UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549
                                _______________

                                  FORM 10-K/A
                                Amendment No. 2

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

                  For the Fiscal Year Ended December 31, 1999

[ ] 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   0-23272
                                                -------

                           NPS PHARMACEUTICALS, INC.
            (Exact name of Registrant as specified in its charter)

                                          
               Delaware                                   87-0439579
     (State or other jurisdiction           (I.R.S. Employer Identification No.)
   of incorporation or organization)

 420 Chipeta Way, Salt Lake City, Utah                    84108-1256
(Address of principal executive offices)                  (Zip Code)



                                (801) 583-4939
             (Registrant's telephone number, including area code)

Securities registered under Section 12(b) of the Act:        None
Securities registered pursuant to Section 12(g) of the Act:  Common Stock, $.001
                                                             Par Value
                                                             Preferred Stock
                                                             Purchase Rights

   Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for at least 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 the Common Stock held by non-
affiliates of the Registrant was $230,295,798.50 as of April 24, 2000, based
upon the closing price for the shares of common stock reported on The Nasdaq
Stock Market and The Toronto Stock Exchange, on such date./1/

   The number of shares of Common Stock outstanding as of April 24, 2000 was
24,241,663, which includes 2,097,555 Exchangeable Shares.



- ---------------
/1/ Excludes 1,731,046 shares of Common Stock held by directors and officers as
    of April 24, 2000. The determination of affiliate status is not a conclusive
    determination for other purposes.


  This Annual Report on Form 10-K/A contains forward-looking statements within
the meaning of Section 21E of the Securities and Exchange Act of 1934. These
statements are subject to risks and uncertainties that could cause actual
results to differ materially from those discussed in these forward-looking
statements. Factors that could cause or contribute to the differences include,
but are not limited to, those discussed in the Section entitled "Business--Risk
Factors," as well as other parts of this Annual Report. Readers are cautioned
not to place undue reliance on these forward-looking statements, which speak
only as of the date hereof. We undertake no obligation to publicly release
updates or revisions to these statements.

                                    PART I

ITEM 1.  Business

Overview

     NPS Pharmaceuticals, Inc. is a biopharmaceutical company with headquarters
in Salt Lake City, Utah, and additional operations in Toronto (Mississauga),
Ontario, Canada.  We conduct our operations in Canada under the name "NPS
Allelix Corp." We engage in drug discovery and development of small, orally
active drug products and recombinant peptides. We use a blend of partnered
initiatives and internal efforts to fund and pursue our discovery, development
and marketing efforts.

     On December 23, 1999 we acquired Allelix Biopharmaceuticals Inc., a
biopharmaceutical company based in Ontario, Canada.  Under the arrangement,
Allelix shareholders who were U.S. residents received NPS common shares.
Allelix shareholders who were Canadian residents could elect to receive either
NPS common shares or shares of NPS Allelix Inc., the Canadian parent of NPS
Allelix Corp. and a subsidiary of NPS, that are exchangeable one for one into
NPS common shares.  The exchangeable shares are, as nearly as practicable, the
functional and economic equivalent of NPS common shares.  NPS common shares
trade on Nasdaq under the symbol "NPSP", while shares of NPS Allelix Inc., which
mirror the NPS common shares, trade on The Toronto Stock Exchange under the
symbol "NX".

     At the conclusion of the acquisition the name of Allelix Biopharmaceuticals
was changed to NPS Allelix Corp.  The discussion contained in this section
reflects the combined company and generally does not distinguish between what
was formerly NPS's business and what was formerly Allelix's business.
References to "us," "we" or "NPS" refer to the combined company.

     We are engaged in the discovery and development of human pharmaceuticals
that are intended to address a variety of important diseases. Our most advanced
programs focus on the development of human pharmaceuticals for the treatment of
hyperparathyroidism and osteoporosis. We also have ongoing development efforts
for drugs to treat gastrointestinal disorders and disorders of the central
nervous system, including neuroprotection in stroke and head trauma as well as
epilepsy and bipolar disorder. In addition, we are pursuing several discovery
programs that are extensions of our research on calcium receptors and ion
channels, and we periodically consider other product candidates in later stages
of development for potential in-license or collaboration opportunities.

     We currently have three products in late-stage human trials: a second
generation calcimimetic for hyperparathyroidism; ALX1-11, a form of recombinant
human parathyroid hormone for osteoporosis; and ALX-0600 for short bowel
syndrome and intestinal atrophy due to chemotherapy treatment.

     We have partnered with Amgen Inc. and Kirin Brewery Company, Ltd. in our
calcimimetic program for hyperparathyroidism. Calcimimetics are small molecules
that stimulate calcium receptors on parathyroid cells to regulate the secretion
of parathyroid hormone.  Amgen is currently conducting Phase II safety and
efficacy trials under the calcimimetic program. The hyperparathyroidism program
arose from our pioneering work on a cell surface receptor, termed the "calcium
receptor."  This receptor senses levels of extracellular calcium and plays a key
role in regulating the amount of calcium in the bloodstream.

     We are approaching osteoporosis on two fronts: development of injectable
recombinant parathyroid hormone and development of small molecule therapeutics.
We are preparing to start Phase III clinical trials with ALX1-11 in which we
will evaluate safety and efficacy on a large scale. We also have a collaboration
with SmithKline Beecham centered on discovery and development of small molecules
active at the calcium receptor of parathyroid tissue for the treatment of
osteoporosis.

                                       2


     Our efforts to develop therapeutics to treat gastrointestinal disorders are
focused on the development of ALX-0600.  This product is an analog of the
natural peptide hormone, glucagon-like peptide-2, which we believe has
significantly enhanced biological activity.

     Our most advanced central nervous system programs focus on neuroprotection,
epilepsy and bipolar disorder and migraine. Our neuroprotection program is based
on our work on small molecules with novel activity on a cell receptor on brain
cells referred to as the N-methyl-D-aspartate subtype of glutamate receptor-
operated calcium channels. This technology forms the basis for our
neuroprotection program for ischemic stroke and head trauma. We have completed
Phase I trials and are seeking a development partner before proceeding further.
The epilepsy/bipolar disorder program is based on our work on small molecules
that belong to the same chemical class as valproic acid but are structurally
distinct and have different biological properties. We have conducted Phase I
safety trials in humans with NPS 1776, our lead product candidate. We have
licensed the rights to this program to Abbott Laboratories who will now assume
full responsibility for the development and commercialization of NPS 1776. The
migraine program focuses on our search for products that are selective for
specific cell receptors on human blood vessels and are hypothesized to reduce
serious side effects of other current migraine drugs. We have conducted a Phase
I safety study with the lead product candidate and are actively seeking a
development partner to further the migraine program.

Clinical Development Programs and Partnered Preclincal Programs

The following chart summarizes the status of our clinical development programs
and partnered clinical programs:



Development Program      Compound           Classification            Status (1)      Commercial Rights
                                                                         

Hyperparathyroidism
 Primary              Calcimimetics   Parathyroid hormone           Phase II         Amgen, Kirin
                                      release inhibitors

 Secondary            Calcimimetics   Parathyroid hormone           Phase II         Amgen, Kirin
                                      release inhibitors

Osteoporosis
 Increased bone       ALX1-11         Recombinant human             Phase III        NPS
 mineral density and                  parathyroid hormone
 fracture reduction                   (injectable)

 Increased bone       Calcilytics     Endogenous parathyroid        Preclinical      SmithKline, NPS
 mineral density and                  hormone release stimulators
 fracture reduction                   (oral)

Gastrointestinal
 Disorders
 Short bowel          ALX-0600        Glucagon-like peptide 2       Phase II         NPS
 syndrome                             analog

Central Nervous
 System Disorders
 Stroke, head         NPS 1506        N-methyl-D-aspartate          Phase Ib         NPS
 trauma                               receptor antagonists

 Epilepsy, bipolar    NPS 1776        Valproic acid                 Phase Ib         Abbott
 disorder                             substitute

 Migraine             ALX 0646        5HT B Selective agonist       Phase I          NPS



__________________
(1)  Preclinical means that a product is undergoing efficacy and safety
     evaluation in laboratory testing and animal testing in preparation for
     clinical trials.

                                       3


Phase I-III clinical trials denote safety and efficacy tests in humans as
follows:
 . Phase I:  Evaluation of safety and dosing tolerability at several dose levels
  in healthy volunteers.
 . Phase Ib:  Additional evaluation of safety and dosing tolerability at several
  dose levels in healthy volunteers.
 . Phase II:  Evaluation of safety, and efficacy in patients having the
  target disease or disorder.
 . Phase III:  Larger scale evaluation of safety and efficacy at several dose
  levels in patients having the target disease or disorder.

Hyperparathyroidism Program

     Overview. Hyperparathyroidism is typically characterized as being either
primary or secondary. Primary hyperparathyroidism is an age-related disorder
that results from excessive secretion of parathyroid hormone. Parathyroid
hormone acts in the kidney and on bone to elevate the levels of calcium in the
blood.  Symptoms of primary hyperparathyroidism may include bone loss, muscle
weakness, depression, and cognitive dysfunction. There are currently no
pharmaceutical therapies for the treatment of primary hyperparathyroidism.  In
severe cases, surgical removal of the affected parathyroid gland from the neck
region is the only effective treatment.

     Secondary hyperparathyroidism results from other disease states and is most
often associated with renal failure. Symptoms of secondary hyperparathyroidism
include excessive bone loss, bone pain, and chronic, severe itching. Secondary
hyperparathyroidism affects the vast majority of dialysis patients. Studies have
shown that secondary hyperparathyroidism develops early in the course of renal
failure, before patients start dialysis.  Current treatments for secondary
hyperparathyroidism address the disease indirectly and involve drug therapy with
phosphate binders and/or Vitamin D.  We believe that these therapies have
certain disadvantages. For example, phosphate binders are not well tolerated by
many people and calcitriol often leads to hypercalcemia and hyperphosphatemia,
which can exacerbate the underlying disease and in many patients is ineffective.
In severe cases, surgery may be required to remove all or some of the
parathyroid glands.

Calcimimetics

     The results of preclinical and human clinical trials conducted by us,
Kirin, and Amgen have indicated that calcimimetic compounds could be effective
in treating both types of hyperparathyroidism. We have entered into agreements
with Amgen and Kirin relating to the development and commercialization of these
calcimimetic compounds for treating hyperparathyroidism.

     Development Status.  Amgen began Phase II dosing and safety trials in
primary and in secondary hyperparathyroidism in 1998 with a second generation
compound licensed from NPS.  These trials are presently ongoing. In 1998, Amgen
completed a Phase I safety trial of this second generation compound. Early in
the calcimimetic program, we conducted a series of trials with Amgen with a
first generation calcimimetic. These trials included two Phase I safety and
tolerance studies, a multisite Phase I/II study in women with mild, primary
hyperparathyroidism and a pilot Phase I/II study in kidney dialysis patients
with secondary hyperparathyroidism. Kirin has conducted clinical trials for the
first generation calcimimetic in Japan, including a Phase I/II study in dialysis
patients with secondary hyperparathyroidism.  We believe the second-generation
compound has a more favorable metabolic and kinetic profile than the first
generation calcimimetic in the hyperparathyroidism patient population. Kirin is
also developing the second generation compound. Amgen's and Kirin's clinical
trials may not, however, proceed as indicated and no product for the treatment
of hyperparathyroidism may prove safe and effective, meet applicable regulatory
standards, or be successfully marketed.  Amgen and Kirin are obligated to pay us
royalties and milestone payments for the use and sale of calcimimetics.

Osteoporosis Program

     Overview. Osteoporosis is characterized by a loss of bone mass and bone
mineral density which increases the risk of fractures. Experts believe
osteoporosis affects more than 200 million people worldwide. In women, this
condition typically occurs after menopause and the complications from the
resulting fractures can lead to hospitalization and death.  Approximately 20% of
osteoporosis patients are male.

                                       4


     Demographic studies have shown that 50% of women over the age of 50 will
suffer an osteoporosis-related fracture during their lifetime.  In North
America, 1.5 million individuals sustain a fracture related to this disease each
year, including 300,000 hip fractures, resulting in a significant economic
burden on the health care system.  The National Osteoporosis Foundation in the
United States estimates that a woman's risk of suffering a hip fracture is equal
to her combined risk of developing breast, uterine and ovarian cancer.  The
National Institutes of Health estimate that, on a worldwide basis, more than 200
million people suffer from reduced bone mass, which contributes to more than 4
million fractures annually.  Mortality in the first year following a hip
fracture is 15% to 20%.  The successful treatment of osteoporosis would result
in the reduction of bone fractures, significantly improving quality of life and
reducing health care costs associated with treatment and chronic care.

     Traditional treatments for osteoporosis include calcium supplements,
Vitamin D compounds, estrogen replacement therapy, calcitonin, diet and
exercise.  In addition, a class of drugs known as bisphosphonates has been
developed which slows the resorption of bone and, over several years, can
increase bone mass by amounts ranging from 3% to 8%.  Alendronate, marketed by
Merck and Co., Inc. under the brand name Fosamax, is the most recently approved
bisphosphonate and has demonstrated an increase in bone mineral density of 8%
over three years and a reduction in the incidence of bone fractures by 50%.
However, there is a widely recognized need among health care professionals for a
treatment that can prevent fractures by more rapidly replacing lost bone.  We
believe that ALX1-11, may address this need.  If approved for commercial sale,
ALX1-11 would be positioned as a therapy for postmenopausal osteoporosis in
patients who either have suffered a fracture due to osteoporosis or have been
diagnosed as having significantly decreased bone mass and, therefore, are at
increased risk for a fracture.

ALX1-11

     We are developing ALX1-11, an injectable form of recombinant human
parathyroid hormone, as a treatment for postmenopausal osteoporosis. Parathyroid
hormone plays an important role in the regulation of bone mineral metabolism in
the body.  Recently published studies have shown that parathyroid hormone has a
marked stimulatory effect on new bone formation in animals when administered as
a single daily injection.  Furthermore, several clinical investigators have
demonstrated in independent studies that a fragment of the parathyroid hormone
molecule enhances bone formation in humans.  We believe that these results,
published over the past 20 years, suggest that parathyroid hormone is able to
reverse bone loss in people who suffer from osteoporosis. We also believe that
parathyroid hormone increases the number of bone-forming cells and may also
increase the activity of such cells.  We confirmed the increase in bone density
observed in earlier studies in a Phase II safety and efficacy trial. ALX1-11
may, therefore, represent a significant treatment alternative for osteoporosis
sufferers.

     Development status. In 1994, we conducted a Phase I clinical trial in The
Netherlands that demonstrated the safety of ALX1-11 in humans.  We initiated the
Phase II clinical trial for ALX1-11 in June 1995 in 18 centers throughout Canada
and the United States. The trial involved over 200 women suffering from
postmenopausal osteoporosis.  The trial was a double blind, placebo-controlled,
dose-ranging safety and efficacy study and the course of treatment was 12
months.  Patients self-administered one of three different dosages of ALX1-11 or
a placebo by injection under the skin in a manner similar to self-administered
daily insulin injections by diabetics.  The goal of the clinical trial was to
compare the relative effectiveness of the three dose levels on spinal bone
mineral density.  Blood samples were taken in the clinical trial to monitor the
effects of the drug on several biochemical markers of bone growth and bone
metabolism.

     In June 1996, we entered into a collaboration agreement with Astra AB for
the development and commercialization of ALX1-11 for osteoporosis.  We completed
the Phase II trial in February 1997. The results of the Phase II study
demonstrated an average increase in bone mineral density of nearly 7% in the
spine over the twelve month period of the study. The final report was submitted
to Astra AB in June 1997 and Astra AB conveyed to us its decision to conduct a
Phase III trial with ALX1-11 in September 1997.  In September 1998, Astra
notified us that it would return all of the assets associated with the program
and all related intellectual property rights to us at no cost and paid a
cancellation penalty.

     We intend to begin a Phase III safety and efficacy trial with ALX1-11 in
the U.S. and Canada in the first half of 2000. The Phase III study will be a
double blind, placebo-controlled study measuring increases in bone mineral
density and reductions in clinical fractures.

                                       5


     Since parathyroid hormone is a protein, it must be administered by
subcutaneous injection at the present time. We believe there is at least one
company testing an injectable formulation of a drug candidate similar to
ALX1-11. Alternative routes of administration such as inhalation or intranasal
may be feasible. A number of companies are investigating alternative routes of
administration for a variety of peptides. In particular, insulin has been shown
to be absorbed by the inhalation route and calcitonin is commercially available
in an intranasal form. We believe that there is at least one company working on
an inhalation form of parathyroid hormone. We do not know the feasibility of
administering parathyroid hormone by one of these other routes.

SmithKline Beecham Collaboration

     In conjunction with SmithKline Beecham, we are also pursuing a treatment of
osteoporosis focusing on small molecule drugs called calcilytic compounds that,
in contrast to calcimimetic compounds, stimulate parathyroid hormone secretion.
This novel approach, which is intended to manipulate the body's own parathyroid
hormone reserves, could provide an effective anabolic therapy for osteoporosis
by stimulating new bone formation and replacing bone that has been lost to the
disease.

     While chronically high levels of parathyroid hormone are known to cause
bone loss, parathyroid hormone levels fluctuate daily and we think this plays a
key role in regulating the balance between bone resorption and bone formation.
Recent studies by us in animals and in humans have shown that daily injections
of exogenous parathyroid hormone are sufficient to cause a transient increase in
circulating parathyroid hormone levels, resulting in significant stimulation of
new bone formation. Animal studies have evaluated the structural integrity of
this newly formed bone and have found that the increases in bone mass achieved
with parathyroid hormone injections are accompanied by improvements in
biomechanical strength and in certain indices of bone structure thought to be
related to biomechanical strength.

     In studies on animals, our scientists, together with SmithKline Beecham,
have demonstrated that intermittent increases in circulating levels of
parathyroid hormone can be obtained through the use of small molecules which act
as calcimimetics. Increased levels of parathyroid hormone achieved by this
mechanism are equivalent to levels of parathyroid hormone achieved by an
injection of parathyroid hormone sufficient to cause bone growth. We believe
that orally administered, calcilytic drugs that act on the parathyroid cell
calcium receptor to increase parathyroid hormone release from the body's own
parathyroid hormone reserves could provide a cost-effective means of
intermittently increasing parathyroid hormone levels.

     Preclinical Research Status.   In January 1996, we received the first
milestone payment of $3.0 million from SmithKline Beecham for progress made in
our osteoporosis collaboration. Medicinal chemistry efforts are being applied to
various lead compounds with the goal of identifying product candidates. We have
produced a cell line that expresses the human parathyroid calcium receptor and
that serves as a tool for the high throughput screening of compounds to identify
new drug candidates. We continue to screen SmithKline Beecham and NPS compound
libraries to discover, identify, and characterize additional compounds with
calcilytic activity. We are also involved with SmithKline Beecham in medicinal
chemistry efforts to optimize compound leads obtained from such screening
activities. We are not certain that lead compounds will be identified, that
development activities will proceed, or that these candidates will prove safe or
effective, meet applicable regulatory standards, or be successfully marketed

Gastrointestinal Disorders

Short Bowel Syndrome

     Approximately 20,000 to 40,000 patients in North America have undergone
surgical removal of a portion of the small intestine because of gastrointestinal
problems that cause the intestine to malfunction.  Patients with this condition
often do not have enough small intestine remaining after removal to allow for
the absorption of sufficient nutrients from the diet since the epithelium of the
small intestine is the primary site of nutrient absorption. This

                                       6


results in a condition known as short bowel syndrome. There are currently no
effective therapies available for enhancing the growth and repair of the small
intestine epithelium. In extreme cases, the remaining intestine is no longer
able to perform its normal function of transporting vital nutrients into the
blood stream. Patients with short bowel syndrome often must be fed intravenously
by a technique called total parenteral nutrition for a period of time and, in
some cases, permanently. Total parenteral nutrition costs can exceed $100,000
annually per patient.

ALX-0600

     We are currently developing ALX-0600. This drug candidate is an analog of
Glucagon-Like Peptide-2, a naturally occurring hormone having 33 amino acids.
We are developing ALX-0600 for the treatment of short bowel syndrome. A
published study by one of our academic collaborators demonstrated that the use
of ALX-0600 in animals resulted in a marked stimulatory effect on the rate of
growth of epithelial cells lining the small intestine. In this study, ALX-0600
induced an approximately 50% increase in weight of small intestine epithelium
within ten days of administration. We believe that ALX-0600 may have the ability
to induce a similar effect in humans. Furthermore, the growth-promoting
properties of ALX-0600 appear to be highly tissue-specific, predominantly
affecting the small intestine, and thereby reducing the risk of adverse side
effects.

     We are presently conducting a pilot Phase II safety and efficacy study with
ALX-0600 in patients with short bowel syndrome. In November 1999, we entered
into an agreement with the Canadian government through a program known as
Technology Partnerships Canada.  Under the agreement, the Canadian government
will reimburse us up to (Cdn) $8.4 million for qualified costs related to
research and development of ALX-0600. As a result of the funding, we will pay a
royalty to the Canadian government on the sale or license of any product
developed from the funded research.

     We are also investigating the use of ALX-0600 for the replenishment of
epithelial cells of the small intestine which are damaged by chemotherapy
treatment for cancer.  ALX-0600 may be suitable as an adjunct therapy to cancer
chemotherapy if it can ameliorate the toxic gastrointestinal side effects of
cancer chemotherapy, thereby improving patient compliance with the chemotherapy
regimen and possibly allowing for dose escalation of the chemotherapy agent.
The patients that would benefit from such an adjunctive therapy are those
patients receiving 5-fluorouracil, administered to approximately 1 million
patients per year, or CPT-11, administered to approximately 500,000 patients per
year and increasing.  Approximately 16% and 50% of patients receiving these
respective therapies experience extreme gastrointestinal side effects sufficient
to warrant treatment with an agent such as ALX-0600, should its safety and
efficacy be proven in clinical trials.

     We licensed the rights to ALX-0600 from an academic collaborator who is
entitled to participate in the proceeds of commercialization of the product
candidates, if successfully developed and approved.  We completed a Phase I
clinical trial of ALX-0600 in healthy subjects in November 1998. We are
developing a recombinant production system that may be used to produce the
product.

Central Nervous System Disorders

Neuroprotection Program:  NPS 1506

     Overview. Stroke is the third leading cause of death in the United States,
with over 500,000 cases reported each year. In stroke, a blood vessel becomes
blocked, which leads to inadequate blood supply to the brain, a condition
sometimes referred to as ischemia. Many stroke victims survive and approximately
100,000 to 150,000 per year are left severely and permanently disabled by nerve
damage resulting from stroke. Much of this damage occurs within the first 24 to
48 hours after the stroke and is caused in part by the excessive release of
glutamate and the resultant influx of calcium into nerve cells. Published
research in animals has shown that much of this damage can be prevented by
blocking the influx of calcium into cells, particularly, the influx that results
from activation of N-methyl-D-aspartate receptor-operated calcium channels.
Calcium influx resulting from the activation of these channels also appears to
cause the neuronal damage associated with head trauma. Approximately two million

                                       7


traumatic brain injuries occur each year in the United States, with 25% of these
injuries requiring hospitalization, and about 1% resulting in death.

     Certain medical procedures are associated with an increased risk of stroke.
For example, strokes occur in 3% to 7% of coronary artery bypass, carotid
endarterectomy, and heart valve replacement surgeries.  Mild to severe central
nervous system dysfunction occurs in up to 80% of these procedures. Researchers
think this results from multiple micro strokes caused by the release of numerous
tiny blood clots into the bloodstream. Our research indicates that it might be
possible to lessen the severity of neuronal damage and cognitive impairment that
occurs as a result of these procedures by using a prophylactic treatment with
neuroprotective compounds.

     N-methyl-D-aspartate receptor-operated calcium channels play critical roles
in normal excitatory neurotransmission and in events that lead to much of the
neurological damage associated with stroke and head trauma. Several
pharmaceutical companies have recognized the potential of these receptor-
operated calcium channels as molecular targets. These companies have begun
development of drugs to treat neurological disorders and have identified various
lead compounds. However, no such drug has successfully completed clinical trials
or been marketed. Work in this field is all the more challenging because these
receptor-operated calcium channels are also the site of action of phencyclidine,
often referred to as PCP or angel dust, and most clinically tested compounds
that target these calcium channels exhibit undesirable phencyclidine-like side
effects inducing symptoms of psychosis. There are currently no safe or effective
neuroprotective therapeutics available that slow or stop the progression of
brain damage once a stroke or head trauma has occurred.

     We have demonstrated significant neuroprotectant activity in certain animal
models of ischemic stroke and head trauma through systemic administration of our
class of lead compounds, particularly NPS 1506. In these animal studies, we
still observed significant neuroprotectant activity when administration of the
compound was delayed for two hours following the ischemic event. In addition,
our compounds have not exhibited phencyclidine-like side effects in a variety of
studies in animal models intended to identify those effects.

     Development Status.  In July 1997, we began a Phase I clinical trial for
NPS 1506 in healthy male volunteers. This trial was completed in early 1998.
Results of the trial indicated that the drug was safe and well tolerated. In
addition, we began a Phase Ib study in patients who have suffered a stroke
within a 48-hour period to assess safety and tolerability of the drug in stroke
patients. The clinical phase of this trial has been completed and we are
evaluating the data. We are currently searching for a corporate partner to
participate in the development of this program. Our ability to secure a
development partner for this program will affect our development plan and time
line for this program. There is risk that NPS 1506 and any other lead compounds
will not advance through clinical development, will not prove to be safe or
effective, will not meet applicable regulatory standards, or will not be
successfully marketed.

Epilepsy and Bipolar Disorder: NPS 1776

     Overview-Epilepsy.  Many types of epileptic seizures have been medically
defined. They range from mild cases of nearly imperceptible behavior, such as
staring into space, to dramatic "grand mal" seizures where consciousness is lost
and the body convulses uncontrollably. In most cases of recurrent seizures,
drugs are the treatment of choice, although in some extreme instances,
neurosurgery may be an option. The most frequently used drug therapies include
carbamazepine, phenytoin, valproate, barbiturates, and benzodiazepines. Roughly
half of all epilepsy patients can control their seizures with available chemical
therapies. However, other patients achieve less than adequate control. An
estimated 15% of all patients are virtually resistant to drug treatment. Even
when some level of seizure control is achieved, it often comes with the
disadvantage of serious side effects.

     Overview-Bipolar Disorder.  Bipolar disorder is part of a class of diseases
referred to as affective illnesses or mood disorders. Affective illnesses
include all forms of depression, dysthmia or chronic, moderate depression, manic
disease, and bipolar disorder. The most responsive disease in this class of
illnesses is bipolar disorder. Until recently, bipolar disorder was known as
manic-depressive disorder. It is characterized by the occurrence of both manic
and depressive states, usually in alternation. Bipolar disorder, like other mood
disorders, is a lifetime illness with no known cure. As a result, the number of
bipolar patients continue to increase each year. In the United States,
approximately 17.5 million people have affective disorders. Of these,
approximately 2.2 million to 2.6 million people have been diagnosed as having
bipolar disorder.

