spent approximately $8.8 million in research and development expenses
since the program began in 1998. We have not commenced human clinical trials
and this program is highly dependent on FDA approval for clinical studies and
ultimate FDA approval to market the drug.

We spent $1.9 million on the Alzheimer's program in 2001. The Alzheimer's
program, which included a research collaboration with Eli Lilly, ended on
December 31, 2001. There were severance costs of approximately $295,000 related
to the termination of certain scientific personnel, which were incurred in
fiscal year 2002. We expect no other future expenses in this program.

                                      29



We spent $2.5 million in 2001 in other research expenses. Other research
expenses represent costs associated with general research that is not directly
chargeable to a project. We expect these costs to continue as we identify new
candidates to enter clinical trials.

We expect substantial expenses in the Research and Development area during the
next several years. We are unable to predict the level of spending until near
the end of the various programs because of the uncertainty of FDA approval of
clinical study programs.

SELLING, GENERAL AND ADMINISTRATIVE.  Selling, general and administrative
expenses were $62.5 million, $16.7 million, and $12.0 million for the years
ended December 31, 2001, 2000, and 1999, respectively. The increase of $45.8
million from 2000 to 2001 was primarily due to sales and marketing expenses to
launch Natrecor and the addition of general and administrative staff to support
the increase in overall headcount. These sales and marketing expenses include
the building of a marketing infrastructure, the cost of a 188-person sales
force and management team, the commissions to the sales force on Natrecor
sales, and the expenses of promotional and marketing programs. The $4.7 million
increase from 1999 to 2000 was primarily the result of Natrecor pre-launch
activities, a proxy contest in early 2000, outside consulting expenses relating
to strategic planning, increased headcount and bonuses paid during the period.

RESTRUCTURING CHARGES.  We incurred a restructuring charge in 1999 of $6.4
million resulting from a corporate reorganization, which included the closure
of our Mountain View manufacturing facility and a 30% reduction in our
workforce. All restructuring activities were complete by the end of the second
quarter of 2000, leaving a remaining balance of $1.0 million in the
restructuring reserve. This unused reserve primarily resulted from changes in
the estimates of the cost of workforce reductions and the gain on the sale of
excess capital assets that were unanticipated. The reserve was credited to
restructure expense in the second quarter of 2000.

OTHER INCOME (EXPENSE).  Net other income (expense) was $3.0 million, $(0.1)
million, and $4.3 million for the years ended December 31, 2001, 2000 and 1999,
respectively. The $3.1 million increase from 2000 to 2001 was largely due to
lower interest expense of $1.0 million, realized gains on securities of $1.0
million and a decrease in other expense of $1.1 million. Interest expense was
lower in 2001 due to a lower debt balance and lower interest rates on the
Genentech debt. The decrease in other expense was largely due to the write off
and investment value adjustments for securities in Neurocine and GenVec in
2000. The $4.4 million decrease from 1999 to 2000 was primarily attributable to
the 1999 net gain on the sales of securities in Guilford.

LIQUIDITY AND CAPITAL RESOURCES

To date, our operations and capital requirements have been financed primarily
with the proceeds of public and private sales of common stock and preferred
stock, research and development partnerships, collaborative agreements with
pharmaceutical firms, product sales and investment income. At December 31,
2001, our combined cash, cash equivalents and marketable securities (both
current and non-current) totaled $129.3 million.

In January 2001, we entered into a sale and marketing alliance with Innovex, a
subsidiary of Quintiles Transnational Corp. As part of the original three and
one half year agreement, PharmaBio Development, Inc., an affiliate of Innovex,
agreed to fund $30.0 million of our costs to launch Natrecor over the first 24
months of the commercialization of Natrecor and to loan us up to $5.0 million.
In December 2001, Scios, Innovex and PharmaBio amended the January 2001
agreement. The amendment will enable Scios, at its option, to assume control of
the Natrecor sales force in June 2003, one year ahead of schedule, and we
eliminated the $5.0 million line of credit provided by PharmaBio to Scios. Of
the $30.0 million funding from PharmaBio, we received $10.0 million in the
fourth quarter of 2001, and will receive the remaining $20.0 million over the
next 17 months. As part of the funding agreement, we will pay PharmaBio a
declining royalty rate on net sales of Natrecor through early 2008. We also
granted PharmaBio a fully vested warrant to purchase 700,000 shares of our
common stock at an exercise price of $20.00 per share. These warrants are
exercisable over the next 17 months beginning December 2001 through May 2003.

In December 2001, we entered into a binding summary of terms with Glaxo Group
Ltd., an affiliate of GlaxoSmithKline, or GSK, in which we will license
Natrecor to GSK in all European markets. Under the terms of the agreement, GSK
will have the rights to sell and distribute the product for which we will
receive an up-front fee and milestone payments totaling (Pounds)15.0 million
British Pounds (which at December 31, 2001 equaled approximately $22 million
U.S. Dollars), in addition to future royalties in the identified countries. We
will manufacture and supply the bulk product to GSK. Both companies will work
together to continue clinical development of Natrecor in Europe. In order to
obtain European approval for Natrecor, GSK expects to use the extensive
clinical data we submitted to obtain approval from the FDA in August 2001. The
companies expect to launch Natrecor in Europe in the first half of 2004. No
revenue has been recognized related to this agreement through December 31, 2001.

                                      30



We have $33.0 million due to Genentech at December 31, 2002 of which $20.0
million can be repayable in the Company's Series B preferred stock at anytime
through December 31, 2002. In addition, if the Company should decide to convert
the loan to preferred stock, a portion of the loan that is not convertible will
become due and payable before December 31, 2002. The amount of the loan that is
due before the maturity date is based on a formula that considers the amount of
loan converted to stock and the outstanding loan balance.

Net cash used in operating activities of $68.5 million in 2001 was primarily
attributable to the loss of $62.5 million and decreases in net operating assets
and liabilities of $13.1 million, partially offset by non-cash expenses of $7.1
million. For 2000, net cash used by operating activities amounted to $34.8
million. This was primarily attributable to the net loss for the year of $42.5
million, partially offset by non-cash charges related to depreciation, and
amortization of deferred compensation totaling $8.0 million, and $0.3 million
of cash used by changes in operating assets and liabilities. For 1999, net cash
used in operating activities of $8.5 million was primarily attributable to
funding net operating losses, partially offset by non-cash expenses and
increases in operating assets and liabilities. Cash provided by changes in
operating assets and liabilities is primarily a function of an increase in
accounts payable and accrued liabilities.

Net cash used in investing activities of $8.4 million in 2001 consisted of
purchases of property and equipment of $5.4 million, and net purchases of
marketable securities of $3.0 million. Net cash provided in investing
activities was $20.8 million in 2000 and consisted of net sales of marketable
securities of $22.1 million, partially offset by purchases of fixed assets of
$1.3 million. Net cash provided by investing activities of $5.7 million in 1999
consisted of net purchases of marketable securities of $11.1 million and
purchases of fixed assets of $5.0 million, offset by proceeds from the sales of
facilities and equipment of $21.8 million.

Net cash provided by financing activities of $131.9 million in 2001 was due to
the proceeds from the issuance of common stock of $122.0 million, a payment
from PharmBio of $10.0 million under the Innovex agreement, the collection of
stockholders notes receivable of $0.4 million, partially offset by repurchase
of Scios stock of $0.4 million. Net cash provided by financing activities of
$5.7 million for 2000 was mainly due to the proceeds from the issuance of
common stock and collection of notes receivables from stockholders of $10.3
million, partially offset by the payment of notes payable of $4.6 million. Net
cash provided by financing activities of $7.7 million in 1999 was largely due
to proceeds from notes payable of $7.5 million and proceeds from the issuance
of common stock of $1.2 million, partially offset by the purchase of treasury
stock of $1.0 million.

We expect that the net proceeds from the issuance of common stock in June 2001,
together with our existing cash, cash equivalents and marketable securities,
proceeds from existing collaborations, including our agreement with PharmaBio,
and revenues from the sales of Natrecor will enable us to maintain our current
and planned operations for at least the next twelve months. In the event we
will need additional financing for the operation of our business, including the
commercialization of our products currently under development, we will consider
collaborative arrangements and additional public or private financing,
including additional equity financing. Factors influencing the availability of
additional financing include our progress in product development, investor
perception of our prospects and the general condition of the financial markets.

INCOME TAXES

At December 31, 2001, we had federal and state net operating loss carryforwards
of approximately $436.2 million and $61.0 million, respectively. We also had
federal and state research tax credit carry-forwards of approximately $13.2
million and $7.4 million, respectively. The federal net operating loss and
other tax credit carry-forwards will expire at various dates beginning in the
year 2002 through 2021, if not used. Our state net operating loss and other tax
credit carry-forwards will expire at various dates beginning in the year 2002
through 2006, if not used. These net operating loss and other tax credit
carry-forwards provide an additional source of liquidity only to the extent
that profitable operations are achieved prior to the expiration of the
carry-forward periods. The use of losses generated through the date of our 1992
merger with Nova Pharmaceuticals Corporation may be subject to substantial
annual limitations due to the "ownership change" provisions of the Internal
Revenue Code of 1986.

CRITICAL ACCOUNTING POLICIES

Our discussion and analysis of our financial condition and results of
operations are based upon our consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted in
the United States of America. The preparation of financial statements requires
management to make estimates and judgments that affect the reported amounts of
assets and liabilities, revenue and expenses and disclosures at the date of the
financial statements. On

                                      31



an on-going basis, we evaluate our estimates, including those related to
accounts receivable, inventories and income taxes. We use authoritative
pronouncements, historical experience and other assumptions as the basis for
making estimates. Actual results could differ from those estimates.

We believe the following critical accounting policies affect our more
significant judgments and estimates used in the preparation of our consolidated
financial statements. We recognize revenue from product sales when there is
pervasive evidence that an arrangement exists, delivery has occurred, the price
is fixed and determinable, and collection is reasonably assured. Provisions for
discounts and rebates to customers, and returns and other adjustments are
provided for in the same period that the related product sales are recorded
based upon analyses of historical discounts, rebates and returns. We maintain
an accounts receivable allowance for an estimated amount of losses that may
result from customer's inability to pay for product purchased. If the financial
condition of our customers were to deteriorate, resulting in an impairment of
their ability to make payments, additional allowances may be required. We have
established a valuation allowance to reduce our deferred tax assets to the
amount that is more likely than not to be realized. We account for income taxes
under the provisions of Statement of Financial Accounting Standards, or SFAS,
No. 109, "Accounting for Income Taxes." Under this method, deferred tax assets
and liabilities are determined based on the difference between the financial
statement and tax bases of assets and liabilities using the enacted tax rates
in effect for the year in which the differences are expected to affect taxable
income. Valuation allowances are established when necessary to reduce deferred
tax assets to the amounts expected to be realized.

NEW ACCOUNTING PRONOUNCEMENTS

In July 2001, the FASB issued Statement of Financial Accounting Standards No.
141 (SFAS 141), "Business Combinations." SFAS 141 requires the purchase method
of accounting for business combinations initiated after June 30, 2001 and
eliminates the pooling-of-interests method. Scios did not have any business
combination transactions in the year ended December 31, 2001.

In July 2001, the FASB issued Statement of Financial Accounting Standards No.
142 (SFAS 142), "Goodwill and Other Intangible Assets," which in Scios' case is
effective for fiscal years beginning after December 15, 2001. SFAS 142
requires, among other things, the discontinuance of goodwill amortization. In
addition, the standard includes provisions upon adoption for the
reclassification of certain existing recognized intangibles as goodwill,
reassessment of the useful lives of existing recognized intangibles,
reclassification of certain intangibles out of previously reported goodwill and
the testing for impairment of existing goodwill and other intangibles. The
Company does not currently have any goodwill or intangible assets, and does not
believe that the implementation of SFAS 142 will have any significant impact on
its financial position or results of operations.

In October 2001, the FASB issued Statement of Financial Accounting Standards
No. 144 (SFAS 144), "Accounting for the Impairment or Disposal of Long-Lived
Assets to be Disposed Of." SFAS 144 addresses financial accounting and
reporting of impairment of long-lived assets to be disposed of. However, SFAS
144 retains the fundamental provisions of SFAS 121 for: (1) recognition and
measurement of the impairment of long-lived assets to be held and used; and (2)
measurement of long-lived assets to be disposed of by sale. SFAS 144 is
effective for fiscal year beginning after December 15, 2001. We believe
SFAS 144 has no impact on Scios' financial position and results of operations.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to a variety of risks, including changes in interest rates
affecting the return on our investments and foreign currency fluctuations. In
the normal course of our business, we employ established policies and
procedures to manage our exposure to fluctuations in interest rates and foreign
currency values.

Our exposure to market rate risk for changes in interest rates relates
primarily to our investment portfolio. We attempt to place our investments with
high quality issuers and, by policy, limit the amount of credit exposure to any
one issuer and do not use derivative financial instruments in our investment
portfolio. We maintain an investment portfolio of various issuers, types and
maturities, which consist of both fixed and variable rate financial
instruments. These securities are classified as available-for-sale, and
consequently, are recorded on the balance sheet at fair value with unrealized
gains or losses reported as a separate component in stockholders' equity, net
of applicable taxes. At any time, sharp changes in interest rates can affect
the value of our investment portfolio and its interest earnings. Currently, we
do not hedge these interest rate exposures. However, through our money manager,
we maintain management control systems to monitor interest rate risk. The risk
management control systems use analytical techniques as well as other
procedures to review interest rate risk. Assuming a

                                      32



hypothetical interest rate increase of 10%, the fair value of our total
investment portfolio as of December 31, 2001 would have potentially incurred a
loss of $248,000.

Our exposure to foreign currency fluctuations is limited to our supply contract
for Natrecor, which is denominated in the Euro, and license and milestone
payments from GSK, which are denominated in the British Pound. Changes in the
exchange rate between the Euro and the U.S. dollar payments could adversely
affect our manufacturing costs. Changes in the exchange rate between the
British Pound and U.S. dollar could adversely effect our earnings performance.
All of our other contracts are denominated in U.S. dollars. Exposure to foreign
currency exchange rate risk may change over time as our business evolves and
our products are introduced into international markets. Currently, we do not
hedge against any foreign currencies and, as a result, could incur
unanticipated gains or losses.

Our long-term debt with Genentech of $33.0 million has a variable interest rate
at the prime interest rate. Our exposure is the fluctuation in the prime
interest rate over the next 12 months. An increase in prime interest rate will
increase our interest expense on the debt.

ITEM 8.  CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See Index to Consolidated Financial Statements appearing on page 34 of this
Form 10-K.

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

None.

                                   PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

IDENTIFICATION OF DIRECTORS.  The information required by Item 10 of Form 10-K
with respect to identification of directors is incorporated by reference to the
information contained in the sections captioned "Election of Directors" and
"Compliance with Section 16(a) of the Exchange Act" of our definitive Proxy
Statement for the 2002 Annual Meeting of Stockholders.

IDENTIFICATION OF EXECUTIVE OFFICERS.  See "Executive Officers of the Company"
above under Item 1.

ITEM 11.  EXECUTIVE COMPENSATION

The information required by Item 11 of Form 10-K is incorporated by reference
to the information contained in the sections captioned "Executive
Compensation," "Stock Option Grants and Exercises," "Employment and Severance
Agreements," Information About the Board of Directors and Committees of the
Board: Compensation of Directors--Standard Arrangements" and "Compensation
Committee Interlocks and Insider Participation" of our definitive Proxy
Statement for the 2002 Annual Meeting of Stockholders.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by Item 12 of Form 10-K is incorporated by reference
to the information contained in the section captioned "Security Ownership of
Management and Principal Stockholders" of our definitive Proxy Statement for
the 2002 Annual Meeting of Stockholders.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by Item 13 of Form 10-K is incorporated by reference
to the information contained in the section captioned "Certain Relationships
and Transactions" of the our definitive Proxy Statement for the 2002 Annual
Meeting of the Stockholders.

                                      33



                                    PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) (1) Consolidated Financial Statements.


                                                                      PAGE
                                                                      ----
                                                                   
Report of Independent Accountants.................................... F-1
Consolidated Balance Sheets, December 31, 2001 and 2000.............. F-2
Consolidated Statements of Operations and Comprehensive Loss, years
  ended December 31, 2001, 2000, and 1999............................ F-3
Consolidated Statements of Cash Flows, years ended December 31, 2001,
  2000, and 1999..................................................... F-4
Consolidated Statements of Stockholders' Equity, years ended December
  31, 2001, 2000, and 1999........................................... F-5
Notes to Consolidated Financial Statements........................... F-6


(2) Financial Statement Schedules.

Omitted because they are not required, are not applicable, or the information
is included in the consolidated financial statements or notes thereto.

(3) Exhibits.

See Exhibit Index at page 36 of this Form 10-K.

(b) Reports on Form 8-K.

None.

                                      34



                                  SIGNATURES

Pursuant to the requirements of Section 13 or 15(d)of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

                                          SCIOS INC.
Date: March 12, 2002
                                     /S/  RICHARD B. BREWER
                               By: _______________________________________
                                     Richard B. Brewer
                                     PRESIDENT AND CHIEF EXECUTIVE OFFICER

                               POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Richard B. Brewer and Donald B. Rice, or either of
them, his attorney-in-fact, each with the power of substitution, for him in any
and all capacities, to sign any amendments to this Annual Report on Form 10-K,
and to file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that the said attorney-in-fact, or his substitute or
substitutes, may do or cause to be done by virtue hereof.

Pursuant to the requirements 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.



          SIGNATURE                              TITLE                          DATE
          ---------                              -----                          ----
                                                                     

   /S/  RICHARD B. BREWER     President, Chief Executive Officer and       March 12, 2002
- ----------------------------- Director (Principal Executive Officer)
      Richard B. Brewer

    /S/  DAVID W. GRYSKA      Chief Financial Officer (Principal Financial March 12, 2002
- ----------------------------- and Accounting Officer)
       David W. Gryska

 /S/  DONALD B. RICE, PH.D.   Chairman of the Board                        March 12, 2002
- -----------------------------
    Donald B. Rice, Ph.D.

   /S/  SAMUEL H. ARMACOST    Director                                     March 12, 2002
- -----------------------------
     Samuel H. Armacost

     /S/  RANDAL J. KIRK      Director                                     March 12, 2002
- -----------------------------
       Randal J. Kirk

/S/  CHARLES A. SANDERS, M.D. Director                                     March 12, 2002
- -----------------------------
  Charles A. Sanders, M.D.

/S/  SOLOMON H. SNYDER, M.D.  Director                                     March 12, 2002
- -----------------------------
   Solomon H. Snyder, M.D.

 /s/  Burton E. Sobel, M.D.   Director                                     March 12, 2002
- -----------------------------
    Burton E. Sobel, M.D.

     /S/  EUGENE L. STEP      Director                                     March 12, 2002
- -----------------------------
       Eugene L. Step


                                      35



                                 EXHIBIT INDEX



EXHIBIT
NUMBER                                                                                                          REFERENCE
- ------                                                                                                          ---------
                                                                                                          
   3.1    Certificate of Incorporation.........................................................................      Q

   3.1(a) Certificate of Amendment of Certificate of Incorporation.............................................

   3.2    Bylaws...............................................................................................      J

   4.1    Certificate of Designation of Series B Preferred Stock of Scios Inc..................................

   4.2    For a discussion of certain registration rights in favor of Genetech, Inc., see Exhibits 10.33, 10.34
          and 10.41............................................................................................    Q,V

  10.1    Biotechnology Research Partners, Ltd. Agreement of Limited Partnership dated October 29, 1982;
          Development Contract, Technology License Agreement and Joint Venture Agreement between
          Biotechnology Research Partners, Ltd. and the Registrant dated December 29, 1982; Promissory
          Note dated December 29, 1982; and Memorandum of Understanding between Battery Park Credit
          Company and Biotechnology Research Partners, Ltd. dated December 28, 1982............................      A

  10.2*   1983 Incentive Stock Option Plan, as amended, and form of Stock Option Agreement, Promissory
          Note and Pledge Agreement............................................................................      E

  10.3    Common Stock Purchase Agreement dated April 15, 1985 between the Registrant and American
          Home Products Corporation............................................................................      B

  10.5*   1986 Supplemental Stock Option Plan, as amended, and form of Stock Option Agreement,
          Promissory Note and Pledge Agreement.................................................................      E

  10.6    Rights Exercise Agreement between the Registrant and American Home Products Corporation dated
          February 28, 1986 and Letter of March 26 and May 16, 1986............................................      B

 10.11*   1992 Equity Incentive Plan...........................................................................      H

 10.18    Form of Purchase Option Agreement between each of the limited partners of Nova Technology
          Limited Partnership and Nova.........................................................................      I

 10.19*   Non employee Director Stock Option Plan..............................................................      G

 10.29    CNS Psychiatric Products Agreement dated June 30, 1990 between SmithKline Beecham
          Corporation and Nova.................................................................................      N

 10.33    Preferred Stock Purchase Agreement dated December 30, 1994 between the Registrant and
          Genentech, Inc.......................................................................................      Q

 10.34    Note Agreement dated December 30, 1994 between the Registrant and Genentech, Inc. (See Exhibit
          Number 10.41 below amending the Note Agreement)......................................................      Q

 10.35    Assignment of Lease dated March 22, 1995 for premises located at 820 West Maude Avenue,
          Sunnyvale, California................................................................................      R

 10.38*   Employment Letter dated September 8, 1998 between the Registrant and Richard B. Brewer...............      T

 10.39    Purchase and Sale Agreement and Joint Escrow Instructions (Mountain View Real Estate Sale) dated
          May 24, 1999 between Alexandria Real Estate Equities, Inc. and Registrant's wholly owned
          Subsidiary Bio-Shore Holdings, Ltd. Portions of the exhibit have been omitted pursuant to a request
          for confidential treatment...........................................................................      U

 10.41    First Amendment to Note Agreement and Preferred Stock dated November 3, 1999 between the
          Registrant and Genentech, Inc. (See Exhibit 10.34 above).............................................      V

 10.42    Promissory Note dated December 27, 1999 by the Registrant to Chiron Corporation......................      V

 10.43*   Change of Control Severance Plans with Employees, Officers and Chief Executive Officer...............      V

 10.44    Alliance Agreement dated January 10, 2001 between the Registrant, Innovex L.P. and PharmaBio
          Development Inc. (including a Warrant Agreement between the Registrant and PharmaBio
          Development Inc. attached thereto as Exhibit B). Portions of the exhibit have been granted
          confidential treatment...............................................................................      W


                                      36





EXHIBIT
NUMBER                                                                                                          REFERENCE
- ------                                                                                                          ---------
                                                                                                          

 10.45  Amendment No. 4 to Lease dated January 22, 1993 for the premises located at 820 West Maude
        Avenue, Sunnyvale, California (See Exhibit 10.35 above)................................................     Y

 10.46  Lease Agreement dated November 17, 1995 for premises located at 820 West Maude Avenue,
        Sunnyvale, California..................................................................................     Z

 10.47  Sublease Agreement dated March 24, 1999 for premises located at 749 North Mary Avenue,
        Sunnyvale, California..................................................................................     Z

 10.48  First Amendment dated May 28, 2001 to Sublease dated May 24, 1999 for premises located at
        749 North Mary Avenue, Sunnyvale, California...........................................................    aa

 10.49  Amendment No. 5 dated July 24, 2001 to Lease Agreement dated January 22, 1993 for premises
        located at 820 Maude Avenue, Sunnyvale, California.....................................................    aa

 10.50  Letter dated June 10, 2001 to extend leases for premises located at 820 West Maude Avenue,
        Sunnyvale, California..................................................................................    aa

 10.51  Amended and Restated Alliance Agreement dated November 1, 2001 between the Registrant,
        Innovex L.P., Innovex Support Services Limited Partnership and PharmaBio Development Inc.
        (including a Warrant Agreement between the Registrant and Pharmabio Development Inc. attached
        thereto as Exhibit B). Portions of the exhibit have been omitted pursuant to a request for confidential
        treatment..............................................................................................

 10.52  Binding Summary of Terms between the Registrant and Glaxo Group Ltd. dated December 20, 2001.
        Portions of the exhibit have been omitted pursuant to a request for confidential treatment.............

  21.2  Subsidiaries of the Registrant.........................................................................

  23.1  Consent of PricewaterhouseCoopers LLP..................................................................

  24.1  Powers of Attorney. Reference is made to page 35.......................................................

- --------
*  Management contract or compensatory plan or arrangement.
A  Filed as an exhibit to Form S-1 Registration Statement (File No. 2-86086),
   as amended, and incorporated herein by reference.
B  Filed as an exhibit to Form S-1 Registration Statement (File No. 33-3186),
   as amended, and incorporated herein by reference.
E  Filed as an exhibit to Annual Report on Form 10-K for fiscal year 1988 and
   incorporated herein by reference.
G  Filed as an exhibit to Form S-8 Registration Statement (File No. 33-39878)
   filed on April 8, 1991 and incorporated herein by reference.
H  Filed as an exhibit to Annual Report on Form 10-K for fiscal year 1991 and
   incorporated herein by reference.
I  Filed as an exhibit to Form S-1 Registration Statement (File No. 33-14937)
   filed on behalf of Nova Technology Limited Partnership and incorporated
   herein by reference.
J  Filed as an exhibit to Form S-4 Registration Statement (File No. 33-49846)
   filed on July 22, 1992 and incorporated herein by reference.
N  Filed as an exhibit to Nova's Annual Report on Form 10-K for fiscal year
   1990 and incorporated herein by reference
Q  Filed as an exhibit to Annual Report on Form 10-K for fiscal year 1994 and
   incorporated herein by reference.
R  Filed as an exhibit to Quarterly Report on Form 10-Q for quarter ended March
   31, 1995 and incorporated herein by reference.
T  Filed as an exhibit to Annual Report on Form 10-K for fiscal year 1998 and
   incorporated herein by reference.
U  Filed as an exhibit to Quarterly Report on Form 10-Q for the quarter ended
   September 30, 1999 and incorporated herein by reference.
V  Filed as an exhibit to Annual Report on Form 10-K for fiscal year 1999 and
   incorporated herein by reference.
W  Filed as an exhibit to Report on Form 8-K dated January 24, 2000 and
   incorporated herein by reference.
Y  Filed as an exhibit to Annual Report on Form 10-K for fiscal year 2000 and
   incorporated herein by reference.
Z  Filed as an exhibit to Annual Report on Form 10-K/A (Amendment No. 2) for
   fiscal year 2000 and incorporated herein by reference.
aa Filed as an exhibit to Quarterly Report on Form 10-Q for the quarter ended
   September 30, 2001 and incorporated herein by reference.

                                      37



                       REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of Scios Inc.

In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a) on page 34 present fairly, in all material respects,
the financial position of Scios Inc. and its subsidiaries at December 31, 2001
and 2000, and the results of their operations and comprehensive loss and their
cash flows for each of the three years in the period ended December 31, 2001,
in conformity with accounting principles generally accepted in the United
States of America. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States of America, which 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, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.

/s/  PRICEWATERHOUSECOOPERS LLP

San Jose, California
February 8, 2002

                                      F-1



                                  SCIOS INC.

                          CONSOLIDATED BALANCE SHEETS



                                                             --------------------
                                                                 DECEMBER 31,
                                                             --------------------
                                                                  2001       2000
                                                             ---------  ---------
                                                                  
(IN THOUSANDS, EXCEPT SHARE DATA AND PER SHARE DATA)
ASSETS
Current assets:
  Cash and cash equivalents................................. $  58,296  $   3,291
  Marketable securities.....................................     7,351     35,356
  Accounts receivable, net of allowance for doubtful
   accounts of $146 at December 31, 2001, and none at
   December 31, 2000, respectively..........................     6,943      5,217
  Inventory.................................................     1,158         --
  Prepaid expenses and other assets.........................     4,214        722
                                                             ---------  ---------
       Total current assets.................................    77,962     44,586

Marketable securities, non-current..........................    63,669     32,884
Property and equipment, net.................................    10,424      8,910
Other assets................................................     4,123      2,289
                                                             ---------  ---------
       Total assets......................................... $ 156,178  $  88,669
                                                             =========  =========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable.......................................... $   9,625  $   4,587
  Accrued employee compensation.............................     9,685      4,021
  Other accrued liabilities.................................     7,206      6,728
  Deferred contract revenue.................................        --     16,193
  Current portion of long-term debt.........................    33,035         --
                                                             ---------  ---------
       Total current liabilities............................    59,551     31,529
Long-term debt..............................................    15,479     39,095
                                                             ---------  ---------
       Total liabilities....................................    75,030     70,624
                                                             ---------  ---------
Commitments and contingencies (Notes 10, 11, and 12)

Stockholders' equity:
  Preferred stock; $.001 par value; 20,000,000 shares
   authorized; 4,991 issued and outstanding.................        --         --
  Common stock; $.001 par value; 150,000,000 shares
   authorized; issued and outstanding 46,015,167 and
   39,166,373 shares, respectively..........................        46         39
  Additional paid-in capital................................   561,352    428,987
  Treasury stock; 30,000 and none shares, respectively......      (445)        --
  Deferred warrant costs....................................    (6,794)        --
  Notes receivable from stockholders........................        --       (352)
  Deferred compensation.....................................      (106)      (417)
  Accumulated other comprehensive income....................       999      1,195
  Accumulated deficit.......................................  (473,904)  (411,407)
                                                             ---------  ---------
       Total stockholders' equity...........................    81,148     18,045
                                                             ---------  ---------
       Total liabilities and stockholders' equity........... $ 156,178  $  88,669
                                                             =========  =========


THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.

                                      F-2



                                  SCIOS INC.

         CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS



                                                        -------------------------------------
                                                               YEAR ENDED DECEMBER 31,
                                                        -------------------------------------
                                                               2001         2000         1999
                                                        -----------  -----------  -----------
                                                                         
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Revenues:
  Product sales........................................ $    30,052  $        --  $        --
  Research and development contracts and royalties.....       4,788        5,710       18,402
  Psychiatric product sales and co-promotion
   commissions, net of expenses........................       3,142        6,914        9,953
  Gain on sale of marketing rights.....................       9,363           --           --
                                                        -----------  -----------  -----------
                                                             47,345       12,624       28,355
                                                        -----------  -----------  -----------
Costs and expenses:
  Cost of product sales................................       1,916           --           --
  Research and development.............................      48,130       39,278       34,305
  Selling, general and administration..................      62,475       16,711       11,983
  Restructuring charges (credits)......................          --         (993)       6,400
                                                        -----------  -----------  -----------
                                                            112,521       54,996       52,688
                                                        -----------  -----------  -----------
Loss from operations...................................     (65,176)     (42,372)     (24,333)
                                                        -----------  -----------  -----------
Other income (expense):
  Interest income......................................       4,869        4,774        4,828
  Interest expense.....................................      (2,818)      (3,796)      (2,793)
  Realized gains (losses) on securities................         849         (152)       4,933
  Other income (expense)...............................         106         (973)      (2,685)
                                                        -----------  -----------  -----------
                                                              3,006         (147)       4,283
                                                        -----------  -----------  -----------
  Loss before provision for income taxes...............     (62,170)     (42,519)     (20,050)
  Provision for income taxes...........................        (327)          (3)         (14)
                                                        -----------  -----------  -----------
  Net loss.............................................     (62,497)     (42,522)     (20,064)
Other comprehensive income (loss):
  Change in unrealized gains (losses) on securities....        (196)       2,255      (12,472)
                                                        -----------  -----------  -----------
Comprehensive loss..................................... $   (62,693) $   (40,267) $   (32,536)
                                                        ===========  ===========  ===========
Loss per common share:
  Basic and diluted.................................... $     (1.47) $     (1.12) $     (0.53)
                                                        ===========  ===========  ===========
Weighted average number of common shares outstanding
  used in calculation of:
  Basic and diluted....................................  42,623,093   37,997,872   37,730,048
Pro forma effect of adopting SAB 101:
  Net loss.............................................         N/A          N/A  $      (916)
                                                        ===========  ===========  ===========
  Basic and diluted loss per share.....................         N/A          N/A  $     (0.02)
                                                        ===========  ===========  ===========


THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.

                                      F-3



                                  SCIOS INC.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS



                                                            -------------------------------
                                                                YEAR ENDED DECEMBER 31,
                                                            -------------------------------
                                                                 2001       2000       1999
                                                            ---------  ---------  ---------
                                                                         
(IN THOUSANDS)
Cash flows from operating activities:
  Net loss................................................. $ (62,497) $ (42,522) $ (20,064)
  Adjustments to reconcile net loss to net cash used
   in operating activities:
   Depreciation and amortization...........................     3,580      3,717      3,473
   Accrued interest payable................................     2,818      3,791      2,793
   Loss on disposal of property and equipment..............       365        253        429
   Amortization of deferred compensation...................       311        234        317
   Allowance for bad debt..................................      (146)        --         --
   Valuation of stock option issued to non-employee
     for services rendered.................................       176         --         --
   Change in assets and liabilities:
     Accounts receivable...................................    (1,580)    (2,149)     3,700
     Inventory.............................................    (1,158)        --         --
     Prepaid expenses and other assets.....................    (5,326)       963       (422)
     Accounts payable......................................     5,038      3,015       (754)
     Accrued employee compensation.........................     5,664      1,402       (947)
     Other accrued liabilities.............................       478       (755)       945
     Deferred contract revenue.............................   (16,193)    (1,697)       994
     Restructuring charges (credits).......................        --     (1,052)     1,052
                                                            ---------  ---------  ---------
       Net cash used in operating activities...............   (68,470)   (34,800)    (8,484)
                                                            ---------  ---------  ---------
Cash flows from investing activities:
  Purchases of property and equipment......................    (5,459)    (1,346)    (4,975)
  Proceeds from sale of facilities and equipment...........        --         --     21,754
  Sales/maturities of marketable securities................   398,180     63,971    105,240
  Purchases of marketable securities.......................  (401,158)   (41,845)  (116,368)
                                                            ---------  ---------  ---------
       Net cash provided by (used in) investing
         activities........................................    (8,437)    20,780      5,651
                                                            ---------  ---------  ---------
Cash flows from financing activities:
  Issuance of common stock.................................   122,005     10,535      1,243
  Purchase of treasury stock...............................      (445)        --     (1,048)
  Proceeds/payments from stockholders notes receivable.....       352       (244)        37
  Payment of note payable..................................        --     (4,562)        --
  Proceeds from commercialization agreement................    10,000         --      7,500
                                                            ---------  ---------  ---------
       Net cash provided by financing activities...........   131,912      5,729      7,732
                                                            ---------  ---------  ---------
Net increase (decrease) in cash and cash equivalents.......    55,005     (8,291)     4,899
Cash and cash equivalents at beginning of year.............     3,291     11,582      6,683
                                                            ---------  ---------  ---------
Cash and cash equivalents at end of year................... $  58,296  $   3,291  $  11,582
                                                            =========  =========  =========
Supplemental cash flow data:
  Cash paid during the period for interest.................        --  $   4,562         --
  Converted Genetech notes payable into preferred stock....        --  $   5,000         --
  Change in net unrealized gains (losses) on securities.... $    (196) $   2,255  $ (12,472)
  Write off of fully depreciated assets....................        --  $     904  $  13,407
  Notes receivable from stockholders.......................        --  $     423         --
  Deferred compensation....................................        --  $     311  $     152
  Discount on commercialization obligation................. $   3,397         --         --
  Deferred warrant costs................................... $   6,794         --         --


THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.

                                      F-4



                                  SCIOS INC.

                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY



                                                             --------------------------------------------------------
                                                                         COMMON STOCK
                                                                       ----------------- ADDITIONAL          DEFERRED
                                                             PREFERRED               PAR    PAID-IN TREASURY  WARRANT
                                                                SHARES     SHARES  VALUE    CAPITAL    STOCK    COSTS
                                                             --------- ----------  ----- ---------- -------- --------
                                                                                           
(IN THOUSANDS, EXCEPT SHARE DATA)...........................
BALANCES AT JANUARY 1, 1999.................................      --   38,468,652   $38   $416,428  $(3,481) $    --
Purchase of treasury stock..................................                                         (1,048)
Options exercised...........................................              185,163            1,243
Treasury stock reissued.....................................             (225,163)          (1,223)   1,071
Notes receivable from stockholders..........................
Deferred compensation.......................................               40,000              152
Amortization of deferred compensation.......................
Changes in unrealized gains on available-for-sale securities
Net loss....................................................
                                                               -----   ----------   ---   --------  -------  -------
BALANCES AT DECEMBER 31, 1999...............................      --   38,468,652    38    416,600   (3,458)      --
Preferred stock issued to retire debt.......................   4,991                         5,000
Options exercised...........................................            1,432,757     1     10,534
Treasury stock reissued.....................................             (735,036)          (3,458)   3,458
Notes receivable from stockholders..........................
Deferred compensation.......................................                                   311
Amortization of deferred compensation.......................
Changes in unrealized gains on available-for-sale securities
Unrealized gain on GenVec common stock......................
Net loss....................................................
                                                               -----   ----------   ---   --------  -------  -------
BALANCES AT DECEMBER 31, 2000...............................   4,991   39,166,373    39    428,987       --       --
Common stock issued.........................................            5,750,000     6    112,757
Purchase of treasury stock..................................                                           (445)
Options exercised...........................................            1,061,590     1      8,379
Employee stock purchase plan shares issued..................               37,204              862
Valuation of stock option issued to non-employee for
 services rendered..........................................                                   176
Warrants issued in connection with commercialization
 agreement..................................................                                10,191            (6,794)
Notes receivable from stockholders..........................
Amortization of deferred compensation.......................
Changes in unrealized gains on available-for-sale securities
Net loss....................................................
                                                               -----   ----------   ---   --------  -------  -------
BALANCES AT DECEMBER 31, 2001...............................   4,991   46,015,167   $46   $561,352  $  (445) $(6,794)
                                                               =====   ==========   ===   ========  =======  =======




                                                                    NOTES                ACCUMULATED
                                                               RECEIVABLE                      OTHER
                                                                     FROM     DEFERRED COMPREHENSIVE ACCUMULATED
                                                             STOCKHOLDERS COMPENSATION INCOME (LOSS)     DEFICIT    TOTAL
                                                             ------------ ------------ ------------- ----------- --------
                                                                                                  
(IN THOUSANDS, EXCEPT SHARE DATA)...........................
BALANCES AT JANUARY 1, 1999.................................    $(145)       $(505)      $ 11,412     $(348,821) $ 74,926
Purchase of treasury stock..................................                                                       (1,048)
Options exercised...........................................                                                        1,243
Treasury stock reissued.....................................                                                         (152)
Notes receivable from stockholders..........................       37                                                  37
Deferred compensation.......................................                  (152)                                    --
Amortization of deferred compensation.......................                   317                                    317
Changes in unrealized gains on available-for-sale securities                              (12,472)                (12,472)
Net loss....................................................                                            (20,064)  (20,064)
                                                                -----        -----       --------     ---------  --------
BALANCES AT DECEMBER 31, 1999...............................     (108)        (340)        (1,060)     (368,885)   42,787
Preferred stock issued to retire debt.......................                                                        5,000
Options exercised...........................................                                                       10,535
Treasury stock reissued.....................................                                                           --
Notes receivable from stockholders..........................     (244)                                               (244)
Deferred compensation.......................................                  (311)                                    --
Amortization of deferred compensation.......................                   234                                    234
Changes in unrealized gains on available-for-sale securities                                1,236                   1,236
Unrealized gain on GenVec common stock......................                                1,019                   1,019
Net loss....................................................                                            (42,522)  (42,522)
                                                                -----        -----       --------     ---------  --------
BALANCES AT DECEMBER 31, 2000...............................     (352)        (417)         1,195      (411,407)   18,045
Common stock issued.........................................                                                      112,763
Purchase of treasury stock..................................                                                         (445)
Options exercised...........................................                                                        8,380
Employee stock purchase plan shares issued..................                                                          862
Valuation of stock option issued to non-employee for
 services rendered..........................................                                                          176
Warrants issued in connection with commercialization
 agreement..................................................                                                        3,397
Notes receivable from stockholders..........................      352                                                 352
Amortization of deferred compensation.......................                   311                                    311
Changes in unrealized gains on available-for-sale securities                                 (196)                   (196)
Net loss....................................................                                            (62,497)  (62,497)
                                                                -----        -----       --------     ---------  --------
BALANCES AT DECEMBER 31, 2001...............................    $  --        $(106)      $    999     $(473,904) $ 81,148
                                                                =====        =====       ========     =========  ========




THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.

                                      F-5



                                  SCIOS INC.

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.  BUSINESS OF THE COMPANY

Scios Inc. (the "Company", "we" or "our") is a biopharmaceutical company
developing novel treatments for cardiovascular and inflammatory diseases. The
Company is distinguished by its disease-based technology platform, which
integrates expertise in protein biology with computational and medicinal
chemistry to identify novel targets, and rationally design small molecule
compounds.

On August 13, 2001, we received final approval from the U.S. Food and Drug
Administration, or FDA, to market Natrecor for the intravenous treatment of
patients with acutely decompensated congestive heart failure. We launched
Natrecor in that same month and recorded $14.1 in revenue for the year ended
December 31, 2001.

During 2001, we recorded $15.9 million of one-time sales of bulk FGF to Kaken
Pharmaceutical Co, Ltd. of Japan or Kaken (see Note 4e). Kaken will manufacture
future needs of FGF to meet their requirements and accordingly sales of FGF
will not repeat in future years.

Our psychiatric sales and marketing division marketed seven products in the
United States in cooperation with the Company's partners (see Note 4c). In
March 2001, GSK and the Company agreed to sell the marketing rights to those
products to GSK and terminate the license agreement relating to certain GSK
psychiatric products effective March 31, 2001. In addition, the Company ended
the deployment of the Psychiatric Sales and Marketing Division sales force.
Effective March 31, 2001, we discontinued the sale of these products.

During the second quarter of 2001, we raised approximately $113.0 million, net
of expenses, through the issuance of 5,750,000 shares of common stock at $21
per share.

In the course of its development activities, the Company has sustained
operating losses and expects such losses to continue at least through fiscal
year 2003.

2.  RESTRUCTURING CHARGES AND EXPENSES

In 1999, the Company recorded a restructuring charge of approximately $6.4
million for the disposal of certain excess assets and severance costs. All
restructuring activities were complete by the end of the second quarter of
2000, leaving a remaining balance of $1.0 million in the reserve. The remaining
reserve was credited to restructure expense in the second quarter of 2000.

3.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of the Company and
its wholly owned and majority-owned subsidiaries. Intercompany transactions and
balances are eliminated on consolidation.

RECLASSIFICATIONS

Certain previously reported amounts have been reclassified to conform with the
current period presentation. These reclassifications had no impact on
previously reported results of operations.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally accepted
accounting principals requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

                                      F-6



                                  SCIOS INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


CASH EQUIVALENTS

The Company considers all highly liquid investments with maturities of less
than 90 days, at the time acquired, to be cash equivalents. Cash equivalents
are stated at cost, which approximates market value.

MARKETABLE SECURITIES

All marketable securities at December 31, 2001 and December 31, 2000 were
deemed by management to be available-for-sale and are carried at fair value
with the resulting net unrealized gains or losses, reported as a component of
accumulated other comprehensive income (loss). Premium and discount on debt
securities recorded at the date of purchase are amortized and accreted,
respectively, to interest income using the effective interest method.
Short-term marketable securities are those with remaining maturities at the
balance sheet date of one year or less. Long-term marketable securities have
remaining maturities at the balance sheet date of greater than one year.
Realized gains and losses on sales of all such securities are reported in
earnings and computed using the specific identification cost method.

The Company assesses the value of its available-for-sale marketable securities
on a regular basis to assess whether an other-than-temporary decline in the
fair value has occurred. Factors which the Company uses to assess whether an
other than temporary decline has occurred include, but are not limited to, the
period of time which the fair value is below original cost, significant changes
in the operating performance, financial condition or business model, and
changes in market conditions. Any "other than temporary decline" in value is
reported in earnings and a new cost basis for the marketable security
established.

INVENTORY

Inventory is stated at the lower of cost or market. Cost is determined using a
weighted-average approach, which approximates the first-in, first-out method.
All costs associated with the manufacture of Natrecor bulk drug product and
finished products to which title transferred to us prior to FDA approval was
expensed as research and development. On August 13, 2001, we received FDA
approval for Natrecor and any Natrecor bulk drug product and finished goods to
which we took title after that date was recorded as inventory.

BUSINESS RISK AND CREDIT CONCENTRATION

Approximately 63% of our total revenues in 2001 were derived from product
sales. These product sales consisted of one-time sales of bulk FGF to Kaken in
Japan of $15.9 million, and Natrecor sales of $14.1 million. Bulk sales of FGF
are not expected to repeat in future years. About 10% or $4.8 million of our
total revenues were from our research and development collaborations, licenses,
royalties, and milestone payments. The majority of this revenue was from Eli
Lilly and Company ("Eli Lilly") which accounted for $3.0 million of the total
$4.8 million for the development of drugs to prevent or retard the progression
of Alzheimer's disease. At the end of December 31, 2001, Eli Lilly and we
jointly terminated the collaboration. The remaining balance of $1.8 million was
from royalties from Biosite and Kaken and licensing payments from Abbot
Laboratories. In addition, 7% or $3.1 million of our total revenues in 2001
came from psychiatric product sales and co-promotion commissions, net of
expenses. As explained in Note 4c, we sold the marketing rights to GSK and
discontinued the sales of these products effective March 31, 2001.

Our revenues from Natrecor are all sold through wholesalers. The Company's top
four wholesalers typically represent approximately 90% of net revenue. These
four wholesalers accounted for approximately $12.8 million or 91% of our net
revenue of Natrecor for the year ended December 31, 2001. As a percent of net
revenue, the four wholesalers accounted for 28%, 26%, 24% and 13%, respectively.

At December 31, 2001 wholesalers accounted for $4.2 million of the $6.9 million
in accounts receivable. As a percent of the $4.2 million, four wholesalers
accounted for 32.7%, 23.3%, 23.3% and 13.3%, respectively.

Approximately 40% of our total revenues in 2000 were derived from psychiatric
product sales, which consists entirely of sales in the United States under a
license agreement with GSK.

                                      F-7



                                  SCIOS INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


In 1999 license revenues from Chiron Corporation ("Chiron") accounted for 27%,
milestone payments from Novo Nordisk accounted for 22%, and Alzheimer's
research reimbursement with Eli Lilly accounted for 22% of total research and
development contract revenues. Approximately 11% of 1999 research and
development contract revenues were from the agreement with Bayer AG ("Bayer")
for commercialization of Natrecor (nesiritide). The agreement with Bayer was
terminated in May 1999.

At December 31, 2001, the $6.9 million in accounts receivable included
approximately $4.2 million from product sales of Natrecor, and $3.0 million
from GSK, and $0.1 million of other receivable, less reserves of $0.4 million.

At December 31, 2000, the $5.2 million in accounts receivable included $3.5
million from GSK, and $1.0 million from Janssen Pharmaceutica Inc. ("Janssen").

The Company's excess cash is invested in a diversified portfolio of securities
consisting of United States Treasury Notes, deposits with major banks and
financial institutions, and investment-grade interest-bearing corporate
securities issued by companies in a variety of industries. In addition, the
Company owned 100,871 shares of GenVec Corporation (NASDAQ--GNVC) common stock,
with a fair market value of $499,311, at the end of December 31, 2001.

The Company relies on a third party to manufacture its product. Reliance on
third-party manufacturers involves a number of risks, including the lack of
control over the manufacturing process and the potential absence or
unavailability of adequate capacity. If the Company's third party manufacturer
cannot or will not manufacture its products in required volumes, on a
cost-effective basis, in a timely manner, or at all, the Company will have to
secure additional manufacturing capacity. Even if this additional capacity is
available at commercially acceptable terms, the qualification process could be
lengthy and could cause interruptions in product shipments.

Certain Company products require approval from the FDA and foreign regulatory
agencies prior to commercialized sales and are subject to continued regulations
once approved. There can be no assurances that the Company's new products will
receive any of these required approvals. If the Company was denied such
approvals or such approvals were delayed, it could have a materially adverse
impact on the Company.

DEPRECIATION AND AMORTIZATION

Leasehold improvements and equipment are stated at cost and are depreciated
using the straight-line method over the estimated useful lives of the assets (3
to 7 years for equipment). Leasehold improvements are amortized on a
straight-line basis over the shorter of the asset life or fixed-lease term.
Upon sale or retirement of assets, the cost and related accumulated
depreciation or amortization is removed from the balance sheet, and the
resulting gain or loss is reflected in operations. Repairs and maintenance are
charged to expenses when incurred.

IMPAIRMENT OF LONG-LIVED ASSETS

The Company assesses the impairment of identifiable intangibles and fixed
assets whenever events or changes in circumstances indicate that the carrying
value may not be recoverable. Factors considered important which could trigger
an impairment review include, but are not limited to, significant
underperformance relative to expected historical or projected future operating
results, significant changes in the manner of use of the acquired assets or the
strategy for the Company's overall business, significant negative industry or
economic trends, significant decline in the Company's stock price for a
sustained period, and the Company's market capitalization relative to net book
value. When the Company determines that the carrying value of long-lived assets
may not be recoverable based upon the existence of one or more of the above
indicators of impairment, the Company measures any impairment based on a
projected discounted cash flow method using a discount rate commensurate with
the risk inherent in the Company's current business model.

TREASURY STOCK

Treasury stock of 30,000 shares at December 31, 2001 was stated at cost and was
considered issued and outstanding. During September 2001, the Board of
Directors authorized the repurchase of up to $10 million of Scios common stock.
The

                                      F-8



                                  SCIOS INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

repurchases are to be made through open-market transactions at the discretion
of management as market conditions warrant. As of December 31, 2001, we had
repurchased 30,000 shares of our common stock at an average purchase price
of $14.83 per share.

REVENUE RECOGNITION

We recognize revenue from product sales when there is pervasive evidence that
an arrangement exists, delivery has occurred, the price is fixed and
determinable, and collection is reasonably assured. Provisions for discounts
and rebates to customers, and returns and other adjustments are provided for in
the same period that the related product sales are recorded based upon analyses
of historical discounts, rebates and returns. Shipping and distribution costs
are expensed to cost of product sales.

RESEARCH AND DEVELOPMENT CONTRACTS AND ROYALTIES

Research and development contract revenue from cost-reimbursement agreements
with collaboration partners is recorded as the related expenses are incurred,
up to contractual limits. Payments received that are related to future
performance are deferred and recorded as revenue as they are earned over
specified future performance periods. Charges to these collaboration partners
are based upon negotiated rates for full time equivalent employees of the
Company and such rates are intended to approximate the Company's anticipated
costs. All revenues recognized to date are not refundable if the relevant
research effort is not successful. Research and development expenses in 2001,
2000, and 1999 include approximately $1.9 million, $2.3 million, and $2.4
million respectively, incurred in connection with programs subject to cost
reimbursement, collaborative or other performance agreements.

Royalty income from licensing agreements is recognized when the royalty
payments are received and earned.

RESEARCH AND DEVELOPMENT

Research and development costs are charged to operations as incurred. Certain
research and development projects are funded under agreement with collaboration
partners, and the costs related to these activities are included in research
and development expense. The charges to collaboration partners are based upon
negotiated rates for full-time equivalent employees of the Company, and such
rates are intended to approximate the Company's anticipated costs.

FAIR VALUE OF FINANCIAL INSTRUMENTS

Carrying amounts of certain of the Company's financial instruments including
cash and cash equivalents, accounts receivable, accounts payable and other
accrued liabilities approximate fair value due to their short maturities. Based
on borrowing rates currently available to the Company for loans with similar
terms, the carrying value of notes payable approximates fair value. Estimated
fair values for marketable securities, which are separately disclosed
elsewhere, are based on quoted market prices for the same or similar
instruments.

                                      F-9



                                  SCIOS INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


COMPUTATION OF NET LOSS PER SHARE

Basic net loss per share is calculated using the weighted average number of
vested common shares outstanding for the period. Diluted net loss is calculated
using the weighted average number of common and dilutive common equivalent
shares outstanding during the period. The outstanding options to purchase
common stock and the affect of converting preferred stock to common stock were
excluded from diluted earnings calculations because the effect would be
anti-dilutive.

For the year ended December 31, 2001, the following items were not included in
the calculation of diluted net loss per share because to do so would be
anti-dilutive for the period:



                                                  -----------------------------
                                                       2001      2000      1999
                                                  --------- --------- ---------
                                                             
PharmaBio warrants, 700,000 total warrants with
  an exercise price of $20.00. Warrants are
  exercisable pro rata over the next 17 months
  and will expire in ten years...................   175,000        --        --
Option to issue preferred stock to repay debt for
  a maximum of $20 million. Shares are computed
  based on the year end stock price. Actual
  number of preferred shares will depend upon the
  price and dollar value used toward payment of
  Genentech debt (see Note 4f) (*)...............   841,396   499,100        --
Company stock option plans....................... 6,872,775 4,517,328 5,571,861
                                                  --------- --------- ---------
                                                  7,889,171 5,016,428 5,571,861
                                                  ========= ========= =========


(*)None of the shares shall be exercised, sold, assigned or transferred prior
   to December 30, 2002, except with the prior written approval of the Company.

COMPREHENSIVE INCOME (LOSS)

The Company's unrealized gains (losses) on marketable securities represent the
only component of comprehensive income (loss) that is excluded from the
Company's net loss. The Company's comprehensive income (loss) has been
presented in the consolidated financial statements. As the Company is in a loss
position, tax effects have not been allocated to the components of other
comprehensive income (loss).

PATENT COSTS

Costs related to patent prosecution are expensed as incurred, as recoverability
of such expenditures is uncertain.

SEGMENT REPORTING

Management has determined that the Company operates in one business segment. We
currently sell and market Natrecor in the United States for the treatment of
patients with acutely decompensated congestive heart failure.

ADVERTISING COSTS

We expense advertising costs as incurred. Advertising costs for Natrecor were
approximately $0.9 million for the year ended December 31, 2001 and none in
prior years.

INCOME TAXES

The Company accounts for income taxes under Statement of Financial Accounting
Standard No. 109, "Accounting for Income Taxes," which prescribes the use of
the liability method whereby deferred tax asset or liability account balances
are calculated at the balance sheet date using current tax laws and rates in
effect for the year in which the differences are expected to affect taxable
income. Valuation allowances are established when necessary to reduce deferred
tax assets to the amounts expected to be realized.

                                     F-10



                                  SCIOS INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


RECENT ACCOUNTING PRONOUNCEMENTS

In July 2001, the FASB issued Statement of Financial Accounting Standards No.
141 (SFAS 141), "Business Combinations." SFAS 141 requires the purchase method
of accounting for business combinations initiated after June 30, 2001 and
eliminates the pooling-of-interests method. Scios did not have any business
combination transactions in the year ended December 31, 2001.

In July 2001, the FASB issued Statement of Financial Accounting Standards No.
142 (SFAS 142), "Goodwill and Other Intangible Assets," which in Scios' case is
effective for fiscal years beginning after December 15, 2001. SFAS 142
requires, among other things, the discontinuance of goodwill amortization. In
addition, the standard includes provisions upon adoption for the
reclassification of certain existing recognized intangibles as goodwill,
reassessment of the useful lives of existing recognized intangibles,
reclassification of certain intangibles out of previously reported goodwill and
the testing for impairment of existing goodwill and other intangibles. The
Company does not currently have any goodwill or intangible assets, and does not
believe that the implementation of SFAS 142 will have any significant impact on
its financial position or results of operations.

In October 2001, the FASB issued Statement of Financial Accounting Standards
No. 144 (SFAS 144), "Accounting for the Impairment or Disposal of Long-Lived
Assets to be Disposed Of." SFAS 144 addresses financial accounting and
reporting of impairment of long-lived assets to be disposed of. However, SFAS
144 retains the fundamental provisions of SFAS 121 for: (1) recognition and
measurement of the impairment of long-lived assets to be held and used; and (2)
measurement of long-lived assets to be disposed of by sale. SFAS 144 is
effective for fiscal years beginning after December 15, 2001. We believe SFAS
144 will have no impact on Scios' financial position and results of operations.

SAB 101

Effective January 1, 2001, the Company adopted Staff Accounting Bulletin No.
101 (SAB 101) "Revenue Recognition in Financial Statements." SAB 101 requires
that license and other up front fees received from research collaborators be
recognized as earned over the term of the agreement unless the fee is in
exchange for products delivered or services performed that represent the
culmination of a separate earnings process.

The cumulative effect of adoption as of January 1, 2000 was immaterial to the
results of the Company's operations and financial position. However, certain
revenue recognized in periods prior to January 1, 2000 would have been
recognized in different periods in accordance with the provisions of SAB 101.
In the year ended December 31, 1998, the Company recorded a $20.0 million
license fee in connection with the Natrecor commercialization agreement with
Bayer AG. Under SAB 101, $19.1 million of this license fee would have been
reallocated from 1998 to the year ended December 31, 1999, the year in which
the Bayer commercialization agreement was terminated. As a result, the loss for
the year ended December 31, 1998 would have increased by $19.1 million and the
loss for the year ended December 31, 1999 decreased by $19.1 million. In
accordance with the implementation provisions of SAB 101, the accompanying
financial data for periods prior to January 1, 2000, the date of adoption, have
not been restated.

The pro forma effects of implementing SAB 101 on the results previously
reported for the year ended December 31, 1999 are presented below:



                                                  ----------------------------
                                                  YEAR ENDED DECEMBER 31, 1999
                                                  ----------------------------
                                                                     BASIC AND
                                                                       DILUTED
                                                                      LOSS PER
                                                  REVENUES NET LOSS      SHARE
                                                  -------- --------  ---------
                                                            
(IN THOUSANDS, EXCEPT PER SHARE DATA)
As Reported......................................  $28,355 $(20,064)    $(0.53)
Pro-forma........................................  $47,503 $   (916)    $(0.02)


Concurrent with the implementation of SAB 101, the Company implemented the
consensus reached in EITF 99-19 "Reporting Revenue Gross as a Principal Versus
Net as an Agent." The effect of this EITF results in netting the revenues

                                     F-11



                                  SCIOS INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

received from the Psychiatric Sales and Marketing Division (PSMD) with related
direct costs, as such it had no effect on previously reported operating
results. All periods presented reflect retroactive application of this EITF
consensus.

4.  JOINT BUSINESS ARRANGEMENTS

A.  AGREEMENT WITH CHIRON CORPORATION

In November 1999, the Company signed a license agreement with Chiron for the
rights to Fiblast (trafermin) ("Fiblast"). Fiblast is a human basic fibroblast
growth factor. The Company received $5.0 million in license and technology
transfer fees and $7.5 million from a Promissory Note due on December 31, 2006.
The note and related interest will be forgiven if Fiblast is approved in the
United States before December 31, 2006. The Company will also receive royalties
based on future sales of Fiblast products.

B.  AGREEMENT WITH JANSSEN PHARMACEUTICA INC.

The Company entered into a three-year agreement, effective April 1998, with
Janssen to jointly promote the anti-psychotic drug, Risperdal, in the United
States. Under the agreement, the Company receives base payments plus incentive
compensation on achieving specified sales levels over a contract year beginning
in April and ending in March. Janssen manufactures and distributes the product.
This agreement ended on March 31, 2001.

C.  AGREEMENTS WITH GLAXOSMITHKLINE CORPORATION

Under the terms of an agreement with GSK, the Company has the exclusive rights
to market certain GSK psychiatric products in the United States. GSK is fully
responsible for ancillary matters relating to product sales, including various
administrative tasks and maintenance of all New Drug Applications with respect
to the GSK Products, and certain product liability insurance. The Company pays
GSK 40% of net profits, as defined in the agreement, from sales of the GSK
Products.

In September 1998, the Company entered into an agreement with GSK to co-promote
Paxil in the United States. Under the agreement, the Company receives base
payments plus incentive compensation on achieving specified sales levels during
a specified term. Although the agreement ended in December 2000, the companies
had agreed to extend the agreement through March 31, 2001.

Commencing in the fourth quarter of 2000, the Company solicited and received
bids in connection with selling its marketing rights for certain psychiatric
products sold by the Company. The marketing rights were sold to GSK. In order
to effect the sale, the licensing agreement was terminated effective March 31,
2001, and the Company received from GSK $4.0 million in 2001, and will receive
$3.0 million in 2002, and will receive $2.4 million in 2003.

The Company recognized a one-time gain on the sale of $9.4 million, which has
been classified, on the statement of operations under the caption GAIN ON SALE
OF MARKETING RIGHTS. In addition, the Company ended the deployment of the
Psychiatric Sales Marketing Division sales force and terminated certain
full-time support personnel. Severance payments for these personnel amounted to
approximately $0.8 million.

In December 2001, we entered into a binding summary of terms with Glaxo Group
Ltd., an affiliate of GlaxoSmithKline, or GSK, in which we will license
Natrecor to GSK in all European markets. Under the terms of the agreement, GSK
will have the rights to sell and distribute the product for which we will
receive an up-front fee and milestone payments totaling (Pounds)15.0 million
British Pounds (which at December 31, 2001 equaled approximately $22 million
U.S. Dollars) in addition to future royalties in the identified countries. We
will manufacture and supply the bulk product to GSK. Both companies will work
together to continue clinical development of Natrecor in Europe. In order to
obtain European approval for Natrecor, GSK expects to use the extensive
clinical data we submitted to obtain approval from the FDA in August 2001. The
companies expect to launch Natrecor in Europe in the first half of 2004. No
revenue has been recognized related to this agreement through December 31, 2001.

                                     F-12



                                  SCIOS INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


D.  AGREEMENT WITH ELI LILLY AND COMPANY

In April 1997, the Company entered into a research collaboration with Eli Lilly
and Company ("Eli Lilly") for the development of drugs to prevent or retard the
progression of Alzheimer's disease. Under the terms of the agreement, Eli Lilly
will fund research and will have the first opportunity to develop products from
the collaboration. The Company may elect to develop other products from the
collaboration. The commercialization partner will make milestone and royalty
payments to the other partner. In 2000, the existing agreement was amended to
decrease the number of dedicated and non-dedicated employees that work on the
project, and at that time the program was further extended to December 31,
2001. At the end of December 31, 2001, we and Eli Lilly terminated the
collaboration.

E.  AGREEMENTS WITH KAKEN PHARMACEUTICAL CO., LTD.

In September 1994, the Company entered into a series of agreements with Kaken
Pharmaceutical Co., Ltd. ("Kaken"), to expand a previous agreement signed in
1988 for Fiblast. Under the 1994 agreements, the Company will collaborate with
Kaken to further develop the Fiblast manufacturing process, provide Kaken a
license to the Company's Fiblast manufacturing technology and supply a
specified amount of Fiblast product. In return, the Company has received
milestone payments, which are contingent on Kaken's continuing development of
the product. At December 31, 2000, $15.9 million of the Company's deferred
revenue consisted of payments received for the supply of Fiblast material.
Prior to closing its Mountain View manufacturing facility in May 1999, the
Company produced the amount of Fiblast due to Kaken and the Company held it for
delivery to Kaken upon regulatory approval of the product in Japan. In April
2001, Kaken Pharmaceuticals Co., Ltd. received notice from the Japanese
Ministry of Health and Welfare that they have been granted marketing approval
for Fiblast Spray as a treatment for dermal ulcers. During 2001, we shipped all
of the bulk FGF to Kaken in Japan and recognized $15.9 million of previously
deferred revenue. We also received royalty payments from the sale of Fiblast of
$0.2 million during 2001.

F.  AGREEMENT WITH GENENTECH, INC.

In December 1994, the Company entered into a collaboration agreement with
Genentech, Inc. ("Genentech") for the development and commercialization of
Auriculin (anaritide) ("Auriculin") for the treatment of acute renal failure.
Concurrent with the collaboration agreement, Genentech purchased $20.0 million
of the Company's preferred stock and provided a $30.0 million loan to the
Company in the form of a letter of credit (see Note 10), which the Company drew
down in March of 1997. As of December 31, 1997, Genentech had converted all
shares of preferred stock into 2.1 million shares of common stock. In 1997, the
Company and Genentech discontinued development of Auriculin based upon the
negative results of an interim study. In 1999 the terms of the loan were
amended. The loan is repayable in the Company's preferred stock up to a maximum
of $25.0 million at the Company's option at any time through December 31, 2002.
In the event the Company converts the loan to preferred stock, the stock cannot
be sold or registered until December 30, 2002 without the Company's approval.

In addition, if the Company should decide to convert the loan to preferred
stock, a portion of the loan that is not convertible will become due and
payable before December 31, 2002. The amount of the loan that is due before the
maturity date is based on a formula that considers the amount of loan converted
to stock and the outstanding loan balance.

In the first quarter of 2000, the Company paid down $2.0 million of the
Genentech loan. In the third quarter of 2000, the Company paid down the
Genentech loan by $7.6 million, which consisted of a cash payment of $2.6
million, and 4,991 shares of Series B preferred stock. The preferred shares
convert to 499,100 shares of common stock.

G.  AGREEMENT WITH QUINTILES INTERNATIONAL CORP.

In January 2001, we entered into a sale and marketing alliance with Innovex, a
subsidiary of Quintiles Transnational Corp. Innovex supported Scios with a wide
range of sales and marketing solutions. This included the hiring and training
of a dedicated sales force to launch Natrecor. As part of the original three
and one half year agreement, Quintiles, through its corporate venture group
PharmaBio Development agreed to fund $30.0 million of our costs to launch
Natrecor over the first 24 months of the commercialization of Natrecor and to
loan us up to $5.0 million. In December 2001, Scios, Innovex and

                                     F-13



                                  SCIOS INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

PharmaBio, amended the January 2001 agreement. The amendment allowed Scios, at
its option, to assume control of the Natrecor sales force in June 2003, one
year ahead of schedule, and eliminated the $5.0 million line of credit provided
by PharmaBio to Scios. Of the $30.0 million funding agreement, we received
$10.0 million in the fourth quarter of 2001, and will receive the remaining
$20.0 million in six payments over the following 17 months. As part of the
funding agreement, we will pay PharmaBio a declining royalty rate on net sales
of Natrecor through early 2008. We also granted PharmaBio a fully vested
warrant to purchase 700,000 shares of our common stock at an exercise price of
$20.00 per share. These warrants are exercisable over 17 months beginning
December 2001 through May 2003 (see Note 10).