                                       8


     Development Status. Our scientists have identified a lead compound for the
treatment of epilepsy. Our studies of this small, organic molecule, designated
NPS 1776, show that it is effective in a number of animal models of epilepsy and
that, importantly, there appears to be a wide margin between doses that control
seizures and doses that produce side effects. The compound also exhibited a high
margin of safety in animal models when compared to standard epilepsy treatments,
including valproate, as measured by a lack of motor impairment side effects
following drug administration. Recent research studies by others have indicated
that some drugs normally used in seizure control can offer hope for many bipolar
disorder patients. Valproic acid, for example, has received FDA approval for the
treatment of manic episodes in bipolar disorder. NPS 1776 has the same
broad spectrum of pharmocological activity in animals as valproic acid. Thus, we
believe that NPS 1776 may be useful for the treatment of affective mood
disorders such as bipolar disorder and for the treatment of epilepsy. However,
we conducted specific studies that lead us to believe that NPS 1776 will provide
a better safety profile in comparison to valproic acid, such as the lack of
birth defect potential and liver damage.

     We completed a Phase I clinical trial in healthy male volunteers in
December 1998 in the United Kingdom. The purpose of the trial was to evaluate
the safety, tolerability and pharmacokinetics of NPS 1776. Our preliminary
analysis of the data indicates that the drug was safe and well tolerated. We
commenced a Phase Ib study in the United Kingdom in December 1998 to confirm
safety and tolerability in volunteers receiving multiple doses of the drug. On
March 20, 2000, we entered into an agreement with Abbott Laboratories in which
we granted to Abbott the worldwide exclusive right to make, use, and sell NPS
1776 in return for Abbott's commitment to fund the further development of NPS
1776 and pay NPS milestone payments and royalties on future sales of NPS 1776.
Future development of NPS 1776 will be dependent on the progress made by Abbott
in its development efforts. There is a risk that NPS 1776 will not advance
through clinical development, will not prove safe or effective, will not meet
applicable regulatory standards, or will not be successfully marketed.

Other Programs

     We also have other early stage programs.  For example, in the field of
migraine we have completed a Phase I safety trial in the United Kingdom on a
compound for which we are seeking a development partner.  We are also working
with Janssen Pharmaceutica N.V. to identify prospective drug candidates for
schizophrenia and dementia.  We continue to work with Eli Lilly to identify
excitatory amino acid receptors as therapeutic targets for various central
nervous system disorders.  Finally, we have made advances in the elucidation of
the neurophysiological roles of metabotropic glutamate receptors.  Our
scientists have cloned a novel metabotropic glutamate receptor located in the
brain and thought to be linked to several central nervous system disorders. We
have developed a screening technology for identifying molecules active at this
receptor and at other metabotropic glutamate receptor subtypes and in fact have
had success in identifying such molecules.

Discovery Programs

     We are actively engaged in other discovery programs that seek to identify
molecular targets for the development of new drugs. These discovery programs are
extensions of our discoveries in calcium receptors and ion channels.

In-licensing and Product Acquisition

     Periodically, we evaluate alternatives for acquisition of discovery
technologies late-stage product opportunities. This evaluation includes the
consideration of merger and acquisition candidates and the search for in-
licensing or joint venture development candidates. An example of these efforts
is the acquisition of Allelix Biopharmaceuticals Inc. in December 1999. There
can be no assurance that we will be able to negotiate acceptable licenses and/or
collaborative agreements in the future or that efforts under any license and/or
collaborative agreement will be successful.

                                       9


Collaborative Research, Development, and License Agreements

     We are pursuing research and product development on an independent basis
and in collaboration with other companies. We currently have
collaborative research, development, and/or license agreements with Amgen,
Kirin, SmithKline Beecham, The Brigham and Women's Hospital, Inc., Eli Lilly,
Janssen Pharmaceutica, and Abbott Laboratories.

Amgen Inc.

     We entered into a development and license agreement with Amgen, effective
December 1995, which grants Amgen the exclusive right to develop and
commercialize drugs for the treatment of hyperparathyroidism and indications
other than osteoporosis worldwide, excluding Japan, China, Hong Kong, North and
South Korea, and Taiwan. The license includes the second-generation compound
currently in Phase II clinical trials for safety and efficacy at Amgen. Under
the terms of the Amgen agreement, we may receive up to an aggregate of $43.5
million in license fees, equity purchases, and milestone payments, plus
royalties from any future product sales. Amgen has assumed full control,
authority, and responsibility for conducting, funding, and pursuing all aspects
of the development, submissions for regulatory approvals, manufacture and
commercialization of the compounds in its territory. This includes conducting
clinical trials and making regulatory submissions. Amgen paid NPS a license fee
of $10.0 million and purchased one million shares of common stock for an
aggregate purchase price of $7.5 million. The balance of the $43.5 million
includes up to $26.0 million payable to us upon the achievement of specific
development milestones. We have the option to participate under Amgen's
direction in the clinical development of a drug for primary hyperparathyroidism.
Amgen is required to reimburse us for our participation, limited to a total cost
of $400,000 per year for a maximum period of five years. Amgen may terminate the
agreement for any reason upon 90 days written notice. Termination of the
agreement will result in the reversion of the technology, patent, and
commercialization rights to us. In the event of termination of the license
agreement with Kirin, Amgen would receive worldwide rights to develop and
commercialize a drug for the treatment of hyperparathyroidism and other
indications except osteoporosis. We are actively working with Amgen and Kirin to
discover, identify, and characterize other second generation compounds.

Kirin Brewery Company, Ltd.

     In June 1995, we entered into a five-year collaborative research and
license agreement with Kirin to develop and commercialize drugs for the
treatment of hyperparathyroidism in Japan, China, Hong Kong, North and South
Korea, and Taiwan. Under the terms of the Kirin agreement, we may receive up to
an aggregate of $25.0 million in license fees, research support, and milestone
payments plus royalties from any future product sales in exchange for exclusive
rights to develop, manufacture, and sell compounds for the treatment of
hyperparathyroidism in their territory. Kirin is responsible for conducting
clinical trials and obtaining regulatory approvals in its territory. Kirin paid
an initial license fee of $5.0 million and committed $7.0 million in research
payments for research over five years. The Kirin research support payments were
$500,000 per quarter through June 1997 and are $250,000 per quarter over the
remaining three years of the agreement. The remaining $13.0 million is payable
to us upon achievement of specific development milestones in the United States
and/or Kirin's territory. In October 1996, we earned our first milestone payment
from Kirin in the amount of $2.0 million for the start of clinical trials in
Japan. In December 1997, we received the second milestone payment from Kirin in
the amount of $2.0 million for the commencement in Japan of a Phase II clinical
trial for primary hyperparathyroidism. Kirin is required to pay all costs of
developing and commercializing products within its territory and will pay
royalties on any product sales. Kirin may terminate the Kirin agreement for any
reason upon 90 days written notice. Termination of the Kirin agreement will
result in Amgen receiving worldwide rights to develop and commercialize drugs
for the treatment of hyperparathyroidism.

SmithKline Beecham Corporation

     In November 1993, we entered into a three-year collaborative research and
license agreement with SmithKline Beecham to collaborate on the discovery,
development, and marketing of drugs to treat osteoporosis and other bone
metabolism disorders. Under the agreement, SmithKline Beecham has the exclusive
license to the worldwide development and marketing of any calcium receptor-
active compounds developed under this agreement that are useful for treating
osteoporosis and other bone metabolism disorders, excluding hyperparathyroidism.
Once

                                       10


compounds have been selected for development, SmithKline Beecham has agreed to
conduct and fund all product development including all human clinical trials and
regulatory submissions. We have the right to copromote any resulting products in
the United States. In 1992, S.R. One, an affiliate of SmithKline Beecham,
purchased $2.0 million of NPS preferred stock. In 1993, at the time we entered
into the agreement, S.R. One purchased an additional $7.0 million in equity of
NPS and acquired $495,000 of NPS common stock in our initial public offering.
All NPS preferred stock was converted into common stock upon the closing of our
initial public offering.

     Under the terms of the SmithKline agreement, in addition to the $7.0
million equity purchase, SmithKline Beecham paid a $6.0 million license fee and
agreed to make additional payments upon the achievement of specific milestones.
A $3.0 million milestone payment was made in January 1996. In July 1995, we
began receiving payments from them to support our research efforts and have
recognized revenue of $10.4 million through 1999. In November 1997, the research
term of the agreement was extended for an additional period of up to three
years. Concurrently with the execution of the extension agreement, SmithKline
Beecham purchased 160,000 shares of NPS common stock and an option to purchase
an additional 204,000 shares in November 1998 and 249,000 shares in November
1999. SmithKline Beecham exercised both options and purchased the additional
shares in 1998 and 1999, respectively. Research support payments are expected to
be approximately $87,500 per quarter through October 2000 unless terminated
earlier by SmithKline Beecham. We are entitled to royalties on sales of products
for osteoporosis and other bone metabolism disorders developed by SmithKline
Beecham under this agreement and a share of the profits from any copromotion of
the products. The agreement may be terminated by SmithKline Beecham upon 30 days
written notice, and we will have the right to extend this agreement for an
additional period of time, provided that drug marketing has commenced. Under
certain circumstances, we have the right to terminate the SmithKline agreement
after October 2000. Termination of the SmithKline agreement will result in the
return of our technology, commercialization, and patent rights in the licensed
field of osteoporosis and other bone and mineral disorders, as well as all
additional technology developed in the course of the collaboration.

Eli Lilly

     In December 1989, we entered into a research agreement with Eli Lilly under
which our scientists collaborated with scientists from Lilly Research
Laboratories in Indianapolis to develop a number of proprietary mammalian cell
lines containing human glutamate or EAA receptors.  This program is funded by
Eli Lilly and, effective November, 1994, was extended to similar types of
research activities. This program was again renewed in November 1998 for two
years. We expect to receive approximately (Cdn) $2.7 million for work under
this program through November 2000. If products are marketed and sold by Eli
Lilly, royalty payments will be paid to us.

Janssen Pharmaceutica N.V.

     In October 1998, we entered into a collaborative agreement with Janssen
Pharmaceutica N.V., a wholly owned subsidiary of Johnson & Johnson, for the
research, development and marketing of new drugs for neuropsychiatric disorders.
Under the terms of the agreement, Janssen Pharmaceutica paid an initial license
fee of $2.0 million. We are entitled to annual research and development funding
of $2.3 million for a minimum of two years and may receive milestone payments of
up to $21.5 million which are dependent on successful achievement of clinical
development benchmarks. We will receive royalties from the commercial sale of
products resulting from the partnership. In addition, Janssen Pharmaceutica will
assume responsibility for development of the compounds, including expenses.
Janssen Pharmaceutica has the right to market products worldwide, subject to our
option for co-promotion in Canada.

Abbott Laboratories

     On March 20, 2000, we entered into an exclusive license agreement with
Abbott Laboratories for our compound NPS 1776 and related NPS molecules.  This
Agreement grants to Abbott Laboratories the exclusive worldwide right to develop
and commercialize NPS 1776 for all indications.  Abbott has committed to conduct
and fund all preclinical development and, if warranted, clinical development
activities for NPS 1776 and related molecules.  We will participate with Abbott
on a joint project review committee where we will observe the progress of Abbott
during the first 24 months of the agreement and where we will review progress on
Abbott's subsequent

                                       11


clinical development work plan. We will continue to prosecute all our worldwide
patent applications for NPS 1776. We are entitled to receive up to $18 million
in milestone payments upon the occurrence of certain specified events and to
receive royalties on all sales of NPS 1776 and related NPS molecules. Abbott has
the right to terminate the agreement at any time. Upon termination, all data and
intellectual property will be returned to us. We have the right to institute
binding alternative dispute resolution for return of the program and related
technology in absence of development progress.

The Brigham and Women's Hospital, Inc.

     In February 1993, we entered into two agreements with The Brigham and
Women's Hospital, an affiliate of Harvard University Medical School: a sponsored
collaborative research agreement, and a patent license agreement. The patent
license agreement grants us an exclusive license to certain calcium receptor and
inorganic ion receptor technology covered by patents jointly owned by Brigham
and Women's and NPS. The research agreement grants us a right of first
negotiation for exclusive license rights to any patentable subject matter
arising out of research at Brigham and Women's that is sponsored by NPS. Brigham
and Women's is also entitled to a royalty on sales of certain products under the
patent license agreement, and we have committed to promote sales of any licensed
products for hyperparathyroidism for which we receive regulatory approval. In
February 1996, we reached an agreement with them to extend the research
agreement for an additional year. This agreement was further amended, effective
March 1, 1997, to extend the research agreement for an additional year and to
update the amount of research support payments to be made by us for the final
year of the agreement. Effective March 1, 1998, the research agreement was
extended for an additional two years. We expect to extend the research agreement
for an additional two years in the first half of 2000.

Patents and Proprietary Technology

     Our success will depend in part on our ability to obtain patents, maintain
trade secrets and operate without infringing the proprietary rights of others,
both in the United States and other countries. Periodically, we file patent
applications to protect technology, inventions, and improvements that may be
important to the development of our business. We rely on trade secrets, know-
how, continuing technological innovations, and licensing opportunities to
develop and maintain our competitive position.

     We file patent applications in our own name, and when appropriate, have
filed and expect to continue to file, applications jointly with our
collaborators. These patent applications cover compositions of matter, methods
of treatment, methods of discovery, use of novel compounds and novel modes of
action, and recombinantly expressed receptors and gene sequences that are
important in our research and development activities. Some of our principal
intellectual property rights related to processes, compounds, uses, and
techniques related to calcium receptor science are now protected by issued
United States patents. We intend to file additional patent applications relating
to our technology and to specific products as appropriate.

     The patent positions of pharmaceutical and biotechnology firms are
uncertain and involve complex legal and factual questions. In addition, the
scope of the claims in a patent application can be significantly modified during
prosecution before the patent is issued. Consequently, we cannot know whether
pending applications will result in the issuance of patents or, if any patents
are issued, whether they will provide significant proprietary protection or will
be circumvented or invalidated. Generally, patent applications in the United
States are maintained in secrecy until patents issue and publication of
discoveries in the scientific or patent literature often lag behind actual
discoveries. In addition, no assurance can be given that, even if published, we
will be aware of all such literature. Accordingly, we cannot be certain that the
named inventors were the first to invent or that we were the first to pursue
patent coverage for the inventions. Moreover, we may have to participate in
interference proceedings declared by the United States Patent and Trademark
Office to determine priority of invention, which could result in substantial
cost, even if the eventual outcome is favorable to us. There can be no assurance
that our pending patent applications, if issued, would be held valid. An adverse
outcome could subject us to significant liabilities to third parties, could
require disputed rights to be licensed from third parties, or require us to
cease or modify our use of the technology. Additionally, many of our foreign
patent applications have been published as part of the patent prosecution
process in such countries. Protection of the rights revealed in published patent
applications can be complex, costly, and uncertain.

                                       12


     The pursuit of patent applications is intensely competitive for therapeutic
products in our areas of research. A number of pharmaceutical companies,
biotechnology companies, universities, and research institutions have filed
patent applications or received patents in these and related fields. Some of
these applications or patents may limit or preclude our applications and could
result in a significant reduction in the coverage of the patents, if we seek
them at all.

     We also rely on trade secrets and contractual arrangements to protect our
trade secrets. There can be no assurance that these agreements will be adequate,
that they will not be breached, that we would have adequate remedies for any
breach, or that our trade secrets will not otherwise become known or be
independently discovered by competitors.

     Much of the know-how important to our technology and many of its processes
are dependent upon the knowledge, experience, and skills of key scientific and
technical personnel and are not the subject of pending patent applications or
issued patents. To protect our rights to know-how and technology, we require all
employees, consultants, advisors, and collaborators to enter into
confidentiality agreements that prohibit the unauthorized use of and restrict
the disclosure of confidential information, and require disclosure and
assignment to NPS of ideas, developments, discoveries, and inventions made by
them. There can be no assurance that these agreements will effectively prevent
disclosure of confidential information or will provide meaningful protection for
our confidential information if there is unauthorized use or disclosure. It must
also be recognized that competitors may develop substantially equivalent know-
how and technology.

     In connection with research in the field of calcium and other ion
receptors, we have sponsored research at various university and government
laboratories. For example, we have executed license and research agreements
regarding research in the area of calcium and other ion receptors with The
Brigham and Women's Hospital. See "Collaborative Research, Development, and
Licensing Agreements--The Brigham and Women's Hospital, Inc."

     We have also sponsored work at other government and academic laboratories
for various evaluations, assays, screenings, and other tests of our natural
products library and lead compounds in the central nervous system field.
Generally, under these agreements, we fund the work of investigators in exchange
for the results of the specified work and the right or option to a license to
any patentable inventions that may result in certain designated areas. If the
sponsored work produces patentable subject matter, we generally have the first
right to negotiate for license rights therein. Any resulting license would be
expected to require us to pay royalties on net sales of licensed products. There
can be no assurance that any inventions will arise, that any patent applications
on them will be filed or, if filed, that any patents will issue, that any
license can be negotiated, or that any license agreement would give us valuable
rights.

Manufacturing

     We anticipate that all products from our small molecule programs will be
made by synthetic chemical manufacturing techniques. As such, we believe the
compounds can be precisely defined and characterized and should have relatively
low manufacturing costs compared to current pharmaceutical industry costs and
compared to recombinant proteins that are produced by the fermentation methods
common to currently available biotechnology products.

     We have no manufacturing facilities. Under the Amgen, Kirin, and SmithKline
Beecham agreements, each licensee is responsible for the manufacture of the
applicable product. We rely on other manufacturers to produce the proprietary
compounds for research and development activities and in sufficient quantities
for preclinical and clinical purposes. The proposed pharmaceutical products
under development have never been manufactured on a commercial scale, and there
can be no assurance that the products can be manufactured at a cost or in
quantities to make them commercially viable. If we were unable to contract for a
sufficient supply of compounds on acceptable terms, or if we should encounter
delays or difficulties in relationships with manufacturers, our preclinical and
clinical testing schedule would be delayed. That delay might postpone the
submission of products for regulatory approval or the market introduction and
subsequent sales of the products, which would have a materially adverse effect
on our operations. Moreover, contract manufacturers that we may use must adhere
to quality system regulations of the FDA.

                                       13


     We currently produce some biological material at our Mississauga, Ontario
site. Such materials are used in connection with our preclinical and clinical
testing activities for our protein therapeutic programs. In addition, other
material is obtained from contract production firms. For certain tests, material
must be manufactured under good manufacturing practices of the FDA. We do not
presently meet those requirements, as a result, materials for these tests are
obtained through contracts with contract production firms. For example, in the
protein therapeutics area, we have developed and implemented a production
process for recombinant therapeutic proteins such as ALX1-11. We have also
developed a proprietary production process whereby ALX1-11 may be produced by
fermentation in accordance with good manufacturing processes. Clinical grade
ALX1-11 has been produced for us by a supplier in accordance with the production
specifications developed by us. We are currently reviewing alternatives to meet
current and planned manufacturing needs for ALX1-11 and ALX-0600.

Government Regulation

     Research, preclinical development, clinical trials, manufacturing, and
marketing activities are subject to regulation for safety, efficacy, and quality
by numerous governmental authorities in the United States and other countries.
In the United States, drugs are subject to rigorous FDA regulation. The Federal
Food, Drug and Cosmetic Act and other federal and state statutes and regulations
govern, among other things, the testing, manufacture, safety, efficacy,
labeling, storage, record keeping, approval, advertising, and promotion of our
products. Product development and approval within this regulatory framework take
a number of years and involve the expenditure of substantial resources.

     The steps required before a pharmaceutical agent may be marketed in the
United States include:

 .  preclinical laboratory tests, animal pharmacology and toxicology studies
   and formulation studies;
 .  the submission of an Investigational new drug application to the FDA for
   human clinical testing, which must become effective before human clinical
   trials commence;
 .  adequate and well-controlled human clinical trials to establish the safety
   and efficacy of the drug;
 .  the submission of a new drug application to the FDA; and
 .  FDA approval of the new drug application before any commercial sale or
   shipment of the drug. In addition to obtaining FDA approval for each product,
   each domestic drug manufacturing establishment must be registered with, and
   approved by, the FDA.

     Domestic drug manufacturing establishments are subject to regular
inspections by the FDA and must comply with FDA regulations. To supply products
for use in the United States, foreign manufacturing establishments must comply
with FDA regulations and are subject to periodic inspection by the FDA or by
corresponding regulatory agencies in their home countries, under reciprocal
agreements with the FDA.

     Preclinical studies include the laboratory evaluation of in vitro
pharmacology, product chemistry and formulation, as well as animal studies to
assess the potential safety and efficacy of the product. Compounds must be
formulated according to quality system regulations, and preclinical safety tests
must be conducted by laboratories that comply with FDA regulations regarding
good laboratory practices. The results of the preclinical tests are submitted to
the FDA as part of an investigational new drug application and are reviewed by
the FDA before the commencement of human clinical trials. Unless the FDA objects
to an investigational new drug application, the investigational new drug
application will usually become effective 30 days following receipt by the FDA.
There can be no assurance that submission of an investigational new drug
application will result in FDA authorization to commence clinical trials.

     Clinical trials involve the administration of the investigational new drug
to healthy volunteers and to patients under the supervision of a qualified
principal investigator. Clinical trials are conducted in accordance with good
clinical practices under protocols that detail the objectives of the study, the
parameters to be used to monitor safety, and the efficacy criteria to be
evaluated. Each protocol must be submitted to the FDA as part of the
investigational new drug application. Furthermore, each clinical study must be
conducted under the auspices of an Institutional Review Board at the institution
where the study will be conducted. The Institutional Review Board will

                                       14


consider, among other things, ethical factors, the safety of the human subjects,
and the possible liability of the institution.

     Clinical trials typically are conducted in three sequential phases, which
may overlap. In Phase I, the initial introduction of the drug into healthy
subjects, the drug is tested for safety (adverse effects), dosage tolerance,
metabolism, distribution, excretion, and pharmacodynamics (clinical
pharmacology). Phase II involves studies in a limited patient population to:

     .  determine the efficacy of the drug for specific, targeted indications;
     .  determine dosage tolerance and optimal dosage; and
     .  identify possible adverse effects and safety risks.

     When a compound is found to be effective and to have an acceptable safety
profile in Phase II evaluations, Phase III trials are undertaken to evaluate
further clinical efficacy and to test for safety within an expanded patient
population at geographically dispersed clinical study sites.

     The results of the pharmaceutical development, preclinical studies, and
clinical studies are submitted to the FDA in the form of an new drug application
for approval of the marketing and commercial shipment of the drug. The testing
and approval process is likely to require substantial time and effort, and there
can be no assurance that any approval will be granted on a timely basis, if at
all. The FDA may deny an new drug application if applicable regulatory criteria
are not satisfied, may require additional testing or information, or may require
postmarketing testing and surveillance to monitor the safety of our products if
the new drug application is not viewed as containing adequate evidence of the
safety and efficacy of the drug. Notwithstanding the submission of the data, the
FDA may ultimately decide that the application does not satisfy its regulatory
criteria for approval. Moreover, if regulatory approval of a drug is granted,
approval may entail limitations on the indicated uses for which it may be
marketed. Finally, product approvals may be withdrawn if compliance with
regulatory standards is not maintained or if problems occur following initial
marketing.

     Among the conditions for new drug application approval is the requirement
that the prospective manufacturer's quality control and manufacturing procedures
conform to quality system regulations, which must be followed at all times. In
complying with standards shown in these regulations, manufacturers must continue
to expend time, money, and effort in the area of production and quality control
to ensure full technical compliance.

     In addition to regulations enforced by the FDA, we are also subject to
regulation under the Occupational Safety and Health Act, the Environmental
Protection Act, the Toxic Substances Control Act, the Resource Conservation and
Recovery Act and other present and future federal, state, or local regulations.
Our research and development activities involve the controlled use of hazardous
materials, chemicals, and various radioactive compounds. Although we believe
that our safety procedures for handling and disposing of these materials comply
with the standards prescribed by state and federal regulations, the risk of
accidental contamination or injury from these materials cannot be completely
eliminated. In the event of an accident, we could be liable for any damages that
result, and any liability could exceed our resources.

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

Competition

     NPS and our licensees are pursuing areas of product development in which we
believe there is a potential for extensive technological innovation in
relatively short periods of time. We operate in a field in which new discoveries
occur at a rapid pace. Competitors may succeed in developing technologies or
products that are more effective than ours or in obtaining regulatory approvals
for their drugs more rapidly than we are able to, which could render our
products obsolete or noncompetitive. Competition in the pharmaceutical industry
is intense and is expected to continue to increase. Many competitors, including
biotechnology and pharmaceutical companies, are actively engaged in the research
and development of products in similar areas, including the fields of
hyperparathyroidism, osteoporosis, neuroprotection, and neurological disorders.
Many of our competitors have

                                       15


substantially greater financial, technical, marketing, and personnel resources.
In addition, some of them have considerable experience in preclinical testing,
human clinical trials, and other regulatory approval procedures. Moreover,
certain academic institutions, governmental agencies, and other research
organizations are conducting research in the same areas in which we are working.
These institutions are becoming increasingly aware of the commercial value of
their findings and are more actively seeking patent protection and licensing
arrangements to collect royalties for the technology that they have developed.
These institutions may also market competitive commercial products on their own
or through joint ventures and will compete with us in recruiting highly
qualified scientific personnel. There can be no assurance that a pharmacological
method of treatment for certain diseases, such as hyperparathyroidism, will
prove to be superior to existing or newly discovered approaches to the treatment
of those diseases.

Environmental Liability

     On November 29, 1995, the Environmental Protection Agency (EPA) notified us
that we may have incurred liability under section 107(a) of the Comprehensive
Environmental Response, Compensation and Liability Act, as amended, for two
barrels of radioactive waste taken by a third-party contractor to a hazardous
and radioactive waste storage, treatment, and disposal facility in Denver,
Colorado. Upon the EPA's request, we identified the waste and verified that the
barrels containing the waste have been removed from the Denver, Colorado
facility. Removal of wastes from the facility and remediation of soil and
groundwater at this site is currently underway. The ultimate cost of removal and
remediation actions and the length of time for these actions are difficult to
estimate. Based upon its inspection of the site, the barrels containing the
waste disposed of by us were determined to be neither leaking nor damaged.
Although we were a small contributor to the site and we believe that there are a
number of other financially responsible contributors, there can be no assurance
that we will not be held liable for all or a portion of the cleanup cost or any
other costs or damages associated with this disposal site.