5.  MARKETABLE SECURITIES

Unrealized gains and losses on marketable securities at December 31, 2001 by
classification were as follows:



                                     --------------------------------------------
                                                UNREALIZED UNREALIZED
                                     COST BASIS      GAINS     LOSSES  FAIR VALUE
                                     ---------- ---------- ----------  ----------
                                                           
(IN THOUSANDS)
Debt securities:
 U.S. Government & Government Agency    $20,878       $193      $ (85)    $20,986
 Corporate Bonds....................     49,623        469        (58)     50,034
                                        -------       ----      -----     -------
   Total............................    $70,501       $662      $(143)    $71,020
                                        =======       ====      =====     =======


Unrealized gains and losses on marketable securities at December 31, 2000 by
classification were as follows:



                                     --------------------------------------------
                                                UNREALIZED UNREALIZED
                                     COST BASIS      GAINS     LOSSES  FAIR VALUE
                                     ---------- ---------- ----------  ----------
                                                           
(IN THOUSANDS)
Debt securities:
 U.S. Government & Government Agency    $36,256       $191      $ (85)    $36,362
 Corporate Bonds....................     31,808        102        (32)     31,878
                                        -------       ----      -----     -------
   Total............................    $68,064       $293      $(117)    $68,240
                                        =======       ====      =====     =======


The scheduled maturities for marketable securities at December 31, 2001 by
classification were as follows:



                                  -------------------------------------------
                                  MATURITY                   MATURITY
                                    1 YEAR MATURITY MATURITY  4 YEARS
                                   OR LESS   2 YEAR   3 YEAR  OR MORE   TOTAL
                                  -------- -------- -------- -------- -------
                                                       
(IN THOUSANDS)
Debt securities:
  U.S. Government & Government
   Agency Securities.............   $   --  $13,943  $ 5,461   $1,582 $20,986
  Corporate Bonds................    7,351   18,418   17,090    7,175  50,034
                                    ------  -------  -------   ------ -------
   Total.........................   $7,351  $32,361  $22,551   $8,757 $71,020
                                    ======  =======  =======   ====== =======


The Company realized gains of $1.1 million and losses of $0.3 million on the
disposal of marketable securities in 2001, gains of $0.1 million and losses of
$0.3 million on the disposal of marketable securities in 2000, and gains of
$5.2 million and losses of $0.3 million on the disposal of marketable
securities during 1999.

                                     F-14



                                  SCIOS INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


6.  INVENTORY



                                                                 ------------
                                                                 DECEMBER 31,
                                                                 ------------
                                                                   2001  2000
                                                                 ------ -----
                                                                  
(IN THOUSANDS)
Finished goods.................................................. $1,134 $  --
Work-in-process.................................................     24    --
                                                                 ------ -----
   Total........................................................ $1,158 $  --
                                                                 ====== =====


7.  PROPERTY AND EQUIPMENT



                                                          ------------------
                                                             DECEMBER 31,
                                                          ------------------
                                                              2001      2000
                                                          --------  --------
                                                              
(IN THOUSANDS)
Laboratory equipment..................................... $  7,901  $  6,085
Computer and related equipment...........................    5,221     3,256
Furniture and other......................................    2,064     1,370
Leasehold improvements...................................   10,035     8,977
                                                          --------  --------
                                                            25,221    19,688
Accumulated depreciation and amortization................  (14,797)  (11,366)
                                                          --------  --------
                                                            10,424     8,322
Construction-in-progress.................................       --       588
                                                          --------  --------
   Total................................................. $ 10,424  $  8,910
                                                          ========  ========


8.  OTHER ASSETS



                                                                  -------------
                                                                  DECEMBER 31,
                                                                  -------------
                                                                    2001   2000
                                                                  ------ ------
                                                                   
(IN THOUSANDS)
Deposits......................................................... $  332 $  348
Receivable from GSK..............................................  2,363     --
Other assets.....................................................    499  1,255
Employee notes receivable........................................    929    686
                                                                  ------ ------
   Total......................................................... $4,123 $2,289
                                                                  ====== ======


9.  OTHER ACCRUED LIABILITIES



                                                                 -------------
                                                                 DECEMBER 31,
                                                                 -------------
                                                                   2001   2000
                                                                 ------ ------
                                                                  
(IN THOUSANDS)
Accrued Medicaid rebates........................................ $  865 $1,532
Profit distribution to third parties............................     --  1,139
Accrued clinical trial expenses.................................    995    598
Accrued selling and marketing expenses..........................  1,498     --
Accrued R&D contract payable....................................    737    737
Accrued research partnership distribution.......................    689     44
Other...........................................................  2,422  2,678
                                                                 ------ ------
   Total........................................................ $7,206 $6,728
                                                                 ====== ======


                                     F-15



                                  SCIOS INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


10.  LEASE AND DEBT COMMITMENTS

A.  OPERATING LEASES

The Company leases three facilities in Sunnyvale, California. The leases for
these facilities expire during various periods from December 31, 2003 to August
31, 2008. We also lease a warehouse in Mountain View, California that expires
in 2003. In addition, the Company has entered into operating leases covering
certain laboratory and computer equipment.

At December 31, 2001, future minimum payments under these leases are as follows:



                                                          --------------------
                                                                     EQUIPMENT
                                                          FACILITIES OPERATING
                                                              LEASES    LEASES
                                                          ---------- ---------
                                                               
(IN THOUSANDS)
2002.....................................................     $1,930      $198
2003.....................................................      2,069       105
2004.....................................................        917        --
2005.....................................................        948        --
2006.....................................................        979        --
Thereafter...............................................      1,879        --
                                                              ------      ----
   Total.................................................     $8,722      $303
                                                              ======      ====


Rent expenses for all facility leases were approximately $1.9 million, $1.6
million, and $2.2 million in 2001, 2000, and 1999, respectively.

B.  LONG-TERM DEBT



                                                            -----------------
                                                              DECEMBER 31,
                                                            -----------------
                                                                2001     2000
                                                            --------  -------
                                                                
(IN THOUSANDS)
Note payable to Genentech, interest at the prime rate of
  (4.75% at December 31, 2001). The loan is repayable in
  the Company's preferred stock up to a maximum of $20
  million at anytime through December 31, 2002. If the
  Company should decide to convert the loan to preferred
  stock, the portion of the loan that is not convertible
  ($13,035 at December 31, 2001) will become due and
  payable before December 31, 2002......................... $ 33,035  $30,927
Note payable to Chiron, interest at 8.5% and is due
  December 31, 2006........................................    8,876    8,168
Obligation to Quintiles--PharmaBio, amortized based on the
  royalty payments made on Natrecor sales until 2008.......   10,000       --
Discount on Qunitiles--PharmaBio obligation................   (3,397)      --
                                                            --------  -------
   Total long-term debt....................................   48,514   39,095
   Less current portion of long-term debt..................  (33,035)      --
                                                            --------  -------
   Long-term debt, net of current portion.................. $ 15,479  $39,095
                                                            ========  =======


GENENTECH--As part of the Auriculin agreement, Genentech committed to loan the
Company up to $30.0 million. The $30.0 million was drawn down in March of 1997,
and bears interest at the prime rate (4.75% at December 31, 2001). In 1999 the
terms of the loan were amended. The loan is repayable in the Company's
preferred stock up to a maximum of $25.0 million at the Company's option at any
time through December 31, 2002. In the event the Company converts the loan to
preferred stock, the stock cannot be sold or registered until December 30,
2002. In addition, if the Company should decide to convert the loan to
preferred stock, the portion of the loan that is not converted will become due
and payable before December 31, 2002. The amount of the loan that is
convertible before the maturity date is based on a formula that considers the
amount of the loan converted to stock and the outstanding loan balance.

                                     F-16



                                  SCIOS INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


In the first quarter of 2000, the Company paid down $2.0 million of the
Genentech loan. In the third quarter of 2000, the Company paid down the
Genentech loan by $7.6 million, which consisted of a cash payment of $2.6
million and 4,991 shares of Series B preferred stock. (For rights and features
of Series B preferred stock see Note 13a). Each share of Series B preferred
stock converts at a rate of 100:1 of common stock at Genentech's option. The
Series B preferred stock is convertible after December 30, 2002 and at
Genentech's option before January 20, 2003.

CHIRON--As part of the Fiblast agreement, Chiron loaned the Company $7.5
million in December 1999. The Promissory Note bears interest at the rate of
8.5% compounded annually, and is due December 31, 2006. The note and related
interest will be forgiven if Fiblast is approved in the United States before
December 31, 2006.

QUINTILES--PHARMABIO--In January 2001, we entered into a commercialization
agreement with Quintiles, through its corporate venture group PharmaBio
Development to fund $30.0 million of our costs to launch Natrecor over 24
months and to loan us up to $5.0 million. In addition, we granted PharmaBio
700,000 warrants to purchase Scios stock at $20.00 per share. In December 2001,
Scios and PharmaBio amended the January 2001 agreement. The amendment
eliminated the $5.0 million line of credit. All of the 700,000 warrants vested
in December 2001 are exercisable over seven installments beginning December
2001 through May 2003. Of the $30.0 million funding commitment, we received
$10.0 million in the fourth quarter of 2001, and will receive the remaining
$20.0 million in six payments over the following 17 months. As part of the
funding agreement, we will pay PharmaBio a declining royalty rate on net sales
of Natrecor through early 2008.

The accounting treatment of the commercialization payments of $30.0 million
from PharmaBio falls under the guidance of EITF 88-18, "Sales of Future
Revenues." EITF-88-18 addresses the accounting treatment when an enterprise
(Scios) receives cash from an investor (PharmaBio) and agrees to pay to the
investor for a defined period a specified percentage or amount of the revenue
or a measure of income of a particular product line, business segment,
trademark, patent, or contractual right. The Task Force reached a consensus on
six independent factors that would require reclassification of the proceeds as
debt. As the Company meets one of the factors whereby the Company has
significant continuing involvement in the generation of the cash flows due to
the investor. We have recorded the proceeds from PharmaBio of $10.0 million in
2001 as Long-term Debt and will reduce the debt principal and accrued interest
as the royalty payments are made. Interest on the debt (net of the discount)
will accrue monthly using the effective interest method beginning January 2002
and total interest will be adjusted based on the periodic adjustments made on
the overall expected royalty.

The accounting treatment for the 700,000 warrants is under APB 14, "Accounting
for Convertible Debt issued With Stock Purchase Warrants." Under APB 14, the
total expected net proceeds received of $30 million were allocated between the
debt and the warrant based upon the relative fair value of the two components.
The relative fair value of the warrants related to the debt, using the
Black-Scholes model at December 2001, was $10.2 million. Of this total fair
value, $3.4 million was recognized as a discount related to the debt based on
the portion of the cash funding received from PharmaBio in 2001. The remaining
balance of $6.8 million is recorded as Deferred Warrant Costs in the
Stockholder's Equity section. The $6.8 million in Deferred Warrant Costs will
be recorded as discount on debt as the remaining $20.0 million in funding is
received from PharmaBio over the next 17 months. The total value of the
warrants of $10.2 million will be amortized to interest expense using the
effective interest method over the life of the royalty payment stream.

D.  NATRECOR SUPPLY CONTRACT

The Company has entered into a long-term supply agreement with a manufacturer
for the supply of bulk Natrecor. The contract provides for the purchase of at
least 25 kg of bulk solution over an eight-year period after the first delivery
of commercialized quantities, at a maximum price of 24.5 million Euro (United
States equivalent at December 31, 2001, $21.5 million).

11.  LITIGATION

On November 29, 1995, the Company was notified by the United States
Environmental Protection Agency, or EPA, that it may have a liability in
connection with the clean-up of a toxic waste site arising out of the alleged
disposal of hazardous substances by a subcontractor of Nova Pharmaceutical
Corporation, which the we acquired in 1992. We were one of many potentially
responsible parties that were identified as associated with this specific site.
We held discussions with the EPA

                                     F-17



                                  SCIOS INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

and finalized the amount of potential liability. We reserved $90,000 at
December 31, 2000 as provision for the settlement thereof. During 2001, we
settled the liability with a final settlement payment of $81,264.

12.  RESEARCH AND DEVELOPMENT COMMITMENTS

A.  COMMITMENTS TO RESEARCH PARTNERSHIPS

In 1988, the Company purchased the interests of Biotechnology Research
Partners, a limited partnership in a joint venture, and made a down payment of
$0.6 million. The balance of the purchase price is to be paid in quarterly
installments in accordance with the following formula: (i) until the minority
partners have received payments of approximately $22.8 million, the Company
will pay approximately 37% of the royalty income from third-party licenses and
approximately 4% of the Company's gross sales of Partnership products; (ii)
thereafter, until the minority partners have received aggregate payments of
approximately $34.1 million, the Company will pay approximately 31% of the
royalty income and approximately 3% of the Company's gross sales of Partnership
products; and (iii) thereafter, until the earlier of 20 years from the date of
exercise of the option or the time all patents relating to the Partnership's
technology expire and all information relating to that technology becomes part
of the public domain, the Company will pay to the minority partners
approximately 21% of the royalty income and approximately 2% of the Company's
gross sales of Partnership products. Partnership products for which minority
partners will receive payments include Fiblast. The Company accrued no amounts
at December 31, 2000 and accrued $0.6 million at December 31, 2001 as the
minority partners' share of royalty payments received from Fiblast in 2001.

In December 1992, the Company exercised its option to acquire all interests in
Nova Technology Limited Partnership for $20.4 million. The Company also issued
contingent payment rights to all limited partners of the partnership, pursuant
to which the Company is obligated until January 15, 2008 to pay royalties on
the sale or license of certain products that were under development by the
partnership. The Company had accrued $44,000 at December 31, 2001 as a result
of royalties associated with the commercialization of Guilford's Gliadel wafer.

B.  RESEARCH COLLABORATIONS WITH PARTNERS

As part of the Joint Business Arrangements described in Note 4 above, the
Company from time to time agrees to provide and receive resources and support
as part of its collaborations with other companies. In the course of such
collaborations, issues may arise concerning the ownership of technology that is
developed and the fulfillment of each party's obligations to the other.
Generally these have been resolved by the parties without resorting to
litigation.

13.  STOCKHOLDERS' EQUITY

A.  SERIES B PREFERRED STOCK

The Company's preferred stock may be issued in series that have such rights as
may be designated by the Board of Directors from time to time. In February
2000, the Company's Board authorized the designation of 50,000 shares of Series
B preferred stock. At December 31, 2000 and December 31, 2001 there were 4,991
shares outstanding. As discussed in Note 10b, the Company paid down the
Genentech loan by $7.6 million which consisted of a cash payment of $2.6
million and 4,991 shares of Series B preferred stock. Each share of Series B
preferred stock converts at a rate of 100:1 of common and will not have voting
rights until converted into shares of Scios common stock. In addition, the
holders of the Series B preferred stock are entitled to receive dividends as
payable on each share of common stock into which such shares could then be
converted, when and if declared by the Board of Directors. In the event of any
liquidation, dissolution or winding up of the Company, after payment of debts
and other liabilities, the holders of the Series B preferred stock (on an as
converted basis) and the holders of the common stock shall be entitled to share
ratably in the remaining assets of the Company.

B.  DEFERRED COMPENSATION

In August 2000, the Company granted shares of restricted stock to an officer.
The shares vest over a six-month period provided that the recipient is still
employed by the Company. The market value of these shares was $0.3 million and
has been recorded as a separate component of stockholders' equity. In August
1999, the Company granted shares of restricted stock to an officer.

                                     F-18



                                  SCIOS INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The shares vest over a three-year period provided that the recipient is still
employed by the Company. The market value of the shares awarded was $0.2
million and has been recorded as a separate component of stockholders' equity.
In September 1998, the Company granted shares of restricted stock to an officer
and director. The shares vest over a two-year period provided that the
recipient is still employed by the Company. The market value of the shares
awarded was $0.6 million and has been recorded as a separate component of
stockholders' equity. Deferred compensation for these share grants is being
amortized over the applicable period of the vesting. The restricted stock was
granted under the 1992 Incentive Stock Plan.

14.  EMPLOYEE 401(K) BENEFIT PLAN

The Company has a qualified profit sharing plan and trust under Internal
Revenue Service Code sections 401(a) and 401(k). Employees are eligible to
participate in the plan the first day of the month after hire and can elect to
contribute to the plan up to 15% of their salary subject to current statutory
limits. In 2001, 2000, and 1999, the Company matched employee contributions at
a rate of 100% to a maximum of $3,000 per employee, except as restricted by
statutory limits. The Company contribution is 100% vested at the end of an
employee's third year of employment. Company contributions to the plan totaled
approximately $0.7 million in 2001, $0.6 million in 2000, and $0.8 million in
1999.

15.  STOCK OPTION PLANS

Under the Company's stock option plans, the Board of Directors has the
authority to determine to whom options will be granted, the number of shares,
the vesting period and the exercise price (which cannot be less than fair
market value ("FMV") at date of grant for incentive stock options or 85% of FMV
for non-statutory options). The options are exercisable at times and in
increments as specified by the Board of Directors, generally expire ten years
from date of grant and fully vest over periods from three to five years. The
following shares are authorized and available for grant as of December 31, 2001:



                       ---------------------------------------------------------
                           SHARES     OPTIONS AVAILABLE
PLAN TITLE             AUTHORIZED OUTSTANDING FOR GRANT             OPTION PRICE
- ----------             ---------- ----------- --------- ------------------------
                                            
1983/86...............  2,200,000     18,765         -- Not less than 85% of FMV
1989..................    170,000     10,000         --           FMV
1992..................  6,057,665  1,983,646  1,640,405 Not less than 85% of FMV
1996..................  6,795,000  4,860,168  1,361,267 Not less than 85% of FMV
NQ....................    443,161         --         -- Not less than 85% of FMV
1992 NC...............    442,335        196            Not less than 85% of FMV
SA....................    542,000         --         -- Not less than 85% of FMV
                       ----------  ---------  ---------
Total................. 16,650,161  6,872,775  3,001,672
                       ==========  =========  =========


Additional information with respect to the activity of outstanding options and
restricted common stock is summarized in the following table:



                                       -----------------------------------------
                                        NUMBER OF                AGGREGATE PRICE
                                           SHARES   OPTION PRICE  (IN THOUSANDS)
                                       ----------  ------------- ---------------
                                                        
Balances at January 1, 1999...........  4,505,835  $ 3.69-$21.13        $ 35,562
  Granted.............................  2,119,200  $ 3.81-$ 8.75          12,638
  Exercised...........................   (185,163) $ 5.13-$ 9.63          (1,243)
  Canceled............................   (868,011) $ 3.81-$15.06          (6,592)
                                       ----------  -------------        --------
Balances at December 31, 1999.........  5,571,861  $ 3.69-$21.13          40,365
  Granted.............................  1,190,922  $0.001-$15.19          10,912
  Exercised........................... (1,432,757) $0.001-$12.00         (10,535)
  Canceled............................   (812,698) $ 3.81-$21.13          (7,190)
                                       ----------  -------------        --------
Balances at December 31, 2000.........  4,517,328  $0.001-$21.13          33,552
  Granted.............................  3,748,500  $15.18-$27.60          81,210
  Exercised........................... (1,061,590) $0.001-$26.35          (8,379)
  Canceled............................   (331,463) $ 3.81-$26.35          (4,378)
                                       ----------  -------------        --------
Balances at December 31, 2001.........  6,872,775  $0.001-$27.60        $102,005
                                       ==========  =============        ========


                                     F-19



                                  SCIOS INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


The options outstanding by range of exercise price at December 31, 2001 are as
follows:



                    -----------------------------------------------------------
                                   WEIGHTED OUTSTANDING             EXERCISABLE
                                    AVERAGE    WEIGHTED                WEIGHTED
                      NUMBER OF   REMAINING     AVERAGE   NUMBER OF     AVERAGE
                        OPTIONS CONTRACTUAL    EXERCISE     OPTIONS    EXERCISE
EXERCISE PRICE      OUTSTANDING        LIFE       PRICE EXERCISABLE       PRICE
- --------------      ----------- ----------- ----------- ----------- -----------
                                                     
$ 3.81-$ 3.94......     683,617        7.57      $ 3.67     219,718      $ 3.86
$ 3.97-$ 5.97......     747,612        6.89      $ 5.15     582,014      $ 5.25
$ 6.06-$ 8.75......     800,594        6.04      $ 7.42     652,825      $ 7.33
$ 8.88-$15.18......     812,459        6.94      $10.73     574,398      $10.23
$15.19-$19.10......     666,534        9.31      $17.48      70,992      $15.26
$19.11-$20.37......     809,605        9.15      $20.28     162,497      $20.37
$20.47-$21.85......     924,917        9.43      $21.43         271      $20.85
$21.98-$22.41......     765,000        9.48      $22.35          --      $ 0.00
$22.54-$26.90......     572,437        9.44      $25.42      48,394      $26.46
$27.60-$27.60......      60,000        9.32      $27.60          --      $ 0.00
                      ---------        ----      ------   ---------      ------
$3.81-$27.60.......   6,842,775        8.23      $14.89   2,311,109      $ 8.76
                      =========        ====      ======   =========      ======


At December 31, 2001, approximately 2,311,109 options to purchase common stock
of the Company were exercisable at an average exercise price of $8.76. At
December 31, 2000, approximately 2,407,480 options to purchase common stock of
the Company were exercisable at an average exercise price of $7.37. In 2000,
the Company issued 735,036 shares of treasury stock to fulfill employee option
exercises.

On February 5, 2001, the 1996 Equity Incentive Plan was amended to add 1.3
million shares of common stock to this plan. On May 7, 2001, the 1996 Equity
Incentive Plan was amended to add 1.8 million shares of common stock to this
plan. On May 8, 2001, the stockholders approved an amendment to the 1992 Equity
Incentive Plan adding 1.5 million shares of common stock to this plan and
approved an Employee Stock Purchase Plan with an initial allocation of 175,000
shares of common stock. On November 5, 2001, the 1996 Equity Incentive Plan was
amended to add 1.2 million shares of common stock to this plan.

RESTRICTED COMMON STOCK

At December 31, 2001 there were 30,000 shares of restricted common stock
granted to an officer that were outstanding. The shares vest on August 9, 2002,
and at December 31, 2001 none of these shares were vested.

STOCK BASED COMPENSATION

The Company is required under Statement of Financial Accounting Standards No.
123, "Accounting for Stock Based Compensation" ("SFAS 123"), to disclose pro
forma information regarding option grants and the employee stock purchase
program made to its employees based on specified valuation techniques that
produce estimated compensation charges. These amounts have not been reflected
in the Company's Consolidated Statements of Operations because no compensation
charge arises when the price of the employees' stock options equals the market
value of the underlying stock at the grant date, as in the case of options
granted to the Company's employees. Pro forma information under SFAS 123 is as
follows:

The following pro forma information has been prepared following the provisions
of SFAS No. 123:



                                                  ----------------------------
                                                     YEAR ENDED DECEMBER 31,
                                                  ----------------------------
                                                      2001      2000      1999
                                                  --------  --------  --------
                                                             
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Net loss--as reported............................ $(62,497) $(42,522) $(20,064)
Net loss--pro forma.............................. $(77,646) $(48,148) $(25,449)
Net loss per common share basic and diluted--as
  reported....................................... $  (1.47) $  (1.12) $  (0.53)
Net loss per common share basic and diluted--pro
  forma.......................................... $  (1.82) $  (1.27) $  (0.67)


                                     F-20



                                  SCIOS INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


The fair value of each option grant is estimated on the date of grant using the
Black-Scholes single option pricing method assuming the following assumptions:



                                                       -------------------------
                                                        YEAR ENDED DECEMBER 31,
                                                       -------------------------
                                                          2001     2000     1999
                                                       -------  -------  -------
                                                                
Risk free interest rate...............................    4.50%    5.01%    5.50%
Expected life (years).................................    5.71      6.1      5.4
Volatility............................................  0.8097   0.8573   0.9121
Dividend yield........................................      --       --       --
Weighted average per share fair value of options
  granted............................................. $ 15.34  $  7.73  $  4.11


The fair value of the employee stock purchase program or ESPP is estimated on
the date of the exercise using the Black-Scholes single option pricing method
assuming the following assumptions:



                                                            -----------------------
                                                            YEAR ENDED DECEMBER 31,
                                                            -----------------------
                                                                 2001     2000 1999
                                                             -------     ----  ----
                                                                      
Risk free interest rate....................................    4.50%      N/A   N/A
Expected life (years)......................................     0.5       N/A   N/A
Volatility.................................................  0.8097       N/A   N/A
Dividend yield.............................................      --        --    --
Weighted average per share fair value of ESPP exercised.... $  8.33       N/A   N/A


TREASURY STOCK

During September 2001, the Board of Directors authorized the repurchase of up
to $10 million of Scios common stock. The repurchases are to be made through
open-market transactions at the discretion of management as market conditions
warrant. As of December 31, 2001, we purchased 30,000 shares of Scios common
stock for an aggregate purchase price of $445,000. These shares are classified
as Treasury Stock on the balance sheet at December 31, 2001.

16.  INCOME TAXES

The Company's deferred tax assets and liabilities are determined based on the
difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amounts
expected to be realized.

The Company has federal and state income tax net operating loss ("NOL") and
research credit carry-forwards at December 31, 2001 for tax purposes available
as follows:

                                                              
Federal NOL..................................................... $436,236,000
State NOL....................................................... $ 61,041,000
Federal Research Credit......................................... $ 13,204,000
State Research Credit........................................... $  7,370,000



These federal and state NOL carry-forwards expire in the years 2002 through
2021 and 2002 through 2006, respectively. The federal and state research credit
carry-forwards expire in the years 2002 through 2021.

Due to a change in the ownership of the Company, as defined, a portion of the
federal and state NOL carryover is subject to an annual utilization limitation.
Should another change in ownership occur, future utilization of the Company's
NOL carry-forwards may be subject to additional limitations.

                                     F-21



                                  SCIOS INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets are presented below:



                                                            --------------------
                                                                DECEMBER 31,
                                                            --------------------
                                                                 2001       2000
                                                            ---------  ---------
                                                                 
(IN THOUSANDS)
Net operating loss carryforwards........................... $ 151,882  $ 121,069
Credits....................................................    18,182     16,632
Assets subject to depreciation and amortization............    12,569     11,700
Deferred revenue...........................................        --      6,744
Other accrued liabilities..................................     5,856      7,685
                                                            ---------  ---------
Total deferred tax assets..................................   188,489    163,830
Valuation allowance........................................  (188,489)  (163,830)
                                                            ---------  ---------
   Net deferred tax assets................................. $      --  $      --
                                                            =========  =========


Due to the uncertainty surrounding the realization of the favorable tax
attributes in future tax returns, the Company has placed a valuation allowance
against its otherwise recognizable net deferred tax assets.

17.  INDUSTRY AND GEOGRAPHIC SEGMENT INFORMATION

The Company operates in one business segment, using one measurement of
profitability for its business. All long-lived assets are maintained in the
United States. The Company receives revenue from product sales and from
licensing and development of products. The Company received licensing revenue
from partners in the United States, Europe and Asia Pacific.

Revenue by geographic area is as follows:



                                                                      --------
                                                                      REVENUES
                                                                      --------
                                                                   
(IN THOUSANDS)
December 31, 2001:
  United States...................................................... $31,241
  International......................................................  16,104
                                                                      -------
   Total............................................................. $47,345
                                                                      =======
December 31, 2000:
  United States...................................................... $12,624
  International......................................................      --
                                                                      -------
   Total............................................................. $12,624
                                                                      =======
December 31, 1999:
  United States...................................................... $22,002
  International......................................................   6,353
                                                                      -------
   Total............................................................. $28,355
                                                                      =======


18.  RELATED PARTY TRANSACTIONS

At December 31, 2001, we had notes receivable from three officers. The first
note is in the amount of $280,040 with interest at 5.18% per annum, due and
payable on February 28, 2002. The maturity date of the note agreement was
amended to February 28, 2003. The loan was granted in connection with the
payment of income taxes for restricted stock granted to the officer. This loan
is collateralized by the vested portion of the officer's stock options and is
classified as Other Assets on the balance sheet at December 31, 2001.

                                     F-22



                                  SCIOS INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


The second note is in the amount of $16,666 with interest at 5.82% per annum.
This loan will be forgiven in 2002 based on the continued employment of the
officer and is collateralized by the officer's residence. The loan was granted
in connection with a housing subsidy for the officer to live in California.
This loan is classified as Other Assets on the balance sheet at December 31,
2001.

The third note is in the amount of $150,000 with interest at 10.0% per annum.
This loan will be forgiven in 2006 based on the continued employment of the
officer and is collateralized by the officer's residence. The loan was granted
in connection with a housing subsidy for the officer to live in California.
This loan is classified as Other Assets on the balance sheet at December 31,
2001.

We also have loans to four senior managers in the amount of $482,698 with
interest rates from 4.83% to 10%. These loans were granted in connection with
housing subsidies for the individuals to live in California. These loans are
classified as Other Assets on the balance sheet at December 31, 2001.

19.  QUARTERLY FINANCIAL DATA (UNAUDITED)

The following tables summarize the quarterly financial data for the last two
fiscal years:



                                   ------------------------------------------------
                                               FISCAL 2001 QUARTER ENDED
                                   ------------------------------------------------
                                   MARCH 31,  JUNE 30,  SEPTEMBER 30,  DECEMBER 31,
                                   ---------  --------  -------------  ------------
                                                           
(IN THOUSANDS, EXCEPT PER SHARE
  DATA)
Total revenues....................   $11,943  $  5,241       $ 19,614      $ 10,547
Loss from operations..............    (4,017)  (18,121)       (12,869)      (30,169)
Net loss..........................    (4,223)  (18,273)       (11,167)      (28,834)
Basic and diluted net loss per
  share...........................   $ (0.11) $  (0.46)      $  (0.25)     $  (0.63)

                                   ------------------------------------------------
                                               FISCAL 2000 QUARTER ENDED
                                   ------------------------------------------------
                                   MARCH 31,  JUNE 30,  SEPTEMBER 30,  DECEMBER 31,
                                   ---------  --------  -------------  ------------
(IN THOUSANDS, EXCEPT PER SHARE
  DATA)
Total revenues....................   $ 3,225  $  3,066       $  2,816      $  3,517
Loss from operations..............    (9,535)   (9,991)       (10,374)      (12,472)
Net loss..........................    (9,525)  (10,309)       (10,484)      (12,204)
Basic and diluted net loss per
  share...........................   $ (0.25) $  (0.27)      $  (0.28)     $  (0.32)


                                     F-23



                                 EXHIBIT INDEX



EXHIBIT
NUMBER                                                                                                          REFERENCE
- ------                                                                                                          ---------
                                                                                                          
   3.1    Certificate of Incorporation.........................................................................      Q

   3.1(a) Certificate of Amendment of Certificate of Incorporation.............................................

   3.2    Bylaws...............................................................................................      J

   4.1    Certificate of Designation of Series B Preferred Stock of Scios Inc..................................

   4.2    For a discussion of certain registration rights in favor of Genetech, Inc., see Exhibits 10.33, 10.34
          and 10.41............................................................................................    Q,V

  10.1    Biotechnology Research Partners, Ltd. Agreement of Limited Partnership dated October 29, 1982;
          Development Contract, Technology License Agreement and Joint Venture Agreement between
          Biotechnology Research Partners, Ltd. and the Registrant dated December 29, 1982; Promissory
          Note dated December 29, 1982; and Memorandum of Understanding between Battery Park Credit
          Company and Biotechnology Research Partners, Ltd. dated December 28, 1982............................      A

  10.2*   1983 Incentive Stock Option Plan, as amended, and form of Stock Option Agreement, Promissory
          Note and Pledge Agreement............................................................................      E

  10.3    Common Stock Purchase Agreement dated April 15, 1985 between the Registrant and American
          Home Products Corporation............................................................................      B

  10.5*   1986 Supplemental Stock Option Plan, as amended, and form of Stock Option Agreement,
          Promissory Note and Pledge Agreement.................................................................      E

  10.6    Rights Exercise Agreement between the Registrant and American Home Products Corporation dated
          February 28, 1986 and Letter of March 26 and May 16, 1986............................................      B

 10.11*   1992 Equity Incentive Plan...........................................................................      H

 10.18    Form of Purchase Option Agreement between each of the limited partners of Nova Technology
          Limited Partnership and Nova.........................................................................      I

 10.19*   Non employee Director Stock Option Plan..............................................................      G

 10.29    CNS Psychiatric Products Agreement dated June 30, 1990 between SmithKline Beecham
          Corporation and Nova.................................................................................      N

 10.33    Preferred Stock Purchase Agreement dated December 30, 1994 between the Registrant and
          Genentech, Inc.......................................................................................      Q

 10.34    Note Agreement dated December 30, 1994 between the Registrant and Genentech, Inc. (See Exhibit
          Number 10.41 below amending the Note Agreement)......................................................      Q

 10.35    Assignment of Lease dated March 22, 1995 for premises located at 820 West Maude Avenue,
          Sunnyvale, California................................................................................      R

 10.38*   Employment Letter dated September 8, 1998 between the Registrant and Richard B. Brewer...............      T

 10.39    Purchase and Sale Agreement and Joint Escrow Instructions (Mountain View Real Estate Sale) dated
          May 24, 1999 between Alexandria Real Estate Equities, Inc. and Registrant's wholly owned
          Subsidiary Bio-Shore Holdings, Ltd. Portions of the exhibit have been omitted pursuant to a request
          for confidential treatment...........................................................................      U

 10.41    First Amendment to Note Agreement and Preferred Stock dated November 3, 1999 between the
          Registrant and Genentech, Inc. (See Exhibit 10.34 above).............................................      V

 10.42    Promissory Note dated December 27, 1999 by the Registrant to Chiron Corporation......................      V

 10.43*   Change of Control Severance Plans with Employees, Officers and Chief Executive Officer...............      V

 10.44    Alliance Agreement dated January 10, 2001 between the Registrant, Innovex L.P. and PharmaBio
          Development Inc. (including a Warrant Agreement between the Registrant and PharmaBio
          Development Inc. attached thereto as Exhibit B). Portions of the exhibit have been granted
          confidential treatment...............................................................................      W






EXHIBIT
NUMBER                                                                                                          REFERENCE
- ------                                                                                                          ---------
                                                                                                          

 10.45  Amendment No. 4 to Lease dated January 22, 1993 for the premises located at 820 West Maude
        Avenue, Sunnyvale, California (See Exhibit 10.35 above)................................................     Y

 10.46  Lease Agreement dated November 17, 1995 for premises located at 820 West Maude Avenue,
        Sunnyvale, California..................................................................................     Z

 10.47  Sublease Agreement dated March 24, 1999 for premises located at 749 North Mary Avenue,
        Sunnyvale, California..................................................................................     Z

 10.48  First Amendment dated May 28, 2001 to Sublease dated May 24, 1999 for premises located at
        749 North Mary Avenue, Sunnyvale, California...........................................................    aa

 10.49  Amendment No. 5 dated July 24, 2001 to Lease Agreement dated January 22, 1993 for premises
        located at 820 Maude Avenue, Sunnyvale, California.....................................................    aa

 10.50  Letter dated June 10, 2001 to extend leases for premises located at 820 West Maude Avenue,
        Sunnyvale, California..................................................................................    aa

 10.51  Amended and Restated Alliance Agreement dated November 1, 2001 between the Registrant,
        Innovex L.P., Innovex Support Services Limited Partnership and PharmaBio Development Inc.
        (including a Warrant Agreement between the Registrant and Pharmabio Development Inc. attached
        thereto as Exhibit B). Portions of the exhibit have been omitted pursuant to a request for confidential
        treatment..............................................................................................