Employees

     As of December 31, 1999, we employed 144 individuals full-time, 38 of whom
hold Ph.D. degrees, and 39 of whom hold other advanced degrees. A total of 91
full-time employees are engaged in research, development, and supporting
activities, including a variety of disciplines within the areas of molecular
biology, pharmacology, medicinal chemistry, computer sciences, and clinical
development. A total of 53 full-time employees are employed in finance, legal,
and human resources, market research, corporate development, and general
administrative activities. None of our employees are covered by collective
bargaining agreements, and management considers relations with its employees to
be good. Additionally, we augment our full-time staff through consulting
arrangements with experienced scientists and managers. Our anticipated growth
and expansion may require the hiring of additional management, research and
development, and administrative personnel.


                                       16


Risk Factors.

  You should carefully consider the following risk factors and warnings before
making an investment decision. Additional risks that we do not yet know of or
that we currently think are immaterial may also impair our business
operations. If any of the events or circumstances described in the following
risks actually occur, our business, financial condition, or results of
operations could be materially adversely affected. In such case, the trading
price of our common stock could decline, and you may lose all or part of your
investment.

  We have a history of operating losses and may never reach profitability. We
have not been profitable since our inception in 1986. As of December 31, 1999,
we had an accumulated deficit of approximately $78.9 million. We expect to
continue to incur losses for the next several years. We may never realize
significant revenues or be profitable. Factors that will influence our
profitability include:

  .  the success of our product candidates placed with Amgen, Kirin,
     SmithKline Beecham, Janssen, Abbott and Eli Lilly;

  .  the development and commercialization of additional products, especially
     our most advanced non-partnered product candidates ALX1-11 and ALX-0600,
     which relate to the treatment of osteoporosis and short bowel syndrome,
     respectively;

  .  our ability to secure corporate partners to share the expense of
     development of our non-partnered programs;

  .  the timing and difficulty of obtaining regulatory approvals; and

  .  competition.

  If we fail to obtain additional financing to fund our operations, we will be
unable to complete development of some or all of our product candidates or
commercialization of a product. Most of our funding has come from research and
development fees and the sale of stock. We have not generated any material
revenues from product sales. We have expended and will continue to expend
significant sums to complete development of our products. Our current
resources are inadequate to finance all of the work planned and needed to
complete development of our current programs through to commercialization. We
have announced our intention to devote considerable cash resources to clinical
development. If we exceed our cost estimates, or incur costs earlier than
expected, we may have to reduce costs, delay development or seek additional
financing through collaborative relationships or public and private
financings. We may not be able to obtain additional financing on favorable
terms, if at all. If we do not obtain additional funding we may have to delay
development and commercialization of some of our programs, and we may be
forced to reduce or eliminate other programs or to relinquish rights to
technology, product candidates or products.

  If we fail to maintain our existing collaborative relationships or if our
partners do not apply adequate resources to our collaborations, we may have to
reduce our rate of product development, we may not be able to achieve
profitability, and we may have to obtain other sources of revenue to complete
development of our products. Our corporate partners have full control over the
development and commercialization activities in their territories for their
respective programs. Because we have granted exclusive development,
commercialization, and marketing rights to these partners, the success of the
programs depends upon their efforts. If our partners do not satisfactorily
perform under the agreements, or if our partners terminate these agreements
before they identify lead product candidates or develop any related product
candidates, we might not have the financial resources necessary to continue
development of those programs. As a result, we would have to seek other
sources of revenue which may not be available. If we are not able to continue
to develop these programs, we might not become profitable. In addition, much
of the revenue that we may receive under these partnerships depends upon our
partners' successful development and commercialization of the products. Our
partners may develop alternative technologies or products outside of their
partnerships with us, and the alternative technologies or products may be used
to develop treatments for the diseases targeted by our partnerships.

                                      17




  If we do not find corporate partners for new product candidates, we may have
to reduce our rate of product development or increase our capital
expenditures. Our strategy for the development, testing, manufacturing and
commercialization of our products requires us to enter into various
collaborations with partners, licensors, licensees, and others in order to
conserve financial resources. We may not be able to negotiate further
collaborative arrangements on acceptable terms, if at all. If we are not able
to establish additional collaborative arrangements, we will either have to
delay further development of some of our programs or increase our capital
expenditures and undertake the development activities at our own expense. We
may encounter significant delays in commercializing our products or find that
the development, manufacture or sale of our products is hindered by the
absence of collaborative agreements.

  If we are not successful in acquiring rights to external technologies,
programs, and product candidates, we may not be able to maintain or expand our
product portfolio. In order to reduce our dependence on the success of the few
product candidates we now have, we are actively evaluating product acquisition
opportunities to establish and maintain an appropriate portfolio of product
candidates. We seek optimum diversity of materials, timetables, development
costs, applicability to current medical needs, and other select criteria. We
may be unsuccessful in our efforts to identify, acquire and exploit third-
party technologies or product opportunities. If we are unsuccessful in our
efforts, we will remain dependent on the success of our relatively few product
candidates.

  If we fail to successfully integrate the operations of NPS and Allelix, we
may waste financial resources and we may be forced to stop or delay
development and commercialization of our products. As a result of the
acquisition of Allelix in December 1999, we must integrate two companies that
previously operated independently. We will have to coordinate each company's
efforts in research and development, business development, intellectual
property, finance, and administration to successfully integrate the two
companies. Integration will require significant efforts from each of us. We
may not be able to integrate the respective operations of NPS and Allelix
without encountering difficulties or experiencing loss of personnel, and we
may not realize the benefits we expect from the integration. If there are
difficulties, management will have to divert its attention which, when
combined with any difficulties we encounter in the transition process,
including the interruption of, or a loss of momentum in, Allelix's or our
activities and problems associated with employee uncertainty and the potential
loss of key personnel, could cause us to delay development and
commercialization of our products and result in our inefficient use of limited
corporate resources.

  Our acquisition of Allelix will result in integration costs and transaction
expenses that could reduce our profitability and cause the price of our stock
to decline. If the benefits of the acquisition do not exceed the costs
associated with it, including the dilution to our stockholders resulting from
the issuance of shares of NPS common stock in connection with the acquisition
of Allelix, our financial results, including earnings per share, could
decline. We expect to incur significant costs associated with integrating the
operations of NPS and Allelix. Integration costs may include:

  .  elimination of duplicate operations;

  .  consolidation of certain administration, support, and research and
     development activities; and

  .  increased expenditures for human trials of ALX1-11 and ALX-0600

  Our actual costs of integration may substantially exceed our preliminary
estimates. In addition, we may experience unanticipated expenses associated
with integrating the two companies. We incurred a charge of $17.8 million in
the fourth quarter of 1999 to reflect our write-off of Allelix's in-process
research and development efforts. This write-off will not be accompanied by
outward cash flow, but may be seen by investors as increasing our net loss. We
may also incur additional charges in subsequent quarters to reflect costs
associated with the acquisition. As a result, our future earnings per share
may decrease.

  We are subject to extensive government regulation which may cause us to
cancel or delay the introduction of our products to market. Our research and
development activities and the investigation, manufacture,

                                      18




distribution, and marketing of drug products are subject to extensive
regulation by governmental authorities in the United States and other
countries. Prior to marketing in the United States, a drug must undergo
rigorous testing and an extensive regulatory approval process implemented by
the FDA under federal law, including the Federal Food, Drug, and Cosmetic Act.
In order to receive approval, we must, among other things, satisfy the FDA
that the product is both safe and effective. Typically, the approval process
takes several years depending upon the type, complexity and novelty of the
product and the nature of the disease or other problem to be treated and
requires an expenditure of substantial resources. Drug testing is subject to
complex FDA rules and regulations, including the requirement to conduct human
testing on a large number of test subjects. We or the FDA may suspend human
trials at any time if either believes that subjects are being exposed to
unacceptable health risks.

  Before we receive FDA approval to market a product, we may have to
demonstrate that the product represents an improved form of treatment when
compared to existing therapies. Data obtained from testing are susceptible to
varying interpretations that could delay, limit, or prevent regulatory
approvals of our products. In addition, we may encounter delays or rejections
from additional government regulation as a result of future legislation,
administrative action, or changes in FDA policy during the period of product
development, human trials, and FDA regulatory review. If we receive regulatory
approval of a product, the approval will be limited to those disease states
and conditions for which the product is useful, as demonstrated through
clinical studies. Furthermore, FDA approval may subject us to ongoing
requirements for post-marketing studies. Even if we obtain FDA approval, a
marketed product, its manufacturer, and its manufacturing facilities are
subject to continual or periodic review. We may discover previously unknown
problems with a product, manufacturer, or facility that may result in
restrictions on that product or manufacturer, including costly recalls or
withdrawal of the product from the market. Compounds developed by us alone or
in conjunction with others may not prove to be safe or effective in human
trials and may not meet all of the applicable regulatory requirements needed
for marketing approval.

  Outside the United States, our ability to market a product is contingent
upon receiving marketing authorization from the appropriate foreign regulatory
authorities. The requirements governing the conduct of clinical trials,
marketing authorization, pricing and reimbursement vary widely from country to
country. The foreign regulatory approval process includes all of the risks
associated with FDA approval discussed above.

  As a result of intense competition and technological change in the
pharmaceutical industry, the marketplace may not accept our products and we
may not be able to compete against other companies in our industry and achieve
profitability. The pharmaceutical industry is intensely competitive. Existing
and future products, therapies, and technological approaches will compete
directly with our products. Competing products may provide greater therapeutic
benefits for a specific problem or may offer comparable performance at a lower
cost. If doctors and patients do not use our products, we may not become
profitable.

  We compete with fully integrated pharmaceutical companies, smaller companies
that are collaborating with larger pharmaceutical companies, academic
institutions, government agencies and other public and private research
organizations. Many of our competitors have drug products already approved or
in development and operate large, well-funded research and development
programs in these fields. Our competitors may develop safer or more effective
drugs and achieve faster or broader regulatory approval. In addition, many of
our competitors have wider availability of supply, more effective marketing
and sales and superior intellectual property positions. Any products that we
develop may become obsolete before we recover any expenses we incurred in
connection with the development of these products. As a result, we may never
achieve profitability.

  If we fail to protect our intellectual property or if we infringe the
intellectual property rights of others, we may not be able to compete
effectively and we may not achieve profitability. Our ability to achieve
profitability depends, in part, on our ability to obtain and protect patents,
maintain trade secrets and operate without infringing the intellectual
property rights of others. Our competitors may challenge, invalidate, or
circumvent our patents or patent applications. These patents may also fail to
provide us with meaningful competitive advantages.

                                      19




  Intellectual property rights are uncertain and involve complex legal and
factual questions, particularly with respect to biotechnology and
pharmaceutical patents. Generally, patent applications in the United States
are maintained in secrecy until patents issue, and publication of discoveries
in the scientific or patent literature often lags behind actual discoveries.
Accordingly, we cannot be certain that the inventors named in our patent
applications were the first to invent, or that we were the first to pursue
patent coverage for those inventions. We may unknowingly infringe the
intellectual property rights of others and may be liable for that
infringement, which could result in significant liability for us. Any
infringement could force us to either seek a license to intellectual property
rights of others or alter our products or processes so that they no longer
infringe the intellectual property of others. A license could be very
expensive for us to obtain, or we may not be able to obtain a license at all.

  Similarly, it may be costly or impractical for us to change our products or
processes to avoid infringing the rights of others. If we become involved in a
dispute regarding intellectual property, whether ours or that of another
company, we may have to participate in interference proceedings declared by
the U.S. Patent and Trademark Office to determine who had the claimed rights
first. We may also have to seek a judicial determination concerning the rights
in question. Judicial proceedings may be costly and time consuming for us,
even if we eventually prevail. If we do not prevail, we might have to pay
significant damages, obtain a license or stop making a certain product.

  We also rely on trade secrets, know-how, and confidentiality provisions in
agreements with collaborative partners, employees, and consultants to protect
our intellectual property. However, other parties may not comply with the
terms of their agreements with us and we might not be able to adequately
enforce our rights against these people, or obtain adequate compensation in
respect of the damages caused by their unauthorized disclosure.

  Because we do not have internal manufacturing facilities and we rely on
third party manufacturers, we are not able to control our rate of product
development, which may delay our receipt of revenues and profitability. We do
not have any internal manufacturing capacity, and we rely on third-party
manufacturers for the manufacture of all of our products used in clinical
trials. If we are unable to contract for a sufficient supply of our products
on acceptable terms, or if we encounter delays and difficulties in our
relationships with manufacturers, we would have to delay our product testing
schedule. A delay would set back our timetable for submission of products for
regulatory approval, market introduction, and subsequent sales, and would
postpone revenues and profitability. Also, our contract manufacturers may be
unable to manufacture any products we develop in commercial quantities on a
cost effective basis. We will need to expand our existing relationships or
establish new relationships with additional third-party manufacturers for
products that we successfully develop in the future. We may be unable to
establish or maintain relationships with third-party manufacturers on
acceptable terms. Our dependence upon third parties may reduce our profit
margins and delay our ability to develop and commercialize products on a
timely and competitive basis. Furthermore, third-party manufacturers may
encounter manufacturing or quality control problems in connection with the
manufacture of our products and they may be unable to maintain the necessary
governmental licenses and approvals to continue manufacturing our products.

  Because we do not have sales, marketing, and distribution capabilities, we
may not be able to market and sell our products and generate revenues. We do
not have any sales, marketing, or distribution capabilities. We will have to
develop a sales force or rely on third parties to perform these functions for
any products we develop. In order to market any products directly, we would
have to develop a marketing and sales force with technical expertise and
supporting distribution capability. We might not be able to establish in-house
sales and distribution capabilities or relationships with third parties to
accomplish these tasks, which would limit our ability to generate revenues.

  Because of the uncertainty of pharmaceutical pricing, reimbursement, and
healthcare reform measures, we may be unable to sell our products profitably.
The availability of reimbursement by governmental and other third-party payors
affects the market for any pharmaceutical product. These third-party payors
continually attempt to

                                      20



contain or reduce the costs of healthcare. There have been a number of
legislative and regulatory proposals to change the healthcare system, and
further proposals are likely. Under current guidelines, Medicare does not
reimburse patients for self-administered drugs. Medicare's policy may decrease
the market for our products designed to treat patients with age-related
disorders, such as hyperparathyroidism and osteoporosis. In addition, third-
party payors are increasingly challenging the price and cost-effectiveness of
medical products and services. Significant uncertainty exists with respect to
the reimbursement status of newly approved health care products. We might not
be able to sell our products profitably if reimbursement is unavailable or
limited in scope.

  If we fail to attract and retain key employees and consultants, we may have
to delay development and commercialization of our products. We are highly
dependent on the principal members of our scientific and management staff. If
we lose any of these persons, our ability to develop products and become
profitable could suffer. Nonetheless, we do not have long-term employment
contracts. Our future success will also depend in large part upon our
continued ability to attract and retain highly qualified scientific and
management personnel. We face competition for personnel from other companies,
academic institutions, government entities, and other organizations. Our
anticipated growth and expansion into areas and activities requiring
additional expertise, such as clinical trials, government approvals,
production and marketing, and general pharmaceutical company management, will
place increased demands on our personnel resources. These demands may require
us to add new management and research, development, and administrative
personnel. Our existing management and personnel may have to develop
additional expertise. If we fail to acquire additional management or personnel
with the additional expertise, or if our existing management fails to develop
such expertise, we may not be able to obtain required approval for products or
become profitable. Our agreements with our partners and any additional
corporate collaborations we may enter into may alleviate some of our need to
hire additional personnel or develop further expertise. Nevertheless, we may
find that services provided by them are insufficient to meet our personnel or
management needs.

  If product liability claims are brought against us, we may incur substantial
liabilities which could reduce our financial resources. The testing and
commercial use of pharmaceutical products entails significant exposure to
product liability claims. If we succeed in developing products, the use of our
products in clinical trials and the sale of our products following regulatory
approval may expose us to product liability claims. These claims might be made
directly by consumers or others. We have obtained limited product liability
insurance coverage for our clinical trials on humans. This coverage may be
insufficient to protect us against product liability damages. We might not be
able to obtain or maintain product liability insurance in the future on
acceptable terms or in sufficient amounts to protect us against product
liability damages. We are entitled to indemnification under agreements with
our partners and licensees against damage claims, but claims arising from
products sold by a collaborative partner or licensee may also include claims
directly against us and may not be indemnifiable under the agreement. If we
are required to pay a product liability claim, we may not have sufficient
financial resources to complete development or commercialization of any of our
products.

  Our operations involve hazardous materials and we must comply with
environmental laws and regulations, which can be expensive and restrict how we
do business. Our research and development activities involve the controlled
use of hazardous materials, radioactive compounds, and other potentially
dangerous chemicals and biological agents. Although we believe that our safety
procedures for these materials comply with governmental standards, we cannot
eliminate the risk of accidental contamination or injury from these materials.
If an accident or environmental discharge occurs, we could be held liable for
any resulting damages, which could exceed our financial resources. We disposed
radioactive waste at a site in Denver, Colorado, which is currently in
remediation. Although we were a small contributor to the site and there are a
number of other financially responsible contributors, we may be held liable
for all or a portion of the clean-up cost or any other costs or damages
associated with this disposal site.

  Our stock price has been and may continue to be volatile and your investment
could suffer a decline in value. You should consider an investment in our
stock as risky and invest only if you can withstand a significant loss and
wide fluctuations in market value of your investment. We receive little
attention by securities analysts

                                      21



and frequently experience an imbalance between supply and demand for our
stock. The market price of our common stock has been highly volatile and is
likely to continue to be volatile. Factors affecting our stock price include:

  .  fluctuations in our operating results;

  .  announcements of technological innovations or new commercial
     pharmaceutical products by us or our competitors;

  .  published reports by securities analysts;

  .  progress with clinical trials;

  .  governmental regulation;

  .  changes in reimbursement policies;

  .  developments in patent or other intellectual property rights;

  .  publicity concerning the discovery and development activities by our
     licensees;

  .  public concern as to the safety and efficacy of drugs developed by us
     and our competitors; and

  .  general market conditions.

  When we issue shares of our common stock under employee stock incentive
plans or in connection with public or private financings, we will dilute the
stockholdings of current stockholders and reduce future earnings per share. We
maintain stock incentive plans through which employees, directors, and
consultants can acquire shares of our common stock through the exercise of
stock options, grants, and purchases. Shares we issue under these plans or in
connection with public or private financings may dilute the holdings of
current stockholders and reduce earnings per share in the future.

  Antitakeover provisions in our articles, bylaws, shareholders rights plan
and under Delaware Law may discourage someone from acquiring us, and may
prevent a stockholder from receiving a favorable price for his or her shares.
Provisions of our certificate of incorporation and bylaws and Section 203 of
the Delaware General Corporation Law could discourage potential acquisition
proposals and could delay or prevent a change in control of our company. In
addition, our Board of Directors, without further stockholder approval, may
issue preferred stock that could delay or prevent a change in control of our
company as well as reduce the voting power of the holders of common stock,
even to the extent of losing control to others. In addition, our Board of
Directors has adopted a shareholder rights plan, commonly known as a "poison
pill," that may delay or prevent a change in control. These provisions could
diminish the opportunities for a stockholder to participate in tender offers,
including those at a price above the then-current market value of our common
stock. In addition, these provisions may also inhibit fluctuations in the
market price of our common stock that could result from takeover attempts.

  We have never paid cash dividends on our common stock. We intend to retain
any future earnings to finance the growth and development of our business, and
we do not plan to pay cash dividends in the foreseeable future. As a result,
stockholders should not expect to receive cash from holding our common stock.

  Unexpected Year 2000 related problems could still arise and, if significant,
could delay our development of products and reduce our available financial
resources. During 1999, we planned, inventoried, and evaluated our systems,
and remediated, replaced, and tested such remediation and replacements as
necessary. We used internal information systems technology personnel and other
personnel. As a result, we experienced no year 2000 related issues on January
1, 2000. However, we recognize that there may be residual effects related to
year 2000 issues. We do not have any way to assess the costs related to
remediation of such residual issues. We may in the future identify a
significant internal or external year 2000 residual issue which, if not
remedied in a timely manner, could require us to spend significant resources.

                                      22




ITEM 2.  Properties.

     We presently have ongoing operations in both the United States and Canada.
In the U.S., we lease approximately 54,000 square feet of laboratory, support,
and administrative space in the University of Utah's Research Park, located in
Salt Lake City, Utah. We pay approximately $875,000 annually under a facilities
lease that expires in September 2004. In Canada, we own a building consisting of
approximately 90,000 square feet of laboratory, support and administrative space
in Mississauga, Ontario. We anticipate that we will not need to acquire
additional space in order to meet our needs over the next three years.

ITEM 3.  Legal Proceedings.

     We are not a party to any material legal proceedings.


ITEM 4.  Submission of Matters to a Vote of Security Holders.

     A special meeting of stockholders was held on December 15, 1999 at the
company's Salt Lake City, Utah offices.  At the special meeting, the
stockholders of the Company approved all proposals by the vote specified below:

Proposal One:  To approve the issuance of shares of NPS common stock, $.001 par
- ------------   value per share, in connection with the Arrangement Agreement,
               dated as of September 27, 1999 by and among Allelix
               Biopharmaceuticals Inc. and NPS Pharmaceuticals,Inc. as set
               forth in the Proxy Statement.




               For                     Against                      Abstain
             ------               ----------------             ---------------
                                                           
      8,777,693  (99.21%)            55,584  (.63%)               14,765  (.16%)



Proposal Two:  To approve an amendment to the Certificate of Incorporation of
- ------------   NPS increasing the total number of shares of capital stock that
               NPS is authorized to issue from 25,000,000 shares to 50,000,000
               shares and the total number of shares of common stock authorized
               for issuance thereunder to 45,000,000 shares from 20,000,000
               shares.



               For                     Against                      Abstain
             ------               ----------------             ---------------
                                                           
      8,770,094  (99.12%)            63,313  (.72%)               14,635  (.16%)


                                       23



                                    PART II

ITEM 5.  Market for Registrant's Common Stock and Related Stockholder Matters.

     Our common stock is quoted on The Nasdaq Stock Market under "NPSP." The
following table sets forth the quarterly high and low closing sales prices for
NPS common stock for each quarter in the two most recent fiscal years as
reported by The Nasdaq Stock Market:



                                 High          Low
                             ------------  ------------
                                     
1998
First Quarter                $ 8.500        $7.375
Second Quarter               $ 8.250        $6.750
Third Quarter                $ 9.313        $6.375
Fourth Quarter               $ 7.938        $5.500
1999
First Quarter                $ 7.500        $6.563
Second Quarter               $ 7.500        $5.875
Third Quarter                $ 8.000        $5.500
Fourth Quarter               $12.250        $3.813


     On March 1, 2000, there were approximately 4,085 beneficial holders of NPS
common stock and exchangeable shares.

     We have never declared or paid cash dividends on capital stock. We intend
to retain any future earnings to finance growth and development and therefore do
not anticipate paying cash dividends in the foreseeable future.

Recent Sales of Unregistered Securities

     On November 1, 1999, we sold 249,000 shares of NPS common stock, par value
$.001, to SmithKline Beecham for an aggregate purchase price of $1,946,433 in
reliance on Section 4(2) of the Securities Act of 1933. The sale of these shares
was made in conjunction with a collaborative research and license agreement and
$622,500 of the aggregate purchase price was recorded as deferred income.

     On December 23, 1999, we issued 6,516,923 shares of NPS common stock
through NPS Allelix Inc., a wholly owned Canadian subsidiary, to common
stockholders of Allelix Biopharmaceuticals Inc. ("Allelix") in connection with
the merger of NPS and Allelix. In return for the issuance of such shares, NPS,
through NPS Allelix Inc., acquired all of the outstanding shares of common stock
of Allelix. The issuance of the shares was exempt from registration pursuant to
Section 3(a)(10) of the Securities Act of 1933.

                                       24



ITEM 6.  Selected Financial Data.

     The selected consolidated financial data presented below are for each
fiscal year in the five-year period ended December 31, 1999, and for the period
from October 22, 1986 (inception) through December 31, 1999. This is derived
from, and qualified by reference to, NPS's audited consolidated financial
statements and notes thereto. NPS is considered a development stage enterprise
as described in note 1 of notes to consolidated financial statements.


                                   ----------------------------------------------------------------------------     October 22, 1986
                                                              Year Ended December 3                                   (inception)
                                   ----------------------------------------------------------------------------         through
                                       1999            1998            1997            1996            1995        December 31, 1999
                                   ------------    ------------    ------------    ------------    ------------    -----------------
                                                      (in thousands, except per share data)
                                                                                                   

Consolidated Statements of Operations Data:

Revenues from research and
 license agreements                  $  3,445        $  3,568        $  5,842         $20,342         $ 9,562          $ 55,514
Operating expenses:
 Research and development              16,935          17,856          15,090          11,326           8,727            91,568
 General and administrative             5,983           5,546           5,587           5,111           3,975            35,016
 In process research and
  development acquired                17, 760             ---             ---             ---             ---            17,760
                                     --------        --------        --------        --------        --------          --------
   Total operating expenses            40,678          23,402          20,677          16,437          12,702           144,344

                                     --------        --------        --------        --------        --------          --------
   Operating income (loss)            (37,233)        (19,834)        (14,835)          3,905          (3,140)          (88,830)

Other income, net                       1,579           2,672           3,308           2,550             322            10,925
                                     --------        --------        --------        --------        --------          --------
Income (loss) before income
 tax expense                          (35,654)        (17,162)        (11,527)          6,455          (2,818)          (77,905)
Income tax expense                        ---             ---             167             350             500             1,018
                                     --------        --------        --------        --------        --------          --------
Net income (loss)                    $(35,654)       $(17,162)       $(11,694)        $ 6,105         $(3,318)         $(78,923)
                                     ========        ========        ========        ========        ========          ========
Diluted net income (loss)
 per share (1)                         $(2.77)         $(1.39)         $(0.98)          $0.55          $(0.48)
                                     ========        ========        ========        ========        ========
Diluted weighted average
 shares outstanding (1)                12,863          12,337          11,956          11,086           6,924


                                   ----------------------------------------------------------------------------
                                                              Year Ended December 31,
                                   ----------------------------------------------------------------------------
                                       1999            1998            1997            1996            1995
                                   ------------    ------------    ------------    ------------    ------------
                                                                  (in thousands)
Consolidated Balance Sheets Data:

Cash, cash equivalents, and
 marketable investment
 securities                          $ 35,679        $ 43,444        $ 57,942        $ 68,962        $  8,340
Working capital                        32,532          40,767          56,365          67,413           5,832
Total assets                           64,966          48,111          62,634          72,160          10,600
Long-term portion of capital
 leases and long-term debt              1,940              32              65             327             747
Deficit accumulated during
 development stage                    (78,923)        (43,269)        (26,107)        (14,413)        (20,517)
Stockholders' equity                   56,079          45,146          69,319          69,870           7,322


- ---------------
(1)  See note 1 of notes to financial statements for information concerning the
     computation of net income (loss) per share.

                                       25


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

     The following discussion of the results of operations and financial
condition should be read in conjunction with the consolidated financial
statements and notes thereto included elsewhere in this report.

Overview

     Substantially all of our resources are devoted to our research and
development programs. To date, we have not completed development of any
pharmaceutical product for sale. We have incurred cumulative losses through
December 31, 1999 of $78.9 million, net of cumulative revenues from research and
license agreements of $55.5 million. We expect to incur significant operating
losses over at least the next several years as we continue to expand our
research and development activities and our testing activities in the
laboratory, in animals and in humans. Substantially all our revenues come from
license fees, milestone payments, and research and development support payments
from licensees; these revenues fluctuate from quarter to quarter. Accordingly,
we expect that income or loss will fluctuate from quarter to quarter, that the
fluctuations may be substantial, and that results from prior quarters may not be
indicative of future operating results. Profitability will depend in part on our
ability and the ability of our licensees, to complete product development, to
obtain the required regulatory approvals, and to manufacture and market
products. We cannot assure that these events will occur.

Results of Operations

     All of our revenues of $3.4 million in 1999, $3.6 million in 1998, and $5.8
million in 1997, were derived from research and license agreements. We
recognized revenue from these agreements as follows:

     1.   Under our agreement with SmithKline Beecham we recognized $2.0 million
          in 1999, $2.2 million in 1998, and $1.9 million in 1997;

     2.   Under our agreement with Kirin we recognized $1.0 million in each of
          1999 and 1998 and $3.5 million in 1997; and

     3.   Under our agreement with Amgen we recognized $400,000 in each of 1999,
          1998 and 1997.

     The higher revenue in 1997 resulted from a one-time milestone payment of
$2.0 million from Kirin. These historical amounts are not indicative of future
revenue that we may earn under these agreements. See "Liquidity and Capital
Resources" below for further discussion of payments that we may earn in the
future under these agreements.

     Research and development expenses decreased to $16.9 million in 1999 from
$17.9 million in 1998 after an increase from $15.1 million in 1997. The increase
in research and development expenses from 1997 to 1998 was principally due to
the commencement of Phase I clinical trials for NPS 1776 in the third quarter of
1998. The decrease in research and development expenses from 1998 to 1999 was
principally due to the completion of the clinical trials for NPS 1776 in mid-
1999. We expect development expenses to increase dramatically in 2000 as we
conduct Phase III clinical trials for ALX1-11and Phase II clinical trials for
ALX-0600. We may incur additional research and development expenses if we start
other clinical trials or if we acquire new technologies, product candidates or
companies.

     General and administrative expenses were $6.0 million in 1999, $5.5 million
in 1998, and $5.6 million in 1997. We expect that general and administrative
expenses will increase in the future in order to support operations in Canada
and the U.S. and pre-launch marketing costs incurred for product candidates.

     We recorded a one-time expense of $17.76 million in 1999 for in-process
research and development acquired as part of the purchase of Allelix. We used an
independent valuation of Allelix to value the acquired in-process research and
development projects. We assigned a fair value to purchased in-process research
and development by estimating the costs to develop the purchased in-process
research and development into commercially viable products and discounting the
resulting net cash flows related to these projects. At the date of the
acquisition, the acquired in-process research and development had not yet
reached technological feasibility (FDA approval) and had no alternative future
uses.

                                       26


     In developing these cash flow projections, we forecasted revenues for each
project based on estimates of relevant market sizes and growth factors, expected
trends in technology, and the nature and expected timing of new product
introductions by Allelix and its competitors. The projected revenues are
dependent upon successful introduction of products from the in-process research
and development projects.

     In determining the operating cash flows related exclusively to each in-
process research and development project, we considered the contribution of both
developed technology and core technology leveraged by the in-process project.
Because Allelix did not have any products that had achieved technological
feasibility as of the valuation date, we assigned no value to developed
technology for allocation purposes. The value of the core technology leveraged
by the in-process projects was captured in the valuation of the patent
portfolio, consequently, we assigned no value for allocation purposes to core
technology leveraged by the in-process projects.

     Considering both project costs and technological progress for each project,
we employed percentage of completion assumptions to reduce the projected revenue
streams for the incomplete portion of each project as of the valuation date. We
forecasted operating expenses and resulting profit margins were based on the
characteristics and cash flow generating potential of the acquired in-process
research and development. We applied a tax rate of 40 percent and appropriate
adjustments were made to operating income to derive net cash flow for each
project.

     The revenues earned by the in-process research and development products
represent the return on all of the assets acquired under the agreement. The cash
flows generated by the new products must provide a return on each asset
purchased that is consistent with the value and the relative risk of the asset.
To separately value in-process research and development, we determined the value
and required rate of return for other identifiable assets. We deducted the
required return on these other contributory assets from the cash flows generated
by the projects in the in-process research and development model to determine
the incremental net cash flows specifically attributable to the completed
portion of the in-process research and development projects.

     The discount rate applied to the net estimated cash flow for each in-
process research and development project was based on each project's state of
development, complexity, and the market risk for the resulting product. We
applied discount rates of 45 to 75 percent to the in-process research and
development projects.

     We valued the remaining intangible assets acquired from Allelix at $19.0
million after the write-off of in-process research and development. This amount
includes goodwill, assembled work force, and patents which are being amortized
using the straight-line basis over lives ranging from two to six years. We did
not incur any amortization of acquired intangibles in 1999.

     Interest income was $1.8 million in 1999, $2.4 million in 1998, and $3.3
million in 1997. The decreases in 1998 and 1999 were primarily due to decreases
in the average balances of cash, cash equivalents, and marketable investment
securities as cash was utilized for operations. On February 3, 2000, we signed
definitive agreements for the private placement of 3.9 million shares of our
common stock with expected net proceeds to us of approximately $43.5 million
upon closing of the transaction. We expect that interest income will be higher
in 2000 due to a higher average cash balance resulting from this offering.
However, we anticipate that interest income will decrease in the future as cash
is utilized for operations.

     As of December 31, 1999, we had a U.S. federal income tax net operating
loss carryforward of approximately $64.4 million and a U.S. federal income tax
research credit carryforward of approximately $4.1 million. We also had a
Canadian federal income tax investment credit carryforward of approximately $4.2
million, and a Canadian federal income tax research credit carryforward of
approximately $31.5 million and a Canadian net operating loss carryforward of
approximately $2.7 million. Our ability to utilize the U.S. operating loss and
credit carryforwards against future taxable income will be subject to annual
limitations in future periods pursuant to the "change in ownership rules" under
Section 382 of the Internal Revenue Code of 1986.

                                       27


Liquidity and Capital Resources

     We have financed operations since inception primarily through collaborative
research and license agreements and the private and public placement of equity
securities. As of December 31, 1999, we had recognized $55.5 million of
cumulative revenues from research and license agreements and $89.4 million in
consideration for the sale of equity securities for cash and services. Our
principal sources of liquidity are cash, cash equivalents, and marketable
investment securities which totaled $35.7 million at December 31, 1999. In
addition, the net proceeds of the private placement agreements signed in
February 2000 are expected to provide approximately $43.5 million in cash to us.

     We receive quarterly research and/or development support payments under our
agreements with Amgen, Kirin, and SmithKline Beecham and from Janssen and Eli
Lilly Canada under agreements acquired as part of the Allelix transaction. All
of the research and/or development support payments under these agreements are
scheduled to expire in 2000. We do not receive any research and development
support payments under our agreement with Abbott Laboratories. We could receive
future payments of up to $88.0 million in the aggregate upon the accomplishment
of specified research and/or development milestones under the several
agreements. All of the agreements provide for future royalties to be paid to us
from the sale of products derived from these license agreements. However, we do
not control the subject matter, timing, or resources applied by our licensees
under the several development programs. Thus, potential receipt of milestone
payments and royalties from these licensees is largely beyond our control.
Progress under these agreements is subject to risk and each of these agreements
may be terminated before its scheduled expiration date by the respective
licensee. We cannot assure that our licensees will make any future payments,
whether as research or development support payments, milestone payments or
royalty payments.

     We have an agreement with Technology Partnerships Canada (TPC), a program
of the Canadian government, which provides for TPC to reimburse us for research
expenses incurred pursuing treatments for various intestinal disorders utilizing
specified technology (the ALX-0600 technology). TPC is bound to reimburse us for
30% of the qualified costs incurred through December 2002 up to a maximum of Cdn
$8.4 million. We will pay a 10% royalty to TPC on revenues received by us
through December 2008, from the sale or license of any product developed from
the funded research. If such payments have not reached a total of Cdn $23.9
million by that date, then royalty payments shall continue until that amount is
reached or until December 2017, whichever occurs first. If TPC declares an event
of default by us under the agreement, we could be required to repay all amounts
received from TPC, plus interest and other damages. As of December 31, 1999, no
event of default had occurred.

     We have entered into joint venture agreements and sponsored research and
license agreements that obligate us to purchase services from the joint ventures
and to make research support payments to academic and/or commercial research
institutions. As of December 31, 1999, we had a total commitment of
approximately $1.5 million for future joint venture services and research
support payments. Additional payments may be required upon the accomplishment of
research milestones by the research institutions, or as license fees or
royalties to maintain the licenses. We expect to enter into additional sponsored
research and license agreements in the future.

     We expect that our existing capital resources, including interest earned
thereon, and expected research and development support payments, milestone
payments and the proceeds of the private placement agreements signed in February
2000 will be sufficient to enable us to maintain our current and planned
operations for at least 24 months. However, actual needs are dependent on
numerous factors, especially with regard to the clinical trial and pre-launch
marketing and production costs for ALX1-11. Furthermore, in the event we in-
license or otherwise acquire other technologies, product candidates or
companies, substantial expenditures may be required. In addition, if any
licensee terminates its agreement, we might not have sufficient capital to
complete the development and commercialization of a product arising from the
technology returned to us under the then terminated agreement. A reduction in
the expected amount of research and development support payments or milestone
payments may shorten the period during which we could maintain our operations or
require us to reduce operations, or both.

     It may also become necessary to raise additional funds to support our
development and commercialization programs. We are presently seeking additional
funding for certain current programs through corporate collaborations and
licensing agreements. We may also seek additional funding through public or
private financing which could be dilutive to current shareholders. We cannot
assure that additional funding will be available on acceptable terms, if at all.
If adequate funds are not available, we may modify plans for some of our
research and development programs.

                                       28



Recent Accounting Pronouncements

     The Financial Accounting Standards Board (FASB) issued Statement on
Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 in 1999. SFAS No. 133
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives), and for hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. For a derivative not designated as a hedging instrument, changes
in the fair value of the derivative are recognized in earnings in the period of
change. We must adopt SFAS No. 133 in the first quarter of 2001. We do not
believe the adoption of SFAS No.133 will have a material effect on our financial
position or our results of operations.

     On December 3, 1999, the SEC issued Staff Accounting Bulletin No. 101,
Revenue Recognition in Financial Statements (SAB 101). SAB 101 summarizes
certain of the staff's views in applying generally accepted accounting
principles to revenue recognition in financial statements. We will incorporate
the guidance of SAB 101 in the first quarter of fiscal 2001. We have not yet
determined the impact that SAB 101 will have on our financial position or
results of operations.


ITEM 7A.  Quantitative and Qualitative Disclosures About Market Risk.

     Interest Rate Risk.  Our primary objectives in managing our investment
portfolio are to preserve principal, maintain proper liquidity to meet operating
needs, and maximize yields. The securities held in our investment portfolio are
subject to interest rate risk. We employ established policies and procedures to
manage exposure to fluctuations in interest rates. We place our investments with
high quality issuers and 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 mainly of fixed 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. At any time, sharp changes in interest rates
can affect the fair value of the investment portfolio and its interest earnings.
Currently, we do not hedge these interest rate exposures. After a review of our
marketable securities, we believe that in the event of a hypothetical ten
percent increase in interest rates, the resulting decrease in fair market value
of our marketable investment securities would be insignificant to the financial
statements.

     Foreign Currency Risk.  A portion of our research and development
operations are in Canada. As a result, our financial results could be affected
by factors such as a change in the foreign currency exchange rate between the
U.S. dollar and the Canadian dollar, or by weak economic conditions in Canada.
When the U.S. dollar strengthens against the Canadian Dollar, the cost of
expenses in Canada decreases. When the U.S. dollar weakens against the Canadian
dollar, the cost of expenses in Canada increases. The monetary assets and
liabilities in our foreign subsidiary which are impacted by the foreign currency
fluctuations are cash, accounts receivable, accounts payable, and certain
accrued liabilities. A hypothetical 10% increase or decrease in the exchange
rate between the U.S. dollar and the Canadian dollar from the December 31, 1999
rate would cause the fair value of such monetary assets and liabilities in
Canada to change by an insignificant amount. We are not currently engaged in any
foreign currency hedging activities.


ITEM 8.  Financial Statements and Supplementary Data.

     Financial statements and notes thereto appear on pages F-1 to F-26 of this
Form 10-K Annual Report.


ITEM 9.  Changes in and Disagreements with Accountants on Accounting and
         Financial Disclosure.

     There have been no changes in and disagreements with accountants on
accounting and financial disclosure.

                                       29



                                   PART III

ITEM 10.  Directors and Executive Officers of the Registrant.

Information Regarding Directors

     The Company's Amended and Restated Certificate of Incorporation and the
Amended and Restated Bylaws provide that directors are to be elected at the
Annual Meeting of Stockholders, to serve for a term of one year and until their
respective successors are duly elected and qualified or until their respective
death, resignation, or removal. Vacancies on the Board resulting from death,
resignation, disqualification, removal, or other causes and any newly created
directorships resulting from any increase in the number of directors shall be
filled by the affirmative vote of a majority of the directors then in office,
unless the Board of Directors determines by resolution that any such vacancy
shall be filled by the stockholders. A director elected by the Board to fill a
vacancy (including a vacancy created by an increase in the Board of Directors)
shall serve for the remainder of the full term of the director for which the
vacancy was created or occurred and until such director's successor is elected
and qualified.

     Pursuant to the Company's Amended and Restated Certificate of Incorporation
and the Amended and Restated Bylaws, the number of directors which constitute
the whole Board of Directors is to be fixed by one or more resolutions adopted
by the Board of Directors. In September 1999, the Board of Directors adopted a
resolution to increase the number of directors to eleven, contingent on closing
the acquisition of Allelix Biopharmaceuticals Inc.  In December 1999, the
Company closed on the acquisition of Allelix Biopharmaceuticals Inc. and three
board members of Allelix Biopharmaceuticals Inc. were appointed to the Company's
board.

     Set forth below, in alphabetical order, is biographical information for
each person currently serving on the Company's Board of Directors.

Santo J. Costa, J.D.

     Mr. Costa, 54, has served as a director since 1995 and as a member of the
Compensation Committee. Mr. Costa has been Vice Chairman since November 1999 and
a director since April 1994 of Quintiles Transnational Corporation, a publicly
held global contract research organization. From April 1994 to November 1999 he
served as President and Chief Operating Officer for Quintiles. From July 1993 to
April 1994, he ran his own consulting firm, Santo J. Costa and Associates. From
1986 to 1993, he was employed by Glaxo, Inc., a worldwide pharmaceutical
company, where he served as Senior Vice President, Administration and General
Counsel and was a member of that company's Board of Directors. From 1977 to 1986
he was employed by Merrell Dow Pharmaceuticals (now part of Hoechst Marion
Roussel) where he served as U.S. Area Counsel, and from 1971 to 1977 as Food &
Drug Counsel for Norwich/Eaton Pharmaceuticals. Mr. Costa received his B.S. in
Pharmacy and his J.D. from St. John's University.

John R. Evans, M.D.

     Dr. Evans, 70, has served as a director since the closing of the merger
with Allelix Biopharmaceuticals Inc. in December 1999. Previously, Dr. Evans was
Chairman of the Board of Allelix Biopharmaceuticals Inc. and its predecessor
since 1983. From 1979 to 1983, Dr. Evans served as a Director of the Population,
Health and Nutrition Department of the World Bank in Washington. From 1972 to
1978 he served as President of the University of Toronto. Currently, Dr. Evans
is Chairman of the Canada Foundation for Innovation and serves as Chairman of
the Board for both Alcer Aluminum Limited in Montreal and Torstar Corporation in
Toronto. He is a director of the Walter & Duncan Gordon Charitable Foundation
and a member of the Board of Directors of MDS Inc., a global health and life
sciences company listed on the New York and the Toronto Stock Exchanges, and
GlycoDesign, Inc. Dr. Evans received his undergraduate medical training at the
University of Toronto and engaged in specialty training in internal medicine and
cardiology in London, England, Boston, and Toronto.

James G. Groninger

     Mr. Groninger, 55, has served as a director since 1988 and as a member of


                                       30


the Audit and Compensation Committees. Mr. Groninger founded in January 1995 and
is President of The Bay South Company, a Richmond, Virginia-based provider of
financial advisory and investment banking services. From 1988 through 1994, he
served as a Managing Director, Investment Banking Division, of PaineWebber
Incorporated. Currently he serves on the Board of Directors of Cygne Designs,
Inc., a manufacturer of apparel, Layton Bioscience, a privately-owned
biotechnology company, and powerize.com, a privately owned internet business
search engine corporation. Mr. Groninger received a B.S. in Industrial
Administration from Yale University and an M.B.A. from Harvard Business School.

Hunter Jackson, Ph.D.

     Dr. Jackson, 50, has been Chief Executive Officer and Chairman of the Board
since founding the Company in 1986 and a member of the Nominating Committee. He
was appointed to the additional position of President in January 1994. Prior to
founding the Company, he was an Associate Professor in the Department of Anatomy
at the University of Utah School of Medicine. Dr. Jackson received a B.A. in
English from the University of Illinois and a Ph.D. in Psychobiology from Yale
University. He received postdoctoral training in the Department of Neurosurgery,
University of Virginia Medical School.

James U. Jensen, J.D.

     Mr. Jensen, 55, has been Vice President, Corporate Development and Legal
Affairs, since 1991. He has been Secretary and a director of the Company since
1987. From 1986 to 1991 he was a partner in the law firm of Woodbury, Jensen,
Kesler & Swinton, P.C. (or its predecessor firm) concentrating on technology
transfer and corporate finance. From 1985 until 1986, he served as Chief
Financial Officer of Cericor, a software company, and from 1983 to 1985, as its
outside general counsel. From 1980 to 1983 he served as General Counsel and
Secretary of Dictaphone Corporation, a subsidiary of Pitney Bowes Inc. He serves
as a director of Wasatch Funds, Inc., a registered investment company, and of
InterWest Home Medical, Inc., a public home use medical equipment distributor.
Mr. Jensen received a B.A. in English/Linguistics from the University of Utah
and a J.D. and an M.B.A. from Columbia University.

Joseph Klein, III

     Mr. Klein, 39, was appointed to the Board of Directors of the Company in
1998 and serves as a member of the Compensation Committee. Currently, Mr. Klein
is Vice President, Strategy for Medical Manager Corporation, a physician office
management information systems vendor. From 1998 to 1999, Mr. Klein was a Health
Care Investment Analyst with the Kaufmann Fund, Inc. From 1995 to 1998, Mr.
Klein was a Portfolio Manager and Chairman of the Investment Advisory Committee
of T. Rowe Price Health Sciences Fund, Inc. From 1990 to 1998, Mr. Klein was
Vice President and Health Care Investment Analyst for T. Rowe Price Associates,
Inc., an investment management firm. Mr. Klein serves as a director of Guilford
Pharmaceuticals, a public biotech company; and Synbiotics Corporation, a public
veterinary diagnostic products company. Mr. Klein received an M.B.A. with a
concentration on finance and investments from Stanford Graduate School of
Business and a B.A. in economics from Yale University.

Donald E. Kuhla, Ph.D.

     Dr. Kuhla, 58, has been a director of the Company since 1991 and a member
of the Audit and Nominating Committees. Since 1998, Dr. Kuhla has been President
and Chief Operating Officer of Albany Molecular Research, Inc., a chemical
contract research organization, where he has also been a director since 1995.
From 1994 through 1998, Dr. Kuhla was Vice President of Plexus Ventures, Inc., a
biotechnology investment and consulting firm. From 1990 to 1994, Dr. Kuhla held
senior management positions with two venture capital backed, biotechnology
start-up companies. His early career was spent in research and development and
operations management positions with Pfizer Inc. and Rorer Group, Inc., his last
position at Rorer being Senior Vice President of Operations. Dr. Kuhla received
a B.A. in Chemistry from New York University and a Ph.D. in Organic Chemistry
from Ohio State University.

Thomas N. Parks, Ph.D.

     Dr. Parks, 49, has been a director of the Company since its founding in
1986 and a member of the Audit and Nominating Committees. Dr. Parks also serves
as

                                       31


a scientific consultant to NPS. He is currently the George and Lorna Winder
Professor of Neuroscience and Chairman of the Department of Neurobiology and
Anatomy at the University of Utah Medical School. Dr. Parks joined the faculty
at the University of Utah Medical School in 1978 as an assistant professor. Dr.
Parks received a B.S. in Biology from the University of California at Irvine and
a Ph.D. in Psychobiology from Yale University. He was a postdoctoral fellow in
Development Neurology at the University of Virginia Medical School.

Edward K. Rygiel

     Mr. Rygiel, 60, has served as a director since the closing of the merger
with Allelix Biopharmaceuticals Inc. in December 1999. Previously, Mr. Rygiel
served on the Board of Allelix Biopharmaceuticals since 1995. Since January
2000, Mr. Rygiel has been Executive Vice President of MDS Inc., a global health
and life sciences company listed on the New York and the Toronto Stock
Exchanges, and since 1995 he has been President and Chief Executive Officer of
MDS Capital Corp., a subsidiary of MDS Inc. From 1995 to 2000, Mr. Rygiel was
Senior Vice President, Strategic Investments, of MDS Inc. and President and
Chief Executive Officer of MDS Capital Corp. Prior to joining MDS, he was a
consultant specializing in business and corporate development both in his own
practice and before that with Urwick, Currie and Partners. From 1990 to 1999,
Mr. Rygiel was Chairman of Drug Royalty Inc., a Toronto Stock Exchange listed
company. Mr. Rygiel currently is a member of the following Boards of Directors:
Hemosol, Inc., a Toronto Stock Exchange listed company; MDS Protoeomics, Inc.;
MDS Pharmacologies; and Nordion International Inc., all of which are
subsidiaries of MDS Inc. Mr. Rygiel earned a B.A. in Science from the University
of Toronto, School of Chemical Engineering.

Calvin R. Stiller, MD

     Dr. Stiller, 59, has served as a director since the closing of the merger
with Allelix Biopharmaceuticals Inc. in December 1999.  Previously, Mr. Stiller
served on the Board of Allelix Biopharmaceuticals since 1999. Since 1996, Mr.
Stiller has served as Chairman and Chief Executive Officer of Canadian Medical
Discoveries Fund. Dr. Stiller served as the Chief of the Multi-Organ Transplant
Service at the University Hospital in London, Ontario from 1984 through 1996. He
is a full professor of medicine at the University of Western Ontario. Dr.
Stiller is the Chairman of the Ontario Research and Development Challenge Fund
and sits as a director of Drug Royalty Corp. Inc., and CPL Trust, a public
company listed on the Toronto Stock Exchange. He is also on the Board of Genetic
Diseases Network, Arthritis Network, and Transplantation Technologies Inc. Dr.
Stiller obtained his medical degree from the University of Saskatchewan.
Following graduation, he returned to the University of Western Ontario and
University Hospital to become a professor at the Department of Medicine and co-
director of Immunology at the John P. Robarts Research Institute.

Peter G. Tombros

     Mr. Tombros, 58, was appointed to the Board of Directors of the Company in
1998 and serves as Chairman of the Compensation Committee and is a member of the
Nominating Committee. Since 1994, Mr. Tombros has served as President, Chief
Executive Officer, and a Director of Enzon, Inc., a public biopharmaceutical
company that develops, manufactures, and markets enhanced therapeutics. Prior to
joining Enzon, Mr. Tombros spent 25 years with Pfizer, Inc., a research based,
global healthcare company. Mr. Tombros served as Vice President of Pfizer, Inc.
in the following areas: Executive Vice President of Pfizer Pharmaceuticals, a
division of Pfizer, Inc., Corporate Strategic Planning, and Investor Relations.
Currently, Mr. Tombros serves on the Board of Directors of the following: Enzon,
Inc.; ALPHARMA Inc., a Norwegian company specializing in the areas of animal
health, pharmaceuticals, and fine chemicals; the New Jersey Technology Council;
the Biotechnology Council of New Jersey; and the American Foundation of
Pharmaceutical Education. He is also on the Board of Trustees of Cancer Care and
the National Cancer Care Foundation. Mr. Tombros received a B.S. and M.S. from
Pennsylvania State University and an MBA from the Wharton Graduate School of
Business.

     Dr. Evans, Mr. Rygiel, and Dr. Stiller were appointed to Board effective
upon closing of the merger of the Company and Allelix Biopharmaceuticals
pursuant to the terms of the Arrangement Agreement. There is no further
agreement or understanding with regard to their continued service on the Board,
and each of them will stand for re-election at the Company's next annual meeting
of stockholders.


                                      32


Information Regarding Executive Officers.

     The executive officers of NPS and their ages as of March 1, 2000 are as
follows:



Name                                Age                            Position
- ------------------------------   ---------  ----------------------------------------------------
                                      
Hunter Jackson, Ph.D.               50      Chief Executive Officer, President and Chairman of
                                            the Board
David L. Clark                      46      Vice President, Operations, Business Development
                                            and Corporate Communications
N. Patricia Freston, Ph.D.          60      Vice President, Human Resources
James U. Jensen, J.D                55      Vice President, Corporate Development and Legal
                                            Affairs, Secretary and Director
Thomas B. Marriott, Ph.D.           52      Vice President, Development Research
Robert K. Merrell                   44      Vice President, Finance, Chief Financial Officer
                                            and Treasurer
Edward F. Nemeth, Ph.D.             47      Vice President and Chief Scientific Officer
Paul J. Van Damme                   50      Vice President, Finance - Canada

________________________

     Hunter Jackson, Ph.D., has been Chief Executive Officer and Chairman of the
Board since founding NPS in 1986. He was appointed to the additional position of
President in January 1994. Before founding NPS, he was an Associate Professor in
the Department of Anatomy at the University of Utah School of Medicine. Dr.
Jackson received a B.A. in English from the University of Illinois and a Ph.D.
in Psychobiology from Yale University. He received postdoctoral training in the
Department of Neurosurgery, University of Virginia Medical School.