 10.52  Binding Summary of Terms between the Registrant and Glaxo Group Ltd. dated December 20, 2001.
        Portions of the exhibit have been omitted pursuant to a request for confidential treatment.............

  21.2  Subsidiaries of the Registrant.........................................................................

  23.1  Consent of PricewaterhouseCoopers LLP..................................................................

  24.1  Powers of Attorney. Reference is made to page 35.......................................................

- --------
*  Management contract or compensatory plan or arrangement.
A  Filed as an exhibit to Form S-1 Registration Statement (File No. 2-86086),
   as amended, and incorporated herein by reference.
B  Filed as an exhibit to Form S-1 Registration Statement (File No. 33-3186),
   as amended, and incorporated herein by reference.
E  Filed as an exhibit to Annual Report on Form 10-K for fiscal year 1988 and
   incorporated herein by reference.
G  Filed as an exhibit to Form S-8 Registration Statement (File No. 33-39878)
   filed on April 8, 1991 and incorporated herein by reference.
H  Filed as an exhibit to Annual Report on Form 10-K for fiscal year 1991 and
   incorporated herein by reference.
I  Filed as an exhibit to Form S-1 Registration Statement (File No. 33-14937)
   filed on behalf of Nova Technology Limited Partnership and incorporated
   herein by reference.
J  Filed as an exhibit to Form S-4 Registration Statement (File No. 33-49846)
   filed on July 22, 1992 and incorporated herein by reference.
N  Filed as an exhibit to Nova's Annual Report on Form 10-K for fiscal year
   1990 and incorporated herein by reference
Q  Filed as an exhibit to Annual Report on Form 10-K for fiscal year 1994 and
   incorporated herein by reference.
R  Filed as an exhibit to Quarterly Report on Form 10-Q for quarter ended March
   31, 1995 and incorporated herein by reference.
T  Filed as an exhibit to Annual Report on Form 10-K for fiscal year 1998 and
   incorporated herein by reference.
U  Filed as an exhibit to Quarterly Report on Form 10-Q for the quarter ended
   September 30, 1999 and incorporated herein by reference.
V  Filed as an exhibit to Annual Report on Form 10-K for fiscal year 1999 and
   incorporated herein by reference.
W  Filed as an exhibit to Report on Form 8-K dated January 24, 2000 and
   incorporated herein by reference.
Y  Filed as an exhibit to Annual Report on Form 10-K for fiscal year 2000 and
   incorporated herein by reference.
Z  Filed as an exhibit to Annual Report on Form 10-K/A (Amendment No. 2) for
   fiscal year 2000 and incorporated herein by reference.
aa Filed as an exhibit to Quarterly Report on Form 10-Q for the quarter ended
   September 30, 2001 and incorporated herein by reference.

EX-3.1(A)

                                                                 Exhibit 3.1(a)


                            CERTIFICATE OF AMENDMENT
                                       OF
                          CERTIFICATE OF INCORPORATION
                                       OF
                                 SCIOS NOVA INC.


     Scios Nova Inc., a corporation organized and existing under and by virtue
of the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY:

     FIRST: The name of this corporation is Scios Nova Inc.

     SECOND: The date on which the Certificate of Incorporation of the
corporation was filed with the Secretary of State of the State of Delaware is
April 8, 1988. The date on which the Restated Certificate of Incorporation of
the corporation was filed with the Secretary of State of the State of Delaware
is September 3, 1992.

     THIRD: The Board of Directors of the Corporation, acting in accordance with
the provisions of Section 141(f) and 242 of the General Corporation Law of the
State of Delaware adopted resolutions to amend Article I in its entirety to read
as follows:

                                       "I.

                   The name of this corporation is Scios Inc."

     FOURTH: Thereafter pursuant to a resolution of the Board of Directors this
Certificate of Amendment was submitted to the stockholders of the corporation
for their approval in accordance with the provisions of Section 242 of the
General Corporation Law of the State of Delaware.

     IN WITNESS WHEREOF, Scios Nova Inc. has caused this Certificate of
Amendment to be signed by its Chief Executive Officer and attested to by its
Secretary this 26th day of March 1996.

                                        SCIOS NOVA INC.

                                        By:     /s/ Richard L. Casey
                                             ---------------------------------
                                             Richard L. Casey
                                             Chief Executive Officer


ATTEST:

/s/ John H. Newman
- ---------------------------
John H. Newman
Secretary

EX-4.1

                                                                     Exhibit 4.1


                           CERTIFICATE OF DESIGNATION
                                       OF
                            SERIES B PREFERRED STOCK
                                       OF
                                   SCIOS INC.


                         (Pursuant to Section 151 of the
                        Delaware General Corporation Law)


         SCIOS INC., a corporation organized and existing under the General

Corporation Law of the State of Delaware (the "Corporation"), hereby certifies

that the following resolution was adopted on February 8, 2000 by the vote of the

Board of Directors of the Corporation as required by Section 151 of the General

Corporation Law:

                         RESOLVED, that pursuant to the authority granted to
         and vested in the Board of Directors of the Corporation in accordance
         with the provisions of its Restated Certificate of Incorporation, the
         Board of Directors hereby creates a series of Preferred Stock, par
         value $.001 per share, of the Corporation and hereby states the
         designation and number of shares, and fixes the relative powers,
         preferences, rights, qualifications, limitations and restrictions
         thereof (in addition to the provisions set forth in the Restated
         Certificate of Incorporation of the Corporation, which are applicable
         to the Preferred Stock of all classes and series), as follows:

                  Series B Preferred Stock:

                  Section 1. Designation and Amount. Fifty thousand (50,000)
         shares of Preferred Stock, $.001 par value, are designated "Series B
         Preferred Stock" with the powers, preferences, rights, qualifications,
         limitations and restrictions specified herein (the "Series B Preferred
         Stock"). Such number of shares may be increased or decreased by
         resolution of the Board of Directors; provided, that no decrease shall
         reduce the number of shares of Series B Preferred Stock to a number
         less than the number of shares then outstanding plus the number of
         shares reserved for issuance upon the exercise of outstanding options,
         rights or warrants or upon the conversion of any outstanding securities
         issued by the Corporation convertible into Series B Preferred Stock.

                  Section 2. Dividends. No dividends (other than those payable
         solely in the Common Stock of the Corporation) shall be paid on any
         Common Stock of the Corporation unless a divided is paid with respect
         to all outstanding shares of Series B Preferred Stock in an amount for
         each such share of Series B Preferred Stock equal to or greater than
         the aggregate amount of such dividends payable upon all shares of
         Common Stock into which such share of Series B Preferred Stock could
         then be converted.




                  Section 3. Liquidation. In the event of any liquidation,
         dissolution or winding up of the Corporation, whether voluntary or
         involuntary, after payment or provision for payment of the debts and
         other liabilities of the Corporation and the amounts to which the
         holders of any senior class of Preferred Stock shall be entitled, the
         holders of the Series B Preferred Stock (on an as converted basis) and
         the holders of Common Stock shall be entitled to share ratably in the
         remaining assets of the Corporation.

                  Section 4. Voting  Rights.  The  holders  of shares  of Series
         B Preferred Stock shall not have any voting rights, except as required
         under the General Corporation Law of Delaware.

                  Section 5. Conversion.

                  (A) Each share of Series B Preferred Stock shall be
         convertible, at the option of the holder thereof into 100 shares of the
         Common Stock of the Corporation (the "Conversion Ratio").

                  (B) Each share of Series B Preferred Stock shall automatically
         be converted into shares of Common Stock at its then effective
         Conversion Ratio immediately upon the transfer of ownership by the
         holder to a third party which is not an Affiliate or Investor of such
         holder. For purposes hereunder, "Affiliate" shall mean a party that,
         directly or indirectly, through one or more intermediaries, controls or
         is controlled by such holder and "Investor" shall mean a party as
         defined in Section 5(f) of the Preferred Stock Purchase Agreement
         between the Corporation and Genentech, Inc. dated December 30, 1994 and
         as amended November 3, 1999.

                  (C) Each holder of Series B Preferred Stock who desires to
         convert the same into shares of Common Stock pursuant to this Section 5
         shall surrender the certificate or certificates therefor, duly
         endorsed, at the office of the Corporation or any transfer agent for
         the Series B Preferred Stock, and shall give written notice to the
         Corporation at such office that such holder elects to convert the same;
         provided, however, that in the event of an automatic conversion
         pursuant to Section 5(B), the outstanding shares of Series B Preferred
         Stock shall be converted automatically without any further action by
         the holder of such shares and whether or not the certificates
         representing such shares are surrendered to the Corporation or its
         transfer agent, and provided further that the Corporation shall not be
         obligated to issue certificates evidencing the shares of common Stock
         issuable upon such automatic conversion unless the certificates
         evidencing such shares of Series B Preferred Stock are delivered to the
         Corporation or its transfer agent as provided herein. Such notice shall
         state the number of shares of Series B Preferred Stock being converted.
         Thereupon, the Corporation shall promptly issue and deliver at such
         office to such holder a certificate or certificates for the number of
         shares of Common Stock to which such holder is entitled and shall
         promptly pay in cash or, to the extent sufficient funds are not then
         legally available therefor, in Common Stock (at the Common Stock's fair
         market value determined by the Board of Directors as of the date of
         such conversion), any declared and unpaid dividends on the shares of
         Series B Preferred Stock being converted. Such conversion shall be
         deemed to have been made at the close of

                                       2




         business on the date of such surrender of the certificates
         representing the shares of Series B Preferred Stock to be converted,
         or in the case of automatic conversion on the date of transfer to the
         new holder, and the person entitled to receive the shares of Common
         Stock issuable upon such conversion shall be treated for all purposes
         as the record holder of such shares of Common Stock on such date.

                  (D) If the Corporation shall at any time or from time to time
         after the date that the first share of Series B Preferred Stock is
         issued (the "Original Issue Date") effect a subdivision of the
         outstanding Common Stock, the Conversion Ratio in effect immediately
         before that subdivision shall be proportionately increased. Conversely,
         if the Corporation shall at any time or from time to time after the
         Original Issue Date combine the outstanding shares of Common Stock into
         a smaller number of shares, the Series B Conversion Ratio in effect
         immediately before the combination shall be proportionately decreased.
         Any adjustment under this Section 5(D) shall become effective at the
         close of business on the date the subdivision or combination becomes
         effective.

                  (E) If the Corporation at any time or from time to time after
         the Original Issue Date makes, or fixes a record date for the
         determination of holders of Common Stock entitled to receive, a
         dividend or other distribution payable in additional shares of Common
         Stock, in each such event the Conversion Ratio that is then in effect
         shall be increased as of the time of such issuance or, in the event
         such record date is fixed, as of the close of business on such record
         date, by multiplying the Conversion Ratio then in effect by a fraction
         (1) the numerator of which is the total number of shares of Common
         Stock issued and outstanding immediately prior to the time of such
         issuance or the close of business on such record date plus the number
         of shares of Common Stock issuable in payment of such dividend or
         distribution, and (2) the denominator of which is the total number of
         shares of Common Stock issued and outstanding immediately prior to the
         time of such issuance or the close of business on such record date;
         provided, however, that if such record date is fixed and such dividend
         is not fully paid or if such distribution is not fully made on the date
         fixed therefor, the Conversion Ratio shall be recomputed accordingly as
         of the close of business on such record date and thereafter the
         Conversion Ratio shall be adjusted pursuant to this Section 5(E) to
         reflect the actual payment of such dividend or distribution.

                  (F) If the Corporation at any time or from time to time after
         the Original Issue Date makes, or fixes a record date for the
         determination of holders of Common Stock entitled to receive, a
         dividend or other distribution payable in securities of the Corporation
         other than shares of Common Stock, in each such event provision shall
         be made so that the holders of the Series B Preferred Stock shall
         receive upon conversion thereof, in addition to the number of shares of
         Common Stock receivable thereupon, the amount of other securities of
         the Corporation which they would have received had their Series B
         Preferred Stock been converted into Common Stock on the date of such
         event and had they thereafter, during the period from the date of such
         event to and including the conversion date, retained such securities
         receivable by them as aforesaid during such period, subject to all
         other adjustments called for during such period under this Section 5

                                       3




         with respect to the rights of the holders of the Series B Preferred or
         with respect to such other securities by their terms.

                  (G) If at any time or from time to time after the Original
         Issue Date, the Common Stock issuable upon the conversion of the Series
         B Preferred Stock is changed into the same or a different number of
         shares of any class or classes of stock, whether by recapitalization,
         reclassification or otherwise (other than a subdivision or combination
         of shares or stock dividend or a reorganization, merger, consolidation
         or sale of assets provided for elsewhere in this Section 5 or in
         Section 7), in any such event each holder of Series B Preferred shall
         have the right thereafter to convert such stock into the kind and
         amount of stock and other securities and property receivable upon such
         recapitalization, reclassification or other change by holders of the
         maximum number of shares of Common Stock into which such shares of
         Series B Preferred could have been converted immediately prior to such
         recapitalization, reclassification or change, all subject to further
         adjustment as provided herein or with respect to such other securities
         or property by the terms thereof.

                  Section 6. Reacquired Shares. Any shares of Series B Preferred
         Stock purchased or otherwise acquired by the Corporation in any manner
         whatsoever shall be retired and canceled promptly after the acquisition
         thereof. All such shares shall upon their cancellation become
         authorized but unissued shares of Preferred Stock and may be reissued
         as part of a new series of Preferred Stock subject to the conditions
         and restrictions on issuance set forth herein, in the Restated
         Certificate of Incorporation, or in any other Certificate of
         Designation creating a series of Preferred Stock or any similar stock
         or as otherwise required by law.

                  Section 7. Consolidation, Merger, etc. In case the Corporation
         shall enter into any consolidation, merger, combination or other
         transaction in which the shares of Common Stock are exchanged for or
         changed into other stock or securities, cash and/or any other property,
         then in any such case the Corporation shall give each holder of shares
         of Series B Preferred Stock notice of such transaction, and each such
         holder shall have the right to convert such shares Series B Preferred
         Stock into shares of Common Stock of the Corporation prior to such
         closing.

         IN WITNESS WHEREOF, the undersigned have executed this certificate as
of February 8, 2000.

                                     /s/ Richard B. Brewer
                                     ----------------------------------

                                     President and Chief Executive Officer


                                     /s/ John H. Newman
                                     ----------------------------------

                                     Secretary


                                       4

EX-10.51

                                                                   Exhibit 10.51

             AMENDED AND RESTATED ALLIANCE AGREEMENT -- NATRECOR(R)

                                  (NESIRITIDE)

This Amended and Restated Alliance Agreement (this "Agreement") is dated as of
January 10, 2001 and amended and restated as of November 1, 2001 by and between
Scios Inc., a Delaware corporation whose headquarters is located at 820 W. Maude
Avenue, Sunnyvale, CA 94085 ("Scios"), Innovex LP, a limited partnership whose
address is 10 Waterview Blvd., Parsippany, NJ 07054 ("Innovex"), Innovex Support
Services Limited Partnership, a limited partnership whose address is 10
Waterview Blvd., Parsippany, NJ 07054 ("ISS") and PharmaBio Development, Inc., a
North Carolina corporation whose address is 4709 Creekstone Drive, Durham, NC
27703 ("PharmaBio").

                     Background and Overview of the Alliance

A.   Scios, PharmaBio and Innovex are parties to a certain Alliance Agreement
     dated as of January 10, 2001 (the "Original Agreement").

B.   The parties wish to amend and restate the Original Agreement as set forth
     herein, with this Agreement replacing the Original Agreement in all
     respects, as of the effective date of this Agreement.

C.   The parties wish for ISS and Innovex to provide the Services, as
     hereinafter defined.

D.   Scios and PharmaBio have agreed as set forth herein that PharmaBio will
     invest funds in Scios in exchange for royalty payments tied to certain
     future sales of the Product (as hereinafter defined) and the issuance to
     PharmaBio of certain warrants to purchase Scios' common stock.

E.   Scios has agreed as set forth herein to grant to Quintiles, Inc.
     ("Quintiles CDS") a preferred provider relationship with respect to certain
     future clinical development activities of Scios.

                          The parties agree as follows:

1.0  Definitions

1.1  "Affiliate" shall mean any corporation or business entity controlled by,
     controlling, or under common control with a party to this Agreement. For
     this purpose, "control" shall mean direct or indirect beneficial ownership
     of at least 50 percent of the voting stock or income interest in such
     corporation or other business entity, or such other relationship as, in
     fact, constitutes actual control.

1.2  "Approval Date" shall mean August 10, 2001.

1.3  "FDA" shall mean the US Food and Drug Administration.



1.4  "Natrecor" means Scios' product Natrecor(R)(nesiritide) which was approved
     by the FDA on August 10, 2001.

1.5  "Net Sales" means the amount billed by or on behalf of Scios or an
     Affiliate or their sublicensees for sales of Product to an unrelated Third
     Party in the United States (including Puerto Rico) and Canada (the
     "Territory") less: (i) discounts, including cash and quantity discounts,
     charge-back payments and rebates granted to managed health care
     organizations or to federal, state and local governments, their agencies,
     and purchasers and reimbursers or to trade customers, including but not
     limited to, wholesalers and chain and pharmacy buying groups, (ii) credits
     or allowances actually granted upon claims, damaged goods, rejections or
     returns of such Products, including recalls, regardless of the Party
     requesting such, (iii) freight, postage, shipping and insurance charges
     actually allowed or paid for delivery of Product, to the extent billed,
     (iv) taxes, duties or other governmental charges levied on, absorbed or
     otherwise imposed on sale of such Product, including without limitation
     value-added taxes, or other governmental charges otherwise measured by the
     billing, when included in billing, as adjusted for rebates and refunds, and
     (v) bad debts related to Product sales (defined as any bills unpaid for 365
     days after due). Provided, however, in no event shall quarterly Net Sales
     be less than [*****] of gross sales for the Product.

1.6  "Fees" shall mean the fair market value compensation payable to Innovex and
     ISS in return for Services determined as provided in Exhibit A. Fees shall
     not include Pass-Through Expenses.

1.7  "Launch Date" shall August 13, 2001.

1.8  "Product" shall mean Natrecor (nesiritide) in any formulation and for any
     and all indications.

1.9  "Pass-Through Expenses" shall mean the reasonable and necessary
     out-of-pocket costs and expenses actually incurred by Innovex and/or ISS in
     providing Services, in accordance with a mutually agreed written budget.

1.10 "Quintiles Group" shall mean collectively Innovex, ISS, PharmaBio and
     Quintiles CDS.

1.11 "Sales Representatives" shall mean those field sales representatives leased
     by Scios from ISS to promote the Product in the United States (including
     Puerto Rico).

1.12 "Services" shall mean the responsibilities, obligations and activities that
     are to be performed by Innovex and ISS, respecting the Product as they are
     set forth in Exhibit A.

2.   Agreement between Scios, ISS and Innovex Regarding Sales and Marketing

2.1  Innovex and ISS agree to perform the Services for Scios through May 31,
     2004, and Scios agrees to engage Innovex and ISS to provide the Services
     during such period,

[*****] A CONFIDENTIAL PORTION OF THE MATERIAL HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.



     unless the Services are terminated earlier as provided herein or in Exhibit
     A attached hereto.

2.2  Scios agrees to pay for the Services as described in Exhibit A.

2.3  Performance of the Services will be overseen by a joint steering committee,
     which shall meet quarterly and consist of representatives of each of Scios,
     Innovex, and ISS (the "JSC"). The JSC shall have overall strategic
     responsibility for managing the commercialization of the Product,
     including, without limitation: (i) oversee planning, marketing and sales of
     Product, including adopting a marketing plan; (ii) monitoring the pricing
     of the Product and review and approve any proposed changes to such pricing;
     (iii) coordinating training activities for the sales force; (iv) monitoring
     the delivery of promotional materials and samples to the sales force; (v)
     receiving and supplying the parties' sales, pricing, and financial reports
     pertaining to the sales and marketing efforts; and (vi) facilitating the
     flow of information among the parties, including coordinating sales
     activity with manufacturing schedules and distribution. Scios and Innovex
     may organize sub-committees of the JSC as mutually agreed. Each party will
     pay the incidental and out-of-pocket costs associated with participation of
     its employees in the JSC. In the event the JSC is unable to agree on any
     matter, then Scios shall make the decision. The JSC will not have the
     authority to alter or amend any term of this Agreement or of the Exhibits
     hereto.

2.4  Scios will retain all intellectual property rights in the Product.

2.5  Scios will be responsible for all regulatory affairs related to the
     Product, including: (i) regulatory filings and compliance, (ii)
     communicating with the FDA, (iii) managing product recalls, and (iv)
     reporting adverse events. Scios will also be responsible for all further
     development activities for the Product, including the development of
     additional indications and further clinical trials.

2.6  Scios will be responsible for all manufacturing, labeling, distribution,
     patent, copyright trade secret and trademark rights relating to Product.
     Scios shall be responsible for booking sales, fulfilling orders, and shall
     warehouse and distribute the Product and perform all related services.
     Scios shall maintain an adequate inventory of the Product to support the
     sales force's achievement of sales at a level at least equal to the
     forecasted sales.

2.7  Scios shall develop and own all rights in all written sales, promotion and
     advertising materials for the Product and all trademarks related to the
     Product.

2.8  The JSC will oversee development of the initial and all ongoing training
     programs for the Sales Respresentatives. The Sales Respresentatives shall
     be required to complete such training programs, at the expense of Scios as
     set forth in Exhibit A.

2.9  By 60 days notice to Innovex, which shall be effective no earlier than May
     31, 2003, Scios may at its election take over all or any portion of the
     Sales Representatives upon



     the payment to ISS of $[*****] per Sales Representative actually hired by
     Scios. In addition, by notice from Scios given at the time of Scios gives
     notice that it is terminating its relationship with Innovex and ISS due to
     Innovex's or ISS's breach in providing the Services, at the time of the
     actual termination of Services, Scios may at its election take over all or
     any portion of the sales force upon the payment to ISS of $[*****] per
     Sales Representative actually hired by Scios. Following such election by
     Scios, Innovex shall take all actions reasonable and necessary to transfer
     the Sales Representatives to Scios. Exercise of this right shall not affect
     payments due to PharmaBio under Section 3 below or the rights of Quintiles
     CDS under Section 4. Within 60 days prior to the actual hiring by Scios,
     Scios shall provide Innovex and ISS with a complete list of all the Sales
     Representatives Scios desires to hire.

2.10 No provision of this Agreement shall be deemed to create or imply any
     employment relationship between Scios and any Innovex employee.

2.11 Scios shall lease Sales Representatives from ISS. Scios shall have the
     right to approve of any Sales Representative proposed by ISS. No person
     shall become a Sales Representative unless such person has made written
     application for employment with ISS on a ISS application and such person is
     accepted by ISS as a Sales Representative. Scios may identify qualified
     persons and request ISS to hire such persons; however, Scios shall not have
     the authority to hire any person on behalf of ISS or make contractual
     commitments binding ISS. ISS retains the right to employ any legal method
     of pre-employment screening or post-employment verification of background,
     including without limitation, drug testing, employment application
     verification, verification of driver records or criminal records or similar
     verification. Scios agrees that acceptance by Scios of a Sales
     Representative's assignment to the Sales Force; (i) relieves ISS of any
     liability to Scios for Scios losses or claims that arise as a result of
     Sales Representative negligence, theft, embezzlement, fraud, or other
     unlawful or willful acts committed by the Sales Representative, and (ii)
     acts as Scios' waiver of any minimum qualifications such Sales
     Representative may not meet. The JSC shall have the right to terminate any
     Sales Representative.

2.12 ISS will be an employer of the Sales Representatives while Scios will be a
     co-employer of the Sales Representative to the extent necessary to conduct
     its business. The parties intend that this employment relationship be one
     by which the traditional duties and rights of an employer with respect to
     the Sales Representatives are allocated between Scios and ISS in the manner
     set forth herein. In this arrangement, Scios and ISS each have specific
     responsibilities while other responsibilities are shared by both
     parties. Scios understands and agrees to the three-party employment
     relationship contemplated by this Agreement and acknowledges the importance
     of operating under this Agreement both in form and fact so that Scios and
     the Sales Representatives can realize the full benefits of ISS's services.
     Scios also acknowledges the importance of the Sales Representatives'
     understanding of this relationship, and agrees to cooperate with ISS in
     educating the Sales Representatives with respect to this relationship.

[*****] A CONFIDENTIAL PORTION OF THE MATERIAL HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.



2.13 Scios shall retain a right of direction and control of the Sales
     Representatives consistent with its role as a co-employer of the Sales
     Representatives. Without limiting the foregoing, Scios shall have control
     over the day-to-day job duties of the Sales Representatives. Accordingly,
     Scios is solely responsible for the quality, adequacy of the services
     performed by the Sales Representatives and for the consequences, including
     damage to property and injury to third parties, resulting from such while
     the Sales Representatives are acting under the supervision, direction, or
     control of Scios.

2.14 Scios has the exclusive right to issue stock compensation to the Sales
     Representatives. Consistent with the provisions of this Agreement and
     Exhibit A hereto, Scios has the exclusive right to determine the economic
     value of the services performed by the Sales Representatives (including
     wages and the number of units and value of stock compensation granted).

2.15 Innovex (with regard to its employees who perform Services) and ISS with
     regard to the Sales Representatives will: (i) maintain all necessary
     payroll records for non-stock compensation; (ii) compute non-stock
     compensation and withhold applicable Federal, State and local taxes and
     Federal FICA payments; (iii) remit withholdings to the proper governmental
     authorities and make employer contributions for Federal FICA and Federal
     and State unemployment insurance payments; (iv) pay net wages and fringe
     benefits, if any, directly to their respective employees; and (v) provide
     for employer's liability and Workers' Compensation insurance coverage. In
     addition Innovex, with regard to its employees, is responsible for the
     administration of health and benefits plans, 401(k) plan, and other
     employee benefit plans. ISS may not, under any circumstances, grant stock
     options or other stock compensation to Sales Representatives, such right
     being reserved exclusively to Scios.

2.16 All Sales Representatives will be eligible to participate in Scios benefit
     plans, including Scios health and welfare plans and Scios stock
     compensation plans. With regard to all stock compensation granted to Sales
     Representatives, Scios will: (i) maintain all necessary personnel and
     payroll records for such stock compensation; (ii) compute the value of all
     stock compensation and withhold applicable Federal, State and local taxes
     and Federal FICA payments; and (iii) remit withholdings to the proper
     governmental authorities and make employer contributions for Federal FICA
     and Federal and State unemployment insurance payments. If the Scios benefit
     program involves payroll deductions, ISS's sole responsibility shall be to
     make deductions according to Scios' instructions and remit to Scios and
     ISS's sole liability shall be the amount of payroll deducted but not
     remitted. Scios acknowledges its obligations, as set forth in Sections
     414(m), (n) and (o) of the Internal Revenue Code, to integrate and
     coordinate the terms of any Scios-sponsored benefit plans so that Scios'
     plans and ISS's plans remain in compliance with all applicable laws. ISS
     shall have no responsibility for COBRA administration with respect to Sales
     Representatives or otherwise with regard to any group health plan
     maintained by Scios. Upon termination of this Agreement, the provision for
     continuation coverage shall be governed by IRC (S)4980B. Both parties agree
     to cooperate to avoid the implication of a qualifying event under IRC
     (S)4980B. Nothing in this provision shall be construed or interpreted as
     precluding or limiting ISS'



     right to pursue damages in a court of law or equity, which arose as a
     result of Scios' failure to obtain and provide insurance as set forth
     herein.

2.17 Innovex, with regard to its employees (but not including Sales
     Representatives), is responsible for the administration of health and
     benefits plans, 401(k) plan, and other employee benefit plans. Innovex
     employees (but not including Sales Representative) will remain exclusively
     under the direct control and authority of Innovex.

2.18 The parties agree not to infringe upon the rights and duties of each as set
     forth in this Agreement. Innovex and ISS agree to consult closely with
     Scios in the development and administration of all policies and procedures,
     which may in any way affect Scios' business. Notwithstanding the preceding,
     to the extent either party specifically takes actions or gives directions
     outside or in contravention of these provisions, such party shall be liable
     for any damage or loss suffered by the other and any person acting at the
     direction of such party shall be deemed the sole agent of that party for
     the purpose of any act or omission as a result thereof.

2.19 Innovex (with regard to Innovex employees involved in providing Services)
     and ISS (with regard to Sales Representatives) shall provide and maintain
     proper Workers' Compensation and Employer's Liability coverage during the
     term of this Agreement. Innovex and ISS shall also provide proper
     administration and timely payment of Workers' Compensation deposits,
     premiums or other required payments based upon information regarding
     classification provided by Scios. Innovex and ISS shall provide proper
     handling of Workers' Compensation audits, claims and administration during
     the term of this Agreement. Scios acknowledges that ISS's worker
     compensation carrier or plan administrator may periodically audit ISS's
     workers' compensation records to ensure proper classification of Sales
     Representatives. In the event any Sales Representatives are found to have
     been misclassified on the basis of information supplied by Scios, then
     Scios shall be liable for any increases or additional premium assessments.

2.20 Scios agrees to provide reasonable access and accommodations as required by
     the Americans with Disabilities Act, as amended, and any regulations
     thereunder (the "ADA") and to otherwise comply with the accommodation and
     access provisions of the ADA. Scios also agrees to comply with the
     provisions of the Family and Medical Leave Act and all other applicable
     state family and medical leave laws (the "FMLA"), and to assume the
     obligation to forward any health insurance/plan premiums as may be
     necessitated to comply with the FMLA. Scios has the responsibility to
     inform ISS prior to a Sales Representative being eligible to take leave
     under the FMLA.

2.21 Scios acknowledges its obligations under applicable laws and regulations to
     comply with all health and safety laws, regulations, ordinances,
     directives, and rules including, but not limited to, the Occupational
     Safety and Health Act of 1970, as amended ("OSHA"), and any applicable
     state equivalent thereof, and hazardous materials communication laws
     imposed by controlling federal, state, and local governments. Scios will
     promptly report all accidents and injuries to Innovex or ISS, as the case
     may be. Scios agrees to comply, at its expense, with any specific
     directives from the JSC, from ISS's Workers'



     Compensation carrier that are in the reasonable opinion of Scios' legal
     counsel to be required under law, or any government agency having
     jurisdiction over the work place, and/or the health and safety of the Sales
     Representatives. Scios further acknowledges the importance of the use of
     all personnel protective equipment, as required by federal, state or local
     law, regulation, ordinance, directive, or rule or as deemed necessary by
     the JSC, or required by ISS's Worker's compensation carrier and deemed in
     the reasonable opinion of Scios' legal counsel to be required under law.

2.22 Scios agrees to make a timely report to Innovex, ISS and any applicable
     Workers' Compensation carrier or third party administrator of any injury or
     accident which is or claimed to be work related by the injured Sales
     Representative. In such case Scios agrees to cooperate in conducting any
     investigation following such injury or accident, provide transportation to
     a medical facility, and, if required due to medical restrictions, to permit
     the Sales Representative to work on a modified-duty capacity until such
     time as Sales Representative is no longer medically restricted from
     resuming duties prior to such injury or accident. In the event such injury
     or accident results in a protected permanent disability, Scios agrees to
     cooperate with Innovex or ISS in making any reasonable accommodation
     required by the ADA. The final adjudication for workers' compensation
     purposes of whether the injury or accident is work-related shall be
     applicable for all purposes, including health insurance coverage. Scios
     agrees to pay any additional costs incurred by Innovex or ISS (including
     reasonable legal fees) caused by Scios' failure to timely report any such
     injury or accident.