     David L. Clark, has been Vice President, Business Development and Corporate
Communications since January 2000 and Vice President, Operations since March
2000.  Prior to being appointed to these positions, he served as Director of
Business Development and Corporate Communications for NPS from September 1988 to
December 1999. He served as Director of Corporate Communications for NPS from
March 1996 to December 1999. Prior to this time, from 1988 to 1996 he served as
Vice President, Business Development for Agridyne Technologies Inc., a publicly
held biotechnology company. Mr. Clark received a B.S. in Botany from Brigham
Young University, and an MS in Plant Genetics from the University of Illinois.
He received an MBA from the University of Utah.

     N. Patricia Freston, Ph.D., has been Vice President, Human Resources since
March 1997. From 1980 to February 1997, she served as Manager of Personnel
Services, Questar Corporation a public integrated energy company. From 1977 to
1980, Dr. Freston was Assistant Director of Training for Mountain Fuel Supply, a
subsidiary of Questar. From 1971 to 1977, she was Director of Academic
Programming for the Division of Continuing Education, University of Utah. Dr.
Freston received a B.A. in English from Weber State University, an M.A. in
English from Utah State University, an M.S. in Education from the University of
Texas and a Ph.D. in Industrial Psychology from the University of Utah.

     James U. Jensen, J.D., has been Vice President, Corporate Development and
Legal Affairs and Secretary since August 1991. He has been Secretary and a
director of NPS since 1987. From 1986 to July 1991, he was a partner in the law
firm of Woodbury, Jensen, Kesler & Swinton, P.C., or its predecessor firm,
concentrating on technology transfer and licensing and corporate finance. From
July 1985 until October 1986, he served as Chief Financial Officer of Cericor, a
software company, and from 1983 to July 1985, as its outside general counsel.
From 1980 to 1983, he served as General Counsel and Secretary of Dictaphone
Corporation, a subsidiary of Pitney Bowes Inc. He serves as a director of
Wasatch Funds, Inc., a registered investment company, and of Interwest Home
Medical, Inc., a public home use medical equipment distributor. Mr. Jensen
received a B.A. in English/Linguistics from the University of Utah and a J.D.
and an M.B.A. from Columbia University.

     Thomas B. Marriott, Ph.D., has been Vice President, Development Research
since August 1993. From February 1990 to July 1993, he served as Director,



                                       33


Clinical Investigations for McNeil Pharmaceutical, a subsidiary of Johnson &
Johnson with responsibility for developing and implementing clinical trial
strategies for a number of products. From 1986 until 1990, Dr. Marriott was
Director, Drug Metabolism for McNeil Pharmaceutical with the responsibility for
planning, initiating, and completing bioanalytical drug disposition and clinical
biopharmaceutics and pharmacokinetics research required for investigational new
drug applications and new drug applications. In this position, he participated
in the preparation of several investigational new drug applications and new drug
applications with responsibility for preparing or supervising the preparation of
the investigational new drug application preclinical drug metabolism section and
the new drug application preclinical and clinical metabolism and
biopharmaceutics sections, and was responsible for integrating the pharmacology,
toxicology and clinical sections of investigational new drug applications and
new drug applications. He received a B.A. in Chemistry from Carleton College and
a Ph.D. in Chemistry from the Institute of Molecular Biology at the University
of Oregon.

     Robert K. Merrell has been Vice President, Finance, Chief Financial
Officer, and Treasurer since January 1995 and served as Director of Finance and
Administration and Treasurer from December 1993 to December 1994. He joined NPS
as Controller/Treasurer in September 1988. Prior to that time, he was a Senior
Manager at KPMG LLP. Mr. Merrell has been a licensed C.P.A. since 1980. He
received a B.A. in Accounting from the University of Utah and an M.M. from
Kellogg Graduate School of Management at Northwestern University.

     Edward F. Nemeth, Ph.D., has been a Vice President of NPS since January
1994 and was appointed Chief Scientific Officer in July 1997. He joined NPS as
Director of Pharmacology in March 1990. From 1986 until joining NPS, Dr. Nemeth
was an Assistant Professor in the Department of Physiology and Biophysics at
Case Western Reserve University School of Medicine. He holds a B.A. in Chemistry
and Psychology from Lawrence University and a Ph.D. in Pharmacology from Yale
University.

     Paul J. Van Damme has been Vice President, Finance - Canada since December
1999. He was Senior Vice President, Finance and Chief Financial Officer of
Allelix Biopharmaceuticals Inc. since September 1997. From December 1996 to
September 1997, he was Vice President and Chief Financial Officer of GlycoDesign
Inc., a Toronto biopharmaceutical company focusing on glycobiology therapeutics.
From 1994 to 1996, he served as Senior Vice President and Chief Financial
Officer of TeleZone Corporation, a wireless telecommunications start-up company.
From 1991 to 1994, he was Vice President, Controller of Laidlaw Inc., an
environmental services and transportation company listed on the NYSE. Mr. Van
Damme is a Chartered Accountant and has several years experience with major
accounting firm, PricewaterhouseCoopers  in Toronto, Canada and London, England.
Mr. Van Damme received a Bachelor of Commerce in Economics and an MBA from the
University of Toronto.


Section 16(a) Beneficial Ownership Reporting Compliance.

     Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who own more than 10% of the Company's common
stock, to file with the Commission reports of ownership and changes in ownership
of NPS common stock. Officers, directors, and greater than 10% stockholders are
required by the Commission to furnish the Company with copies of all Section
16(a) forms they file.

     To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company or written representations that no other
reports were required, during the fiscal year ended December 31, 1999, the
Company believes that all reporting persons complied with all Section 16(a)
filing requirements except that John Evans, Edward Rygiel, Calvin Stiller, Jim
Howard-Tripp, and Paul VanDamme filed late Form 3s; Mr. Groninger who filed an
amended Form 4 failed to report one common stock purchase transaction in a
timely filed Form 4; Dr. Jackson who filed an amended Form 4 failed to report
one common stock sale transaction in a timely filed Form 4; Mr. Merrell who
filed amended Form 4s failed to report two common stock sale transactions on
timely filed Form 4s; and Mr. Klein who filed a late Form 4 failed to report one
common stock purchase on a Form 4.



                                       34



ITEM 11.  Executive Compensation.

Compensation of Executive Officers

     The following table shows for the fiscal years ended December 31, 1999,
December 31, 1998 and December 31, 1997, certain compensation awarded, paid to,
or earned by, the Company's Chief Executive Officer and its other four most
highly compensated executive officers (the "Named Executive Officers"):

                           Summary Compensation Table



                                                            Annual Compensation           Long-Term Compensation
           Name and Principal Position               Year    Salary($)    Other($)(1)    Stock Options Granted(#)
           ---------------------------               ----    ---------    -----------    ------------------------
                                                                             
Hunter Jackson, Ph.D.                                1999      275,619       4,800                 40,000
     Chief Executive Officer, President and          1998      264,231                             60,000
     Chairman of the Board                           1997      235,846                             40,000

James U. Jensen, J.D.                                1999      182,758       4,800                 20,000
     Vice President, Corporate Development           1998      173,539                             30,000
     and Legal Affairs and Secretary                 1997      167,783                             20,000

Thomas B. Marriott, Ph.D.                            1999      189,757       4,800                 20,000
     Vice President, Development Research            1998      182,846                             30,000
                                                     1997      177,868                             20,000

Robert K. Merrell                                    1999      155,272       4,800                 24,000
     Vice President, Finance, Chief Financial        1998      149,569                             30,000
     Officer, and Treasurer                          1997      135,893                             20,000

Edward F. Nemeth, Ph.D.                              1999      173,758       2,621                 20,000
     Vice President, and Chief Scientific            1998      165,754                             30,000
     Officer                                         1997      159,832                             20,000



(1)  401(k) Company Match

     The following table sets forth each grant of options to purchase common
stock made during the year ended December 31, 1999 to each of the Named
Executive Officers. Grants of options to each of the Named Executive Officers
were made under the 1998 Plan:

                             OPTION GRANTS IN 1999



                                                                                                 Potential Realizable Value at
                                Securities      % of Total                                       Assumed Annual Rates of Stock
                                Underlying       Options          Exercise                            Price Appreciation
                                 Options        Granted in      or Base Price     Expiration          for Option Term(2)
              Name               Granted        Fiscal Year       Per Share         Date(1)         5%                   10%
              ----              ----------      -----------     -------------     ----------     --------             --------
                                                                                                    
Hunter Jackson                    40,000           9.56%            $4.50          12/08/09      $113,201             $286,874
James U. Jensen                   20,000           4.78%            $4.50          12/08/09      $ 56,601             $143,437
Thomas B. Marriott                20,000           4.78%            $4.50          12/08/09      $ 56,601             $143,437
Robert K. Merrell                 24,000           5.73%            $4.50          12/08/09      $ 67,921             $172,124
Edward F. Nemeth                  20,000           4.78%            $4.50          12/08/09      $ 56,601             $172,124

______________________
(1)  These options have a ten-year term, subject to earlier termination upon
     death, disability, or termination of employment.
(2)  The potential realizable value is calculated based on the term of the
     option at its time of grant (ten years). It is calculated by assuming that
     the stock price on the date of grant appreciates at the indicated annual
     rate compounded annually for the entire term of the option and that the
     option is exercised and sold on the last day of its term for the
     appreciated stock price. No gain to the optionee is possible unless the
     stock price increases over the option term, which will benefit all
     stockholders.


                                       35


     The following table sets forth information for fiscal year ended December
31, 1999 with respect to (a) the exercise of stock options by the Named
Executive Officers in 1999; (b) the number of unexercised options held by the
Named Executive Officers as of December 31, 1999; and (c) the value of
unexercised in-the-money options as of December 31, 1999.


               OPTION EXERCISES IN 1999 AND YEAR-END VALUE TABLE



                                                                      Number of                    Value of In-the-Money
                        Shares Acquired         Value             Unexercised Options                   Options(2)
          Name            On Exercise        Realized(1)     Exercisable     Unexercisable     Exercisable     Unexercisable
          ----          ---------------     ------------     -----------     -------------     -----------     -------------
                                                                                             
Hunter Jackson                     0         $        0          242,400           107,600      $1,577,875        $630,250
James U. Jensen                    0         $        0           66,200            53,800      $  211,750        $315,125
Thomas B. Marriott             3,000         $   14,280          114,200            53,800      $  673,750        $315,125
Robert K. Merrell             27,000         $  204,195           73,200            57,800      $  307,270        $346,125
Edward F. Nemeth                   0         $        0          186,200            53,800      $1,373,350        $315,125

_________________
(1)  Value realized is based on the fair market value of NPS common stock on the
     date of exercise (the closing sales price reported on the Nasdaq National
     Market on such date) minus the exercise price, and does not necessarily
     indicate that the optionee sold such stock.
(2)  Represents the difference between the option exercise price and the closing
     price of NPS common stock as reported on the Nasdaq National Market on
     December 31, 1999 ($12.25) times the corresponding number of shares.


Compensation of Directors.

     The Company's directors do not currently receive any cash compensation for
service on the Board or any Committee thereof. Outside directors are reimbursed
for certain expenses in connection with attendance at Board and Committee
meetings. Directors are eligible to receive stock options and stock bonuses
under the stock plans described below.

1994 Non-Employee Directors' Stock Option Plan
- ----------------------------------------------

     In January 1994, the Board adopted, and the stockholders subsequently
approved, the 1994 Non-Employee Directors' Stock Option Plan (Directors' Plan).
An amendment to increase from 90,000 to 160,000 the number of shares available
for grant under the Directors' Plan was approved by the stockholders in July
1996. In May 1999 a subsequent amendment was approved by stockholders to
increase the number of shares available for issuance from 160,000 to 260,000.
Under the Directors' Plan, non-employee directors of the Company are eligible to
receive options. Options granted under the Directors' Plan are automatic and
non-discretionary and do not qualify as ISOs under the Internal Revenue Code of
1986, as amended. Pursuant to the terms of the Directors' Plan, each person who
is elected for the first time to be an outside director of the Company and who
is not otherwise employed by the Company or an affiliate of the Company (a "Non-
Employee Director") will automatically be granted an option to purchase 15,000
shares of common stock (subject to adjustment as provided in the Directors'
Plan) upon the date of his or her election to the Board. On December 1 of each
year, each person who is then a Non-Employee Director and has been a Non-
Employee Director for at least three months will automatically be granted an
option to purchase 3,000 shares of common stock (subject to adjustment as
provided in the Directors' Plan) pursuant to the Directors' Plan.

     No option granted under the Directors' Plan may be exercised after the
expiration of ten years from the date such option was granted. Options granted
under the Directors' Plan vest at a rate of 28% of the shares subject to the
option one year after date of grant and 3% of the shares become exercisable each
month thereafter, so long as the optionee has, during the entire period prior to
such vesting date, continuously served as a Non-Employee Director or in other
continuous affiliation as provided under the Directors' Plan. If the optionee's
service as a non-employee director terminates for any reason other than death,
the option will remain exercisable for twelve months after the date of
termination, or until the option's expiration date, if earlier. If the optionee


                                       36


dies, the option will remain exercisable for eighteen months following the date
of death or until the expiration date of the option, whichever is earlier. The
exercise price of options granted under the Directors' Plan is 100% of the fair
market value of the common stock on the date of grant. Options granted under the
Directors' Plan are generally non-transferable. Unless otherwise terminated by
the Board, the Directors' Plan automatically terminates in January 2004.

     As of December 31, 1999, options to purchase a total of 22,290 shares of
common stock had been exercised under the Directors' Plan at an exercise price
of $3.00 per share. As of that date, options to purchase 165,180 shares of
common stock with exercise prices from $3.00 to $10.25 per share and a weighted
average exercise price per share of $7.62 were outstanding. Prior to the
adoption of the Directors' Plan, the Company granted options to directors under
the 1987 Stock Option Plan.

Non-Employee Directors' Stock Bonus Program
- -------------------------------------------

     In December 1994, the Board adopted the Non-Employee Directors' Stock Bonus
Program under the 1994 Equity Incentive Plan (Stock Bonus Program). Under the
Stock Bonus Program, non-employee directors are eligible to receive grants of
shares of common stock for attendance at Board and Committee meetings. The Stock
Bonus Program provides each Non-Employee Director of the Company with a non-
discretionary award of 200 shares of common stock for each Board meeting
attended and 200 shares of common stock per year for serving on a Board
Committee. A total of 8,200 shares were granted under the Stock Bonus Program
for meetings attended in 1999.

     The right to receive awards under the Stock Bonus Program is generally non-
transferable. The stock awards are made at the end of each calendar year. Non-
Employee Directors entitled to stock bonus awards shall not possess any rights
of a stockholder of the Company until such shares are delivered to the Non-
Employee Director. Unless otherwise terminated by the Board, the Stock Bonus
Program terminates in January 2004.


Compensation Committee Interlocks and Insider Participation.

     Mr. Tombros, Mr. Costa, Mr. Groninger, and Mr. Klein served on the
Compensation Committee for fiscal year 1999. No officer or employee of the
Company sits on the Compensation Committee. No member of the Compensation
Committee has at any time been an officer or employee of the Company. Mr.
Groninger is a brother-in-law of Dr. Jackson, the Company's Chief Executive
Officer, President and Chairman of the Board. Mr. Groninger abstains from
participating in the determination of the proper compensation package for Dr.
Jackson.

     Mr. Costa, a director of the Company since 1995 is Vice Chairman of
Quintiles Transnational Corporation. NPS Allelix entered into an agreement with
Quintiles Canada, Inc., a subsidiary of Quintiles Transnational Corporation
under which Quintiles will provide certain contract research services with
respect to clinical trials of ALX1-11. Under the terms of the Agreement, NPS
Allelix expects to pay approximately $7.3 million to Quintiles over the next
three years for services rendered under the agreement.


ITEM 12.  Security Ownership of Certain Beneficial Owners and Management.

     The following table sets forth certain information regarding the ownership
of NPS common stock as of April 24, 2000 by: (a) all those known by the Company
to be beneficial owners of more than five percent of the Company's common stock;
(b) each director and nominee for director; (c) each of the executive officers
named in the Summary Compensation Table; and (d) all executive officers and
directors of the Company as a group.



                                                           Amount of Beneficial     Percent of
            Name and Address of Beneficial Owner           --------------------     ----------
            ------------------------------------                Ownership            Total(1)
                  (unless otherwise noted)                      ---------            --------
                                                                              
T. Rowe Price Associates, Inc. (2)                              2,393,200                 9.87%
100 E. Pratt Street
Baltimore, MD 21202



                                      37




                                                           Amount of Beneficial     Percent of
            Name and Address of Beneficial Owner           --------------------     ----------
            ------------------------------------                Ownership            Total(1)
                  (unless otherwise noted)                      ---------            --------
                                                                              
Wellington Management Company, LLP (3)                          1,813,079                 7.48%
75 State Street
Boston, MA 02109

Invesco                                                         1,300,000                 5.36%
7800 E. Union
Denver, CO  80287

Hunter Jackson, Ph.D. (4)                                         615,825                 2.51%

Calvin R. Stiller (5)                                             467,177                 1.93%

Thomas N. Parks, Ph.D. (6)                                        359,340                 1.48%

Edward F. Nemeth, Ph.D. (7)                                       242,656                    *

John R. Evans (8)                                                 143,031                    *

James U. Jensen, J.D. (9)                                         122,769                    *

Thomas B. Marriott, Ph.D. (10)                                    135,519                    *

Edward K. Rygiel (11)                                             111,268                    *

Joseph Klein, III (12)                                            104,180                    *

James G. Groninger (13)                                            85,552                    *

Donald E. Kuhla, Ph.D. (14)                                        60,340                    *

Robert K. Merrell (15)                                             67,800                    *

Peter Tombros (16)                                                 14,900                    *

Santo J. Costa, J.D. (17)                                           4,480                    *

All directors and executive officers as a group (18)            2,630,903                10.47%

________________________
*  Means less than 1%.

     The above table is based upon information supplied by officers, directors,
     and principal stockholders and Schedules 13D and 13G filed with the
     Commission. Beneficial ownership is determined in accordance with the rules
     of the Commission and generally includes voting or investment power with
     respect to securities.

     Except as set forth herein, the address of the persons set forth above is
     the address of the Company appearing elsewhere in this Proxy Statement.
- --------------------------------------------------------------------------------
1  The number of shares of common stock issued and outstanding on April 24, 2000
   was 24,241,663 shares, which amount includes 2,097,555 exchangeable shares.
   The calculation of percentage ownership for each listed beneficial owner is
   based upon the number of shares of common stock issued and outstanding at
   April 24, 2000, plus shares of common stock subject to options held by such
   person at April 24, 2000 and exercisable within 60 days thereafter. The
   persons and entities named in the table have sole voting and investment power
   with respect to all shares shown as beneficially owned by them, except as
   noted below.
2  These securities are owned by various individual and institutional investors
   including T. Rowe Price New Horizons Fund, Inc. which owns 1,400,000 shares,
   which represents 5.78% of the shares outstanding, for which T. Rowe Price
   Associates, Inc. serves as investment adviser with power to direct
   investments and/or sole power to vote the securities. For purposes of the
   reporting requirements of the Securities Exchange Act of 1934, T. Rowe Price
   Associates is deemed to be a beneficial owner of such securities; however, T.
   Rowe Price Associates expressly disclaims that it is, in fact, the beneficial
   owner of such securities.
3  Wellington Management Company, LLP, a registered investment adviser, is
   deemed to have beneficial ownership of 1,813,079 shares of NPS common stock.


                                      38


   Such shares are owned of record by clients of Wellington Management,
   including *Wellington Trust Company, NA, a bank as defined in Section 3(a)(6)
   of the Act which is deemed to have beneficial ownership of 915,024 shares of
   NPS common stock which represents 3.77% of shares outstanding. Wellington
   Management shares voting power with respect to 1,652,551 of such shares and
   dispositive power with respect to all of such shares.
4  Includes 111,783 shares held in a trust and 2 shares held by Dr. Jackson's
   children, of which he disclaims beneficial ownership. Also includes 271,600
   shares subject to options exercisable within 60 days of April 24, 2000.
5  Includes 467,177 shares held by Canadian Medical Discoveries Fund, of which
   he disclaims beneficial ownership.
6  Includes 10,000 shares held in a trust of which Dr. Parks disclaims
   beneficial ownership. Also includes 18,840 shares subject to options
   exercisable within 60 days of April 24, 2000.
7  Includes 200,800 shares subject to options exercisable within 60 days of
   April 24, 2000.
8  Includes 14,182 shares subject to options exercisable within 60 days of April
   24, 2000.
9  Includes 2,000 shares held by a limited liability company of which Mr. Jensen
   disclaims beneficial ownership. Also includes 75,000 shares subject to
   options exercisable within 60 days of April 24, 2000.
10 Includes 3,241 shares held by spouse, 721 shares held by children, of which
   Mr. Marriott disclaims beneficial ownership. Also includes 118,800 shares
   subject to options exercisable within 60 days of April 24, 2000.
11 Includes 111,268 shares held by NeuroScience partners, L.P.; MDS Health
   Ventures (TC) Inc.; and MDS Health Ventures (PC) Inc.; of which Mr. Rygiel
   disclaims beneficial ownership.
12 Includes 9,780 shares subject to options exercisable within 60 days of April
   24, 2000.
13 Includes 10,000 shares owned by spouse, and 7,450 shares owned by children,
   of which Mr. Groninger disclaims beneficial ownership. Also includes 10,020
   shares subject to options exercisable within 60 days of April 24, 2000.
14 Includes 12,840 shares subject to options exercisable within 60 days of April
   24, 2000.
15 Includes 63,800 shares subject to options exercisable within 60 days of April
   24, 2000.
16 Includes 6,900 shares subject to options exercisable within 60 days of April
   24, 2000.
17 Includes 3,840 shares subject to options exercisable within 60 days of April
   24, 2000.
18 Includes 17 people. An aggregate of 802,565 shares are subject to options
   exercisable within 60 days of April 24, 2000.


ITEM 13.  Certain Relationships and Related Transactions.


     Dr. Kuhla, a director of the Company since 1991, was a Vice President of
Plexus Ventures, Inc. from February 1994 through June 1998. The Company had a
consulting agreement with Plexus through December 31, 1995, whereunder Plexus
assisted the Company with its effort to establish a collaboration for the
Company's hyperparathyroidism program. Plexus may earn an additional $400,000 in
fees as payments are received from Amgen Inc. The Company also granted Plexus an
option to purchase 20,000 shares of NPS common stock at $10.50 per share with
vesting contingent upon milestone payments from Amgen, of which Dr. Kuhla has a
one-third interest.

     The Company has also entered into a Consultant Services Agreement with Dr.
Kuhla, effective November 1, 1996, whereunder Dr. Kuhla will provide scientific
consulting services to the Company. In return for such consultant services Dr.
Kuhla is paid with shares of NPS common stock. In fiscal year 1999, Dr. Kuhla
received no shares of NPS common stock.

     The Company's policy is to enter into agreements with each of its directors
and executive officers providing for the indemnification of such persons to the
fullest extent permitted by law for any liability they may incur by reason of
their service as officers and/or directors to the Company. The Company has
entered into indemnity agreements with each of its directors and executive
officers.

     Dr. Evans, a director of the Company since December 1999, is a director of
MDS, Inc. In addition, Mr. Rygiel, a director of the Company since December 1999
is Executive Vice President of MDS, Inc. In February 2000, NPS Allelix Corp., a


                                      39


subsidiary of the Company entered into a Pharmaceutical Services Agreement with
MDS, Inc. for clinical laboratory services related to the clinical trial with
ALX1-11. In March 2000, NPS Allelix also entered into a Clinical Laboratory
Analysis Agreement with Harris Laboratories, a subsidiary of MDS, Inc. Under the
agreements, NPS Allelix expects to pay to MDS approximately $1.8 million over
the next three years for services rendered under the agreements.

     Mr. Costa, a director of the Company since 1995 is Vice Chairman of
Quintiles Transnational Corporation. NPS Allelix entered into an agreement with
Quintiles Canada, Inc., a subsidiary of Quintiles Transnational Corporation
under which Quintiles will provide certain contract research services with
respect to the clinical trials of ALX1-11. Under the terms of the Agreement, NPS
Allelix expects to pay approximately $7.3 million to Quintiles over the next
three years for services rendered under the agreement.


                                      40


                                    PART IV

ITEM 14.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K.

     (a)   1. Index to consolidated financial statements and report of
independent auditors. The consolidated financial statements required by this
item are submitted in a separate section beginning on page F-1 of this report.



                                                                    Page Number
                                                                    ------------
                                                                  
Index to Consolidated Financial Statements                               F-1
Independent Auditors' Report                                             F-2
Consolidated Balance Sheets                                              F-3
Consolidated Statements of Operations                                    F-4
Consolidated Statements of Stockholders' Equity and
   Comprehensive Income (Loss)                                           F-5
Consolidated Statements of Cash Flows                                    F-10
Notes to Consolidated Financial Statements                               F-11


     2.   Index to financial statements schedules. There are no financial
statements schedules included because they are either not applicable or the
required information is shown in the consolidated financial statements or the
notes thereto.