2.23 Scios acknowledges that it is essential to Innovex's and ISS's performance
     under this Agreement that Innovex and ISS have complete knowledge of any
     government investigation or inquiry or private adversary action which could
     in any manner impact upon the types of duties contemplated by this
     Agreement. Scios agrees to make complete and full disclosure of any current
     or future administrative proceeding (including but not limited to EEOC,
     NLRB, OSHA or DOL), investigation, lawsuit, or other adversary proceeding,
     including those which are threatened as well as those not yet asserted.
     Scios agrees to cooperate with Innovex and/or ISS, as the case may be, in
     the investigation, resolution and defense of any such investigation or
     inquiry or private adversary action in which they or any of their
     affiliated entities, shareholders, officers, directors, agents and
     representatives are named or which could in any manner impact upon the
     types of duties contemplated by this Agreement.

3.   Agreement Between Scios and PharmaBio on Funding and Royalty.

3.1  PharmaBio will support the commercialization of the Product by funding $30
     million of the sales and marketing expenses incurred by Scios (including
     the costs of developing additional data to use for marketing purposes
     through clinical trials or market research). The funding will be paid to
     Scios in installments as set forth in Schedule 3.1.

3.2  In consideration of PharmaBio's funding commitments set forth in Section
     3.1, Scios will pay PharmaBio a royalty on Net Sales of the Product
     occurring in the United States (including Puerto Rico) and Canada during
     the relevant Royalty Periods (as defined



     below). When used herein, the different "Royalty Periods" shall be defined
     as follows: (i) Royalty Period 1 shall mean the six-month period beginning
     on the Launch Date; (ii) Royalty Period 2 shall mean the twelve-month
     period following Royalty Period 1; (iii) Royalty Period 3 shall mean the
     twelve-month period following Royalty Period 2; (iv) Royalty Period 4 shall
     mean the twelve-month period following Royalty Period 3; (v) Royalty Period
     5 shall mean the twelve-month period following Royalty Period 4; (vi)
     Royalty Period 6 shall mean the twelve-month period following Royalty
     Period 5; and (vii) Royalty Period 7 shall mean the twelve-month period
     following Royalty Period 6. The royalty payments payable by Scios to
     PharmaBio with respect to Royalty Periods 3 through 7 are as follows:

- ----------------------------- --------------------------------------------------
Royalty Period                Royalty on Net Sales
- ----------------------------- --------------------------------------------------

3                             [*****]
- ----------------------------- --------------------------------------------------

4                             [*****]
- ----------------------------- --------------------------------------------------

5                             [*****]
- ----------------------------- --------------------------------------------------

6                             [*****]
- ----------------------------- --------------------------------------------------

7                             [*****]
- ----------------------------- --------------------------------------------------

     In addition, with respect to Royalty Periods 1 and 2, Scios will pay
     PharmaBio a [*****] royalty on incremental Net Sales of the Product over
     the following target levels: (i) target of $[*****] Net Sales for Royalty
     Period 1; and (ii) target of $[*****] Net Sales for Royalty Period 2.

     The royalty payments under this Section 3.2 shall be paid not later than 30
     days following the end of each quarter during the Royalty Period.

     The parties acknowledge that PharmaBio's agreement to the royalty structure
     described in this Section 3.2 is based upon the assumption that Scios will
     fund at least a monthly average of [*****] Sales Representatives detailing
     the Product on an exclusive, full time basis during the first thirty-six
     months following the Approval Date (the "Minimum Sales Force Level"). If,
     at any time during such 36 month period, Scios fails to fund the Product
     sales force to the Minimum Sales Force Level for a period of more than 30
     days, then Scios and PharmaBio will negotiate in good faith to restructure
     PharmaBio's commitments under Section 3.1 and the corresponding royalty
     payments under this Section 3.2. If the parties are unable to mutually
     agree to such restructuring, then PharmaBio may, at its sole discretion,
     elect to (i) terminate by notice to Scios any future funding obligations
     under Section 3.1; and (ii) receive a royalty on Net Sales payable by Scios
     to Innovex equal to [*****] of Net Sales (in lieu of the rate provided
     above) during the portion of the 36 month period following the Approval
     Date that Scios is not electing to maintain the Minimum Sales Force Level
     and the then operating Royalty Period shall

[*****] A CONFIDENTIAL PORTION OF THE MATERIAL HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.



     be suspended for such time period and restarted when Scios increases the
     sales force to the Minimum Sales Force Level. For the avoidance of doubt,
     with respect to sub-item (ii) in the preceding sentence, (i) the Royalty
     Period shall restart at the same time point in the Royalty Period it was
     suspended such that PharmaBio enjoys the full length of the seven Royalty
     Periods described in Section 3.1 (plus any suspension period), and (ii)
     regardless of the size of the sales force at the date 36 months following
     the Approval Date, the Royalty Period will restart at the time point it was
     suspended period. The rights set forth in the preceding sentence shall be
     in addition to any rights available to Innovex.

3.3  PharmaBio's right to receive royalties will end upon PharmaBio's receipt of
     $[*****] in royalties paid by Scios in Net Sales of Product in the United
     States. Royalties for Net Sales in regions of the Territory other than the
     United States shall not apply to this $[*****] calculation (or be subject
     to a royalty cap). At the end of 2007, if PharmaBio has not received at
     least $[*****] in royalties, then Scios will pay PharmaBio the difference
     between the amount of royalties actually received and $[*****].
     Accordingly, $[*****] shall be the minimum royalties payable by Scios to
     PharmaBio under this Agreement, notwithstanding the actual sales of the
     Product or other Product-related events.

3.4  Each Party shall keep or cause to be kept such records as are required to
     determine, in a manner consistent with generally accepted accounting
     principles in the United States, the sums or credits due under this
     Agreement. Upon the written request (and expense) of either party, the
     other party shall permit an independent certified public accountant
     appointed by such party and reasonably acceptable to the other party,
     accompanied by representatives of the financial department of such party at
     reasonable times and upon reasonable notice, to examine only those records
     as may be necessary to determine the correctness or completeness of any
     report or payment made under this Agreement. Results of any such
     examination shall be (i) limited to information relating to the Product,
     (ii) made available to both parties and (iii) subject to the
     confidentiality protections set forth herein. The party requesting the
     audit shall bear the full cost of the performance of any such audit, unless
     such audit discloses a variance of more than [*****] from the amount of the
     original report, royalty or payment calculation. In such case, the party
     being audited shall bear the full cost of the performance of such audit.

3.5  As further consideration for PharmaBio's funding commitments, Scios grants
     PharmaBio warrants to purchase 700,000 shares of Scios Common Stock at a
     $20 price per share. The terms and form of the warrants shall be
     substantially in the form attached as Exhibit B.

3.6  At the election of PharmaBio, PharmaBio's future funding commitments shall
     terminate in the event of: (i) withdrawal of the Product from the U.S.
     market for any reason; or (ii) Net Sales in any two consecutive calendar
     quarters are lower than the Net Sales in the immediately preceding two
     consecutive calendar quarters due to factors not reasonably within the
     control of the Quintiles Group, including, but not limited to,
     manufacturing and inventory problems or shortfalls, material pricing
     changes in the Product, or significant unforeseen new information regarding
     the safety or efficacy of the Product.

[*****] A CONFIDENTIAL PORTION OF THE MATERIAL HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.



     Scios has made available to a member of the Quintiles Group all material
     information known to the executive officers of Scios covering forecasted
     sales of the Product.

4.   Grant of Preferred Provider Relationship by Scios to Quintiles CDS.

4.1  Scios hereby grants to Quintiles CDS a preferred provider relationship,
     whereby Quintiles shall have the first and preferred opportunity to
     negotiate with Scios to provide clinical development services in the United
     States regarding the Product that Scios has, in its sole discretion,
     determined to outsource for performance period ending three years following
     the Approval Date; provided that: (i) the applicable services fall with the
     areas of recognized expertise of Quintiles CDS (or its affiliates), (ii)
     Quintiles CDS provides such services at competitive rates and makes its
     proposal on a competitive time schedule, and (iii) Quintiles CDS is capable
     of providing such services in a professional and timely manner to meet
     Scios' timeline. Examples of the types of clinical development services
     subject to the preferred provider relationship include: (i) Phase IIIb/iv
     large simple trial to support the continued growth and success of the
     Product, and (ii) trial of the Product for intermittent outpatient infusion
     indication.

5.   Confidentiality and Ownership of Information.

5.1  Scios on the one part and members of the Quintiles Group on the other part
     each acknowledges that, in the course of performing its obligations
     hereunder, it may receive information from the other party which is
     proprietary to the disclosing party and which the disclosing party wishes
     to protect from public disclosure ("Confidential Information"). Each
     receiving party agrees to retain in confidence, during the term of any of
     the Agreements, and any subsequent renewals thereof, and thereafter for a
     period of [*****], all Confidential Information disclosed to it by or on
     behalf of the other party, and that it will not, without the written
     consent of such other party, use Confidential Information for any purpose
     other than the purposes indicated herein. These restrictions shall not
     apply to Confidential Information which: (i) is or becomes public knowledge
     (through no fault of the receiving party); (ii) is made lawfully available
     to the receiving party by an independent third party; (iii) is already in
     the receiving party's possession at the time of receipt from the disclosing
     party (and such prior possession can be properly demonstrated by the
     receiving party); (iv) is independently developed by the receiving party
     and/or Affiliates (and such independent development can be properly
     demonstrated by the receiving party); or (v) is required by law,
     regulation, rule, act or order of any governmental authority or agency to
     be disclosed by the receiving party, provided, however, if reasonably
     possible, such receiving party gives the disclosing party sufficient
     advance written notice to permit it to seek a protective order or other
     similar order with respect to such Confidential Information and,
     thereafter, the receiving party discloses only the minimum Confidential
     Information required to be disclosed in order to comply.

5.2  Members of the Quintiles Group on the one hand and Scios on the other hand
     shall limit disclosure of the other party's Confidential Information to
     only those of their respective officers, representatives, agents and
     employees (collectively "Agents") who are directly concerned with the
     performance of this Agreement and have a legitimate need to know

[*****] A CONFIDENTIAL PORTION OF THE MATERIAL HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.




     such Confidential Information. Upon receipt of notice of termination by
     Scios, Innovex shall return all Scios Confidential Information to Scios.

5.3  All Scios patents, trade secrets, copyrights, trade names, trademarks,
     service marks, marketing materials, proprietary materials or intellectual
     property and all improvements to any of the foregoing (collectively "Scios
     Property") disclosed, used, improved, modified or developed in connection
     with the Services provided pursuant to this Agreement shall remain the sole
     and exclusive property of Scios, and Innovex's rights to use such Scios
     Property shall be limited to those permitted by this Agreement.

5.4  Scios acknowledges that Innovex possesses certain inventions, processes,
     know-how, trade secrets, improvements, other intellectual properties and
     other assets, including but not limited to analytical methods, procedures
     and techniques, computer technical expertise and software, and business
     practices, including, but not limited to the Territory Management System
     ("TMS") being provided by Innovex, which have been independently developed
     by Innovex (collectively "Innovex Property"). Any Innovex Property or
     improvements thereto which are disclosed, used, improved, modified or
     developed by Innovex under or during the term of this Agreement shall
     remain the sole and exclusive property of Innovex.

6.   Independent Contractor Relationship.

     For the purposes of this Agreement, Scios on the one part and members of
     the Quintiles Group on the other part are independent contractors and
     nothing contained in this Agreement shall be construed to place them in the
     relationship of partners, principal and agent, employer and employee or
     joint venturers. Neither Scios nor any member of the Quintiles Group shall
     have the power or right to bind or obligate the other party, nor shall
     either party hold itself out as having such authority.

7.   Regulatory Compliance.

7.1  Innovex and Scios agree to comply, to the extent applicable, with all laws,
     rules and regulations, including, but not limited to the Federal Equal
     Employment Opportunity Act, Title VII of the Civil Rights Act of 1964, the
     Age Discrimination in Employment Act, the Americans with Disabilities Act,
     the Fair Labor Standards Act, the Immigration Reform and Control Act of
     1986, the Food, Drug and Cosmetic Act, Section 1128B(b) of the Social
     Security Act (42 U.S.C. (S)1320a-7b(b)), and the Prescription Drug
     Marketing Act.

7.2  If in performing the Services Innovex or its employees become aware of
     adverse drug experience reports involving the use of the Product, while
     performing any Services in connection with the Product, they shall
     immediately notify Scios in accordance with Scios procedures. Scios shall
     deliver to Innovex a written copy of such Scios notification procedures.

7.3  Scios shall be solely responsible for responding to any government or
     regulatory agency concerning use or marketing of Scios Products, except
     where (i) such responsibility is




     expressly transferred to Innovex; or (ii) to the extent any notice or
     reporting requirement is by law made directly applicable to Innovex.
     Innovex shall promptly notify Scios of any information Innovex receives
     regarding any threatened or pending action by a government or regulatory
     agency that may affect the Scios Products. Innovex shall, at the request of
     Scios, cooperate with Scios in order to respond, or in formulating a
     procedure for taking appropriate action. In no event shall Innovex respond
     to any agency without the prior consent of Scios, unless compelled to do so
     by law.

8.   Return of Scios Materials.

     Within 60 days after the completion of Services by Innovex, or upon
     termination of the Agreement, Confidential Information, Scios Property and
     other data owned by Scios, regardless of the method of storage or
     retrieval, shall at Scios' request either be delivered to Scios in such
     form as is then currently in the possession of any member of the Quintiles
     Group, or disposed of, at the direction and written request of Scios,
     unless such materials are otherwise required to be stored or maintained by
     Innovex as a matter of law or regulation. Scios shall pay the costs
     associated with any of the above options. Each company in the Quintiles
     Group reserves the right to retain, at its own expense and subject to the
     confidentiality provisions herein, one copy of all materials provided in
     connection with performance of this Agreement, to be used to satisfy
     regulatory requirements or to resolve disputes regarding this Agreement.

9.   Indemnification and Liability Limits.

9.1  Members of the Quintiles Group, jointly and severally, shall indemnify,
     defend and hold harmless Scios, its Affiliates and its and their respective
     directors, officers, employees and agents from and against any and all
     losses, claims, actions, damages, liabilities, penalties, costs and
     expenses (including reasonable attorneys' fees and court costs)
     (collectively, "Losses"), resulting from any: (i) breach by Innovex or
     PharmaBio (or either of their employees) of its obligations hereunder; (ii)
     willful misconduct or negligent acts or omissions of Innovex or its
     employees; and (iii) violation by Innovex or its employees of any
     municipal, county, state or federal laws, rules or regulations applicable
     to the performance of Innovex's obligations under this Agreement except to
     the extent such Losses are determined to have resulted from the negligence
     or willful misconduct of Scios or its employees.

9.2  Scios shall indemnify, defend and hold harmless members of the Quintiles
     Group and their Affiliates and their respective directors, officers,
     employees and agents from and against any and all Losses resulting from (i)
     any third party claim arising from the manufacture, storage, packaging,
     labeling, production, transportation, distribution, use, sale or other
     disposition of the Products by or on behalf of Scios or its agents; (ii)
     breach by Scios or its employees of its obligations hereunder; (iii)
     willful misconduct or negligent acts or omissions of Scios or its
     employees; (iv) any claim brought by a Sales Representative or as a result
     of any act or omission of a Sales Representative, except for claims arising
     from a failure of Innovex or ISS to perform its obligations under this
     Agreement; (v) violation by Scios or its employees of any municipal,
     county, state or



     federal laws, rules or regulations applicable to the performance of Scios'
     obligations under this Agreement, (vi) infringement or misappropriation
     (actual or alleged) of intellectual property or proprietary rights of third
     Parties by Scios or its Affiliates or used in connection with the Product,
     except in each case to the extent such Losses are determined to have
     resulted from the negligence or willful misconduct of any member of the
     Quintiles Group or any of their employees. For the purposes of Sections 9.1
     and 9.2, the Sales Representatives shall be considered the employees and
     agents of Scios except to the extent such Sales Representatives are acting
     at the express and sole direction of a member of the Quintiles Group.

9.3  It is the express intention of the parties that the Sales Representatives
     shall be considered for purposes of determinations under Paragraph 6(a) of
     FASB Interpretation 44 to APB 25 as common law employees of Scios. Scios
     agrees to indemnify, defend and hold harmless all members of the Quintiles
     Group and their Affiliates and their respective directors, officers,
     employees and agents from and against all taxes, losses, damages,
     liabilities, costs and expenses, including attorney's fees and other legal
     expenses, arising directly or indirectly from any determination by a court
     or agency that the Sales Representatives are the common law employees of
     ISS, are not the common law employees of Scios, or are not Scios employees
     within the meaning of 1128B(b) of the Social Security Act and/or IRC
     3121(d)(2).

9.4  If Scios shall make any other payments of any type to the Sales
     Representatives other than as set forth in this Agreement, Scios alone
     shall be responsible for all taxes, reporting requirements and other
     liabilities with respect to those payments and the work performed by Sales
     Representatives for such payments shall be deemed solely for the benefit of
     Scios and outside the scope of Sales Representative's employment with ISS.
     Scios shall indemnify and hold ISS and Innovex harmless from any liability
     placed on them from such payments.

9.5  ISS, Innovex, and Scios each agree to assume the liability for those
     employer functions for which they have day-to-day responsibility and
     control as specifically set forth in this Agreement.

9.6  Notwithstanding the specific assumption of duties by either party, if the
     act or omission of a party, whether or not such act or omission is
     authorized under this Agreement, results in the failure of the other party
     to fulfill its duties, the party committing such act or omission shall bear
     responsibility and liability for such act or omission.

9.7  The party seeking indemnification hereunder (the "Indemnified Party")
     shall: (a) give the party obligated to indemnify (the "Indemnifying Party")
     prompt written notice of any such claim or law suit (including a copy
     thereof); (b) Indemnified Party and its employees shall fully cooperate
     with Indemnifying Party and its legal representatives in the investigation
     and defense of any matter the subject of indemnification, which defense
     shall be managed by the Indemnifying Party; and (c) Indemnified Party shall
     not unreasonably withhold its approval of the settlement of any such claim,
     liability, or action by Indemnifying Party covered by this indemnification
     provision.



9.8  Neither Innovex, ISS, PharmaBio, or Scios, nor any of such party's
     Affiliates, directors, officers, employees, subcontractors or agents shall
     have, under any legal theory (including, but not limited to, contract,
     negligence and tort liability), any liability to any other party hereto for
     any loss of profits, opportunity or goodwill, or any type of special,
     incidental, indirect or consequential damage or loss, in connection with or
     arising out of this Agreement or the Services performed by Innovex
     hereunder or the funding commitments of PharmaBio or the activities of
     Scios hereunder.

9.9  Neither Innovex nor ISS shall be liable to Scios for claims or losses
     arising out of the statements or representations of Innovex employees or
     Sales Representatives with respect to the Product to the extent the
     statements or representations conform to the written or printed statements
     or representations made to Innovex, ISS, Innovex employees, or Sales
     Representatives by Scios with respect to the Product.

9.10 Nothing herein shall preclude Innovex or ISS from bringing Scios into a
     civil action as a necessary party where the action is brought against
     Innovex and/or ISS and arises out of the alleged act or omission of Scios
     or the act or omission of a Sales Representative in the scope of employment
     while assigned to Scios.

10.  Insurance.

     Innovex, ISS and Scios shall each, at its own cost and expense, obtain and
     maintain in full force and effect, the following insurance during the Term
     (and any subsequent renewals thereof) sufficient insurance to insure its
     obligations under this Agreement, including, but not limited to: (i)
     worker's compensation insurance in accordance with the statutory
     requirements of each state in which the Services are to be performed (not
     required for Scios); (ii) employer's liability insurance with a minimum
     limit of [*****]; (iii) comprehensive general liability insurance,
     including contractual liability, with a minimum limit of [*****], combined
     single limit per occurrence; and (iv) comprehensive auto liability,
     covering bodily injury and property damage, for owned, hired or non-owned
     automobiles with a minimum limit of [*****], combined single limit per
     occurrence (not required for Scios); and (v) professional errors and
     omissions, with a minimum limit of [*****] per occurrence (not required by
     Scios). Scios shall also maintain Product Liability Coverage (including
     coverage for clinical trials) with a minimum limit of [*****] each
     occurrence / annual aggregate, with an insurance company maintaining an A.
     M. Best rating of A X or better. Upon request, each of Innovex and Scios
     shall provide the other with an original signed certificate of insurance
     evidencing all coverage herein required and showing the other as an
     additional insured under such insurance, within thirty (30) days after such
     request. The certificate must provide that thirty (30) days prior written
     notice of cancellation, non-renewal or material change in insurance
     coverage will be provided.


[*****] A CONFIDENTIAL PORTION OF THE MATERIAL HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.




11.  Review of Work; Audit.

     During the term of this Agreement, Innovex and ISS will permit Scios'
     representative(s) (unless such representatives are competitors of Innovex
     or ISS), at reasonable times and in a reasonable manner, and at Scios'
     expense, to (i) examine the work performed hereunder to determine that the
     Services are being conducted in accordance with the agreed terms, or (ii)
     audit the financial records related to Innovex's and ISS's performance of
     the Services.

12.  Notices.

     Any notice required or permitted to be given by either party shall be in
     writing. All notices shall be to the parties and addresses listed below,
     and shall be sufficiently given (i) when received, if delivered personally
     or sent by facsimile transmission, or (ii) one business day after the date
     mailed or sent by an internationally recognized overnight delivery service.

     If to Innovex:             Innovex LP
                                c/o President, Innovex America Holding Company
                                10 Waterview Blvd.
                                Parsippany, NJ 07054
                                Attention:  President
                                Fax: 973-257-4581


     With a copy to:            General Counsel
                                Innovex America Holding Company
                                10 Waterview Blvd.
                                Parsippany, NJ 07054
                                Fax: 973-257-4581


     If to ISS:                 Innovex Support Services Limited Partnership
                                c/o President, Innovex America Holding Company
                                10 Waterview Blvd.
                                Parsippany, NJ 07054
                                Attention:  President
                                Fax: 973-257-4581


     With a copy to:            General Counsel
                                Innovex America Holding Company
                                10 Waterview Blvd.
                                Parsippany, NJ 07054
                                Fax: 973-257-4581


     If to PharmaBio:           PharmaBio Development Inc.
                                4709 Creekstone Drive
                                Durham, NC  27703
                                Attention:  President
                                Fax: 919-998-2090




     With a copy to:            General Counsel
                                PharmaBio Development Inc.
                                4709 Creekstone Drive
                                Durham, NC  27703
                                Fax: 919-998-2090


     If to Scios:               Scios Inc.
                                820 West Maude Ave.
                                Sunnyvale, CA  94085
                                Attention: President
                                Fax: 408-616-8312


     With a copy to:            General Counsel
                                Scios Inc.
                                749 N. Mary Avenue
                                Sunnyvale, CA  94085
                                Fax: 408-616-8319


13.  Assignment.

     No party may assign any of its rights or obligations under this Agreement
     to any third party without the written consent of the other party, except
     that a party may assign its rights and obligations as part of a merger in
     which it is not the surviving entity.

14.  General Provisions

14.1 This Agreement shall be construed, governed, interpreted, and applied in
     accordance with the laws of the State of New York, without giving effect to
     the principles of conflict of laws.

14.2 The rights and obligations of any party under this Agreement, which by
     intent or meaning have validity beyond such termination (including, but not
     limited to, rights with respect to confidentiality, mutual indemnification
     and liability limitations) shall survive the termination of this Agreement.

14.3 This Agreement together with the Warrant Agreement of even date hereof,
     contains the entire understandings of the parties with respect to the
     subject matter herein, and cancels all previous agreements (oral and
     written), negotiations, discussions, claims, notices, disputes or potential
     disputes, dealing with the same subject matter. The parties, from




     time to time during the term of this Agreement, may modify any of the
     provisions hereof only by an instrument in writing duly executed by the
     parties.

14.4 No failure or delay on the part of a party in either exercising or
     enforcing any right under this Agreement will operate as a waiver of, or
     impair, any such right. No single or partial exercise or enforcement of any
     such right will preclude any other or further exercise or enforcement
     thereof or the exercise or enforcement of any other right. No waiver of any
     such right will have effect unless given in a signed writing. No waiver of
     any such right will be deemed a waiver of any other right.

14.5 If any part or parts of this Agreement are held to be illegal, void or
     ineffective, the remaining portions of this Agreement shall remain in full
     force and effect. If any of the terms or provisions are in conflict with
     any applicable statute or rule of law, then such term(s) or provision(s)
     shall be deemed inoperative to the extent that they may conflict therewith,
     and shall be deemed to be modified or conformed with such statute or rule
     of law. In the event of any ambiguity respecting any term or terms hereof,
     the parties agree to construe and interpret such ambiguity in good faith in
     such a way as is appropriate to ensure its enforceability and viability.

14.6 The headings contained in this Agreement are used only as a matter of
     convenience, and in no way define, limit, construe or describe the scope or
     intent of any section of this Agreement.

14.7 Nothing in this Agreement shall authorize any party to act as an agent of
     any other party, nor shall any action or representation of any party bind
     any other party, unless specifically authorized and ratified by the party
     to be bound or as otherwise provided in 9.2.

14.8 Scios on the one hand and the Quintiles Group on the other expressly agree
     that no party, nor their respective insurance carriers, are in any way
     responsible or liable for any of the other party's business operations,
     employees (other than Scios being responsible for Sales Representatives as
     set forth in this Agreement), personnel policies, or other actions. Any
     liability assumed under this Agreement by either party's insurance carriers
     shall be specifically restricted to claims related to Sales Representatives
     assigned to Scios for which the insured party has responsibility and
     control under this Agreement, and shall not extend to cover any other
     employees or business operations of either party unless such coverage is
     specifically set forth in the policy document issued by the insurance
     carrier.

14.9 The parties specifically agree that no persons, other than the parties
     hereto, have any interest in this Agreement and specifically agree that no
     persons, including without limitation the Sales Representatives, shall not
     be considered intended third party beneficiaries and shall not be entitled
     to rely upon the provisions of this Agreement for any purpose.

14.10 Scios acknowledges that Innovex, ISS, and PharmaBio are relying upon the
     accuracy and completeness of the information provided by Scios and used by
     Innovex and ISS in




     negotiating the terms and conditions of this Agreement, and that Innovex
     and ISS will continue to rely on information furnished or to be furnished
     by Scios during the term of this Agreement, including without limitation
     Scios' exempt and non-exempt job positions, worker's compensation codes for
     its job positions and its highly compensated job positions, to carry out
     Innovex's and ISS' duties and obligations under this Agreement. Scios
     warrants the accuracy and completeness of all such information furnished or
     to be furnished at Innovex's or ISS's request. Failure of Scios to provide
     accurate and complete information shall be a material breach of this
     Agreement.

15.  Dispute Resolution:

15.1 Internal Review. In the event that a dispute, difference or question arises
     ---------------
     pertaining to any matters which are the subject of this Alliance Agreement,
     including but not limited to, a dispute in connection with finalizing the
     definitive Alliance documentation ("Dispute"), and either party so requests
     in writing, prior to the initiation of any formal legal action, the Dispute
     will be submitted to the JSC, which will use its good faith efforts to
     resolve the Dispute within ten days. If the JSC is unable to resolve the
     Dispute in such period, the JSC will refer the Dispute to the Chief
     Executive Officers of Scios and Quintiles Transnational Corp. For all
     Disputes referred to the Chief Executive Officers, the Chief Executive
     Officers shall use their good faith efforts to resolve the Dispute within
     10 days after such referral.

15.2 Arbitration. If the parties are unable to resolve disputes under 15.1, then
     -----------
     either party can seek binding arbitration to be conducted in accordance
     with the Commercial Arbitration Rules of the American Arbitration
     Association, sitting in New York City, New York, as in effect at the time
     of the arbitration hearing, such arbitration to be completed in a 60 day
     period. The arbitration panel will be composed of three arbitrators, one of
     whom will be chosen by Scios, one by the Quintiles Group (as a unit), and
     the third by the two so chosen. If both or either of Scios or the Quintiles
     Group fails to choose an arbitrator or arbitrators within 14 days after
     receiving notice of commencement of arbitration, or if the two arbitrators
     fail to choose a third arbitrator within 14 days after their appointment,
     the American Arbitration Association shall, upon the request of both or
     either of the parties to the arbitration, appoint the arbitrator or
     arbitrators required to complete the panel. The decision of the arbitrators
     shall be final and binding on the parties, and specific performance may be
     ordered by any court of competent jurisdiction.

15.3 Costs. The parties shall bear their own costs in preparing for and
     -----
     participating in the resolution of any dispute under this Article, and the
     costs of mediator(s) and arbitrator(s) shall be equally divided between the
     parties.




IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto
through their duly authorized officers on the date(s) set forth below.

INNOVEX LP                               SCIOS INC.
by:  Innovex America Holding             Delaware corporation
Company, its General Partner

By:    /s/ Eric R. Green                 By:   /s/ Matthew R. Hooper    12/26/01
      ---------------------------------        ---------------------------------

Name:  Eric R. Green                     Name: Matthew R. Hooper
      ---------------------------------        ---------------------------------

Title: Vice President & General Counsel  Title: Vice President & General Counsel
      ---------------------------------        ---------------------------------



PHARMABIO DEVELOPMENT, INC.              INNOVEX SUPPORT SERVICES
                                         LIMITED PARTNERSHIP, by Innovex
                                         America Holding Company, its General
                                         Partner

By:    /s/ Tom Perkins                   By:   /s/ Eric R. Green
      ---------------------------------        ---------------------------------

Name:  Tom Perkins                       Name: Eric R. Green
       --------------------------------        ---------------------------------

Title: Vice President & General Counsel  Title: Vice President & General Counsel
       --------------------------------        ---------------------------------




                                  Schedule 3.1
                                  ------------

Funding Date:                                       Funding Amount:

       December 31, 2001                            [*****]
       March 31, 2002                               [*****]
       June 30, 2002                                [*****]
       September 30, 2002                           [*****]
       December 31, 2002                            [*****]
       March 31, 2003                               [*****]
       May 30, 2003                                 [*****]

[*****] A CONFIDENTIAL PORTION OF THE MATERIAL HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.




                                    EXHIBIT A

Description of Services

1.   Sales Force Personnel

     To support the Scios Product until May 31, 2004, Innovex will provide one
     Field Coordinator and ISS will provide 168 Sales Representatives to Scios.
     The Field Coordinator shall be selected by Innovex with the consent of
     Scios, which consent shall not be unreasonably withheld. In return for the
     Services, Scios will pay the amounts set forth below. The JSC shall
     determine the appropriate division of days worked between field sales days
     and non-field training/administrative days giving due consideration to the
     amount of training and administration time the Sales Representatives
     require to effectively promote the Product in compliance with all
     applicable laws and regulations.

2.   Duties.

     (a)  Scios shall be responsible for all sales management, human resources,
          and sales force support except for payroll and expense reimbursement
          services being provided by ISS. Scios will perform processing and
          auditing of sales reps expense reports.

     (b)  ISS shall be responsible to make payroll and fulfill expense
          reimbursements for the Sales Representatives as set forth herein.
          Innovex shall provide sales force management services as reasonably
          requested by the JSC.

3.   Territory Management System

     (a)  Innovex shall provide a Territory Management System ("TMS") (which is
          the system provided by Innovex up to the date of the signing of the
          Restated Agreement). Innovex shall equip the Sales Force with computer
          hardware and software. Prior to January 1, 2002, Innovex shall bear
          the cost of database and system administration, licenses, access to
          data/replication lines, help desk support, and training of the Sales
          Force in proper use of the computers and software. As of January 1,
          2002, such costs shall be borne by Scios and Scios shall have all
          responsibility with regard to TMS.

     (b)  For actual TMS services rendered through December 31, 2001. Scios
          shall pay Innovex [*****], subject to a credit of [*****] which has
          already been paid to Innovex by Scios through October 31, 2001, and a
          further credit for payments to Innovex by Scios of [*****] in November
          and [*****] in December. Payment of [*****] shall be due within
          [*****] of Scios' signing of this Restated Alliance Agreement.


[*****] A CONFIDENTIAL PORTION OF THE MATERIAL HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.



     (c)  Scios shall pay Innovex an additional [*****] to reimburse Innovex for
          the cost of the TMS system equipment and software. Payment shall be
          due within [*****] of Scios' signing of this Restated Alliance
          Agreement.

     (d)  Scios shall also pay Innovex [*****] as a one-time, fully paid up,
          non-exclusive license fee for Scios' future use of the TMS system.
          This license will not include the right of Scios to re-sell or
          transfer TMS to any third party outside a sale of substantially all of
          the assets of Scios. Payment shall be due within [*****] of Scios'
          signing of this Restated Alliance Agreement. Scios shall be
          responsible for all third-party licenses required for the use of the
          TMS system, including, but not limited to Sybase, Crystal Decisions,
          Lotus Notes, Microsoft Office, and Norton Anti-Virus.

     (e)  Until December 31, 2001, Innovex shall provide reasonable assistance
          to Scios in the Scios take over of the TMS system. Scios shall
          reimburse Innovex for all out of pocket expenses, including, but not
          limited to, travel and entertainment expenses associated with the
          assistance provided by Innovex hereunder. Innovex shall charge Scios
          [*****] per hour plus expenses for additional services requested by
          Scios.

4.   Compensation

     The terms and conditions of all compensaton to the Sales Representative,
     including a variable incentive compensation plan ("Incentive Plan") for the
     Sales Force shall be as determined by the JSC, including eligibility
     criteria, performance targets, and compensation mix. Scios shall administer
     the Incentive Plan and determine eligibility. Scios shall pay all incentive
     compensation.