     3.   Exhibits.


Exhibit
Number         Exhibit
- -------        -------
            
2.1      Arrangement Agreement made as of September 27, 1999, as amended by Amendment No. 1 as of October
         28, 1999 and as amended and restated as of November 15, 1999 between Allelix Biopharmaceuticals
         Inc. and NPS Pharmaceuticals, Inc.(11)
3.1      Amended and Restated Certificate of Incorporation of the Registrant(1)
3.2      Amended and Restated Bylaws of the Registrant(1)
4.1      Rights Agreement, dated as of December 4, 1996, between NPS Pharmaceuticals, Inc. and American
         Stock Transfer & Trust, Inc., with Exhibit A, Form of Certificate of Designation of Series A
         Junior Participating Preferred Stock; Exhibit B, Form of Right Certificate; and Exhibit C,
         Summary of Rights to Purchase Shares of Preferred Stock(6)
4.2      Provisions attaching to the Exchangeable Shares of NPS Allelix Inc.(11)
4.3      Support Agreement made as of December 22, 1999 among NPS Pharmaceuticals, Inc., and NPS Holdings
         Company, and NPS Allelix Inc.(11)
4.4      Voting and Exchange Trust Agreement made as of December 22, 1999 between NPS Pharmaceuticals,
         Inc., and NPS Allelix Inc., and CIBC Mellon Trust Company(11)
10.1     Stock Purchase Agreement between the Registrant and S.R. One, Limited, dated November 18, 1993(1)
10.2     Amended Agreement and Waiver, among the Registrant and the other parties thereto, dated November
         18, 1993(1)
10.3     Form of Registrant's 1994 Non-Employee Directors' Stock Option Plan(1)
10.4     Form of Registrant's 1994 Equity Incentive Plan and Form of Stock Option Agreements(1)
10.5     Registrant's 1987 Stock Option Plan, as amended, and Form of Stock Option Agreement(1)
10.6     Form of Registrant's 1994 Employee Stock Purchase Plan and Form of Offering Document(1)
10.7     Master Lease Agreement between the Registrant and LINC Scientific Leasing, dated October 7, 1992,
         with related addenda(1)
10.8     Form of Indemnity Agreement entered into between the Registrant and its officers and directors(1)
10.9*    Collaborative Research and License Agreement between the Registrant and SmithKline Beecham
         Corporation, dated November 1, 1993(1)
10.10*   Patent Agreement Between the Registrant and The Brigham and Women's Hospital, Inc., dated
         February 19, 1993, with related amendment(1)
10.11*   Research Agreement between the Registrant and The Brigham and Women's Hospital, Inc., dated



                                      41





       
         February 19, 1993, with related amendment(1)
10.15*   Collaborative Research and License Agreement between the Registrant and Kirin Brewery Company, Ltd. dated June 29, 1995(3)
10.16*   Development and License Agreement between the Registrant and Amgen Inc. effective as of December 27, 1995(7)
10.17*   Stock Purchase Agreement between Registrant and Amgen Inc. dated March 18, 1996(7)
10.18    Lease Agreement with GATX dated June 1, 1995, with related addenda(3)
10.19    Office Lease between Salt Lake Research Park Associates and Registrant dated June 3, 1994, with related amendments(3)
10.20    Consultant Services Agreement between the Registrant and Thomas N. Parks, Ph.D., dated January 30, 1989(1)
10.21    Consulting Agreement between the Registrant and Plexus Ventures, Inc. dated August 5, 1994, as
         amended(2)
10.22*   Binding Letter of Intent between Amgen Inc. and the Registrant dated December 27, 1995(4)
10.23*   Amendment effective February 7, 1996 to Research Agreement between the Registrant and The Brigham
         and Women's Hospital, Inc. dated February 19, 1993(7)
10.24*   Amendment effective February 7, 1996 to Patent Agreement between the Registrant and The Brigham
         and Women's Hospital, Inc., dated February 19, 1993(7)
10.25*   Amendment effective January 29, 1996 to the Collaborative Research and License Agreement between
         the Registrant and SmithKline Beecham Corporation, dated November 1, 1993(7)
10.26    Form of Registrant's 1994 Employee Stock Purchase Plan and Form of Offering Document as amended
         and adopted by the Board of Directors dated December 1996(5)
10.27    Form of Registrant's 1994 Non-Employee Directors' Stock Option Plan as amended and adopted by the
         Board of Directors dated December 1996(5)
10.28    Form of Registrant's 1994 Equity Incentive Plan as amended and adopted by the Board of Directors
         dated December 1996(5)
10.29    Consulting Services Agreement between the Registrant and Donald E. Kuhla, Ph.D. dated November 1,
         1996(7)
10.30*   Amendment Agreement between SmithKline Beecham Corporation and NPS Pharmaceuticals, Inc. dated
         October 28, 1996(6)
10.31    1997 Research Agreement Amendment between The Brigham and Women's Hospital, Inc. and NPS
         Pharmaceuticals, Inc., effective March 1, 1997(7)
10.32    Research and Development Agreement between Systems Integration Drug Discovery Company, Inc.
         (doing business as SIDDCO, Inc.) and NPS Pharmaceuticals, Inc., dated July 16, 1997(8)
10.33    Amendment Agreement between SmithKline Beecham Corporation and NPS Pharmaceuticals, Inc., dated
         October 24, 1997(9)
10.34    Amendment Agreement between SmithKline Beecham Corporation and NPS Pharmaceuticals, Inc., dated
         October 27, 1997(9)
10.358   Amendment to the Collaborative Research and License Agreement between SmithKline Beecham
         Corporation and NPS Pharmaceuticals, Inc., dated November 26, 1997(9)
10.36    Stock Purchase Agreement between SmithKline Beecham Corporation and NPS Pharmaceuticals, Inc.,
         dated November 26, 1997(9)
10.37    First Amendment to the Research & Development Agreement between SIDDCO, INC. and NPS
         Pharmaceuticals, Inc.(10)
21.1     Subsidiaries of the Registrant
23.1     Consent of independent certified public accountants
24.1     Power of Attorney (incorporated in the signature page of the Form 10-K)
27.1     Financial Data Schedule (attached to EDGAR filing of the Form 10-K)



- -----------------------------------------
*  Confidential treatment has been granted.



                                      42


(1)  Incorporated herein by reference to the Company's Registration Statement on
     Form S-1 filed January 21, 1994 (Commission File No. 33-74318).
(2)  Incorporated herein by reference to the Company's Form 10-K for the fiscal
     year ended December 31, 1994.
(3)  Incorporated herein by reference to the Company's Form 10-K for the fiscal
     year ended December 31, 1995.
(4)  Incorporated herein by reference to the Company's Form 8-K dated February
     29, 1996.
(5)  Incorporated herein by reference to the Company's Form S-8 dated December
     9, 1996.
(6)  Incorporated herein by reference to the Company's Form 8-K dated December
     19, 1996.
(7)  Incorporated herein by reference to the Company's Form 10-K for the fiscal
     year ended December 31, 1996.
(8)  Incorporated herein by reference to the Company's Form 10-Q for the
     quarterly period ended June 30, 1997.
(9)  Incorporated herein by reference to the Company's Form 8-K dated January
     27, 1998.
(10) Incorporated herein by reference to the Company's Form 10-K for the fiscal
     year ended December 31, 1997.
(11) Incorporated herein by reference to the Company's Definitive Proxy
     Statement filed November 18, 1999.

     (b)  Reports on Form 8-K:

      .   The Company filed a report on Form 8-K on October 1, 1999 in
          connection with the execution of an Arrangement Agreement under which
          the Company and Allelix agreed to merge the operations of the two
          companies.

      .   On November 11, 1999, the Company filed a report on Form 8-K for the
          purchase by SmithKline Beecham of 249,000 shares of the Company's
          common stock for aggregate consideration of $1,946,433.

      .   On November 18, 1999, the Company filed a report on Form 8-K in
          connection with the investment by the Canadian government of $5.78
          million (U.S.) in Allelix Biopharmaceuticals Inc.

     (c)  See Exhibits listed under Item 14(a)(3).

     (d)  The financial statement schedules required by this Item are listed
          under Item 14(a)(2).


                                      43


                                  SIGNATURES

     Pursuant to the requirements of the Section 13 or 15(d) of the Securities
and Exchange Act of 1934, the registrant has duly caused this Amendment to be
signed on its behalf by the undersigned, thereunto duly authorized, on the 12th
day of May, 2000.


                              NPS Pharmaceuticals, Inc.



                              By:  /s/ James U. Jensen
                                   --------------------------------------
                                   James U. Jensen
                                   Vice President, Corporate Development
                                   and Legal Affairs


                                      44


                  INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


                                                                       Page

Independent Auditors' Report                                           F-2

Consolidated Balance Sheets                                            F-3

Consolidated Statements of Operations                                  F-4

Consolidated Statements of Stockholders'
 Equity and Comprehensive Income (Loss)                                F-5

Consolidated Statements of Cash Flows                                  F-10

Notes to Consolidated Financial Statements                             F-11

                                      F-1


                         Independent Auditors' Report

The Board of Directors and Stockholders
NPS Pharmaceuticals, Inc. and Subsidiaries:

We have audited the accompanying consolidated balance sheets of NPS
Pharmaceuticals, Inc. and subsidiaries (a development stage enterprise) as of
December 31, 1999 and 1998, and the related consolidated statements of
operations, stockholders' equity and comprehensive income (loss), and cash flows
for each of the years in the three-year period ended December 31, 1999, and for
the period from October 22, 1986 (inception) to December 31, 1999. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of NPS Pharmaceuticals,
Inc. and subsidiaries (a development stage enterprise) as of December 31, 1999
and 1998, and the results of their operations and their cash flows for each of
the years in the three-year period ended December 31, 1999, and for the period
from October 22, 1986 (inception) to December 31, 1999, in conformity with
generally accepted accounting principles.


                                    /s/ KPMG LLP

Salt Lake City, Utah
February 23, 2000

                                      F-2


                  NPS PHARMACEUTICALS, INC. AND SUBSIDIARIES
                       (A Development Stage Enterprise)

                          Consolidated Balance Sheets



                                                                                                     December 31,
                                                                                         ---------------------------------------
                                                           Assets                              1999                  1998
                                                                                         -----------------     -----------------
                                                                                                         
Current assets:
  Cash and cash equivalents                                                                 $   13,115,630            23,615,225
  Marketable investment securities (note 4)                                                     22,563,128            19,829,253
  Due from related parties                                                                          68,504                   -
  Accounts receivable                                                                              814,812               100,000
  Other current assets                                                                             417,394               156,250
                                                                                         -----------------     -----------------
                  Total current assets                                                          36,979,468            43,700,728
                                                                                         -----------------     -----------------

Restricted cash (note 5)                                                                           777,755                     -

Plant and equipment (note 5):
  Land                                                                                             447,381                     -
  Building                                                                                       1,201,144                     -
  Equipment                                                                                      8,237,404             6,325,455
  Leasehold improvements                                                                         3,732,142             2,885,400
                                                                                         -----------------     -----------------
                                                                                                13,618,071             9,210,855

  Less accumulated depreciation and amortization                                                 5,541,127             4,804,228
                                                                                         -----------------     -----------------
                  Net plant and equipment                                                        8,076,944             4,406,627

 Goodwill, net of accumulated amortization of
    $-0- at December 31, 1999 and 1998                                                          11,229,811                     -

 Purchased intangible assets, net of accumulated
    amortization of $-0- at December 31, 1999 and 1998                                           7,820,000                     -

 Other assets                                                                                       82,066                 3,267
                                                                                         -----------------     -----------------
                                                                                            $   64,966,044            48,110,622
                                                                                         =================     =================

                                         Liabilities and Stockholders' Equity
Current liabilities:
    Current installments of obligations under capital leases (note 5)                       $      370,770                26,291
    Current installments on long-term debt (note 6)                                                      -                 8,567
    Accounts payable                                                                               668,728             1,872,610
    Accrued expenses                                                                               687,396               350,853
    Accrued severance (note 2)                                                                   1,455,036                     -
    Deferred income                                                                              1,265,402               675,000
                                                                                         -----------------     -----------------
                   Total current liabilities                                                     4,447,332             2,933,321

Obligations under capital leases, excluding current installments (note 5)                          372,786                31,517

Long-term debt, excluding current installments (note 6)                                          1,567,020                     -
                                                                                         -----------------     -----------------
                  Total liabilities                                                              6,387,138             2,964,838
                                                                                         -----------------     -----------------

Minority interest (note 2)                                                                       2,500,000                     -

Stockholders' equity (notes 7 and 8):
   Preferred stock, $.001 par value.  Authorized 5,000,000 shares;
      none issued and outstanding                                                                        -                     -
   Common stock, $.001 par value.  Authorized 45,000,000 shares;
      issued and outstanding 19,529,720 shares at December 31, 1999,
      and 12,586,336 at December 31, 1998                                                           19,530                12,586
   Additional paid-in capital                                                                  135,036,327            88,291,872
   Accumulated other comprehensive income - net unrealized gain (loss) on
      marketable investment securities                                                             (53,718)              110,352
   Deficit accumulated during development stage                                                (78,923,233)          (43,269,026)
                                                                                         -----------------     -----------------
                   Net stockholders' equity                                                     56,078,906            45,145,784

Commitments and contingencies (notes 2, 3, 5, 6, 8, and 10)
                                                                                         -----------------     -----------------
                                                                                       $       64,966,044            48,110,622
                                                                                         =================     =================

                                    See accompanying noted to consolidated financial statements


                                      F-3


                  NPS PHARMACEUTICALS, INC. AND SUBSIDIARIES
                       (A Development Stage Enterprise)

                     Consolidated Statements of Operations




                                                                                                               October 22,
                                                                                                                  1986
                                                                                                               (inception)
                                                                                                                 through
                                                                           Years ended December 31,            December 31,
                                                             -----------------------------------------------
                                                                 1999            1998            1997             1999
                                                             ------------   --------------   ---------------  -------------
                                                                                                    
Revenues from research and license agreements               $  3,445,417       3,568,333       5,841,667       55,513,596

Operating expenses:
    Research and development                                  16,935,208      17,856,501      15,089,746       91,567,689
    General and administrative                                 5,983,213       5,546,092       5,586,837       35,016,238
    In-process research and development acquired (note 2)     17,760,000               -               -       17,760,000
                                                             ------------   --------------   ---------------  -------------
                  Total operating expenses                    40,678,421      23,402,593      20,676,583      144,343,927
                                                             ------------   --------------   ---------------  -------------
                  Operating loss                             (37,233,004)    (19,834,260)    (14,834,916)     (88,830,331)

Other income (expense):
    Interest income                                            1,811,460       2,365,214       3,257,571       11,705,077
    Gain (loss) on sale of marketable investment securities     (101,840)        323,420         118,686           16,846
    Impairment loss (note 12)                                   (131,062)              -               -         (131,062)
    Interest expense                                              (3,761)        (16,481)        (67,917)        (705,577)
    Other                                                          4,000               -               -           39,579
                                                             ------------   --------------   ---------------  -------------
                  Total other income                           1,578,797       2,672,153       3,308,340       10,924,863
                                                             ------------   --------------   ---------------  -------------
                  Loss before income tax expense             (35,654,207)    (17,162,107)    (11,526,576)     (77,905,468)

Income tax expense (note 9)                                            -               -         167,765        1,017,765
                                                             ------------   --------------   ---------------  -------------
                  Net loss                                  $(35,654,207)    (17,162,107)    (11,694,341)     (78,923,233)
                                                             ============   ==============   ===============  =============

Net loss per common and common equivalent share:
    Basic and diluted                                             ($2.77)         ($1.39)         ($0.98)
                                                             ============   ==============   ===============  =============

Weighted average common and common-equivalent shares
    outstanding during the year:
      Basic and diluted                                       12,862,948      12,337,200      11,956,396
                                                             ============   ==============   ===============





                                   See accompanying notes to consolidated financial statements.


                                      F-4


                  NPS PHARMACEUTICALS, INC. AND SUBSIDIARIES
                       (A Development Stage Enterprise)

Consolidated Statements of Stockholders' Equity and Comprehensive Income (Loss)

            October 22, 1986 (inception) through December 31, 1999




                                                                                                       Accumulated
                                                                               Deficit                   other
                                                                             accumulated     Compre-     compre-       Net
                                                   Additional    Deferred      during        hensive     hensive      stock-
                           Preferred    Common      paid-in      compen-     development     income      income      holders'
                             stock      stock       capital      sation        stage         (loss)      (loss)       equity
                           ---------   -------     ----------   ---------    -----------    ---------    -------   ----------
                                                                                           

Balances, December 31,
  1985                     $       -         -              -           -              -    $                  -            -

Issuance of 1,125,000
  shares of common stock
  for cash and equipment
  valued at fair value
  upon incorporation
  at October 22, 1986              -     1,125         13,875           -              -                       -       15,000

Net loss                           -        -               -           -        (12,477)     (12,477)         -      (12,477)
                                                                                            ---------
Comprehensive loss                 -        -               -           -              -    $ (12,477)         -            -
                           ---------   -------     ----------   ---------    -----------    ---------    -------   ----------


Balances, December 31,
  1986                             -     1,125         13,875           -        (12,477)                      -        2,523

Repurchase of 375,000
  shares of common stock           -      (375)        (4,625)          -              -                       -       (5,000)

Issuance of 82,500 shares
  of common stock for
  services                         -        83          1,017           -              -                       -        1,100

Net income                         -         -             -            -        121,274      121,274          -      121,274
                                                                                            ---------
Comprehensive income               -         -             -            -              -    $ 121,274          -            -
                           ---------   -------     ----------   ---------    -----------    ---------    -------   ----------
Balances, December 31,
  1987                             -       833         10,267           -        108,797                       -      119,897

Issuance of 55,556 shares
  of preferred stock for
  cash                         5,556         -        294,446           -              -                       -      300,002

Issuance of 11,448 shares
  of common stock for
  cash under option plan           -        11          1,516           -              -                       -        1,527

Issuance of 97,500 shares
  of common stock for
  services under option
  plan                             -        98         32,402           -              -                       -       32,500

Net loss                           -         -              -           -       (105,643)    (105,643)         -     (105,643)
                                                                                            ---------
Comprehensive loss                 -         -              -           -              -    $(105,643)         -            -
                           ---------   -------     ----------   ---------    -----------    ---------    -------   ----------
Balances, December 31,
  1988                         5,556       942        338,631           -          3,154                       -      348,283

Issuance of 37,037 shares
  of preferred stock for
  cash                         3,704         -        336,296           -              -                       -      340,000

Issuance of 7,500 shares
  of common stock for
  services under option
  plan                             -         7          2,493           -              -                       -        2,500

Net loss                           -         -              -           -         (5,025)      (5,025)         -       (5,025)
                                                                                            ---------
Comprehensive loss                 -         -              -           -              -    $  (5,025)         -            -
                           ---------   -------     ----------   ---------    -----------    ---------    -------   ----------
Balances, December 31,
  1989                         9,260       949        677,420           -         (1,871)                      -      685,758


                                    See accompanying notes to consolidated financial statements



                                      F-5


                    PHARMACEUTICALS, INC. AND SUBSIDIARIES
                       (A Development Stage Enterprise)

   Consolidated Statements of Stockholders' Equity and Comprehensive Income
                                    (Loss)

            October 22, 1986 (inception) through December 31, 1999




                                                                                                        Accumulated
                                                                               Deficit                    other
                                                                             accumulated     Compre-      compre-        Net
                                                   Additional    Deferred     during         hensive      hensive       stock-
                             Preferred   Common     paid-in      compen-    development      income       income       holders'
                               stock     stock      capital       sation       stage         (loss)       (loss)        equity
                           -----------  -------   -----------   ---------  ------------     --------    -----------   -------------
                                                                                               
Issuance of 37,037
 shares of preferred
 stock for cash             $  3,703        -       336,297            -              -                         -         340,000

Issuance of 2,475
 shares of common
 stock for cash
 under option plan                 -        2           898            -              -                         -            900

Net loss                           -        -             -            -       (212,976)     (212,976)          -       (212,976)
                                                                                            ---------
Comprehensive loss                 -        -             -            -              -    $ (212,976)          -              -
                           ---------    -----     ---------      -------     ----------    ==========    --------      ---------
Balances, December 31,
 1990                         12,963      951     1,014,615            -       (214,847)                        -        813,682

Issuance of 4,500
 shares of common
 stock for cash
 under option plan                 -        5         2,245            -              -                         -          2,250

Net loss                           -        -             -            -       (462,054)     (462,054)          -       (462,054)
                                                                                           ----------
Comprehensive loss                 -        -             -            -              -    $ (462,054)          -              -
                           ---------    -----     ---------      -------      ---------    ==========     -------     ----------
Balances, December 31,
 1991                         12,963      956     1,016,860            -       (676,901)                        -        353,878

Issuance of 3,675
 shares of common
 stock for cash
 under option plan                 -        4         2,221            -              -                         -          2,225

Issuance of 230,334
 shares of common
 stock upon
 conversion of
 129,630 shares of
 preferred stock             (12,963)     230        12,733            -              -                         -              -

Repurchase and
 cancellation of
 83,334 shares of
 common stock
 for cash                          -      (83)     (299,917)           -              -                         -       (300,000)

Issuance of 781,250
 shares of preferred
 stock for cash, net
 of offering costs               781        -     4,937,462            -              -                         -      4,938,243

Issuance of 678,573
 shares of preferred
 stock for cash, net
 of offering costs               679        -     4,693,794            -              -                         -      4,694,473

Issuance of 101,452
 shares of common
 stock for services
 related to preferred
 stock offering                    -      101          (101)           -              -                         -              -

Net loss                           -        -             -            -     (2,607,359)     (2,607,359)        -     (2,607,359)
                                                                                            ------------
Comprehensive loss                 -        -             -            -              -     $(2,607,359)        -              -
                           ---------    -----     ---------      -------      ---------     ============   -------     ----------
Balances, December 31,
 1992                          1,460    1,208    10,363,052            -     (3,284,260)                        -      7,081,460



                                      F-6


                   NPS PHARMACEUTICALS, INC. AND SUBSIDIARIES
                        (A Development Stage Enterprise)

 Consolidated Statements of Stockholders' Equity and Comprehensive Income (Loss)
             October 22, 1986 (inception) through December 31, 1999



                                                                                                        Accumulated
                                                                              Deficit                      other
                                                                            accumulated     Compre-       compre-        Net
                                                  Additional    Deferred      during        hensive       hensive       stock-
                           Preferred     Common     paid-in      compen-    development      income        income       holders'
                             stock       stock      capital       sation       stage         (loss)        (loss)        equity
                           ---------    ------    ----------    --------   ------------   ------------  -----------    ----------
                                                                                               
Issuance of 37,524
 shares of common
 stock for cash
 under option plan          $      -        38        25,545           -              -                           -        25,583

Issuance of 583,334
 shares of preferred
 stock for cash, net
 of offering costs               583         -     6,968,115           -              -                           -     6,968,698

Issuance of 6,050
 shares of preferred
 stock for services                6         -        72,594           -              -                           -        72,600

Deferred compensation
 related to grant of
 stock options, net of
 current year expense              -         -       766,500    (745,458)             -                           -        21,042

Net loss                           -         -             -           -     (7,158,581)    (7,158,581)           -    (7,158,581)
                                                                                          ------------
Comprehensive loss                 -         -             -           -              -   $ (7,158,581)           -             -
                           ---------    ------    ----------    --------   ------------   ============  -----------    ----------
Balances, December 31,
 1993                          2,049     1,246    18,195,806    (745,458)   (10,442,841)                          -     7,010,802

Issuance of 3,475,666
 shares of common stock
 upon conversion of
 2,049,207 shares of
 preferred stock              (2,049)    3,475        (1,426)          -              -                           -             -

Issuance of 2,000,000
 shares of common stock
 for cash, net of
 offering costs                    -     2,000     9,530,252           -              -                           -     9,532,252

Issuance of 20,000
 shares of common stock
 for services                      -        20        95,958           -              -                           -        95,978

Issuance of 46,118
 shares of common stock
 for cash and options
 for 432 shares under
 option plans                      -        46        26,477           -              -                           -        26,523

Amortization of
 deferred compensation             -         -             -     255,500              -                           -       255,500

Net loss                           -         -             -           -     (6,756,333)    (6,756,333)           -    (6,756,333)
                                                                                          ------------
Comprehensive loss                 -         -             -           -              -     (6,756,333)           -             -
                           ---------    ------    ----------    --------   ------------   ============  -----------    ----------
Balances, December 31,
 1994                              -     6,787    27,847,067    (489,958)   (17,199,174)                          -    10,164,722

Issuance of 242,385
 shares of common stock
 for cash and options
 for 14,816 shares
 under option plans                -       243       100,378           -              -                           -       100,621

Issuance of 39,771
 shares of common stock
 for cash under
 employee purchase plan            -        40       109,827           -              -                           -       109,867

Issuance of 3,287
 shares of common stock
 for services                      -         3         9,858           -              -                           -         9,861

Amortization of
 deferred compensation             -         -             -     255,500              -                           -       255,500

Net loss                           -         -             -           -     (3,318,091)    (3,318,091)           -    (3,318,091)

                                                                                          ------------
Comprehensive loss                 -         -             -           -              -  $  (3,318,091)           -             -
                           ---------    ------    ----------    --------   ------------   ============  -----------    ----------
Balances, December 31,
 1995                              -     7,073    28,067,130    (234,458)   (20,517,265)                          -     7,322,480



                  NPS PHARMACEUTICALS, INC. AND SUBSIDIARIES
                       (A Development Stage Enterprise)

Consolidated Statements of Stockholders' Equity and Comprehensive Income (Loss)
            October 22, 1986 (inception) through December 31, 1999


                                                                                                            Accumulated
                                                                                      Deficit                  other
                                                                                    accumulated   Compre-     compre-      Net
                                                             Additional   Deferred    during      hensive     hensive     stock-
                                      Preferred    Common      paid-in     compen-  development   income      income     holders'
                                        stock       stock      capital     sation      stage      (loss)      (loss)      equity
                                     ----------- ----------- ----------- ---------- ----------- ----------- ----------- ----------
                                                                                                
Issuance of 1,000,000
 shares of common stock
 for cash (note 3)                   $         -       1,000   7,499,000          -           -                       -  7,500,000

Issuance of 3,450,000
 shares of common stock for
 cash, net of offering costs                   -       3,450  47,909,132          -           -                       - 47,912,582

Issuance of 223,940
 shares of common stock for
 cash and options for 5,746
 shares under option plans                     -         223     220,726          -           -                       -    220,949

Issuance of 24,814
 shares of common stock for
 services under option plans                   -          25     333,890          -           -                       -    333,915

Issuance of 18,147
 shares of common stock for cash
 under employee purchase plan                  -          18     110,423          -           -                       -    110,441

Issuance of 17,519
 shares of common stock for
 warrants for 2,731 shares
 upon exercise of warrants                     -          18         (18)         -           -                       -          -

Consulting expense related to
 the grant of stock options
 for services rendered (note 6)                -           -     130,000          -           -                       -    130,000

Amortization of deferred
 compensation                                  -           -           -    234,458           -           -           -    234,458

Net income                                     -           -           -          -   6,104,687   6,104,687           -  6,104,687
                                                                                                -----------
Comprehensive income                           -           -           -          -           - $ 6,104,687           -          -
                                     ----------- ----------- ----------- ---------- ----------- ----------- ----------- ----------
Balances, December 31, 1996                    -      11,807  84,270,283          - (14,412,578)                      - 69,869,512

Issuance of 160,000
 shares of common stock
 for cash (note 3)                             -         160   1,553,840          -           -                       -  1,554,000

Issuance of 211,554
 shares of common stock
 for cash and 11,864
 shares under option plans                     -         211     301,868          -           -                       -    302,079

Issuance of 11,200
 shares of common stock for
 services under option plans                   -          11     128,089          -           -                       -    128,100

Issuance of 20,343 shares
 of common stock for cash
 under employee purchase plan                  -          20     159,766          -           -                       -    159,786

Net loss                                       -           -           -          - (11,694,341)(11,694,341)          -(11,694,341)
                                                                                                -----------
Comprehensive loss                             -           -           -          -           -$(11,694,341)          -          -
                                     ----------- ----------- ----------- ---------- ----------- ----------- ----------- ----------
Balances, December 31, 1997                    -      12,209  86,413,846          - (26,106,919)                      - 60,319,136