5.   Expenses of the Sales Force.

     Subject to paragraphs 3 and 6 of this Exhibit A, the parties shall divide
     the expenses of the Sales Force. Some expenses will be "Innovex/ISS Direct"
     meaning that Innovex/ISS will pay for such expenses; "Billable Pass-Through
     Expenses" which are paid for initially by Innovex/ISS and reimbursed by
     Scios to Innovex/ISS without mark-up; and "Scios Direct" expenses which are
     paid for directly by Scios. The following chart contains a breakdown of
     required Sales Force expenses, together with the identification of the
     parties' respective responsibility with regard to those expenses.


[*****] A CONFIDENTIAL PORTION OF THE MATERIAL HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.






- --------------------------------------------------------------------------------------------------------------------
                             Category                                   Innovex/         Billable     Scios Direct
                                                                       ISS Direct     (Passthrough)
- --------------------------------------------------------------------------------------------------------------------
                                                                                              
Representatives' base salary
- --------------------------------------------------------------------------------------------------------------------
Representative bonus (avg. [*****]% of total salary)
- --------------------------------------------------------------------------------------------------------------------
Payroll taxes (except [*****]), worker's comp insurance
- --------------------------------------------------------------------------------------------------------------------
Benefits package (401(k), ESOP, etc.), medical, dental,
prescription coverage, for Sales Representatives
- --------------------------------------------------------------------------------------------------------------------
Salaries and benefits for Field Coordinators
- --------------------------------------------------------------------------------------------------------------------
Auto expense for Field Coordinators and Sales Reps (allowance,
mileage reimbursement, parking, etc.)
- --------------------------------------------------------------------------------------------------------------------
Bonuses for Field Coordinators
- --------------------------------------------------------------------------------------------------------------------
Basic business expenses for Sales Reps (phone, supplies, postage,
and manager training)
- --------------------------------------------------------------------------------------------------------------------
Basic business expenses for Field Coordinators (phone, supplies,
postage, manager training and voice mail)
- --------------------------------------------------------------------------------------------------------------------
Post-Launch recruitment costs
- --------------------------------------------------------------------------------------------------------------------
Background checks
- --------------------------------------------------------------------------------------------------------------------
Infrastructure support (payroll and T&E processing)
- --------------------------------------------------------------------------------------------------------------------
Training materials and delivery (launch, periodic and backfill)
- --------------------------------------------------------------------------------------------------------------------
Overnight travel expenses for Sales Reps & Field Coordinators
- --------------------------------------------------------------------------------------------------------------------
All training & meetings (includes travel, hotel and meals)
- --------------------------------------------------------------------------------------------------------------------
Field Coordinators equipment, including laptop and software
- --------------------------------------------------------------------------------------------------------------------
Sales Rep equipment (sales force automation, including laptop and
software).
- --------------------------------------------------------------------------------------------------------------------
Forms, promotional literature, detail bags, business cards & aids
- --------------------------------------------------------------------------------------------------------------------
Promotional marketing expenses (including sales data)
- --------------------------------------------------------------------------------------------------------------------
ISS annual administration costs
- --------------------------------------------------------------------------------------------------------------------


6.   Payment Terms.

     (a)  Innovex and ISS will combine their billings on one invoice to Scios.

     (b)  Beginning November 1, 2001, Scios shall be responsible for the actual
          amounts expended by ISS for salary, fringe benefits, auto expense,
          basic business expenses, and auto expense. The amounts paid pursuant
          to subparagraph (c) below shall be reconciled against the amounts due
          under this subparagraph (b) on a quarterly basis and an appropriate
          credit or additional invoice will result.


[*****] A CONFIDENTIAL PORTION OF THE MATERIAL HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.



     (c)  Beginning November 1, 2001, and for the remaining term of the
          Agreement, Scios shall make a monthly payment to ISS on the first of
          each month in the amount of [*****] per sales representative on the
          ISS payroll, subject to the reconciliation provision set forth above.

     (d)  Beginning November 1, 2001, and for the remaining term of the
          Agreement, Scios shall pay Innovex a monthly G&A and Management fee of
          [*****]. Should the number of Sales Representatives provided to Scios
          exceed [*****], this monthly fee shall be increased proportionally.

     (e)  Beginning November 1, 2001 through May 31, 2004, and subject to the
          terms of the Amended and Restated Alliance Agreement, Scios shall pay
          Innovex [*****] for each day worked by the Field Coordinator;
          thereafter, Scios shall pay [*****] for each day worked by the Field
          Coordinator. Innovex shall invoice Scios monthly for the Field
          Coordinator.

     (f)  For all services provided and expenses incurred by Innovex and/or ISS
          through and including October 31, 2001, Scios shall pay Innovex a
          total of [*****]. Innovex has or will invoice this amount immediately.
          Innovex will credit Scios with [*****] to compensate Scios for its
          separate recruting efforts.

     (g)  Unless otherwise specified herein, payment on all Innovex invoices are
          due within 30 days of the invoice date. A 1% per month finance charge
          shall apply on all past due balances, unless the amount has been
          disputed by Scios in writing.

7.   Termination of Services

     In the event of default by the other party of its material obligations
     under this Agreement, either party may terminate the Services pursuant to
     the terms of this paragraph. In the event of such default, the party
     declaring the default shall provide the defaulting party with written
     notice setting forth the nature of the default, and the defaulting party
     shall have 30 days to cure the default. Provided, however, that if the
     nature of the default is such that it cannot reasonably be cured within 30
     days, the defaulting party may cure such default by commencing in good
     faith to cure such default promptly after its receipt of such written
     notice and prosecuting the cure of such default to completion with
     diligence and continuity within a reasonable time thereafter. If the
     defaulting party fails to cure the default within the foregoing time
     periods, the other party may terminate the Services by written notice to
     the defaulting party, which notice shall be effective upon receipt. For the
     purposes of this paragraph 9, Innovex and ISS shall be considered one
     party.


[*****] A CONFIDENTIAL PORTION OF THE MATERIAL HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.



     Either party may terminate the Services by written notice to the other
     party, effective upon receipt with no right to cure the default, if the
     other party files a petition for bankruptcy, reorganization or arrangement
     under any state statute, or makes an assignment for the benefit of
     creditors or takes advantage of any insolvency statute or similar statute,
     or if a receiver or trustee is appointed for the property and assets of the
     party and the receivership proceedings are not dismissed within 60 days of
     such appointment.

     In the event the Services are terminated, Scios shall: (a) pay to Innovex
     and ISS all fees for services rendered which are due and owing to Innovex
     or ISS because of any completed performance of Innovex's or ISS's
     obligations prior to the effective date of termination; (b) pay all
     pass-through expenses actually incurred by Innovex or ISS prior to the
     effective date of termination; and (c) pay any other costs which have been
     expressly identified as being due upon termination.


EXHIBIT B

                                WARRANT AGREEMENT

     This WARRANT AGREEMENT is effective as of January 10, 2001, by and between
SCIOS INC., a Delaware corporation with its principal place of business at 820
W. Maude Avenue, Sunnyvale, CA 94085 ("Scios") and PHARMABIO DEVELOPMENT, INC.,
a corporation with its principal place of business at 4709 Creekstone Drive,
Durham, NC 27703 ( "PharmaBio").

     WHEREAS, Scios and PharmaBio have entered into an Alliance Agreement, dated
as of the date hereof (the "Alliance Agreement"), pursuant to which PharmaBio
has agreed to make certain payments to Scios in connection with Scios' product
Natrecor(R) (nesiritide); and

     WHEREAS, Scios desires to grant to PharmaBio the rights set forth in this
Warrant Agreement as part of the consideration for PharmaBio entering into the
Alliance Agreement;

     NOW, THEREFORE, in consideration of the mutual agreements, undertakings and
covenants set forth in this Warrant Agreement, and for other good and valuable
consideration, the receipt, sufficiency and adequacy of which are hereby
acknowledged, the parties, intending to be legally bound, agree as follows:

     1. The Warrant. Scios hereby agrees to issue and sell to PharmaBio seven
        -----------
hundred thousand (700,000) shares (the "Warrant Shares"), of the Scios' common
stock, par value $.001 per share ("Common Stock"), at an exercise price of
Twenty U.S. dollars ($20.00) per share (the "Exercise Price"), subject to the
exercise schedule described in Section 2 and the other provisions of this
Warrant Agreement and upon the terms and conditions herein set forth. The
Exercise Price and the number of Warrant Shares purchasable upon exercise of
this Warrant Agreement are subject to adjustment from time to time as provided
in Section 8 of this Warrant Agreement. All of the Warrant Shares shall be
deemed to vest on December 21, 2001 and shall be exercisable in accordance with
the schedule set forth in section 2, below.

     2. Exercise Schedule. PharmaBio's right to exercise the vested Warrant
        -----------------
Shares will become exercisable in seven installments on the following schedule:

                           EXERCISE SCHEDULE

                   Dec 31 2001              175,000
                   March 31, 2002            87,500
                   June 30, 2002             87,500
                   Sept 30, 2002             87,500
                   Dec. 31, 2002             87,500
                   March 02, 2003            87,500
                   May 31, 2003              87,500

     3. Expiration Date. This Warrant Agreement, and PharmaBio's right to
        ---------------
purchase any of the Warrant Shares, will expire and cease to be of force and
effect at 5:00 p.m. Eastern Standard Time on January 10, 2011 (the "Expiration
Date").



     4. Exercise of this Warrant Agreement. (a) PharmaBio may exercise this
        ----------------------------------
Warrant Agreement, to the extent of any then unexercised portion of the Warrant
Shares, at any time prior to the Expiration Date, in whole or in part, (i) for
amounts not less than fifty thousand (50,000) Warrant Shares subject to this
Warrant Agreement, as adjusted from time to time as provided in Section 8 of
this Warrant Agreement, or (ii) as a one-time exercise under this Warrant
Agreement, for any exercisable portion of the Warrant Shares, by: (a) the
surrender of this Warrant Agreement, with the Exercise Form attached hereto as
Annex A properly completed and executed, at the principal office of the Scios at
820 W. Maude Avenue, Sunnyvale, CA 94085 or at such other office of the Scios as
the Scios may designate by notice in writing to the holder of this Warrant
Agreement, and (b) the delivery of a certified check, bank draft or wire
transfer of immediately available funds, payable to the order of Scios Inc., in
an amount equal to the then aggregate purchase price for the Warrant Shares
being purchased upon such exercise. Upon receipt thereof by the Scios on a
business day, PharmaBio will be deemed to be the holder of record of the Warrant
Shares issuable upon such exercise as of the close of business on the date of
such receipt by the Scios, and the Scios will promptly execute or cause to be
executed and delivered to PharmaBio, a certificate or certificates representing
the aggregate number of Warrant Shares specified in the Exercise Form. If this
Warrant Agreement is exercised only in part and has not expired, the Scios will,
at the time of delivery of said stock certificate or certificates, deliver to
PharmaBio a new Warrant Agreement of like tenor evidencing the right of
PharmaBio to purchase the remaining Warrant Shares then covered by this Warrant
Agreement.

        (b)   In lieu of exercising this Warrant Agreement, PharmaBio may elect
to receive shares equal to the value of this Warrant Agreement (or the portion
of the Warrant Shares thereunder being exercised) by sending written notice of
such election to Scios, in which event Scios shall deliver to PharmaBio a stock
certificate representing a number of shares of Scios' Common Stock computed
using the following formula:

                                    X = Y(A-B)
                                        ------
                                          A

Where:

         X = the number of shares of Common Stock to be issued to PharmaBio

         Y = the number of shares of Common Stock purchasable under this
             Warrant Agreement as to which PharmBio is then exercising this
             Warrant Agreement

         A = the fair market value of one share of Common Stock

         B = the Exercise Price (as adjusted to the date of such calculations)

        (c)   For purposes of this Section, "fair market value" of one share of
Common Stock shall mean the average of the closing price quoted on the Nasdaq
National Market or the principal exchange on which the Common Stock is listed,
or the closing bid and asked prices of the



Common Stock quoted in the Over-The-Counter Market Summary, whichever is
applicable, as published in the Eastern Edition of The Wall Street Journal, for
                                                   -----------------------
the ten trading days prior to the date of determination of fair market value. If
the Common Stock is not traded Over-The-Counter or on such market or exchange,
the fair market value of the Common Stock will be the price per share which
Scios could obtain from a willing buyer for shares sold by Scios from authorized
but unissued shares, as agreed upon by Scios and PharmaBio in good faith or,
absent such agreement, as shall be determined by arbitration instituted by
either party under the rules of the American Arbitration Association.

     5. Representations of the Scios. The Scios hereby represents and warrants
        ----------------------------
to PharmaBio as follows:

        (a)   Scios is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware.

        (b)   This Warrant Agreement has been duly authorized by all necessary
corporate action on the part of Scios, has been duly executed by a duly
authorized officer of the Scios, and constitutes a valid and binding obligation
of Scios.

        (c)   Neither the execution and delivery of this Warrant Agreement nor
the consummation of the transactions contemplated hereby will violate or result
in any violation of or be in conflict with or constitute a default under any
term of the charter or bylaws of Scios or of any agreement, instrument,
judgment, decree, order, statute, rule or governmental regulation applicable to
Scios.

        (d)   Upon exercise of this Warrant Agreement and payment of the then
aggregate purchase price by PharmaBio, the Warrant Shares deliverable hereunder
will be duly issued, fully paid and nonassessable shares and free from all
taxes, liens and charges with respect to the issuance thereof.

     6. Representations of PharmaBio. PharmaBio hereby represents and warrants
        ----------------------------
to Scios as follows:

        (a)   PharmaBio is a corporation duly organized, validly existing and in
good standing under the laws of North Carolina.

        (b)   PharmaBio is acquiring this Warrant Agreement, and will acquire
the Warrant Shares issuable upon exercise of this Warrant Agreement, for
investment for its own account and not with a view to, or for resale in
connection with, any distribution of this Warrant Agreement or the Warrant
Shares issuable upon exercise of this Warrant Agreement. PharmaBio understands
that neither this Warrant Agreement nor the Warrant Shares issuable upon
exercise of this Warrant Agreement have been registered under the Securities Act
of 1933, as amended (the "Securities Act"), or under any state securities laws,
and, as a result thereof, are subject to



substantial restrictions on transfer. PharmaBio acknowledges that this Warrant
Agreement and the shares issuable upon exercise of this Warrant Agreement must
be held indefinitely, unless subsequently registered under the Securities Act
and any applicable state securities laws or unless exemptions from registration
under the Securities Act and such laws are available.

        (c)   PharmaBio is an "accredited investor," as that term is defined in
Rule 501 under the Securities Act.

        (d)   PharmaBio is either (i) not an "Investment Company," as that term
is defined in the Investment Scios Act of 1940, or (ii) excluded from the
definition of an Investment Scios under Section 3(c)(1) of the Investment Scios
Act of 1940.

     7. Survival of Representations. The representations and warranties made
        ---------------------------
in Sections 5 and 6 of this Warrant Agreement will survive the date of this
Warrant Agreement and will expire upon the earliest of (a) the Expiration Date,
(b) if the Alliance Agreement terminates before any of the Warrant Shares become
exercisable the date of the termination of the Alliance Agreement, (c) if the
Alliance Agreement terminates after any of the Warrant Shares become
exercisable, the exercise of the entire unexercised portion of the Warrant
Shares, or (d) the exercise of this Warrant Agreement for all of the remaining
Warrant Shares purchasable upon exercise of this Warrant Agreement.

     8. Certain Adjustments.  The Exercise Price at which Warrant Shares may be
        -------------------
purchased and the number of Warrant Shares to be purchased upon exercise of this
Warrant Agreement are subject to change or adjustment as follows:

        (a)   Stock Dividends, Distributions, Subdivisions, Combinations
              ----------------------------------------------------------
or Reclassifications. In case the Scios (i) pays a dividend in shares of Common
- --------------------
Stock or makes a distribution in shares of Common Stock, (ii) subdivides its
outstanding shares of Common Stock, (iii) combines its outstanding shares of
Common Stock into a smaller number of shares of Common Stock or (iv) issues, by
reclassification of its shares of Common Stock, other securities of Scios
(including any such reclassification in connection with a consolidation or
merger in which the Scios is the surviving corporation), the number of Warrant
Shares purchasable upon exercise of this Warrant Agreement will be adjusted so
that PharmaBio will be entitled to receive the kind and number of Warrant Shares
or other securities of Scios which it would have owned or have been entitled to
receive after the happening of any of the events described above, if this
Warrant Agreement had been exercised immediately prior to the happening of such
event or any record date with respect thereto. Whenever the number of Warrant
Shares purchasable upon the exercise of this Warrant Agreement is adjusted, as
herein provided, the Exercise Price payable upon the exercise of this Warrant
Agreement will be adjusted by multiplying such Exercise Price immediately prior
to such adjustment by a fraction, of which the numerator will be the number of
Warrant Shares purchasable upon the exercise of this Warrant Agreement
immediately prior to such adjustment, and of which the denominator will be the
number of Warrant Shares purchasable immediately thereafter. An adjustment made
pursuant to this Subsection 8(a) will



become effective immediately after the effective date of such event retroactive
to the record date, if any, for such event. No adjustment in the number of
Warrant Shares purchasable hereunder will be required unless such adjustment
would require an increase or decrease of at least one percent (1%) in the number
of Warrant Shares purchasable upon the exercise of this Warrant Agreement;
provided, however, that any adjustments which by reason of this restriction are
- --------  -------
not required to be made will be carried forward and taken into account in any
subsequent adjustment. All calculations will be made to the nearest
one-thousandth of a share.

        (b)   Preservation of Purchase Rights Upon Merger, Consolidation, etc.
              ---------------------------------------------------------------
In case of any consolidation of Scios with or merger of Scios into another
corporation or other entity or in case of any sale, transfer or lease to another
corporation or other entity of all or substantially all the property of Scios,
Scios or such successor or purchasing corporation or other entity, as the case
may be, will, at its option, (i) if any of the Warrant Shares are exercisable,
pay PharmaBio an amount in cash equal to the number of Warrant Shares then
exercisable pursuant to this Warrant Agreement multiplied by the difference
between (A) the value of the aggregate consideration in the consolidation,
merger, sale, transfer or lease divided by the number of fully-diluted shares of
Common Stock then outstanding and (B) the then current Exercise Price, (ii)
execute with PharmaBio an agreement that PharmaBio will have the right
thereafter, upon any of the Warrant Shares becoming exercisable, and payment of
the Exercise Price in effect immediately prior to such action, to purchase upon
exercise of this Warrant Agreement the kind and amount of shares and other
securities and property which PharmaBio would have owned or have been entitled
to receive after the happening of such consolidation, merger, sale, transfer or
lease had this Warrant Agreement been exercised immediately prior to such
action, or (iii) combine its options under (i) and (ii) of this Subsection 8(b);
provided, however, that no adjustment in respect of cash dividends, interest or
- --------  -------
other income on or from such shares or other securities and property will be
made during the term of this Warrant Agreement or upon the exercise of this
Warrant Agreement. Any agreement executed under Subsection 8(b)(ii) or (iii)
will provide for adjustments, which will be as nearly equivalent as may be
practicable to the adjustments provided for in this Section 8. The provisions of
this Subsection 8(b) will similarly apply to successive consolidations, mergers,
sales, transfers or leases.

          (c) No Adjustment for Cash Dividends.  No adjustment in respect of any
              --------------------------------
cash dividends will be made during the term of this Warrant Agreement or upon
the exercise of this Warrant Agreement.

     9.   Fractional Shares. Fractional shares will not be issued upon the
          -----------------
exercise of this Warrant Agreement, but in any case where PharmaBio would,
except for the provisions of this Section, be entitled under the terms of this
Warrant Agreement to receive a fractional share upon the exercise of this
Warrant Agreement, the Scios will, upon the exercise of this Warrant Agreement
for the largest number of whole shares then called for, pay a sum in cash equal
to the excess of the market value of such fractional share (determined in such
reasonable manner as may be prescribed by the Board of Directors of the Scios in
its discretion) over the proportional part of the per share purchase price
represented by such fractional share.



     10.  Notice of Certain Events.  In case at any time Scios:
          ------------------------

          (a) terminates the Alliance Agreement prior to all of the Warrant
Shares becoming exercisable under this Warrant Agreement;

          (b) proposes, by resolution of its Board of Directors, a stock
dividend, distribution, subdivision, combination or reclassification of the
shares of capital stock of the Scios for which this Warrant Agreement is
exercisable; or

          (c) proposes, by resolution of its Board of Directors, any capital
reorganization or any reclassification or change of capital stock that
affects the Warrant Shares of the Scios or any consolidation, merger or sale of
properties and assets of the type described in Section 8 of this Warrant
Agreement;

then, and in each of said cases, the Scios will cause notice thereof to be
delivered promptly to PharmaBio; provided, however, that the Scios need not
                                 --------  -------
deliver any separate notice pursuant to Subsection 11(a) if such notice is
provided in accordance with the Alliance Agreement and need not deliver any
notice pursuant to Subsection 10(b) until after any of the Warrant Shares have
become exercisable and unless there exists a then unexercised portion of the
vested Warrant Shares; provided further, that Scios will deliver any notice
                       -------- -------
pursuant to Subsection 10(c) at least ten (10) business days prior to the
effective date of the proposed event.

     11.  Reservation of Shares. Scios will at all times reserve and keep
          ---------------------
available out of its authorized but unissued stock, for the purpose of effecting
the exercise of this Warrant Agreement, such number of its duly authorized
shares of capital stock for which this Warrant Agreement is exercisable, and the
appropriate number of shares of any stock into which such stock is convertible,
as will from time to time be sufficient to effect the exercise of this Warrant
Agreement.

     12.  No Rights as Shareholder; Limitation of Liability. This Warrant
          -------------------------------------------------
Agreement, as distinct from the shares for which this Warrant Agreement is
exercisable, will not entitle PharmaBio to any of the rights of a shareholder of
Scios. No provision of this Warrant Agreement, in the absence of affirmative
action by PharmaBio to purchase the Warrant Shares, and no mere enumeration
herein of the rights or privileges of PharmaBio, will give rise to any liability
of PharmaBio for the purchase price or as a shareholder of Scios, whether such
liability is asserted by the Scios or by creditors of Scios.

     13.  Transfer Restrictions.
          ---------------------

          (a) Securities Laws.  NEITHER THIS WARRANT AGREEMENT NOR THE
              ---------------
SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS



OF ANY STATE. NEITHER THIS WARRANT AGREEMENT NOR THE SECURITIES ISSUABLE UPON
EXERCISE HEREOF NOR ANY INTEREST OR PARTICIPATION HEREIN OR THEREIN MAY BE SOLD,
ASSIGNED, PLEDGED, HYPOTHECATED, ENCUMBERED OR IN ANY OTHER MANNER TRANSFERRED
OR DISPOSED OF EXCEPT IN COMPLIANCE WITH THE SECURITIES ACT OF 1933, AS AMENDED,
THE SECURITIES LAWS OF EACH RELEVANT STATE, AND THE TERMS AND CONDITIONS HEREOF.
EACH OF THE HOLDER OF THIS WARRANT AGREEMENT AND THE HOLDER OF THE SECURITIES
ISSUABLE UPON EXERCISE HEREOF IS SUBJECT TO THE RESTRICTIONS HEREIN SET FORTH.

          (b) Stock Certificate Legend.  Each certificate for shares issued upon
              ------------------------
exercise of this Warrant Agreement will bear the following legend:

              "The shares represented by this certificate have been acquired
              for investment and have not been registered under the Securities
              Act of 1933, as amended, or the securities laws of any State.
              Neither the shares nor any interest or participation in the
              shares may be sold, assigned, pledged, hypothecated, encumbered
              or in any other manner transferred or disposed of in the absence
              of such registration or exemption therefrom under such Act or
              such laws and an opinion (which will be in form and substance
              satisfactory to the Scios) of counsel satisfactory to the Scios
              that such registration is not required."

          (c) General Restrictions. PharmaBio may not transfer or assign
              --------------------
this Warrant Agreement unless it is transferred or assigned to the purchaser of
all of the outstanding capital stock or all or substantially all of the assets
of PharmaBio or to an affiliate of PharmaBio. Scios may deem and treat the
person in whose name this Warrant Agreement is registered as the holder and
owner hereof (notwithstanding any notations of ownership or writing hereon made
by anyone other than Scios) for all purposes and will not be affected by any
notice to the contrary, until presentation of this Warrant Agreement to Scios
for registration of transfer consistent with this Section. The holder of this
Warrant Agreement further agrees that prior to any transfer of this Warrant
Agreement, consistent with this Section, or any transfer of the shares issued
upon exercise hereof, such holder will give written notice to the Scios,
together with a copy of the opinion of such holder's counsel, if reasonably
requested by Scios, as to the availability of exemption from registration under
all applicable securities laws in connection with any such transfer (which
opinion will be reasonably satisfactory to counsel for Scios).

     14.  Lock-Up. In connection with any public offering of shares of Common
          -------
Stock, PharmaBio agrees to enter into a written agreement with the managing
underwriters, if the managing underwriters require such an agreement from
PharmaBio and from all holders (the "Other Holders") of more shares of Common
Stock, or of shares of preferred stock convertible into more shares of Common
Stock, than the number of shares of Common Stock owned by PharmaBio, in such
form and containing such provisions as are required by the managing underwriters
(except that such provisions will not be less favorable to PharmaBio than the



provisions of any agreements entered into by the managing underwriters with the
Other Holders) to preclude PharmaBio from directly or indirectly offering to
sell, contracting to sell or otherwise disposing of any shares of Common Stock,
any options or warrants to purchase shares of Common Stock, or any securities
convertible into or exchangeable for shares of Common Stock for a period of time
not to exceed one hundred eighty (180) days after the effective date of the
registration statement for the public offering.

     15.  Rule 144 Reporting. With a view to making available the benefits of
          ------------------
certain rules and regulations of the SEC that may permit the sale of securities
to the public without registration, Scios agrees to use its reasonable efforts
to make and keep public information regarding Scios available as those terms are
understood and defined in Rule 144 under the Securities Act and file with the
SEC in a timely manner all reports and other documents required by Scios under
the Securities Act and the Securities Exchange Act of 1934, and furnish to the
holder upon written request as to Scios' compliance with the reporting
requirements of Rule 144 and of the Securities Act and the Securities Exchange
Act of 1934.

     16.  Registration Rights.
          -------------------

          (a) Piggyback Registration Rights.
              -----------------------------

              (i)    If Scios plans at any time after January 1, 2002 to file a
registration statement under the Securities Act on a Form S-3 to register any
shares of Common Stock for sale by it or any of its stockholders (the "Piggyback
Registration Statement") (except in connection with any stock option plan, stock
purchase plan, savings or similar plan), the Scios shall provide PharmaBio with
the right to include Warrant Shares on the Piggyback Registration Statement (the
"Piggyback Right"), if PharmaBio is the stockholder of record of any Warrant
Shares at such time or has the vested right to acquire any Warrant Shares
pursuant to this Warrant Agreement at such time, by providing PharmaBio with at
least thirty (30) days prior written notice thereof. At the written request of
PharmaBio, given within twenty (20) days after the receipt of such notice, Scios
will use its best efforts to cause all of the Warrant Shares for which
registration shall have been requested to be included in the Piggyback
Registration Statement. Scios shall provide PharmaBio with two Piggyback Rights
to register Warrant Shares under this provision.

              (ii)   In the event that the proposed offering is an offering by
Scios that is, in whole or in part, an underwritten public offering of shares of
Common Stock, and the managing underwriters determine and advise in writing that
the inclusion of the Warrant Shares proposed to be included in the underwritten
public offering and any other issued and outstanding shares of Common Stock or
other securities proposed to be included therein by the security holders of the
Scios (the "Other Shares") would interfere with the successful marketing
(including pricing) of the shares, the number of PharmaBio's Warrant Shares and
the Other Shares to be included in such underwritten public offering shall be
reduced pro rata among PharmaBio and the holders of Other Shares. Scios shall
not limit the number of Warrant Shares



to be included in a registration statement in order to include stockholders of
Scios with no pre-existing registration rights.

          (b) Demand Registration Right. Beginning after January 1,
              -------------------------
2002, PharmaBio shall have the right to demand, by providing written notice to
Scios (the "Demand Registration Right"), that Scios file a registration
statement on Form S-3 to register Warrant Shares for resale by PharmaBio in an
offering that is not underwritten (the "Registration Statement") provided,
however, that Scios shall not be obligated to effect such a registration more
than once in any rolling twelve-month period or after two such registrations
have been effected. Scios agrees to use its best efforts (i) to file the
Registration Statement with the Securities and Exchange Commission ("SEC")
within 30 days of receipt of PharmaBio's notice of its exercise of the Demand
Registration Right and (ii) to obtain the effectiveness of the Registration
Statement within 90 days of receipt of such notice, and to keep such
Registration Statement continuously effective under the Securities Act until
such time as the earlier to occur of 180 days, or until the holder's have
completed the distribution described in such Registration Statement. PharmaBio
agrees that it will cease making offers and sales under the Registration
Statement upon the giving of any notice (the "Notice") by Scios that the
Registration Statement must be amended or supplemented.

          (c) Whenever Scios is required to register any of PharmaBio's
Warrant Shares pursuant to any of the provisions of this Section 15, Scios shall
also be obligated to do the following:

              (i)    Furnish to PharmaBio such copies of preliminary and final
prospectuses and such other documents as PharmaBio may reasonably request to
facilitate the public offering of PharmaBio's Warrant Shares;

              (ii)   Use its best efforts to register or qualify the Warrant
Shares covered by said registration statement under the securities or Blue Sky
laws of such jurisdictions as PharmaBio may reasonably request; provided,
                                                                --------
however, that Scios shall not be required to qualify generally to do business in
- -------
any jurisdiction where it is not then so qualified, take any action that would
subject it to general service of process in any such jurisdiction where it is
not then so subject or subject Scios to any tax in any such jurisdiction where
it is not then so subject;

              (iii)  Permit PharmaBio or its counsel or other representatives,
at PharmaBio's expense, to inspect and copy such corporate documents and records
as may reasonably be requested by them; and

              (iv)   Furnish to PharmaBio a copy of all documents filed and all
correspondence to or from the Securities and Exchange Commission in connection
with any such offering.

              (v)    Prepare and file with the SEC such amendments and
supplements




to such Registration Statement or such Piggyback Registration Statement, as the
case may be, and the prospectus used in connection with such registration
statement as may be necessary to comply with the provisions of the Securities
Act with respect to the disposition of all securities covered by such
registration statement.

              (vi)   Notify each seller of securities covered by such a
Registration Statement, at any time when a prospectus relating thereto is
required to be delivered under the Securities Act, of the happening of any event
as a result of which the prospectus included in such Registration Statement, as
then in effect, includes an untrue statement of a material fact remits to a
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances then existing and, at the
request of any such seller, repair and furnish to such seller a reasonable
number of copies of a supplement to or amendment of such prospectus as need be
necessary so that such prospectus shall not contain such an untrue statement or
admission.

          (d) PharmaBio shall bear all of the fees and expenses of its
counsel and all other customary "selling expenses" in connection with the
registration statement and the offering. PharmaBio shall also bear all other
expenses (including customary "registration expenses") in connection with the
preparation and filing of any Registration Statement or any Piggyback
Registration Statement under this Section 15, any registration or qualification
under the securities or Blue Sky laws of states in which the offering will be
made under either such registration statement and any filing fee of the National
Association of Securities Dealers, Inc. relating to such offering.

          (e) In connection with any public underwritten offering, the
Scios and PharmaBio shall enter into a written agreement with the managing
underwriters in such form and containing such provisions as are customary in the
securities business for such an arrangement between such managing underwriters
and companies of the Scios' size and investment stature, including
indemnification.

     16.  Miscellaneous.
          -------------

          (a) Amendments and Waivers. This Warrant Agreement and any provision
              ----------------------
hereof may be changed, waived, discharged or terminated only by an instrument in
writing signed by the party (or any predecessor in interest thereof) against
which enforcement of the same is sought.

          (b) Successors and Assigns. This Warrant Agreement will be binding
              ----------------------
upon and inure to the benefit of the successors and assigns of Scios and the
heirs and permitted registered assigns and transferees of PharmaBio.

          (c) Loss, Theft, Destruction or Mutilation.  Upon receipt by Scios of
              --------------------------------------
evidence reasonably satisfactory to it that this Warrant Agreement has been
lost, stolen, destroyed or




mutilated, and in the case of any lost, stolen or destroyed Warrant Agreement, a
bond of indemnity reasonably satisfactory to Scios, or in the case of a
mutilated Warrant Agreement, upon surrender and cancellation hereof, Scios will
execute and deliver in the name of the registered holder of this Warrant
Agreement, in exchange and substitution for the Warrant Agreement so lost,
stolen, destroyed or mutilated, a new Warrant Agreement of like tenor with
appropriate insertions and variations.

          (d) Law Governing.  This Warrant Agreement will be governed by, and
              -------------
construed and enforced in accordance with, the internal laws of the State of
Delaware.

          (e) Entire Agreement. This Warrant Agreement and the attached annex
              ----------------
constitute the full and entire understanding and agreement among the parties
with regard to the subject of this Warrant Agreement and the attached annex, and
supersede all prior agreements, understandings, inducements or conditions,
express or implied, oral or written, with respect to the subject of this Warrant
Agreement and the attached annex.

          (f) Notices. Unless otherwise provided, all notices, requests, demands
              -------
and other communications required or permitted under this Warrant Agreement will
be in writing and will be deemed to have been duly made and received: (i) upon
personal delivery or confirmed facsimile to the party to be notified; (ii) three
(3) business days after deposit with the United States Post Office, by
registered or certified mail or by first class mail, postage prepaid, addressed
as set forth below; or (iii) one (1) business day after deposit with Federal
Express or another reputable overnight courier (for next business day delivery),
shipping prepaid, addressed as set forth below:

              (i)    If to Scios, then to:

                     Scios Inc.
                     820 W. Maude Avenue
                     Sunnyvale, CA 94085
                     Attn:   Chief Financial Officer
                     ----

                     with a copy to:
                     General Counsel
                     Scios Inc.
                     749 N. Mary Avenue
                     Sunnyvale, CA 94085

              (ii)   If to PharmaBio, then to:

                     PharmaBio Development, Inc
                     4709 Creekstone Drive
                     Durham, NC 27703
                     Attn:   President
                     ----




                     with a copy to:
                     General Counsel
                     PharmaBio Development Inc.
                     4709 Creekstone Drive
                     Durham, NC 27703

Either party may change the address to which communications are to be sent by
giving five (5) business days' advance notice of such change of address to the
other party in conformity with the provisions of this Section.

          (g) Headings.  The headings in this Warrant Agreement are for purposes
              --------
of reference only and will not affect the meaning or construction or any of the
provisions hereof.

          (h) Execution; Counterparts. This Warrant Agreement may be executed
              ----------------------
in any number of counterparts, each of which will be deemed to be an original as
against any party whose signature appears on such counterpart, and all of which
will together constitute one and the same instrument. This Warrant Agreement
will become binding when one or more counterparts of this Warrant Agreement,
individually or taken together, bear the signatures of all of the parties to
this Warrant Agreement and the seal of the Scios.

        IN WITNESS WHEREOF, the parties have caused this Warrant Agreement to
be duly executed and delivered as of the day and year first written above.

                               SCIOS INC.

                               By:    /s/ Matthew R. Hooper
                                      __________________________________________
                               Name:  Matthew R. Hooper
                               Title: Vice President & General Counsel



                               PHARMABIO DEVELOPMENT, INC.

                               By:      /s/ Tom Perkins
                                        ________________________________________

                               Name:    Tom Perkins
                                        ________________________________________

                               Title:   Vice President and General Counsel
                                        ________________________________________

Attachments:
Annex A- Exercise Form



                                                                         ANNEX A


                                  EXERCISE FORM

                     TO BE EXECUTED BY THE REGISTERED HOLDER
                  TO EXERCISE THE ATTACHED WARRANT AGREEMENT OF

                                   SCIOS INC.



         The undersigned, the record holder of the attached original, executed
Warrant Agreement (the "Warrant Agreement"), pursuant to the provisions of the
Warrant Agreement, hereby irrevocably elects to exercise the right, represented
by the Warrant Agreement, to purchase _____ Warrant Shares (as defined in the
Warrant Agreement) covered by the Warrant Agreement, and herewith tenders
payment in full therefor at the price per share provided by the Warrant
Agreement.



                               _________________________________________________


                               By:      ________________________________________
                               Name:    ________________________________________
                               Title:   ________________________________________


                               Address:     ____________________________________
                                            ____________________________________
                                            ____________________________________


___________________________________


Dated:   ___________________, _____

EX-10.52

                                                                   Exhibit 10.52

                            BINDING SUMMARY OF TERMS

THIS BINDING SUMMARY OF TERMS (the "Summary of Terms"), made as of the 20th day
of December, 2001 (the "Signing Date"), sets forth the material terms of an
understanding reached between SCIOS, INC., a Delaware corporation having its
principal place of business at 820 West Maude Avenue, Sunnyvale, CA, USA 94043
("Scios"), and GLAXO GROUP LTD. a corporation organized under the laws of
England having its principal place of business at Glaxo Wellcome House, Berkeley
Avenue, Greenford, Middlesex UB6 ONN, U.K. ("GSK"). Scios and GSK are sometimes
referred to herein individually as a "Party" and collectively as the "Parties".

                                    RECITALS

     A.  The Parties have reached an understanding whereby: (i) Scios grants to
GSK a sole and exclusive license to use and sell Product in the Territory for
all human pharmaceutical use other than diagnostic uses (the "Field"), and (ii)
Scios agrees to supply to GSK, and GSK agrees to purchase from Scios, all of
GSK's requirements of API Product for such use and sale, on the terms and
conditions set forth herein, and

     B.  The Parties wish to memorialize the material terms of their
understanding in this binding Summary of Terms, with the intention of replacing
this Summary of Terms with a more definitive agreement consistent herewith on or
before February 15, 2002.

     NOW, THEREFORE, the Parties hereto agree as follows:

                             ARTICLE 1 - DEFINITIONS

When used in this Summary of Terms, the following terms shall have the meanings
indicated below. The additional terms "Affiliate," "Clinical Trial Expenses,"
"Control," "European Union," "Health Outcomes Study," "Improvements," "IND,"
"Launch," "Marketing Authorization Applications," "Marketing Budget," "Marketing
Plan," "Marketing Trial," "Patent Expenses," "Regulatory Approval," "Regulatory
Authority," "Steering Committee," and "Third Party" shall be defined in the
Definitive Agreement in a commercially reasonable manner, consistent with
practice in the U.S. and European pharmaceutical and biotech industries.

     1.1  "Active Pharmaceutical Ingredient" or "API" means Natrecor(R) in
          active bulk form meeting the API Specifications.

     1.2  "API Specifications" shall mean the specifications for Active
          Pharmaceutical Ingredient attached hereto as Schedule 1.2.

     1.3  "Commercialization" means all activities undertaken relating to the
          marketing, promotion, distribution and sale of Product, including,
          without limitation, advertising and any Marketing Trials.

     1.4  "Cost of Goods" means the [*****]

     1.5  "Development" means:

          (a) all activities relating to obtaining and/or maintaining Marketing
          Authorization Approval of the Original Product in the Territory
          pursuant to an acceptable label including, without limitation,
          clinical trials and the preparation, submission, review and
          development of data or other information related thereto ("Type 1
          Development");

[*****] A CONFIDENTIAL PORTION OF THE MATERIAL HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.



          (b) Phase IV clinical trials supporting pre-launch and
          commercialization of the Product but not contributing to obtaining
          and/or maintaining Marketing Authorization Applications of the
          Original Product and any New Product in the Territory, and excluding
          the Health Outcomes Study ("Type 2 Development");

          (c) all activities relating to obtaining and/or maintaining Marketing
          Authorization of a New Product in the Territory, including Phase III
          clinical trials and the preparation, submission, review and
          development of data or other information related thereto but excluding
          pre-clinical, Phase I and Phase II clinical development ("Type 3
          Development"); and

          (d) design and conduct of the Health Outcomes Study for the Original
          Product.

The term "Development" shall not include process development or final finish or
fill of Product.

     1.6  "Development Expenses" means the expenses incurred by GSK for
          Development pursuant to a Development Plan.

     1.7  "Definitive Agreement" shall mean the agreement between the Parties
          contemplated by Article 16, below.

     1.8  "Effective Date" means the earlier of: (i) the effective date of the
          Definitive Agreement (as defined therein), or (ii) February 15, 2002.

     1.9  "GSK Knowhow" means all Information relating to the Product developed
          by GSK as a result of its activities under this Summary of Terms.

     1.10 "GSK Patents" means patent applications, and patents issuing from such
          patent applications, which GSK has applied for or owns as a result of
          its activities under this Summary of Terms, as well as divisionals,
          continuations, continuations-in-part, reissues, reexaminations,
          renewals, extensions, additions and supplementary protection
          certificates to any such patents and patent applications.

     1.11 "Information" means, whether or not patentable: (i) techniques and
          data including inventions, practices, methods, know-how, data
          (including pharmacological, toxicological and clinical test data,
          regulatory submissions and data and analytical and quality control
          data), marketing, distribution, and sales data or descriptions and
          (ii) compounds, compositions of matter, assays and biological
          materials.

     1.12 "Natrecor(R)" means nesiritide or B-type natriuretic peptide whose
          amino acid sequence is listed in Schedule 1.12, and any derivatives,
          variants, analogs, homologs, fragments, N-terminally or C-terminally
          extended forms, conjugates, salts, esters and amides thereof.

     1.13 "New Product" means: (i) a line extension, alternative delivery
          system, additional formulation or other modification of the Original
          Product including any manufacturing process modifications which are
          material, and (ii) any preparation or product containing Natrecor(R)
          for treatment of an indication other than label indications for the
          Original Product approved as of the Effective Date.

     1.14 "Net Sales" means the amount invoiced by GSK or an Affiliate or
          sublicensee of GSK for sales of a Product in the Territory, less
          deductions for the following items:

          (i)  reasonable transportation and insurance charges borne by the
          selling Party,


                                       2



          (ii) sales and excise taxes or customs duties paid by the selling
          Party and any other governmental charges imposed upon the sale of the
          Product,

          (iii)rebates or allowances actually granted or allowed, including
          government and managed care rebates,

          (iv) quantity discounts, cash discounts or charge-backs actually
          granted, allowed or incurred in the ordinary course of business in
          connection with the sale of the Product, and

          (v) allowances or credits to customers, not in excess of the selling
          price of the Product, on account of governmental requirements,
          rejection, outdating, recalls or return of the Product.

     1.15 "Original Product" means the formulation of Natrecor(R) commercially
          sold by Scios as of the Effective Date for the treatment of acute
          decompensated heart failure. Attached hereto as Schedule 1.15 is the
          label for the Original Product as of the Signing Date.

     1.16 "Product" means the Original Product and any New Product.

     1.17 "Scios Know-How" means all Information now or hereafter within the
          Control of Scios necessary or useful for the Development or
          Commercialization of the Product in the Territory.

     1.18 "Scios Patents" means, within the Territory: (i) those patents and
          patent applications shown on Schedule 1.18 attached hereto, (ii) all
          patents issuing from such patent applications, divisionals,
          continuations, continuations-in-part, reissues, reexaminations,
          renewals, extensions, additions and supplementary protection
          certificates to any such patents and patent applications, and (iii)
          all patents and patent applications in the Territory now or hereafter
          owned or Controlled by Scios to the extent necessary or useful for the
          development, use, importation, formulation, packaging, sale or offer
          for sale of Product in the Territory.

     1.19 "Territory" means those countries of Europe, Central Europe and
          Eastern Europe listed in Schedule 1.19.


                             ARTICLE 2 - DEVELOPMENT

     2.1  Scope of the Development. Upon the Effective Date, GSK will assume
          responsibility for Development (i.e. Type 1 ---- Development, Type 2
          Development, Type 3 Development and the Health Outcomes Study)
          throughout the Territory. .

     2.2  Development Plan and Development Budget. [*****]

     2.3. Health Outcomes Study. Promptly following the Effective Date, the
          Parties shall in good faith design and implement a mutually acceptable
          Health Outcomes Study under the direction of GSK. The purpose of the
          Health Outcomes Study shall be, inter alia, to assess fairly the
          pharmaco-economics of the Product in the Territory and to use as
          appropriate in establishing pricing and reimbursement for the Product
          in the Territory.

     2.4  Product Spend. [*****]

     2.5  Development Efforts; Compliance with Regulatory Requirements. GSK
          shall perform its responsibilities under each Development Plan using
          reasonable efforts consistent with the efforts that GSK employs for
          its own products which have the same market potential in the
          Territory, and in accordance with all applicable laws

[*****] A CONFIDENTIAL PORTION OF THE MATERIAL HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

                                       3



          and regulations including, without limitation, then-current Good
          Laboratory Practices, Good Clinical Practices, and Good Manufacturing
          Practices.

     2.6  Ownership of Regulatory Approvals. [*****]

     2.7  Communications with Regulatory Authorities. GSK shall have primary
          responsibility for dealings with the Regulatory Authorities in the
          Territory, including filing all supplements and other documents with
          such authority with respect to the respective Regulatory Approval,
          reporting all adverse drug experiences relating to the Product, and
          handling all Product complaints. GSK shall promptly furnish Scios with
          copies of all substantive correspondence it has had with each
          Regulatory Authority, and contact reports concerning substantive
          conversations or meetings with such authority, relating to
          Development, Marketing Authorizations or the marketing of a Product.
          At least twice each calendar year, GSK shall provide to Scios a report
          describing the regulatory filing status of Products throughout the
          Territory.

     2.8  Costs of Development. [*****]


                       ARTICLE 3 - THE STEERING COMMITTEE

Within 30 days after the Effective Date, Scios and GSK shall create a Steering
Committee consisting of an equal number of representatives of each Party,
representing (without limitation) the commercial, medical, regulatory and
business development functions of each Party. The Steering Committee shall hold
meetings at such times and places as shall be determined by a majority of its
entire membership. The meetings shall be held no less frequently than once every
[*****] in the period from the Effective Date through the third year after first
commercial sale of a Product in the Territory, and [*****] thereafter. The
Steering Committee, directly or through one or more subcommittees, shall manage
the long-range strategy and planning for Development and Commercialization,
coordinate the activities of the Parties under this Summary of Terms; and
perform such other functions as appropriate to further the purposes of this
Summary of Terms as determined by the Parties. The Steering Committee shall
strive to enable each Party to realize the full economic potential of the
Products while balancing the legitimate interests and concerns of each Party,
and shall be guided by standards of reasonableness in economic terms to each of
the Parties. To the extent feasible, the Steering Committee shall make decisions
by consensus after an open discussion. If no consensus can be reached, GSK shall
have the right to make final determinations regarding Development and
Commercialization in the Territory to the extent not inconsistent with the
express terms and provisions of this Summary of Terms and to the extent that
such decisions can be reasonably expected not to have an adverse effect on
Scios' rights outside of the Territory and outside of the Field.


                          ARTICLE 4 - COMMERCIALIZATION

     4.1  General. GSK shall be solely responsible for the Commercialization of
          the Products throughout the Territory in accordance with a Marketing
          Plan and Budget.

     4.2  Marketing Plan. [*****]

     4.3  Commercialization Efforts. [*****]

     4.4  Advertising and Education. Scios shall have the right to approve
          guidelines for the use of the Natrecor(R) trademark by GSK and all
          promotional materials containing such trademark shall comply in all
          material respects with such guidelines. All written or visual
          promotional and educational materials, advertising, Product labeling,
          and documentary information regarding the Product in the Territory
          shall, to the extent practical, identify Scios as the supplier and
          licensor of the Product.

[*****] A CONFIDENTIAL PORTION OF THE MATERIAL HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

                                       4



     4.5  Pricing, Pricing Approvals and Product Distribution in the Territory.
          [*****]


                       ARTICLE 5 - MANUFACTURE AND SUPPLY

     5.1  Exclusive Supply and Purchase. [*****]

     5.2  Finish and Fill. [*****]

     5.3  Manufacturing Approvals. Scios will use diligent efforts to make
          necessary filings to obtain the necessary Regulatory Approvals for the
          manufacture of Active Pharmaceutical Ingredient according to the API
          Specifications. GSK shall be promptly notified of proposed changes to
          the process for the manufacture of Active Pharmaceutical Ingredient
          which impact the Regulatory Filings in the Territory. Scios shall
          nevertheless ensure a sufficient source of supply of Product to GSK.
          The Parties shall consult on the best way of achieving sufficient
          supply. Except as required of Scios by law, no product incorporating
          such changes shall be supplied by Scios to GSK hereunder without such
          changes having been approved by the appropriate Regulatory Authorities
          in the EC, which approval GSK agrees to pursue diligently following
          notice from Scios of such proposed changes.

     5.4  Specifications. Scios warrants that the Active Pharmaceutical
          Ingredient it supplies hereunder shall meet the API Specifications and
          shall have been manufactured in accordance with all applicable laws
          and regulations including, without limitation, European GMP compliance
          standards. Such specifications may be amended by mutual agreement (not
          to be unreasonably withheld), to the extent required by Regulatory
          Authorities. As additional formulations and New Products are
          developed, the Parties will establish by mutual agreement appropriate
          specifications for such new forms of Product. The Definitive Agreement
          shall include a separate Quality Assurance Agreement ("QAA") to
          establish each Party's quality assurance obligations and tasks with
          respect to shipments of Active Pharmaceutical Ingredient hereunder.
          The QAA shall include, inter alia, industry standard procedures for
          inspection and rejection of non-conforming goods and remedies
          associated with a finding of non-conformance.

     5.5  Forecasts. The Definitive Agreement shall establish the form and
          timing of forecasting and deliveries for GSK's purchases of Active
          Pharmaceutical Ingredient hereunder and develop a reasonable mechanism
          to forecast such needs under the Development Plan in sufficient time
          for manufacture by Scios.

     5.6  Delivery. All orders for deliveries of Active Pharmaceutical
          Ingredient to GSK shall be FCA Incoterms 2000, Scios' contract
          manufacturing facility in Kundl, Austria. Risk of loss for the Active
          Pharmaceutical Ingredient passes to GSK upon delivery to GSK's
          designated agent for shipment at such facility. GSK shall arrange and
          pay for the carrier and any expenses associated with shipping and
          insuring Active Pharmaceutical Ingredient supplied hereunder.

     5.7  Supply Price. [*****]

     5.8  Other Manufacturing and Supply Issues. The Definitive Agreement shall
          include other appropriate provisions regarding manufacture and supply
          including, without limitation, extension to GSK to the extent
          practicable of Scios' rights to inspect the facilities of its Third
          Party manufacture and provision to GSK of reasonable quantities of
          free goods for non-commercial (e.g. testing) purposes.




[*****] A CONFIDENTIAL PORTION OF THE MATERIAL HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

                                       5



                           ARTICLE 6 - CONFIDENTIALITY

The Definitive Agreement shall include industry standard provisions regarding
confidentiality and authorized disclosure, which shall survive the termination
of the Definitive Agreement by [*****]. Pending entry into the Definitive
Agreement, the existing confidentiality agreement between the Parties shall
remain in full force and effect.

                       ARTICLE 7 - INFORMATION AND REPORTS

     7.1  Information and Reports. To the extent necessary or useful to enable
          the Parties to perform their respective obligations or exercise their
          respective rights hereunder, each Party will regularly disclose and
          make available to the other without charge all preclinical, clinical
          and regulatory, commercial, marketing, promotion, pricing, sales and
          other Information, including copies of all preclinical and clinical
          reports, in the possession of GSK or Scios directly concerning
          Products within the Field.

     7.2  Publicity Review. On or about January 7, 2002, the Parties will
          announce the establishment of an alliance for the marketing and
          development of Products in the Territory and its key terms in a
          mutually agreed press release issued simultaneously by both Parties.
          Notwithstanding Article 6, a Party may make any disclosure it believes
          in good faith based upon the advice of counsel is required by
          applicable law, provided that prior to making such disclosure the
          disclosing Party shall provide the other Party with a written copy or
          rendition of the materials proposed to be disclosed and provide the
          receiving Party with an opportunity to review the proposed disclosure.

     7.3  Adverse Drug Events. Each Party shall, in a timely fashion, in
          accordance with applicable laws and regulatory requirements
          (including, without limitation, the requirements of the FDA, EU and
          other relevant regulatory bodies), report to the other Party any
          serious adverse event or other adverse event observed during clinical
          trials or other use of the Product. Without limiting the foregoing,
          the Parties shall enter into a pharmaco-vigilance agreement covering
          Product safety data exchange within three months after the Effective
          Date to assure that both Parties fulfill all international regulatory
          obligations with respect to the Product.

     7.4  Recall. Any necessary recall of Products or any batch of Products from
          the market in the Territory may be effected by GSK at GSK's reasonable
          discretion following consultation with Scios. If any Products are
          recalled as a result of an act or omission of GSK or its Third Party
          contractors or sublicensees, GSK shall bear all costs and expenses of
          such recall. If any Products are recalled as a result of an act or
          omission of Scios or its Third Party contractors, then Scios shall
          bear all costs and expenses of such recall. Without limiting the
          foregoing, in the event of a recall of Products, each Party shall
          without unreasonable delay notify the other Party and cooperate to the
          fullest extent reasonable under the circumstances.


                            ARTICLE 8 - PATENT RIGHTS

     8.1  General. GSK, in consultation with Scios and using patent counsel
          reasonably acceptable to Scios, shall maintain the Scios Patents in
          the Territory and shall use reasonable efforts to convert pending
          patent applications into granted patents without undue delay. GSK
          shall be responsible for all resulting Patent Expenses. The Definitive
          Agreement shall assure GSK of the right to abandon its interest in and
          obligations with respect to specific Scios Patents and for the
          assumption by Scios of prosecution and maintenance of such Scios
          Patents in the event of such abandonment.

     8.2  Improvements. [*****]

     8.3  Infringement and Third Party Claims. [*****]

[*****] A CONFIDENTIAL PORTION OF THE MATERIAL HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

                                       6



                              ARTICLE 9 - LICENSES

     9.1  License Grant by Scios. Scios hereby grants to GSK a sole and
          exclusive license under the Scios Patents, the Scios Know-How and the
          Natrecor(R) trademark, to develop, use, import, formulate, package,
          sell and offer for sale Products within the Field in the Territory.
          Promptly following the Effective Date, and at reasonable intervals
          thereafter, Scios shall disclose and transfer to GSK all Scios Knowhow
          as necessary or useful for the exercise by GSK of its rights
          hereunder.

     9.2  License Grant by GSK. GSK hereby grants to Scios a sole and exclusive
          royalty-free license under the GSK Patents and GSK Know-How to
          manufacture, develop, use, import, formulate, package, sell and offer
          for sale Products outside of the Territory.

     9.3  Sub-licensing. The licensee Party pursuant to Sections 9.1 and 9.2 may
          sublicense on notice to and with the consent of the licensor Party,
          which consent shall not be unreasonably withheld. No such consent
          shall be required in the event of a sublicense to an Affiliate of a
          Party.


                              ARTICLE 10 - PAYMENTS

     10.1 License Fee. GSK shall pay to Scios a license fee of [*****] within
          [*****] after the Effective Date.

     10.2 Milestone Payments. GSK shall make non-refundable milestone payments
          to Scios within [*****] after the achievement of the applicable
          milestone in amounts as set forth below. Each milestone payment shall
          be due only once, notwithstanding the number of Products actually
          developed or commercialized by GSK hereunder:

          ------------------------------------ ----------------------
          Milestone                            Payment
          ------------------------------------ ----------------------
          [*****]                              [*****]
          ------------------------------------ ----------------------
          [*****]                              [*****]
          ------------------------------------ ----------------------
          [*****]                              [*****]
          ------------------------------------ ----------------------


     Section 10.3   Royalty Payments. [*****]

     Section 10.4   Royalty Reductions. [*****]

[*****] A CONFIDENTIAL PORTION OF THE MATERIAL HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

                                       7



     Section 10.5   Reports and Audit. The Definitive Agreement shall include
industry standard provisions regarding record-keeping and audit rights with
respect to expenditures and sales by GSK and its affiliates and sublicensees,
and with respect to Scios' Cost of Goods.

     Section 10.6   Currency and Method of Payment. All royalty payments shall
be made in pounds sterling. Royalty payments due with respect to sales not
denominated in sterling shall be converted using an appropriate conversion rate.


                             ARTICLE 11 - TRADEMARKS

Absent mutual agreement, GSK shall market, advertise, sell or distribute
Products only under the Natrecor(R) trademark. GSK, in consultation with Scios
and using trademark counsel reasonably acceptable to Scios, shall file for and
maintain the Natrecor(R) trademark in those countries in the Territory in which
GSK intends to Commercialize the Products and shall be responsible for all
resulting expenses. The Definitive Agreement shall include appropriate
additional provisions related to trademarks (including the establishment of new
marks in the event that the Natrecor(R) mark is unavailable or unsuitable), and
shall establish the rights and obligations of the Parties in the event of Third
Party infringement (which shall assure GSK of the first right to assert the
Natrecor(R) trademark against Third Parties in the Territory and to defend the
Natrecor(R) trademark against challenges by Third Parties in the Territory).


                   ARTICLE 12 - REPRESENTATIONS AND WARRANTIES

[*****]


                        ARTICLE 13 - TERM AND TERMINATION

     13.1 Term. The term of this Summary of Terms shall commence on the Signing
          Date. Unless sooner terminated as provided herein, the term of this
          Summary of Terms shall expire upon the termination in all of the
          countries of the Territory of the royalty obligations set forth
          hereinabove. Following the expiration of the term, GSK shall retain a
          fully paid-up, exclusive license under the Scios Knowhow and the
          Natrecor(R) trademark in the Territory to use and sell Product in the
          Field.

     13.2 Termination for Material Breach. If either Party materially breaches
          this Summary of Terms at any time, which breach is not cured within 30
          days of notice thereof from the non-breaching Party, the non-breaching
          Party shall have the right to invoke the dispute resolution mechanism
          of Article 15. If the Parties are unable to resolve the matter in
          dispute pursuant to Article 15, the Party not in breach may, at its
          sole discretion, seek any available legal remedies or terminate the
          Summary of Terms.

     13.3 Unilateral Termination by GSK. GSK may at any time by delivery of 90
          days' prior notice to Scios, elect to abandon its rights and
          obligations with respect to any country in the Territory or to
          terminate this Summary of Terms in toto; provided, however, that GSK
          shall not have the right to terminate as to any one country in the
          European Community without terminating as to all such countries. Upon
          notice thereof, this Summary of Terms and all rights and obligations
          of GSK hereunder with respect to the country in question shall
          terminate.


[*****] A CONFIDENTIAL PORTION OF THE MATERIAL HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

                                       8




     13.4 Bankruptcy. All rights granted to GSK hereunder are, and shall
          otherwise be deemed to be, for purposes of Section 365(n) of the U.S.
          Bankruptcy Code (the "Code") licenses of rights to "intellectual
          property" as defined in Section 101(52) of the Code. Scios agrees that
          GSK, as a licensee, of such rights under this Summary of Terms shall
          retain and may fully exercise all of its rights and elections under
          the Code, subject to performance by GSK of its obligations under this
          Summary of Terms. Scios further agrees that, in the event of the
          commencement of a bankruptcy proceeding by or against Scios under the
          Code, GSK shall be entitled to a complete duplicate of (or complete
          access to, as appropriate) any such intellectual property and all
          embodiments thereof, which shall promptly be delivered to GSK, at its
          sole expense: (i) upon written request from GSK following commencement
          of a bankruptcy proceeding by or against Scios, or (ii) if not
          delivered pursuant to subsection (i), above, upon written request from
          GSK following the rejection of this Summary of Terms by or on behalf
          of Scios.

     13.5 Effect of Termination. Termination of this Summary of Terms for any
          reason shall not relieve the Parties of any liability which accrued
          prior to the effective date of such termination, nor preclude any
          Party from pursuing all rights and remedies it may have hereunder or
          at law or in equity with respect to any breach of this Summary of
          Terms. Subject to Section 13.4, upon termination of this Summary of
          Terms (but not expiration of its term), all licenses and rights to
          Patents and Know-How granted hereunder shall terminate and GSK shall
          promptly reassign to Scios, at Scios' expense, all regulatory filings
          and approvals (including, without limitations, INDs, Marketing
          Authorizations and Regulatory Approvals) with respect to Product in
          the Territory then held by GSK or any sublicensee of GSK, and all
          Confidential Information supplied by one Party shall be returned by
          the other Party (except for one copy of such information retained for
          legal archive or regulatory purposes). In the event that GSK
          terminates its rights with respect to one or more countries but not
          the entire Territory, this Summary of Terms shall remain in effect
          with respect to the remaining countries.


                          ARTICLE 14 - INDEMNIFICATION

     14.1 Indemnification by GSK. [*****]

     14.2 Indemnification by Scios. [*****]

     14.3 Procedure. A Party seeking indemnification under Section 14.1 or
          Section 14.2, shall inform the other Party of a claim as soon as
          reasonably practicable after it receives notice of the Third Party
          claim, permit the indemnifying Party to assume direction and control
          of the defense of the Third Party claim (including the right to settle
          the claim solely for monetary consideration), and cooperate as
          requested (at the expense of the indemnifying Party) in the defense of
          the Third Party claim.

     14.4 Insurance. [*****]


                         ARTICLE 15 - DISPUTE RESOLUTION

All disputes arising between the Parties hereunder or with respect hereto shall
be resolved solely as provided in this Article 15. Any such dispute which the
Parties are unable to resolve directly may be referred by either Party to the
Steering Committee for resolution. If the Steering Committee is unable to
resolve such dispute within 30 days after referral, either Party may, on notice
to the other, have such dispute referred to the CEO of Scios and the European
Chairman of GSK for attempted resolution by good faith negotiation. If such
individuals are unable to resolve such dispute within 30 days after referral,
then either Party may thereafter seek to resolve the dispute through arbitration
in accordance with the Rules of Arbitration of the International Chamber of
Commerce by one or more arbitrators appointed in accordance with such rules, in
English. The place of arbitration shall be London, England, if arbitration is
requested by Scios and shall be San Francisco, California, if arbitration is
requested by GSK. This Summary of

[*****] A CONFIDENTIAL PORTION OF THE MATERIAL HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

                                       9



Terms shall be governed by the substantive laws of the State of New York, USA,
without regard to conflicts of laws principles.

                        ARTICLE 16 - DEFINITIVE AGREEMENT

Following the Signing Date the Parties shall diligently and in good faith
endeavor to incorporate the understanding reflected herein in a definitive
agreement (the "Definitive Agreement") which, upon execution by both Parties,
shall constitute a novation of this Summary of Terms. The Definitive Agreement
shall include such mutually agreeable terms and conditions as the Parties may
agree including, without limitation, provisions regarding withholding taxes and
blocked currency; restrictions on assignment (but permitting GSK to assign to a
qualified Affiliate); provisions regarding force majeure, further actions,
waiver, severability and interpretation; a disclaimer of warranties as to the
scope or validity of the Scios Patents and as to the non-existence of blocking
Third Party patents; and a limitation on liability for consequential and
incidental damages. In the event that the Parties are unable to agree as to the
text of the Definitive Agreement by February 15, 2002, it is the intent of the
Parties that this Summary of Terms shall remain in full force and effect;
provided, however, that either Party shall have the right to refer any provision
as to which no agreement can be reached to a mutually acceptable abbreviated
mechanism for alternate dispute resolution or, if such abbreviated mechanism
cannot be agreed to, arbitration as provided hereinabove, with the scope of the
arbitration limited to the establishment by the arbitrator(s) of reasonable
industry-standard provisions regarding the provision(s) at issue.

                              ARTICLE 17 - NOTICES

All notices permitted or required hereunder shall be in writing and shall be
deemed given if delivered personally or by facsimile transmission (receipt
verified), mailed by registered or certified mail (return receipt requested),
postage prepaid, or sent by express courier service, to the Parties at the
addresses first set forth above (or at such other address for a Party as shall
be specified by like notice; provided, that notices of a change of address shall
be effective only upon receipt thereof). Notice shall be deemed effective upon
receipt.


                                       10




                             ARTICLE 18 - EXECUTION

This Summary of Terms may be executed in two counterparts, each of which shall
be deemed an original, but which together shall constitute one and the same
instrument. Transmission by telefacsimile of a true copy of a signed counterpart
version of this Summary of Terms shall constitute delivery.

IN WITNESS WHEREOF, the Parties have executed this Summary of Terms in duplicate
originals by their proper officers as of the Effective Date.

SCIOS INC.                              GLAXO GROUP LTD.

By: /s/  Richard Brewer                 By:/s/  Stephane Thiroloix
    -------------------------------        -------------------------------------

Its:     Chief Executive Officer        Its:   Vice President, European Business
    -------------------------------         ---------------------------------
                                               Development
                                               -----------


                                       11
















                                  SCHEDULE 1.2



















[*****]



[*****] A CONFIDENTIAL PORTION OF THE MATERIAL HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION











                                  SCHEDULE 1.12

                        AMINO ACID SEQUENCE FOR NATRECOR



                        SER-PRO-LYS-MET-VAL-GLN-GLY-SER-
                        GLY-CYS-PHE-GLY-ARG-LYS-MET-ASP-
                      ARG-ILE-SER-SER-SER-SER-GLY-LEU-GLY-
                           CYS-LYS-VAL-LEU-ARG-ARG-HIS





























                                  SCHEDULE 1.15























                                                                        Item 2-A
                                                                  Package Insert


                     NATRECOR(R) (NESIRITIDE) FOR INJECTION

                          FOR INTRAVENOUS INFUSION ONLY


DESCRIPTION

Natrecor(R) (nesiritide) is a sterile, purified preparation of a new drug class
human B-type natriuretic peptide (hBNP), and is manufactured from E. coli using
recombinant DNA technology. Nesiritide has a molecular weight of 3464 g/mol and
an empirical formula of C\\143\\H\\244\\N\\50\\O\\42\\S\\4\\. Nesiritide has the
same 32 amino acid sequence as the endogenous peptide, which is produced by the
ventricular myocardium.




            [GRAPHIC: Picture of amino acid sequence for Nesiritide]




Natrecor is formulated as the citrate salt of rhBNP, and is provided in a
sterile, single-use vial. Each 1.5-mg vial contains a white- to off-white
lyophilized power for intravenous (IV) administration after reconstitution. The
quantitative composition of the lyophilized drug per vial is: nesiritide 1.58
mg, mannitol 20.0 mg, citric acid monohydrate 2.1 mg, and sodium citrate
dihydrate 2.94 mg.

Mechanism of Action

Human BNP binds to the particulate guanylate cyclase receptor of vascular smooth
muscle and endothelial cells, leading to increased intracellular concentrations
of guanosine 3'5'-cyclic monophosphate (cGMP) and smooth muscle cell relaxation.
Cyclic GMP serves as a second messenger to dilate veins and arteries. Nesiritide
has been shown to relax isolated human arterial and venous tissue preparations
that were preconstracted with either endothelin-1 or the alpha-adrenergic
agonist, phenylephrine.