                  NPS PHARMACEUTICALS, INC. AND SUBSIDIARIES
                       (A Development Stage Enterprise)

Consolidated Statements of Stockholders' Equity and Comprehensive Income (Loss)
            October 22, 1986 (inception) through December 31, 1999



                                                                                                            Accumulated
                                                                                    Deficit                   other
                                                                                  accumulated   Compre-      compre-       Net
                                                         Additional    Deferred     during      hensive      hensive      stock-
                                Preferred     Common       paid-in     compen-    development    income       income      holders'
                                  stock        stock       capital      sation       stage       (loss)       (loss)       equity
                               -----------  -----------  -----------  ----------  -----------  -----------  -----------  ----------
                                                                                                 
Issuance of 204,000
 shares of common stock
 for cash (note 3)                       -          204    1,299,072           -            -                         -   1,299,276

Issuance of 124,252
 shares of common stock for
 cash under option plans                 -          124      242,504           -            -                         -     242,628

Issuance of 16,097
 shares of common stock for
 services under option plans             -           17      121,133           -            -                         -     121,150

Issuance of 31,669
 shares of common stock for cash
 under employee purchase plan            -           32      215,317           -            -                        -      215,349

Gross unrealized gains on
 marketable securities                                                                         $   433,772

Reclassification for realized
 gains on marketable securities                                                                   (323,420)
                                                                                               -----------
Net unrealized gains on
 marketable investment securities        -            -            -           -                   110,352      110,352     110,352

Net loss                                 -            -            -           -  (17,162,107) (17,162,107)             (17,162,107)
                                                                                               -----------
Comprehensive loss                       -            -            -           -            - $(17,051,755)           -          -
                               -----------  -----------  -----------  ----------  -----------  ===========  -----------  ----------
Balances, December 31, 1998              -       12,586   88,291,872           -  (43,269,026)                  110,352  45,145,784

Issuance of 249,000
 shares of common stock
 for cash (note 3)                       -          249    1,323,684           -            -                         -   1,323,933

Issuance of 124,365
 shares of common stock for
 cash under option plans                 -          124      250,489           -            -                         -     250,613

Issuance of 15,062
 shares of common stock for
 services under option plans             -           15      105,342           -            -                         -     105,357

Issuance of 38,034
 shares of common stock for cash
 under employee purchase plan            -           38      222,225           -            -                         -     222,263

Issuance of 6,516,923
 shares, and option and warrants
 to purchase 675,520 shares of
 common stock in purchase
 business combination (note 2)           -        6,518   44,746,283           -            -                         -  44,752,801

Compensation expense on
 stock option issuances                  -            -       96,432           -            -                         -      96,432

Gross unrealized loss
 on marketable securities                                                                     $   (265,910)

Reclassification for realized
 losses on marketable securities                                                                   101,840
                                                                                               -----------
Net unrealized losses on
 marketable investment securities        -            -            -           -                  (164,070)    (164,070)   (164,070)

Net loss                                 -            -            -           -  (35,654,207) (35,654,207)           - (35,654,207)
                                                                                                -----------
Comprehensive loss                       -            -            -           -            - $(35,818,277)           -           -
                               -----------  -----------  -----------  ----------  -----------  ===========  -----------  ----------
Balances, December 31, 1999    $         -       19,530  135,036,327           -  (78,923,233)                  (53,718) 56,078,906
                               ===========  ===========  ===========  ==========  ===========               ===========  ==========




                  NPS PHARMACEUTICALS, INC. AND SUBSIDIARIES
                       (A Development Stage Enterprise)

                     Consolidated Statements of Cash Flows




                                                                                                                 October 22,
                                                                                                                   1986
                                                                                                                (inception)
                                                                                                                  through
                                                                         Years ended December 31,               December 31,
                                                                 ---------------------------------------------
                                                                      1999            1998            1997           1999
                                                                 ------------   -------------  ---------------  --------------
                                                                                                    
Cash flows from operating activities:
    Net loss                                                   $ (35,654,207)    (17,162,107)    (11,694,341)     (78,923,233)
    Adjustments to reconcile net loss to net cash
      used in operating activities:
        Depreciation and amortization                              1,195,916       1,116,313       1,210,250        6,708,720
        Impairment loss                                              131,062               -               -          131,062
        Gain on sale of equipment                                         -                -               -          (29,909)
        Issuance of common and preferred stock in lieu of
          cash for services                                          105,357         121,150         128,100        1,033,061
        Amortization of deferred compensation                         96,432               -               -          862,932
        Write off of in-process research and development          17,760,000               -               -       17,760,000
        Decrease (increase) in operating assets:
          Accounts receivable                                       (325,544)        291,667          23,541         (425,544)
          Other current assets                                       125,000         125,000        (281,250)         (31,250)
          Other assets                                                    -                -               -           (6,867)
        Increase (decrease) in operating liabilities:
          Accounts payable and accrued expenses                  (1,703,165)         883,815         448,851          520,298
          Deferred income                                            93,750           91,667          83,333          768,750
          Income tax payable                                             -                 -        (150,000)               -
                                                                 ------------   -------------  ---------------  --------------
                  Net cash used in operating activities         (18,175,399)     (14,532,495)    (10,231,516)     (51,631,980)
                                                                 ------------   -------------  ---------------  --------------
Cash flows from investing activities:
  Net sale (purchase) of marketable investment securities         7,231,310        2,119,667     (21,838,568)     (12,487,591)
  Acquisitions of equipment and leasehold improvements             (641,674)      (1,506,902)     (2,369,428)      (9,928,104)
  Proceeds from sale of equipment                                        -                 -               -        1,075,621
  Cash paid for acquisition, net of cash received                  (675,783)               -               -         (675,783)
                                                                 ------------   -------------  ---------------  --------------
                  Net cash provided by (used in) investing
                  activities                                      5,913,853          612,765     (24,207,996)     (22,015,857)
                                                                 ------------   -------------  ---------------  --------------
Cash flows from financing activities:
  Proceeds from note payable to bank                                     -                 -               -          123,855
  Proceeds from issuance of preferred stock                              -                 -               -       17,581,416
  Proceeds from issuance of common stock                          1,796,809        1,757,253       2,015,865       71,125,647
  Proceeds from long-term debt                                           -                 -               -        1,166,434
  Principal payments on note payable to bank                             -                 -               -         (123,855)
  Principal payments under capital lease obligations                (26,291)         (34,864)        (65,117)      (1,446,292)
  Principal payments on long-term debt                               (8,567)        (290,967)       (369,467)      (1,363,738)
  Repurchase of preferred stock                                          -                 -               -         (300,000)
                                                                 ------------   -------------  ---------------  --------------
                  Net cash provided by financing activities       1,761,951        1,431,422       1,581,281       86,763,467
                                                                 ------------   -------------  ---------------  --------------
Net increase (decrease) in cash and cash equivalents            (10,499,595)     (12,488,308)    (32,858,231)      13,115,630

Cash and cash equivalents at beginning of period                 23,615,225       36,103,533      68,961,764                -
                                                                 ------------   -------------  ---------------  --------------
Cash and cash equivalents at end of period                     $ 13,115,630       23,615,225      36,103,533       13,115,630
                                                                 ============   =============  ===============  ==============

Supplemental disclosures of cash flow information:

Cash paid for interest                                         $      3,759           16,481          67,917          705,575

Cash paid for taxes                                                      -                 -         317,765        1,017,765


Supplemental schedule of noncash investing and financing
 activities:

Acquisition of equipment through incurrence of capital
 lease obligations                                             $         -                 -          77,155        1,477,809

Acquisition of leasehold improvements through incurrence
 of debt                                                                 -                 -               -          197,304
Issuance of preferred stock for stock subscription receivable            -                 -               -        4,000,000
Accrual of deferred offering costs                                       -                 -               -          150,000
Unrealized (loss) gain on marketable investment securities         (164,070)         110,352               -          (53,718)



                                    See accompanying notes to consolidated financial statements


                                      F-10


                  NPS PHARMACEUTICALS, INC. AND SUBSIDIARIES
                       (A Development Stage Enterprise)

                  Notes to Consolidated Financial Statements

                       December 31, 1999, 1998, and 1997


(1)  Organization and Summary of Significant Accounting Policies

     The consolidated financial statements include the financial statements of
     NPS Pharmaceuticals, Inc. (NPS) and its operating subsidiary NPS Allelix
     Corp. (NPS Allelix), collectively referred to as the Company. NPS, a
     development stage enterprise, is engaged in the discovery and development
     of novel pharmaceutical products. Since inception, NPS' principal
     activities have been performing research and development, raising capital,
     and establishing research and license agreements. NPS Allelix is a drug
     development company focused on neuropharmaceuticals and protein
     therapeutics and is located in Ontario, Canada. The following significant
     accounting policies are followed by the Company in preparing its
     consolidated financial statements:

     (a)  Cash Equivalents

          The Company considers all highly liquid investments with original
          maturities at the date of purchase of three months or less to be cash
          equivalents. Cash equivalents consist of commercial paper, money
          market funds, and debt securities of approximately $10.3 million and
          $21.5 million at December 31, 1999 and 1998, respectively. At December
          31, 1999 and 1998, the book value of cash equivalents approximates
          fair value.

     (b)  Revenue Recognition

          The Company recognizes revenue from its research agreements as related
          research costs are incurred and from its license fees and milestone
          payments as agreed upon events occur. Cash received in advance of the
          performance of the related research is recorded as deferred income.

     (c)  Plant and Equipment

          Plant and equipment are stated at cost. Equipment under capital lease
          is stated at the lower of the present value of minimum lease payments
          at the beginning of the lease term or fair value of the equipment at
          the inception of the lease.

          Depreciation and amortization of equipment (including equipment held
          under capital lease) are calculated on the straight-line method over
          their estimated useful lives of five years. Leasehold improvements are
          amortized using the straight-line method over the shorter of the life
          of the asset or remainder of the lease term. Amortization of assets
          held under capital lease is included with depreciation and
          amortization expense.

     (d)  Income Taxes

          The Company accounts for income taxes using the asset and liability
          method. Under the asset and liability method, deferred tax assets and
          liabilities are recognized for the future tax consequences
          attributable to differences between the financial statement carrying
          amounts of existing assets and liabilities and their respective tax
          bases, operating loss, and tax credit carryforwards. Deferred tax
          assets and liabilities are measured using enacted tax rates expected
          to apply to taxable income in the years in which those temporary
          differences are expected to be recovered or settled. The effect on
          deferred tax assets and liabilities of a change in tax rates is
          recognized in income in the period that includes the enactment date.

     (e)  Loss Per Common Share

          Basic loss per common share is the amount of loss for the period
          available to each share of common stock outstanding during the
          reporting period. Diluted loss per common share is the amount of loss
          for the period available to each share of common stock outstanding
          during the reporting period and to each share that would have been
          outstanding assuming the issuance of common shares for all dilutive
          potential common shares outstanding during the period.

          Potential common shares of approximately 2.7 million, 2.3 million, and
          2.1 million outstanding during the years ended December 31, 1999,
          1998, and 1997, respectively, that could potentially dilute basic
          earnings per share in

                                      F-11


                  NPS PHARMACEUTICALS, INC. AND SUBSIDIARIES
                       (A Development Stage Enterprise)

                  Notes to Consolidated Financial Statements

                       December 31, 1999, 1998, and 1997


          the future were not included in the computation of diluted loss per
          share because to do so would have been anti-dilutive for the period.
          Additionally, the Company expects to issue between 71,968 and 287,579
          shares of common stock in accordance with the preferred stock
          agreement described in note 2.

     (f)  Stock-Based Compensation

          The Company employs the footnote disclosure provisions of Statement of
          Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-
          Based Compensation. SFAS No. 123 encourages entities to adopt a fair-
          value based method of accounting for stock options or similar equity
          instruments. However, it also allows an entity to continue measuring
          compensation cost for stock-based compensation using the intrinsic-
          value method of accounting prescribed by Accounting Principles Board
          (APB) Opinion No. 25, Accounting for Stock Issued to Employees (APB
          25). The Company has elected to continue to apply the provisions of
          APB 25 and provide pro forma footnote disclosures required by SFAS No.
          123.

     (g)  Use of Estimates

          Management of the Company has made estimates and assumptions relating
          to reporting of assets and liabilities and the disclosure of
          contingent assets and liabilities to prepare these financial
          statements in conformity with generally accepted accounting
          principles. Actual results could differ from those estimates.

     (h)  Marketable Investment Securities

          The Company classifies its marketable debt securities as
          available-for-sale. Available-for-sale securities are recorded at
          fair value. Unrealized holding gains and losses, net of the related
          tax effect, are excluded from earnings and are reported as a separate
          component of stockholders' equity until realized. A decline in the
          market value below cost that is deemed other than temporary is charged
          to results of operations resulting in the establishment of a new cost
          basis for the security. Premiums and discounts are amortized or
          accreted over the life of the related security as adjustments to yield
          using the effective-interest method. Interest income is recognized
          when earned. Realized gains and losses from the sale of securities are
          included in results of operations and are determined on the specific-
          identification basis.

     (i)  Principles of Consolidation

          The consolidated financial statements include the accounts of the
          Company and its subsidiaries. All intercompany accounts and
          transactions have been eliminated in consolidation. All monetary
          amounts are reported in U.S. dollars unless specified otherwise.

     (j)  Goodwill and Other Purchased Intangibles

          Goodwill and other purchased intangibles represent the excess of the
          purchase price over the fair value of the net tangible assets acquired
          in connection with the acquisition of Allelix Biopharmaceuticals Inc.
          (Allelix) on December 23, 1999. The excess purchase price includes
          goodwill, assembled work force, and patents which are being amortized
          using the straight-line basis over lives ranging from two to six
          years.

     (k)  Accounting for Impairment of Long-Lived Assets

          The Company reviews its long-lived assets for impairment whenever
          events or changes in circumstances indicate that the carrying amount
          of an asset may not be recoverable. Recoverability of assets held and
          used is measured by a comparison of the carrying amount of an asset to
          future net cash flows expected to be generated by the asset. If such
          assets are considered to be impaired, the impairment to be recognized
          is measured by the amount by which the carrying amount of the assets
          exceeds the fair value of the assets. Assets to be disposed of are
          reported at the lower of their carrying amount or fair value less cost
          to sell.

                                      F-12


                  NPS PHARMACEUTICALS, INC. AND SUBSIDIARIES
                       (A Development Stage Enterprise)

                  Notes to Consolidated Financial Statements

                       December 31, 1999, 1998, and 1997


     (l)  Foreign Currency Translation

          The local foreign currency is the functional currency for the
          Company's foreign subsidiaries. Assets and liabilities of foreign
          operations are translated to U.S. dollars at the current exchange
          rates as of the applicable balance sheet date. Revenues and expenses
          are translated at the average exchange rates prevailing during the
          period. Adjustments resulting from translation will be reported as a
          separate component of stockholders' equity. Certain transactions of
          the foreign subsidiaries are denominated in currencies other than the
          functional currency, including transactions with the parent company.
          Transaction gains and losses will be included in other income
          (expense) for the period in which the transaction occurs. The
          Company's foreign subsidiary in Canada had net assets of approximately
          $28.5 million as of December 31, 1999.

     (m)  Operating Segments

          The Company operates in one line of business, the development, and
          commercialization of pharmaceutical products. As such, the Company has
          only one reportable operating segment as defined by the SFAS No. 131,
          Disclosures About Segments of an Enterprise and Related Information.

(2)  Business Acquisition

     On December 23, 1999, the Company acquired all of the outstanding common
     stock of Allelix for 6,516,923 shares of the Company's common stock which
     was valued at approximately $42.8 million. In addition, the Company
     converted all outstanding Allelix options and warrants into options to
     purchase approximately 675,520 shares of common stock of the Company with a
     fair value of approximately $1.9 million and incurred transaction costs of
     approximately $1.5 million. The acquisition was accounted for by the
     purchase method. Although the acquisition closed on December 23, 1999, for
     accounting purposes, it was recorded on December 31, 1999, as the operating
     results from December 23, 1999 to December 31, 1999 were not material.

     Allelix merged with and into an acquisition subsidiary of the Company in an
     exchange of 0.3238 of a common share of NPS or 0.3238 of an exchangeable
     share of NPS Allelix for each share of Allelix common stock outstanding.
     The exchangeable shares of NPS Allelix are the functional and economic
     equivalent of NPS common shares and each exchangeable share of NPS Allelix
     entitles the holder to acquire one share of NPS common stock upon exchange.
     At the closing of the transaction, NPS issued 3,040,914 common shares and
     NPS Allelix issued 3,476,009 exchangeable shares, both of which are
     included in the number of NPS common shares outstanding and weighted
     average shares outstanding for financial reporting purposes. In addition,
     each outstanding option or warrant for Allelix common shares became
     exercisable into an option or warrant for 0.3238 of a common share of NPS
     or 0.3238 of an exchangeable share of NPS Allelix.

     At the time of closing of the transaction, 1,000 outstanding preferred
     shares of Allelix became convertible into NPS common shares and will
     convert on April 30, 2000. The number of common shares into which the
     preferred shares convert will be determined by dividing the stated value of
     $2,000 for each preferred share by 80 percent of the average of the closing
     bid and ask prices of one NPS common share during a period of twenty
     consecutive trading days preceding the conversion date provided, however,
     that the resulting purchase price is subject to a ceiling price of $27.79
     per common share and a floor price of Cdn. $10.38 per common share. The
     Company has recorded these preferred shares as a minority interest of $2.5
     million at December 31, 1999. Such minority interest will be eliminated
     upon issuance of common shares.

     In connection with the acquisition, the Company recorded a one time write-
     off of $17.76 million for in-process research and development in the fourth
     quarter of 1999. An independent valuation of Allelix was used to value the
     acquired in-process research and development projects. The fair value
     assigned to purchased in-process research and development was determined by
     estimating the costs to develop the purchased in-process research and
     development into commercially viable products and discounting the resulting
     net cash flows related to these projects. At the date of the acquisition,
     the acquired in-process research and development had not yet reached
     technological feasibility (FDA approval) and had no alternative future
     uses.

                                      F-13


                  NPS PHARMACEUTICALS, INC. AND SUBSIDIARIES
                       (A Development Stage Enterprise)

                  Notes to Consolidated Financial Statements

                       December 31, 1999, 1998, and 1997


     In developing these cash flow projections, revenues were forecasted for
     each project based on estimates of relevant market sizes and growth
     factors, expected trends in technology, and the nature and expected timing
     of new product introductions by Allelix and its competitors. The projected
     revenues are dependent upon successful introduction of the in-process
     research and development projects.

     In determining the operating cash flows related exclusively to each in-
     process research and development project, the contribution of both
     developed technology and core technology leveraged by the in-process
     projects were considered. Because Allelix did not have any products that
     had achieved technological feasibility as of the valuation date, no value
     was assigned to developed technology for allocation purposes. The value of
     the core technology leveraged by the in-process projects was captured in
     the valuation of the patent portfolio, consequently, no value was assigned
     to core technology leveraged for allocation purposes.

     Considering both project costs and technological progress for each project,
     percentage of completion assumptions were employed to reduce the projected
     revenue streams for the incomplete portion of each project as of the
     valuation date. Operating expenses and resulting profit margins were
     forecasted based on the characteristics and cash flow generating potential
     of the acquired in-process research and development. A tax rate of 40% was
     applied and appropriate adjustments were made to operating income to derive
     net cash flow for each project.

     The revenues earned by the in-process research and development products
     represent the return on all of the assets acquired under the agreement. The
     cash flows generated by the new products must provide a return on each
     asset purchased that is consistent with the value and the relative risk of
     the asset. To separately value in-process research and development, the
     value and required rate of return for other identifiable assets must be
     determined. The required return of these other contributory assets was
     deducted from the cash flows generated by the projects in the in-process
     and research and development model to determine the incremental cash flows
     specifically attributable to the completed portion of the in-process
     research and development projects.

     The discount rate applied to the net estimated cash flow for each in-
     process research and development project was based on each project's state
     of development, complexity, and the market risk for the resulting product.
     Discount rates of 45 percent to 75 percent were applied to the in-process
     research and development projects.

     The total purchase price and final allocation among the tangible and
     intangible assets and liabilities acquired (including acquired in-process
     research and development) is summarized as follows:




                                                     
        Total purchase price:
           Total stock consideration                            $ 42,816,185
           Value of options and warrants assumed                   1,936,616
           Transaction costs                                       1,487,772
                                                                ------------
                                                                $ 46,240,573
                                                                ============


                                      F-14


                  NPS PHARMACEUTICALS, INC. AND SUBSIDIARIES
                       (A Development Stage Enterprise)

                  Notes to Consolidated Financial Statements

                       December 31, 1999, 1998, and 1997




                                                         Amortization period
                                                               (years)
                                                         -------------------
                                                    
Purchase price allocation:
Net tangible assets acquired            $ 16,997,335
Net liabilities assumed                   (7,566,573)
Intangible assets:
 Assembled workforce                         680,000             2
 Patents                                   7,140,000             5
 Goodwill                                 11,229,811             6
In-process research and development       17,760,000          Expensed
                                        ------------
                                        $ 46,240,573
                                        ============


     The following unaudited pro forma financial information presents the
     combined results of operations of NPS and Allelix as if the acquisition had
     occurred as of the beginning of 1998 after giving effect to adjustments,
     including but not limited to, amortization of goodwill and purchased
     intangibles, and entries to conform Allelix to the Company's accounting
     policies. The $17.76 million write-off for acquired in-process research and
     development has been excluded from the pro forma results as it is a
     nonrecurring charge. The pro forma financial information does not
     necessarily reflect the results of operations that would have occurred had
     NPS and Allelix constituted a single entity during such periods.



                                                 Years ended December 31,
                                                   1999            1998
                                                 ------------------------
                                                       (unaudited)
                                                       -----------
                                                         
      Net revenue                              $ 10,162,000    12,156,000
      Net loss                                  (36,836,000)  (31,524,000)
      Basic and diluted net loss per share            (1.90)        (1.66)


     In conjunction with the acquisition, the Company adopted a formal plan to
     terminate the employment of thirty-two Allelix employees.  The plan
     outlined the amount of severance and type of benefits to be paid upon
     termination in January 2000 and was communicated to the affected employees
     in December 1999.  Allelix recorded a liability of approximately $1.1
     million for salaries and benefits and this amount was included in the
     allocation of the purchase price by the Company.

(3)  Collaborative and License Agreements

     The Company is pursuing product development both on an independent basis
     and in collaboration with others. Because the Company has granted exclusive
     development, commercialization, and marketing rights to each party
     (Licensees) under certain of the below described collaborative and license
     agreements, the success of the programs, as explained below, is dependent
     upon the efforts of the Licensees. Each of its respective agreements shown
     below may be terminated early. If any of the Licensees terminates the
     agreements, such termination may have a material adverse effect on the
     Company's operations. Following is a description of significant current
     collaborations and license agreements:

     (a)  Amgen Inc.

          Effective December 1995, the Company entered into a development and
          license agreement with Amgen Inc. (Amgen) to develop and commercialize
          compounds for the treatment of hyperparathyroidism and indications
          other than osteoporosis. Amgen paid the Company a $10.0 million
          nonrefundable license fee and agreed to pay up to $400,000 per year in
          development support for five years, potential additional development
          milestone

                                      F-15


                  NPS PHARMACEUTICALS, INC. AND SUBSIDIARIES
                       (A Development Stage Enterprise)

                  Notes to Consolidated Financial Statements

                       December 31, 1999, 1998, and 1997


          payments totaling $26.0 million, and royalties on any future product
          sales. Amgen is required to pay all costs of developing and
          commercializing products. Amgen received exclusive worldwide rights
          excluding Japan, China, Korea, and Taiwan. Amgen is an equity investor
          in the Company. The Company recognized revenue of $400,000 in 1999,
          1998, and 1997 as development support revenue.

     (b)  Kirin Brewery Company, Limited

          Effective June 30, 1995, NPS entered into a five-year agreement with
          the pharmaceutical division of Kirin Brewery Company, Limited (a
          Japanese company), to develop and commercialize compounds for the
          treatment of hyperparathyroidism in Japan, China, Korea, and Taiwan.
          Kirin paid the Company a $5.0 million license fee and agreed to pay up
          to $7.0 million in research support, potential additional milestone
          payments totaling $13.0 million, and royalties on product sales. Kirin
          research support payments were $500,000 per quarter through June 1997
          and are $250,000 per quarter over the remaining three years of the
          agreement. Additionally, at December 31, 1999 the Company has deferred
          income of approximately $250,000 related to its research agreement
          with Kirin. Kirin received exclusive rights to develop and sell
          products within its territory. The parties participate in a
          collaborative research program utilizing NPS's parathyroid calcium
          receptor technology.

          The Company recognized $1.0 million, $1.0 million, and $1.5 million in
          research support as revenue in 1999, 1998, and 1997, respectively.
          Additionally, the Company recognized as revenue a $2.0 million
          milestone payment related to this agreement during 1997. No milestone
          payments were received in 1999 and 1998.

     (c)  SmithKline Beecham Corporation

          Effective November 1, 1993, the Company entered into the SmithKline
          Beecham Agreement (SB Agreement) to collaborate on the discovery,
          development and marketing of drugs to treat osteoporosis and other
          bone metabolism disorders, excluding hyperparathyroidism. The SB
          Agreement established a three-year research collaboration between the
          parties, which has been extended through October 2000. As part of
          extending this agreement SmithKline Beecham has purchased 613,000
          shares of the Company's common stock and agreed to pay research
          support payments of approximately $87,500 per quarter through October
          2000 unless the agreement is terminated earlier. Under the SB
          Agreement, the Company granted SmithKline Beecham the exclusive
          license to develop and market worldwide compounds described under the
          SB Agreement, subject to the Company's right to co-promote in the
          United States. Once compounds have been selected for development,
          SmithKline Beecham has agreed to conduct and fund all development of
          such products, including all human clinical trials and regulatory
          submissions.

          Under the SB Agreement, the Company has recognized research and
          licensing revenue of $2.0 million, $2.2 million, and $1.9 million in
          1999, 1998, and 1997, respectively. Additionally, at December 31,
          1999, the Company has deferred income of approximately $768,750
          related to its research agreement with SmithKline Beecham. The Company
          is entitled to receive additional payments upon the achievement of
          specific development and regulatory milestones. The Company is
          entitled to receive royalties on sales of such compounds by SmithKline
          Beecham and a share of the profits from co-promoted products.

          SmithKline Beecham and S.R. One, Limited, an affiliate of SmithKline
          Beecham, are equity investors in the Company.

     (d)  Janssen Pharmaceutica N.V.