In human studies, nesiritide produced dose-dependent reductions in pulmonary
capillary wedge pressure (PCWP) and systemic arterial pressure in patients with
heart failure.

In animals, nesiritide had no effects on cardiac contractility or on measures of
cardiac electrophysiology such as atrial and ventricular effective refractory
times or atrioventricular node conduction.

Naturally, occurring atrial natriuretic peptide (ANP), a related peptide,
increases vascular permeability in animals and humans and may reduce
intravascular volume. The effect of nesiritide on vascular permeability has not
been studied.

Pharmacokinetics

In patients with congestive heart failure (CHF), Natrecor administered
intravenously by infusion or bolus exhibits biphasic disposition from plasma.
The mean terminal elimination half-life (t\\1/2\\) of Natrecor is approximately
18 minutes and was associated with approximately 2/3 of the area-under-the-curve
(AUC). The mean initial elimination phase was estimated to be approximately 2
minutes. In these patients, the mean volume of distribution of the central
compartment (Vc) of Natrecor was estimated to be 0.073 L/kg, the mean




steady-state volume of distribution (Vss) was 0.19 L/kg, and the mean clearance
(CL) was approximately 9.2 mL/min/kg. At steady state, plasma BNP levels
increase from baseline endogenous levels by approximately 3-fold to 6-fold with
Natrecor infusion doses ranging from 0.01 to 0.03 (micro)g/kg/min.

Elimination

Human BNP is cleared from the circulation via the following three independent
mechanisms, in order of decreasing importance: 1) binding to cell surface
clearance receptors with subsequent cellular internalization and lysosomal
proteolysis; 2) proteolytic cleavage of the peptide by endopeptidases, such as
neutral endopeptidase, which are present on the vascular lumenal surface; and 3)
renal filtration.

Special Populations

Although Natrecor is eliminated, in part, through renal clearance, clinical data
suggest that dose adjustment is not required in patients with renal
insufficiency. The effects of Natrecor on PCWP, cardiac index (CI), and systolic
blood pressure (SBP) were not significantly different in patients with chronic
renal insufficiency (baseline serum creatinine ranging from 2 mg/dL to 4.3
mg/dL), and patients with normal renal function. The population pharmacokinetic
(PK) analyses carried out to determine the effects of demographics and clinical
variables on PK parameters showed that clearance of Natrecor is proportional to
body weight, supporting the administration of weight-adjusting dosing of
Natrecor (i.e., administration on a (micro)g/kg/min basis). Clearance was not
influenced significantly by age, gender, race/ethnicity, baseline endogenous
hBNP concentration, severity of CHP (as indicated by baseline PCWP, baseline CI,
or New York Heart Association [NYHA] classification), or concomitant
administration of an ACE inhibitor.

Effects of Concomitant Medications

The co-administration of Natrecor with enalapril did not have significant
effects on the PK of Natrecor. The PK effect of co-administration of Natrecor
with other IV vasodilators such as nitroglycerin, nitroprusside, milrinone, or
IV ACE inhibitors has not been evaluated. During clinical studies, Natrecor was
administered concomitantly with other medications, including: diuretics,
digoxin, oral ACE inhibitors, anticoagulants, oral nitrates, statins, class III
annarrhythmic agents, beta-blockers, dobutamine, calcium channel blockers,
angiotensin II receptor antagonists, and dopamine. Although no PK interactions
were specifically assessed, there did not appear to be evidence suggesting any
clinically significant PK interaction.

Pharmacodynamics

The recommended dosing regimen of Natrecor is a 2 (micro)g/kg IV bolus followed
by an intravenous infusion dose of 0.01 (micro)g/kg/min. With this dosing
regimen, 60% of the 3-hour effect on PCWP reduction is achieved within 15
minutes after the bolus, reaching 95% of the 3-hour effect within 1 hour.
Approximately seventy percent of the 3-hour effect on SBP reduction is reached
within 15 minutes. The pharmacodynamic (PD) half-life of the onset and offset of
the hemodynamic effect of Natrecor is longer than what the PK half-life of 18
minutes would predict. For example, in patients who developed symptomatic
hypotension in the VMAC (Vasodilation in the Management of Acute Congestive
Heart Failure) trial, half of the recovery of SBP toward the baseline value
after discontinuation of reduction of the dose of Natrecor was observed in about
60 minutes. When higher doses of Natrecor were infused, the duration of
hypotension was sometimes several hours.

Clinical Trials

Natrecor has been studied in 10 clinical trial including 941 patients with CHF
(NYHA class II-III 61%, NYHA class IV 36%; mean age 60 years, women 28%). There
were five randomized, multi-center, placebo- or active-controlled studies
(comparative agents included nitroglycerin, dobutamine, milrinone,
nitroprusside, or dopamine) in which 772 patients with decompensated CHF
received continuous infusions of Natrecor at doses




ranging from 0.01 to 0.03 (micro)g/kg/min. (See the ADVERSE REACTION section for
relative frequency of adverse events at doses ranging from the recommended dose
up to 0.03 (micro)g/kg/min). Of these patients, the majority (n = 541, 70%)
received the Natrecor infusion for at least 24 hours; 371 (48%) received
Natrecor for 24-48 hours, and 170 (22%) received Natrecor for greater than 48
hours.

In controlled trials, Natrecor has been used alone or in conjunction with other
standard therapies, including diuretics (79%), digoxin (62%), oral ACE
inhibitors (55%), anticoagulants (38%), oral nitrates (32%), statins (18%),
class III antiarrhythmic agents (16%), beta-blockers (15%), dobutamine (15%),
calcium channel blockers (11%), angiotensin II receptor antagonists (6%), and
dopamine (4%). Natrecor has been studied in a broad range of patients, including
the elderly (42% greater 65 years of age), women (30%), minorities (26% black),
and patients with a history of significant morbidities such as hypertension
(67%), previous myocardial infarction (50%), diabetes (44%) atrial
fibrillation/flutter (34%), nonsustained ventricular tachycardia (25%),
ventricular tachycardia/fibrillation (12%), preserved systolic function (9%),
and acute coronary syndromes less than 7 days before the start of Natrecor (4%).

The VMAC (Vasodilation in the Management of Acute Congestive Heart Failure)
trial was a randomized, double-blind study of 489 patients (246 patient
requiring a right heart catheter, 243 patients without a right heart catheter)
who required hospitalization for management of shortness of breath at rest due
to acutely decompensated CHF. The study compared the effects of Natrecor,
placebo, and IV nitroglycerin when added to background therapy (IV and oral
diuretics, non-IV cardiac medications, dobutamine, and dopamine). Patients with
acute coronary syndrome, preserved systolic function, arrhythmia, and renal
insufficiency were not excluded. The primary endpoints of the study were the
change from baseline in PCWP and the change from baseline in patients' dyspnea,
evaluated after three hours. Close attention was also paid to the occurrence and
persistence of hypotension, given nesiritide's relatively long (compared to
nitroglycerin) PK and PD half-life.

Natrecor was administered as a 2 (micro)g/kg bolus over approximately 60
seconds, followed by a continuous fixed dose infusion of 0.01 (micro)g/kg/min.
After the 3-hour placebo-controlled period, patients receiving placebo crossed
over to double-blinded active therapy with either Natrecor or nitroglycerin. The
nitroglycerin dose was titrated at the physician's discretion. A subset of
patients in the VMAC trial with central hemodynamic monitoring who were treated
with Natrecor (62 of 124 patients) were allowed dose increases of Natrecor after
the first 3 hours of treatment if the PCWP was (chi) 20 mm Hg and the SBP was
(chi) 100 mm Hg. Dose increases of a 1-(micro)g/kg bolus followed by an increase
of the infusion dose by 0.005 (micro)g/kg/min were allowed every 3 hours, up to
a maximum dose of 0.03 (micro)g/kg/min. Overall, 23 patients in this subset had
the dose of Natrecor increased in the VMAC trial.

In a second double-blind study, 127 patients requiring hospitalization for
symptomatic CHF were randomized to placebo or to one of two doses of Natrecor
(0.015 (micro)g/kg/min preceded by an IV bolus of 0.3 (micro)g/kg and 0.03
(micro)g/kg/min preceded by an IV bolus of 0.6 (micro)g/kg). The primary
endpoint of the trial was the change in PCWP from baseline to 6 hours, but the
effect on symptoms also was examined.

Effects on Symptoms

In the VMAC study, patients receiving Natrecor reported greater improvement in
their dyspnea at 3 hours than patients receiving placebo (p = 0.034).

In the dose-response study, patients receiving both doses of Natrecor reported
greater improvement in dyspnea at 6 hours than patients receiving placebo.

Effects on Hemodynamics

The PCWP, right atrial pressure (RAP), CI, and other hemodynamic variables were
monitored in 246 of the patients in the VMAC trial. There was a reduction in
mean PCWP within 15 minutes of starting the Natrecor




infusion, with most of the effect seen at 3 hours being achieved within the
first 60 minutes of the infusion (see Pharmacodynamics).

In several studies, hemodynamic parameters were measured after Natrecor
withdrawal. Following discontinuation of Natrecor, PCWP returns to within 10% of
baseline within 2 hours, but no rebound increase to levels above baseline state
was observed. There was also no evidence of tachyphylaxis to the hemodynamic
effects of Natrecor in the clinical trials.

The following table and graph summarize the changes in the VMAC trial in PCWP
and other measures during the first 3 hours.

                      MEAN HEMODYNAMIC CHANGE FROM BASELINE



                                                                                            

- ------------------------------------------------------------------------------------------------------------------------------------
                                                            Placebo           Nitroglycerin            Natrecor
Effects at 3 Hours                                         (n = 62)              (n = 60)             (n = 124)
- ------------------------------------------------------------------------------------------------------------------------------------
Pulmonary capillary wedge pressure (mm Hg)                   -2.0                 -3.8                  -5.8(2)
- ------------------------------------------------------------------------------------------------------------------------------------
Right atrial pressure (mm Hg)                                 0.0                 -2.6                  -3.1(2)
- ------------------------------------------------------------------------------------------------------------------------------------
Cardiac index (L/min/M/2/)                                    0.0                  0.2                   0.1
- ------------------------------------------------------------------------------------------------------------------------------------
Mean pulmonary artery pressure (mm Hg)                       -1.1                 -2.5                  -5.4(2)
- ------------------------------------------------------------------------------------------------------------------------------------
Systemic vascular resistance (dynes*sec*cm/-5/)               -44                 -105                  -144(2)
- ------------------------------------------------------------------------------------------------------------------------------------
Systolic blood pressure(/1/) (mm Hg)                         -2.5                 -5.7(2)               -5.6(2)
- ------------------------------------------------------------------------------------------------------------------------------------


(1)  Based on all treated subjects:  Placebo n=142, nitroglycerin n=143,
     Natrecor n=204
(2)  p less than 0.05 compared to placebo










     [GRAPHIC: GRAPH COMPARING MEAN CHANGES IN PCWP OVER A 3 HOUR PERIOD FOR
                      PLACEBO, NITROGLYCERIN and NATRECOR]















The VMAC study does not constitute an adequate effectiveness comparison with
nitroglycerin. In this trial, the nitroglycerin group provides a rough landmark
using a familiar therapy and regimen.

Effect on Urine Output

In the VMAC trial, in which the use of diuretics was not restricted, the mean
change in volume status (output minus input) during the first 24 hours in the
nitroglycerin and Natrecor groups was similar: 1279 +/- 1455 mL and
1257 +/- 1657 mL, respectively.

INDICATIONS AND USAGE

Natrecor (nesiritide) is indicated for the intravenous treatment of patients
with acutely decompensated congestive heart failure who have dyspnea at rest or
with minimal activity. In this population, the use of Natrecor reduced pulmonary
capillary wedge pressure and improved dyspnea.

CONTRAINDICATIONS

Natrecor is contraindicated in patients who are hypersensitive to any of its
components. Natrecor should not be used as primary therapy for patients with
cardiogenic shock or in patients with a systolic blood pressure less than 90 mm
Hg.

WARNINGS

Administration of Natrecor should be avoided in patients suspected of having, or
known to have, low cardiac filling pressures.

PRECAUTIONS

General:  Parenteral administration of protein pharmaceuticals of E. coli-
derived products should be attended by appropriate precautions in case of an
allergic or untoward reaction. No serious allergic or anaphylactic reactions
have been reported with Natrecor.

Natrecor is not recommended for patients for whom vasodilating agents are not
appropriate, such as patients with significant valvular stenosis, restrictive or
obstructive cardiomyopathy, constrictive pericarditis, pericardial tamponade, or
other conditions in which cardiac output is dependent upon venous return, or for
patients suspected to have low cardiac filling pressures. (See
CONTRAINDICATIONS.)

Renal: Natrecor may affect renal function is susceptible individuals. In
patients with severe heart failure whose renal function may depend on the
activity of the renin-angiotensin-aldosterone system, treatment with Natrecor
may be associated with azotemia. When Natrecor was initiated at doses higher
than 0.01 (micro)g/kg/min (0.015 and 0.030 (micro)g/kg/min), there was an
increased rate of elevated serum creatinine over baseline compared with standard
therapies, although the rate of acute renal failure and need for dialysis was
not increased. In the 30-day follow-up period in the VMAC trial, 5 patients in
the nitroglycerin group (2%) and 9 patients in the Natrecor group (3%) required
first-time dialysis.

Cardiovascular: Natrecor may cause hypotension. In the VMAC trial, in patients
given the recommended dose (2 (micro)g/kg bolus followed by a 0.01
(micro)g/kg/min infusion) or the adjustable dose, the incidence of symptomatic
hypotension in the first 24 hour was similar for Natrecor (4%) and IV
nitroglycerin (5%). When hypotension occurred, however, the duration of
symptomatic hypotension was longer with Natrecor (mean duration was 2.2 hours)
than with nitroglycerin (mean duration was 0.7 hours). In earlier trials, when
Natrecor was initiated at doses higher than 2-(micro)g/kg bolus followed by a
0.01-(micro)g/kg/min infusion (i.e., 0.015 and 0.030



(micro)g/kg/min preceded by a small bolus), there were more hypotensive episodes
and these episodes were of greater intensity and duration. They were also more
often symptomatic and/or more likely to require medical intervention (see
ADVERSE REACTIONS). Natrecor should be administered only in setting where blood
pressure can be monitored closely, and the dose of Natrecor should be reduced or
the drug discontinued in patients who develop hypotension (see Dosing
Instructions). The rate of symptomatic hypotension may be increased in patients
with a blood pressure less than 100 mm Hg at baseline, and Natrecor should be
used cautiously in these patients. The potential for hypotension may be
increased by combining Natrecor with other drugs that may cause hypotension. For
example, in the VMAC trial in patients treated with either Natrecor or
nitroglycerin therapy, the frequency of symptomatic hypotension in patients who
received an oral ACE inhibitor was 6%, compared to a frequency of symptomatic
hypotension of 1% in patients who did not receive an oral ACE inhibitor.

Drug Interactions: No trials specifically examining potential drug interactions
with Natrecor were conducted, although many concomitant drugs were used in
clinical trials. No drug interactions were detected except for an increase in
symptomatic hypotension in patients receiving oral ACE inhibitors (see
PRECAUTIONS, Cardiovascular).

The co-administration of Natrecor with IV vasodilators such as nitroglycerin,
nitroprusside, milrinone, or IV ACE inhibitors has not been evaluated (these
drugs were not co-administered with Natrecor in clinical trials).

Carcinogensis, Mutagenesis, Impairment of Fertility: Long-term studies in
animals have not been performed to evaluate the carcinogenic potential or the
effect on fertility of Natrecor.

Natrecor did not increase the frequency of mutations when used in an in vitro
bacterial cell assay (Ames test). No other genotoxicity studies were performed.

Pregnancy; Category C: Animal reproductive studies have not been conducted with
Natrecor. It is also not known whether Natrecor can cause fetal harm when
administered to pregnant women or can affect reproductive capacity. Natrecor
should be used during pregnancy only if the potential benefit justifies any
possible risk to the fetus.

Nursing Mothers:  It is not known whether this drug is excreted in human milk.
Therefore, caution should be exercised when Natrecor is administered to a
nursing woman.

Pediatric Use:  The safety and effectiveness of Natrecor in pediatric patients
has not been established.

Geriatric Use: Of the total number of subjects in clinical trials treated with
Natrecor (n = 941), 38% were 65 years or older and 16% were 75 years or older.
No overall differences in effectiveness were observed between these subjects and
younger subjects, and other reported clinical experience has not identified
differences in responses between the elderly and younger patients. Some older
individuals may be more sensitive to the effect of Natrecor than younger
individuals.




ADVERSE REACTIONS

Adverse events that occurred with at least a 3% frequency during the first 24
hours of Natrecor infusion are shown in the following table.



                                                                       

- ------------------------------------------------------------------------------------------------------------------------------
                                        VMAC Trial                              Other Long Infusion Trials

- ------------------------------------------------------------------------------------------------------------------------------
                                                           Natrecor                          Natrecor (micro)g/kg/min
                                        Nitroglycerin      Recommended Dose     Control*
Adverse Event                           (n = 216)          (n = 273)            (n = 256)
- ------------------------------------------------------------------------------------------------------------------------------
                                                                                             0.015          0.03
                                                                                             (n = 253)      (n = 246)
- ------------------------------------------------------------------------------------------------------------------------------
Cardiovascular
- ------------------------------------------------------------------------------------------------------------------------------
Hypotension                                  25 (12%)            31 (11%)        20 (8%)       56 (22%)         87 (35%)
- ------------------------------------------------------------------------------------------------------------------------------
  Symptomatic Hypotension                    10 (5%)             12 (4%)          8 (3%)       28 (11%)         42 (17%)
- ------------------------------------------------------------------------------------------------------------------------------
  Asymptomatic Hypotension                   17 (8%)             23 (8%)          13 (5%)      31 (12%)         49 (20%)
- ------------------------------------------------------------------------------------------------------------------------------
Ventricular Tachycardia (VT)                 11 (5%)             9 (3%)           25 (10%)     25 (10%)         10 (4%)
- ------------------------------------------------------------------------------------------------------------------------------
  Non-sustained VT                           11 (5%)             9 (3%)           23 (9%)      24 (9%)           9 (4%)
- ------------------------------------------------------------------------------------------------------------------------------
Ventricular Extra Systoles                   2 (1%)              7 (3%)           15 (6%)      10 (4%)           9 (4%)
- ------------------------------------------------------------------------------------------------------------------------------
Angina Pectoris                              5 (2%)              5 (2%)           6 (2%)       14 (6%)           6 (2%)
- ------------------------------------------------------------------------------------------------------------------------------
Bradycardia                                  1 (less 1%)         3 (1%)           1 (less 1%)   8 (3%)          13 (5%)
- ------------------------------------------------------------------------------------------------------------------------------
Body as a Whole
- ------------------------------------------------------------------------------------------------------------------------------
Headache                                    44 (20%)             21 (8%)          23 (9%)       23 (9%)          17 (7%)
- ------------------------------------------------------------------------------------------------------------------------------
Abdominal Pain                              11 (5%)               4 (1%)          10 (4%)        6 (2%)           8 (3%)
- ------------------------------------------------------------------------------------------------------------------------------
Back Pain                                    7 (3%)              10 (4%)           4 (2%)        5 (2%)           3 (1%)
- ------------------------------------------------------------------------------------------------------------------------------
Nervous
- ------------------------------------------------------------------------------------------------------------------------------
Insomnia                                     9 (4%)              6 (2%)           7 (3%)        15 (6%)          15 (6%)
- ------------------------------------------------------------------------------------------------------------------------------
Dizziness                                    4 (2%)              7 (3%)           7 (3%)        16 (6%)          12 (5%)
- ------------------------------------------------------------------------------------------------------------------------------
Anxiety                                      6 (3%)              8 (3%)           2 (1%)         8 (3%)           4 (2%)
- ------------------------------------------------------------------------------------------------------------------------------
Digestive
- ------------------------------------------------------------------------------------------------------------------------------
Nausea                                       13 (6%)             10 (4%)          12 (5%)       24 (9%)         33 (13%)
- ------------------------------------------------------------------------------------------------------------------------------
Vomiting                                      4 (2%)              4 (1%)           2 (1%)        6 (2%)         10 (4%)
- ------------------------------------------------------------------------------------------------------------------------------


* Includes dobutamine, milrinone, nitroglycerin, placebo, dopamine,
  nitroprusside, or amrinone.

Adverse events that are not listed in the above table that occurred in at least
1% of patients who received any of the above Natrecor doses included:
Tachycardia, atrial fibrillation, AV node conduction abnormalities, catheter
pain, fever, injection site reaction, confusion, paresthesia, somnolence,
tremor, increased cough, hemoptysis, apnea, increased creatinine, sweating,
pruritis, rash, leg cramps, amblyopia, anemia. All reported events (at least 1%)
are included except those already listed, those too general to be informative,
and those not reasonably associated with the use of the drug because they were
associated with the condition being treated or are very common in the treated
population.

In placebo and active-controlled clinical trials, Natrecor has not been
associated with an increase in atrial or ventricular tachyarrhythmias. In
placebo-controlled trials, the incidence of VT in both Natrecor and placebo
patients was 2%. In the PRECEDENT (Prospective Randomized Evaluations of Cardiac
Ectopy with Dobutamine or Natrecor Therapy) trial, the effects of Natrecor (n =
163) and dobutamine (n = 83) on the provocation or aggravation of existing
ventricular arrhythmias in patients with decompensated CHF was compared using
Holter monitoring. Treatment with Natrecor (0.015 and 0.03 (micro)g/kg/min
without an initial bolus) for 24 hours did not aggravate pre-existing VT or the
frequency of premature ventricular beats, compared to a baseline 24-hour Holter
tape.




Clinical Laboratory

In the PRECEDENT trial, the incidence of elevations in serum creatinine to > 0.5
mg/dL above baseline through day 14 was higher in the Natrecor
0.015-(micro)g/kg/min group (17%) and the Natrecor 0.03-(micro)g/kg/min group
(19%) than with standard therapy (11%). In the VMAC trial, through day 30, the
incidence of elevations in creatinine to > 0.5 mg/dL above baseline was 28% and
21% in the Natrecor (2 (micro)g/kg bolus followed by 0.010 (micro)g/kg/min) and
nitroglycerin groups, respectively.

Effect of Mortality

In the VMAC trial, the mortality rates at six months in the patients receiving
Natrecor and nitroglycerin were 25.1% (95% confidence interval, 20.0% to 30.5%)
and 20.8% (95% confidence interval, 15.5% to 26.5%), respectively. In all
controlled trials combined, the mortality rates for Natrecor and active control
(including nitroglycerin, dobutamine, nitroprusside, milrinone, amrinone and
dopamine) patients were 21.5% and 21.7%, respectively.

OVERDOSAGE

No data are available with respect to overdosage in humans. The expected
reaction would be excessive hypotension, which should be treated with drug
discontinuation or reduction (see PRECAUTIONS) and appropriate measures.

DOSAGE AND ADMINISTRATION

Natrecor (nesiritide) is for intravenous use only. There is limited experience
with administering Natrecor for longer than 48 hours. Blood pressure should be
monitored closely during Natrecor administration.

If hypotension occurs during the administration of Natrecor, the dose should be
reduced or discontinued and other measures to support blood pressure should be
started (IV fluids, changes in body position). In the VMAC trial, when
symptomatic hypotension occurred, Natrecor was discontinued and subsequently
could be restarted at a dose that was reduced by 30% (with no bolus
administration) once the patient was stabilized. Because hypotension caused by
Natrecor may be prolonged (up to hours), a period of observation may be
necessary before restarting the drug.

Preparation

1.       Reconstitute one 1.5 mg vial of Natrecor by adding 5 mL of diluent
         removed from a pre-filled 250 mL plastic IV bag containing the diluent
         of choice. The following preservative-free diluents are recommended for
         reconstitution: 5% Dextrose Injection (D5W), USP; 0.9% Sodium Chloride
         Injection, USP; 5% Dextrose and 0.45% Sodium Chloride Injection, USP,
         or 5% Dextrose and 0.2% Sodium Chloride Injection, USP.

2.       Do not shake the vial. Rock the vial gently so that all surfaces,
         including the stopper, are in contact with the diluent to ensure
         complete reconstitution. Use only a clear, essentially colorless
         solution.

3.       Withdraw the entire contents of the reconstituted Natrecor vial and add
         to the 250 mL plastic IV bag. This will yield a solution with a
         concentration of Natrecor of approximately 6 (micro)g/mL. The IV bag
         should be inverted several times to ensure complete mixing of the
         solution.

4.       Use the reconstituted solution within 24 hours, as Natrecor contains
         no antimicrobial preservative. Parenteral drug products should be
         inspected visually for particulate matter and discoloration prior to
         administration, whenever solution and container permit. Reconstituted
         vials of Natrecor may be left at



         Controlled Room Temperature (20 - 25(degree)C; 68 - 77(degree)F) as per
         United States Pharmacopeia (USP) or may be refrigerated (2 -
         8(degree)C; 36 - 46(degree)F) for up to 24 hours.

Dosing Instructions

The recommended dose of Natrecor is an IV bolus of 2 (micro)g/kg followed by a
continuous infusion of 0.01 (micro)g/kg/min. Natrecor should not be initiated at
a dose that is above the recommended dose.

Prime the IV tubing with an infusion of 25 mL prior to connecting to the
patient's vascular access port and prior to administering the bolus or starting
the infusion.

Bolus followed by infusion: After preparation of the infusion bag, as described
previously, withdraw the bolus volume (see table below) from the Natrecor
infusion bag, and administer it over approximately 60 seconds through an IV port
in the tubing. Immediately following the administration of the bolus, infuse
Natrecor at a flow rate of 0.1 mL/kg/hr. This will deliver a Natrecor infusion
dose of 0.01 (micro)g/kg/min.

To calculate the appropriate bolus volume and infusion flow rate to deliver a
0.01 (micro)g/kg/min dose, use the following formulas (or refer to the following
dosing table):

                 BOLUS VOLUME (ML) = 0.33 X PATIENT WEIGHT (KG)

             INFUSION FLOW RATE (ML/HR) = 0.1 X PATIENT WEIGHT (KG)

                      NATRECOR WEIGHT-ADJUSTED BOLUS VOLUME
                             AND INFUSION FLOW RATE
          (2 (micro)g/KG BOLUS FOLLOWED BY A 0.01 (micro)g/KG/MIN DOSE)

    -------------------------------------------------------------------------
        Patient Weight (kg)    Volume of Bolus (mL)   Rate of Infusion (mL/h)
    -------------------------------------------------------------------------
            60                       20.0                     6
    -------------------------------------------------------------------------
            70                       23.3                     7
    -------------------------------------------------------------------------
            80                       26.7                     8
    -------------------------------------------------------------------------
            90                       30.0                     9
    -------------------------------------------------------------------------
           100                       33.3                     10
    -------------------------------------------------------------------------
           110                       36.7                     11
    -------------------------------------------------------------------------


Dose Adjustments: The dose-limiting side effect of Natrecor is hypotension. Do
not initiate Natrecor at a dose that is higher than the recommended dose of a 2
(micro)g/kg bolus followed by an infusion of 0.01 (micro)g/kg/min. In the VMAC
trial there was limited experience with increasing the dose of Natrecor above
the recommended dose (23 patients, all of whom had central hemodynamic
monitoring). In those patients, the infusion dose of Natrecor was increased by
0.005 (micro)g/kg/min (preceded by a bolus of 1 (micro)g/kg), no more frequently
than every 3 hours up to a maximum dose of 0.03 (micro)g/kg/min. Natrecor should
not be titrated at frequent intervals as is done with other IV agents that have
a shorter half-life (see Clinical Trials).

Chemical/Physical Interactions

Natrecor is physically and/or chemically incompatible with injectable
formulations of heparin, insulin, ethacrynate sodium, bumetamide, enalaprilat,
hydralazine, and furosemide. These drugs should not be co-administered as
infusions with Natrecor through the same IV catheter. The preservative sodium
metabisulfite is incompatible with Natrecor. Injectable drugs that contain
sodium metabisulfite should not be administered in the same infusion line as
Natrecor. The catheter must be flushed between administration of Natrecor and
incompatible drugs.




Natrecor binds to heparin and therefore could bind to the heparin lining of a
heparin-coated catheter, decreasing the amount of Natrecor delivered to the
patient for some period of time. Therefore, Natrecor must not be administered
through a central heparin-coated catheter. Concomitant administration of a
heparin infusion through a separate catheter is acceptable.

Storage

Store Natrecor at controlled room temperature (20 - 25(degree)C; 68 -
77(degree)F); excursions permitted to 15 - 30(degree)C (59 - 86(degree)F; see
USP Controlled Room Temperature), or refrigerated (2 - 8(degree)C; 36 -
46(degree)F). Keep in carton until time of use.

HOW SUPPLIED

Natrecor is provided as a sterile lyophilized powder in 1.5 mg, single-use
vials. Each carton contains one vial and is available in the following package:

1 vial/carton (NDC 65847-205-25)

US patent No. 5,114,923 and 5,674,710.
Distributed by Scios Inc.
820 West Maude Ave
Sunnyvale, CA 94085
Copyright. 2001 Scios Inc.
NA1030

                  August 2001








                                  SCHEDULE 1.18

                                  SCIOS PATENTS

       [*****]






























[*****] A CONFIDENTIAL PORTION OF THE MATERIAL HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.




                                  SCHEDULE 1.19

                 WESTERN, CENTRAL AND EASTERN EUROPEAN COUNTRIES
                 -----------------------------------------------



                                                                           
- -----------------------------------------------------------------------------------------------------------------------
     European                  European                                       Central and Eastern
    Community               Economic Area                 Others                    European
- -----------------------------------------------------------------------------------------------------------------------
Austria                       Iceland                     Andorra                    Albania
- -----------------------------------------------------------------------------------------------------------------------
Belgium                       Liechtenstein               Cyprus                     Armenia
- -----------------------------------------------------------------------------------------------------------------------
Denmark                       Norway                      Israel                     Azerbaijan
- -----------------------------------------------------------------------------------------------------------------------
Finland                                                   Malta                      Belarus
- -----------------------------------------------------------------------------------------------------------------------
France                                                    Vatican City               Bosnia & Hertzegovina
- -----------------------------------------------------------------------------------------------------------------------
Germany                                                   Switzerland                Bulgaria
- -----------------------------------------------------------------------------------------------------------------------
Greece                                                    San Marino                 Croatia
- -----------------------------------------------------------------------------------------------------------------------
Ireland                                                   Monaco                     Czech Republic
- -----------------------------------------------------------------------------------------------------------------------
Italy                                                                                Estonia
- -----------------------------------------------------------------------------------------------------------------------
Luxembourg                                                                           Georgia
- -----------------------------------------------------------------------------------------------------------------------
Netherlands                                                                          Hungary
- -----------------------------------------------------------------------------------------------------------------------
Portugal                                                                             Kazakstan
- -----------------------------------------------------------------------------------------------------------------------
Spain                                                                                Kyrgyzstan
- -----------------------------------------------------------------------------------------------------------------------
Sweden                                                                               Latvia
- -----------------------------------------------------------------------------------------------------------------------
United Kingdom                                                                       Lithuania
- -----------------------------------------------------------------------------------------------------------------------
                                                                                     Macedonia
- -----------------------------------------------------------------------------------------------------------------------
                                                                                     Moldova
- -----------------------------------------------------------------------------------------------------------------------
                                                                                     Poland
- -----------------------------------------------------------------------------------------------------------------------
                                                                                     Romania
- -----------------------------------------------------------------------------------------------------------------------
                                                                                     Russia
- -----------------------------------------------------------------------------------------------------------------------
                                                                                     Slovakia
- -----------------------------------------------------------------------------------------------------------------------
                                                                                     Tajikistan
- -----------------------------------------------------------------------------------------------------------------------
                                                                                     Turkmenistan
- -----------------------------------------------------------------------------------------------------------------------
                                                                                     Ukraine
- -----------------------------------------------------------------------------------------------------------------------
                                                                                     Uzbekistan
- -----------------------------------------------------------------------------------------------------------------------
                                                                                     Yugoslavia
- -----------------------------------------------------------------------------------------------------------------------






                                  SCHEDULE 5.2



[*****]



[*****] A CONFIDENTIAL PORTION OF THE MATERIAL HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION



                                  SCHEDULE 10.2

                               ACCEPTABLE LABELING

Acceptable Labeling will be achieved provided the following
criteria are met:

1.        [*****]

2.        [*****]

3.        [*****]

4.        [*****]

5.        [*****]



[*****] A CONFIDENTIAL PORTION OF THE MATERIAL HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION

EX-21.2

                                                                    Exhibit 21.2


                           SUBSIDIARIES OF SCIOS INC.
                           --------------------------



                                Scios R&D, Inc.,
                              a Nevada corporation.

                                   BRP, Inc.,
                              a Nevada corporation

                    Biotechnology Research Partners Limited,
                        a California limited partnership

EX-23.1

                                                                    Exhibit 23.1

                       CONSENT OF INDEPENDENT ACCOUNTANTS


We hereby consent to the incorporation by reference in the Registration
Statements on Form S-3 (File No. 333-53928) and Form S-8 (File No.'s 333-60412,
333-64052, 333-82820) of Scios Inc. of our report dated February 8, 2002,
relating to the consolidated financial statements, which appears in this Form
10-K.

/s/ PricewaterhouseCoopers LLP
San Jose, California
March 15, 2002