          On October 30, 1998, Allelix entered into a collaborative agreement
          with Janssen Pharmaceutica N.V. (Janssen), a wholly owned subsidiary
          of Johnson & Johnson, for the research, development, and marketing of
          new drugs for neuropsychiatric disorders. Under the terms of the
          agreement, Allelix is entitled to receive initial licensing revenue of
          approximately $2.0 million (which it received and recorded in 1998),
          annual research and development funding of approximately $2.3 million
          for a minimum of two years, and may receive milestone payments of up
          to $21.5 million which are dependent on successful achievement of
          clinical development benchmarks. NPS Allelix will receive royalties
          when and if there is a commercial sale of products resulting

                                      F-16


                  NPS PHARMACEUTICALS, INC. AND SUBSIDIARIES
                       (A Development Stage Enterprise)

                  Notes to Consolidated Financial Statements

                       December 31, 1999, 1998, and 1997


          from the collaboration. Royalties will be calculated under a tiered
          formula that provides for increases in the royalty rate based on
          aggregate annual sales revenue. In addition, Janssen will assume
          responsibility for development of the compounds, including expenses.
          Janssen has the right to market products worldwide, subject to an NPS
          Allelix option for co-promotion in Canada.

     (e)  Eli Lilly Canada, Inc.

          On December 31, 1989, Allelix entered into a research agreement with
          Eli Lilly Canada, Inc. Under the terms of the agreement, NPS Allelix
          receives Cdn. $2.7 million per year for research. The agreement
          expires November 30, 2000.

     (f)  Technology Partnerships Canada

          On November 9, 1999, Allelix entered into an agreement with Technology
          Partnerships Canada (TPC), a program of the Canadian government, which
          provides for TPC to reimburse NPS Allelix for research expenses
          incurred pursuing treatments for various intestinal disorders
          utilizing specified technology (the ALX 0600 technology). TPC will
          reimburse NPS Allelix for 30% of the qualified costs incurred through
          December 2002 up to a maximum of Cdn. $8.4 million. NPS Allelix will
          pay a 10% royalty to TPC on revenues received through December 2008
          from the sale or license of any product developed from the funded
          research. If such payments have not reached a total of Cdn. $23.9
          million by that date, then royalty payments shall continue until that
          amount is reached or until December 2017 whichever occurs first. If
          TPC declares an event of default under the agreement, NPS Allelix
          could be required to repay all amounts received from TPC, plus
          interest and other damages. As of December 31, 1999, no event of
          default had occurred.

     (g)  Joint Venture and In-license Agreements

          The Company has entered into agreements with joint venture partners to
          purchase information technology and laboratory services. Additionally,
          the Company has entered into certain sponsored research and license
          agreements that require the Company to make research support payments
          to academic or research institutions when the research is performed.
          Additional payments may be required upon the accomplishment of
          research milestones by the institutions or as license fees or
          royalties to maintain the licenses. During 1999, 1998, and 1997, the
          Company paid to these institutions $1.4 million, $1.5 million, and
          $1.2 million, respectively, in sponsored research payments and license
          fees. As of December 31, 1999, the Company had a total commitment of
          approximately $1.5 million for joint venture services and future
          research support payments.

                                      F-17


                  NPS PHARMACEUTICALS, INC. AND SUBSIDIARIES
                       (A Development Stage Enterprise)

                  Notes to Consolidated Financial Statements

                       December 31, 1999, 1998, and 1997


(4)  Marketable Investment Securities

     Investment securities available for sale as of December 31, 1999, are
     summarized as follows:



                                                                             Gross              Gross
                                                        Amortized         unrealized          unrealized           Fair
                                                          cost           holding gains      holding losses        value
                                                     ---------------    ---------------    ---------------     ---------------
                                                                                                   
        Debt securities:
            Treasury                                $     2,828,074                  -             (5,905)          2,822,169
            Corporate                                    14,524,304                  -            (41,923)         14,482,381
            Commercial paper                              5,264,468                  -             (5,890)          5,258,578
                                                    ---------------     --------------     --------------      --------------
                                                    $    22,616,846                  -            (53,718)         22,563,128
                                                    ===============     ==============     ==============      ==============


     Investment securities available for sale as of December 31, 1998, are
     summarized as follows:



                                                                             Gross              Gross
                                                        Amortized         unrealized          unrealized           Fair
                                                          cost           holding gains      holding losses        value
                                                     ---------------    ---------------    ---------------     ---------------
                                                                                                   
       Debt securities:
           Treasury                                 $     7,591,078             54,088                  -          7,645,166
           Corporate                                      9,174,994             35,054                  -          9,210,048
           Commercial paper                               2,952,829             21,210                  -          2,974,039
                                                    ---------------     --------------     --------------      --------------
                                                    $    19,718,901            110,352                  -         19,829,253
                                                    ===============     ==============     ==============      ==============


     Maturities of investment securities available for sale are as follows at
     December 31, 1999:



                                                                                        Amortized
                                                                                          cost            Fair value
                                                                                     ---------------    ---------------
                                                                                                  
         Due within one year                                                        $    12,044,391         12,013,999
         Due after one year through five years                                            9,492,036          9,480,058
         Due between five and ten years                                                   1,080,419          1,069,071
                                                                                    ---------------      -------------
                                                                                    $    22,616,846         22,563,128
                                                                                    ===============      =============


     For the years ended December 31, 1999, 1998, and 1997, purchases of
     marketable investment securities were $73.6 million, $203.0 million, $127.0
     million, respectively. For the years ended December 31, 1999, 1998, 1997,
     sales of marketable investment securities were $59.7 million, $172.0
     million, $91.4 million, respectively. For the years ended December 31,
     1999, 1998, and 1997, maturities of marketable investment securities were
     $21.2 million, $32.7 million, and $13.4 million, respectively.

                                      F-18


                  NPS PHARMACEUTICALS, INC. AND SUBSIDIARIES
                       (A Development Stage Enterprise)

                  Notes to Consolidated Financial Statements

                       December 31, 1999, 1998, and 1997


(5)  Leases

     The Company is obligated under various capital leases for certain equipment
     that expire at various dates during the next three years. The Company also
     has noncancelable operating leases for office and laboratory space that
     expire in 2004 and 2008. Rental expense for these operating leases was
     $894,594, $671,809, and $530,953 for 1999, 1998, and 1997, respectively.
     The present value of future minimum lease payments on capital leases and
     future lease payments under noncancelable operating leases as of December
     31, 1999 are as follows:



                                                  Capital           Operating
                                                  leases             leases
                                             ---------------    ---------------
      Year ending December 31:
                                                          
         2000                                    $   370,770          1,101,669
         2001                                        317,736          1,060,573
         2002                                         55,050          1,078,296
         2003                                              -          1,079,109
         2004                                              -            980,689
         Thereafter                                        -          1,860,876
                                                 -----------       ------------

       Present value of minimum capital lease
       payments and total minimum operating
       lease payments                                743,556       $  7,161,212
                                                                   ============
 Less, current installments of obligations
 under capital leases                                370,770
                                                 -----------
       Obligations under capital leases,
       excluding current installments
                                                 $   372,786
                                                 ===========


     At December 31, 1999 and 1998, the gross amount of equipment and related
     accumulated amortization recorded under capital leases were as follows:



                                                       1999               1998
                                                ---------------     -----------
                                                              
        Equipment                               $     1,671,700       1,322,102
        Less accumulated amortization                (1,278,587)     (1,241,549)
                                                ---------------      ----------
        Net equipment                           $       393,113          80,553
                                                ===============      ==========


     As required by the Company's capital lease agreement at December 31, 1999,
     deposits of cash totaling $775,755 are being held in order to meet future
     payment obligations.

(6)  Long-term Debt

     Long-term debt at December 31, 1999 and 1998, consists of the following
     notes payable to a financial institution:



                                                                    1999              1998
                                                              --------------    --------------
                                                                          
       Committed installment loan                             $    1,567,020                 -

       10% to 16% notes payable in monthly
        installments of $36,824 including
        interest; secured by certain equipment
        and leasehold improvements                                         -             8,567

       Less current installments                                           -            (8,567)
                                                              --------------    --------------
       Long-term debt, excluding current installments         $    1,567,020                 -
                                                              ==============    ==============


     The Company has a loan facility for up to approximately Cdn. $4.5 million,
     secured by essentially all real and personal property of NPS Allelix, which
     is for various borrowing purposes. The interest rate on the loan is based
     on the

                                      F-19


                  NPS PHARMACEUTICALS, INC. AND SUBSIDIARIES
                       (A Development Stage Enterprise)

                  Notes to Consolidated Financial Statements

                       December 31, 1999, 1998, and 1997


     Canadian prime rate plus 1 percent (6.2 percent at December 31, 1999). At
     December 31, 1999, the amount borrowed by the Company matures on January
     20, 2002 with interest only payments required until the maturity date.

(7)  Capital Stock

     In December 1996, the Board of Directors approved the adoption of a
     Shareholders Rights Plan (the Rights Plan). The Rights Plan provides for
     the distribution of a preferred stock purchase right (Right) as a dividend
     for each outstanding share of the Company's common stock. This Right
     entitles stockholders to acquire stock in the Company or in an acquirer of
     the Company at a discounted price in the event that a person or group
     acquires 20 percent or more of the Company's outstanding voting stock or
     announces a tender or exchange offer that would result in ownership of 20
     percent or more of the Company's stock. Each right entitles the registered
     holder to purchase from the Company 1/100th of a share of Series A Junior
     Participating Preferred Stock, par value $0.001 per share at a price of $50
     per 1/100th of a preferred share, subject to adjustment. The Rights may
     only be exercised on the occurrence of certain events related to a hostile
     takeover of the Company as described above. In any event, the Rights will
     expire on December 31, 2002. The Rights may be redeemed by the Company at
     $0.01 per right at any time prior to expiration or the occurrence of an
     event triggering exercise. At December 31, 1999, the Rights were not
     exercisable.

(8)  Stock-Based Compensation Plans

     As of December 31, 1999, the Company has four stock option plans: the 1987
     Stock Option Plan (the 1987 Plan), the 1994 Equity Incentive Plan (the 1994
     Plan), the 1994 NonEmployee Directors' Stock Option Plan (the Directors'
     Plan), and the 1998 Stock Option Plan (the 1998 Plan). An aggregate of
     4,727,055 shares are authorized for issuance under the four plans.

     As of December 31, 1999, there are no shares reserved for future grant
     under the 1987 Plan, there are 274,024 shares reserved for future grant
     under the 1994 Plan, there are 72,530 shares reserved for future grant
     under the Directors' Plan, and there are 268,670 shares reserved for future
     grant under the 1998 Plan. Under the Company's 1994 Plan and the 1998 Plan
     the exercise price of options granted is generally not less than the fair
     market value on the date of grant. The number of shares, terms, and
     exercise period are determined by the Board of Directors on an option-by-
     option basis, and the exercise period does not extend beyond ten years from
     the date of the grant.

     Under the Directors' Plan, each new director who is not an employee of the
     Company is initially granted options to purchase 15,000 shares of common
     stock. Additional options for 3,000 shares are granted on December 1 of
     each year of service. The exercise price of options granted is the fair
     market value on the date of grant.

     The Company also has an Employee Stock Purchase Plan (the "Purchase Plan")
     whereby qualified employees in the U.S. are allowed to purchase limited
     amounts of the Company's common stock at the lesser of 85 percent of the
     market price at the beginning or end of the offering period. The Company
     has authorized 260,000 shares for purchase by employees. Employees
     purchased 38,034 and 31,669 shares under the Purchase Plan in the years
     ended December 31, 1999 and 1998, respectively, and 112,036 shares remain
     available for future purchase.

                                      F-20


                  NPS PHARMACEUTICALS, INC. AND SUBSIDIARIES
                       (A Development Stage Enterprise)

                  Notes to Consolidated Financial Statements

                       December 31, 1999, 1998, and 1997


     A summary of activity related to aggregate options under all four plans is
     indicated in the following table:



                                                            Years ended December 31,
                                ---------------------------------------------------------------------------------
                                          1999                        1998                       1997
                                --------------------------  --------------------------  -------------------------
                                                 Weighted-                   Weighted-                  Weighted-
                                 Number           average    Number           average    Number          average
                                   of            exercise      of            exercise      of           exercise
                                 shares           price      shares           price      shares          price
                                --------         -------    --------         -------    --------        -------
                                                                                      
Options outstanding
  at beginning of year           2,305,654        $ 7.01     2,057,776        $ 7.04     1,822,969       $ 5.68
Options granted                    418,582          5.07       531,097           6.71      500,950         9.91
Options assumed in
  acquisition                      407,055          9.24             -              -            -            -
                                 ---------                   ---------                   ---------
                                 3,131,291                   2,588,873                   2,323,919
                                 ---------                   ---------                   ---------
Options exercised                  145,272          2.70       140,349           2.81      234,618         2.33
Options canceled                   165,105          8.31       142,870          10.17       31,525         9.09
                                 ---------                   ---------                   ---------
                                   310,377                     283,219                     266,143
                                 ---------                   ---------                   ---------
Options outstanding
  at end of year                 2,820,914        $ 7.19     2,305,654         $ 7.01    2,057,776      $ 7.04
                                 =========                   =========                   =========
Options exercisable
  at end of year                 1,995,204        $ 7.54     1,362,536         $ 6.20    1,111,378      $ 4.59

Weighted-average fair
  value of options granted
  during the year                $    3.62                   $    3.95                   $    5.65


     The following table summarizes information about stock options outstanding
     at December 31, 1999:



                                      Options outstanding                      Options exercisable
                          --------------------------------------------     ---------------------------
                                          Weighted-
                                          average         Weighted-                         Weighted-
                          Outstanding     remaining        average         Exercisable       average
  Range of                   as of       contractual      exercise           as of          exercise
exercise prices            12/31/99         life            price           12/31/99          price
- ---------------           -----------  ---------------  --------------     ---------       -----------
                                                                            
$  0.00 - 1.66              117,811          2.3          $ 0.74            116,811           $ 0.74
   1.67 - 3.33              377,309          4.2            2.42            377,309             2.42
   3.34 - 4.99              431,407          9.5            4.53            100,407             4.63
   5.00 - 6.65              590,326          8.5            6.36            273,606             6.12
   6.66 - 8.31              370,418          6.6            8.04            292,418             8.10
   8.32 - 9.98              376,537          6.8            9.64            239,047             9.58
   9.99 - 11.64             362,450          6.1           10.20            362,360            10.20
  11.65 - 13.30              91,781          6.1           12.57             90,371            12.58
  13.40 - 14.96              48,008          4.3           13.98             48,008            13.98
  14.97 - 23.81              35,981          7.3           21.47             35,981            21.47
  23.82 - 47.72              18,886          6.6           35.33             18,886            35.33
                          ---------                                       ---------
                          2,820,914          6.9            7.19          1,955,204             7.54
                          =========                                       =========


                                      F-21


                  NPS PHARMACEUTICALS, INC. AND SUBSIDIARIES
                       (A Development Stage Enterprise)

                  Notes to Consolidated Financial Statements

                       December 31, 1999, 1998, and 1997


     The Company accounts for these plans under APB Opinion No. 25, under which
     no compensation cost has been recognized. Had compensation cost for these
     plans been determined consistent with SFAS No. 123, the Company's net loss
     and net loss per share would have been increased, to the following pro
     forma amounts:



                                            1999                   1998                   1997
                                     ------------------     ------------------     ------------------
                                                                           
       Net loss:
          As reported                  $   (35,654,207)       $   (17,162,107)       $   (11,694,341)
          Pro Forma                        (38,313,293)           (19,972,204)           (13,900,115)
       Net loss per share
          As reported:
            Basic and diluted          $         (2.77)       $         (1.39)       $         (0.98)
        Pro Forma:
            Basic and diluted          $         (2.98)       $         (1.62)       $         (1.16)


     Pursuant to SFAS No. 123, the Company has estimated the fair value of each
     option grant on the date of the grant using the Black-Scholes option
     pricing model with the following weighted-average assumptions used for
     grants in 1999, 1998, and 1997, respectively: risk free interest rates of
     7.0 percent, 5.0 percent, and 6.0 percent; expected dividend yields of -0-
     percent; expected lives of 5 years; and expected volatility of 85 percent,
     65 percent, and 60 percent. The weighted-average fair value of employee
     stock purchase rights granted under the Purchase Plan in 1999, 1998, and
     1997 was $2.87, $3.02, and $3.68, respectively. The fair value for the
     employee stock purchase rights was estimated using the Black-Scholes option
     pricing model with the following weighted-average assumption in 1999, 1998,
     and 1997, respectively: risk free interest rates of 4.7 percent, 5.3
     percent, and 5.3 percent; expected dividend yields of -0-percent; expected
     lives of .5 years; and expected volatility of 85 percent, 65 percent, and
     60 percent.

     Company officers hold options to acquire 80,000 shares of the Company's
     common stock contingent upon the accomplishment of certain events.

     In connection with the acquisition of Allelix, the Company assumed 268,465
     warrants which were outstanding at December 31, 1999, that each entitle the
     holder to purchase one common share of the Company for each warrant
     outstanding. These warrants have been recorded at their estimated fair
     value and are included as part of the purchase price of Allelix. There are
     215,867 warrants at $15.94 which expire July 17, 2000, 36,464 warrants at
     $17.27 which expire October 18, 2000, 12,319 warrants at $17.27 which
     expire October 26, 2000, and 3,815 warrants at $21.51 which expire June 2,
     2005. In connection with amounts borrowed in 1995, the Company also granted
     a financial institution warrants to purchase 32,542 shares of common stock
     at $3.69 per share. These warrants expire in June 2002.

(9)  Income Taxes

     The Company has no income tax expense for the years ended December 31, 1999
     and 1998, and income tax expense of $167,765 for the year ended December
     31, 1997, consisting of current foreign taxes and alternative minimum
     taxes.

                                      F-22


                  NPS PHARMACEUTICALS, INC. AND SUBSIDIARIES
                       (A Development Stage Enterprise)

                  Notes to Consolidated Financial Statements

                       December 31, 1999, 1998, and 1997


     Income tax expense differed from the amounts computed by applying the U.S.
     federal income tax rate of 34 percent to net loss before income taxes as a
     result of the following:



                                                                              1999                1998                 1997
                                                                       ---------------      --------------      ---------------
                                                                                                         
Computed expected tax expense (benefit)                                 $  (12,122,430)         (5,835,116)          (3,919,036)

Change in the beginning-of-the-year balance of the valuation
 allowance for deferred tax assets allocated to income tax expense           7,400,000           7,131,000            4,870,061


Research credits                                                              (652,000)           (683,300)            (558,200)
Foreign taxes, net of federal income tax benefit                                     -                   -              132,000
State income taxes, net of federal tax effect                                 (575,000)           (566,300)            (380,300)
In process research and development                                          6,038,000                   -                    -
Other                                                                          (88,570)            (46,284)              23,240
                                                                        --------------      --------------      ---------------

                                                                        $            -                   -              167,765
                                                                        ==============      ==============      ===============


     The tax effects of temporary differences that give rise to significant
     portions of the deferred tax assets at December 31, 1999 and 1998 are
     presented below:



                                                                                          1999                            1998
                                                                         ------------------------------------      ----------------
                                                                            Domestic             Foreign               Domestic
                                                                         ----------------    ----------------      ----------------
                                                                                                            
Deferred tax assets:
 Deferred income                                                            $     352,000             138,000               252,000
 Equipment and leasehold improvements, principally due to
  differences in depreciation                                                     135,000             507,000               215,000

 Financing charges                                                                      -             410,000                     -
 Severance costs                                                                   70,000              82,000                     -
 Net operating loss carryforward                                               24,035,000             452,000            14,734,000
 Research activities credit carryforward                                        4,095,000          31,471,000             3,107,000
 Investment tax credit carryforward                                                     -           4,220,000                     -
 Minimum tax credit carryforward                                                  112,000                   -               112,000
                                                                         ----------------    ----------------

       Total gross deferred tax assets                                         28,799,000          37,280,000            18,420,000
Less valuation allowance                                                      (28,799,000)        (33,791,000)          (18,420,000)
                                                                         ----------------    ----------------      ----------------
       Deferred tax assets                                                              -           3,489,000                     -
Deferred tax liabilities:
 Intangible assets                                                                      -          (3,489,000)                    -
                                                                         ----------------    ----------------      ----------------
       Net deferred tax asset/(liability)                                               -                   -                     -
                                                                         ================    ================      ================


                                      F-23


                  NPS PHARMACEUTICALS, INC. AND SUBSIDIARIES
                       (A Development Stage Enterprise)

                  Notes to Consolidated Financial Statements
                       December 31, 1999, 1998, and 1997


     Subsequently recognized tax benefits relating to the valuation allowance
     for deferred tax assets as of December 31, 1999, will be allocated as
     follows: 1) To the extent that the Allelix acquired gross deferred tax
     assets are recognized, the tax benefit will be applied to reduce any
     remaining unamortized goodwill, and then any remaining unamoritized other
     purchased intangible assets related to the acquisition. 2) Tax benefits in
     excess of the acquired goodwill and other purchased intangibles related to
     the acquisition will be reported as a reduction of income tax expense.
     Other recognized non acquisition related tax benefits will be reported as a
     reduction of income tax expense.

     The valuation allowance for deferred tax assets as of January 1, 1999 and
     1998 was $18.4 million and $11.2 million, respectively. The net change in
     the Company's total valuation allowance for the years ended December 31,
     1999 and 1998, was an increase of $44.1 million and $7.2 million,
     respectively. Of the approximate $47.7 million increase in the valuation
     allowance, approximately $40.2 million resulted from the Company's
     acquisition of Allelix as described in note 2.

     At December 31, 1999, the Company had domestic and foreign net operating
     loss and credit carryforwards available to offset future income for tax
     purposes approximately as follows:



                          Domestic net
                           operating
                              loss                                  Canadian net             Canadian
                         carry-forward        Domestic             operating loss           investment
                          for regular         research            carryforward for          tax credit          Canadian
                           income tax          credit            regular income tax           carry-        research credit
                            purposes       carry-forward              purposes                forward         carryfoward
                         -------------     ---------------      --------------------      -------------     ----------------
                                                              Federal       Provincial
                                                             ----------    ------------
                                                                                          
      Expiring:
        2004          $          -                 -             -               -          430,000                -
        2005               247,000                 -       287,700       2,371,120          503,000                -
        2006               244,000                 -             -               -        1,108,000                -
        2007                     -            49,000             -               -        1,195,000                -
        2008             2,452,000           334,000             -               -          984,000                -
        2009             6,342,000           317,000             -               -                -                -
        2010             2,928,000           166,000             -               -                -                -
        2011             2,358,000           360,000             -               -                -                -
        2012            10,890,000           846,000             -               -                -                -
        2018            20,340,000         1,035,000             -               -                -                -
        2019            18,637,000           988,000             -                                -                -
                      ------------       -----------    ----------      ----------       ----------     ----------------
Total                 $ 64,438,000         4,095,000       287,700       2,371,120        4,220,000       31,471,000
                      ============       ===========    ============    ==========       ==========     ================


                                      F-24


                  NPS PHARMACEUTICALS, INC. AND SUBSIDIARIES
                       (A Development Stage Enterprise)

                  Notes to Consolidated Financial Statements

                       December 31, 1999, 1998, and 1997


     The Company's domestic tax loss carryover for alternative minimum tax
     purposes is approximately the same as the Company's regular tax loss
     carryover. The Company's Canadian research credit carryover of $31,471,000
     carries forward indefinitely.

     Of the total net operating losses, $2,824,000 is attributable to deductions
     related to stock options. When the net operating losses are utilized this
     will result in a credit to paid-in capital of approximately $1,053,000
     instead of a credit to income tax expense.

     As measured under the rules of the Tax Reform Act of 1986, the Company has
     undergone a greater than 50 percent change of ownership since 1986.
     Consequently, use of the Company's domestic net operating loss carryforward
     and research credit carryforward, against future taxable income in any one
     year may be limited. The maximum amount of carryforwards available in a
     given year is limited to the product of the Company's fair market value on
     the date of ownership change and the federal long-term tax-exempt rate,
     plus any limited carryforward not utilized in prior years. Management does
     not believe that these rules will adversely impact the Company's ability to
     utilize the above losses and credit in the aggregate.

(10) Employee Benefit Plan

     The Company maintains a tax-qualified employee savings and retirement plan
     (the 401(k) Plan) covering all of the Company's employees in the U.S.
     Pursuant to the 401(k) Plan, employees may elect to reduce their current
     compensation by the lesser of 15 percent of eligible compensation or the
     prescribed IRS annual limit and have the amount of such reduction
     contributed to the 401(k) Plan. The 401(k) Plan permits, but does not
     require, additional matching contributions to the 401(k) Plan by the
     Company on behalf of all participants. The Company matched one-half of
     employee contributions in 1999 up to a maximum contribution from the
     Company of the lesser of three percent of employee compensation or $5,000.
     Total contributions for the years ended December 31, 1999, 1998, and 1997,
     were $159,650, $-0-, and $-0-, respectively.

     Additionally, the Company maintains a tax-qualified defined contribution
     pension plan for its Canadian employees. Employees may elect to reduce
     their current compensation by two percent or four percent of eligible
     compensation up to a maximum of Cdn $6,750 per year and have the amount of
     such reduction contributed to the pension plan. The Company matches 100
     percent of such contributions.

(11) Disclosure About the Fair Value of Financial Instruments

     The carrying value for certain short-term financial instruments that mature
     or reprice frequently at market rates, approximates fair value. Such
     financial instruments include: cash and cash equivalents, accounts
     receivables, accounts payable, and accrued and other liabilities. The
     carrying value of the long-term debt approximates fair market value. The
     fair values of marketable investment securities are based on quoted market
     prices at the reporting date. The Company does not invest in derivatives.

(12) Plan of Termination

     During the third quarter of 1999, NPS terminated the employment of 39
     research and administrative employees and recorded a liability of $1.1
     million for severance benefits. Approximately 90 percent of this amount was
     included in research and development expense and 10 percent in general and
     administrative expense for the year ended December 31, 1999. During the
     fourth quarter of 1999 the entire severance accrual was paid. In addition,
     an asset impairment charge of $131,062 was also recorded during 1999 in
     connection with these employee terminations.

                                      F-25


                  NPS PHARMACEUTICALS, INC. AND SUBSIDIARIES
                       (A Development Stage Enterprise)

                  Notes to Consolidated Financial Statements

                       December 31, 1999, 1998, and 1997


(13) Recent Accounting Pronouncements

     The Financial Accounting Standards Board issued SFAS No. 133, Accounting
     for Derivatives Instruments and Hedging Activities, in 1998. SFAS No. 133
     establishes accounting and reporting standards for derivative instruments,
     including certain derivative instruments embedded in other contracts
     (collectively referred to as derivatives), and for hedging activities. It
     requires that an entity recognize all derivatives as either assets or
     liabilities in the statement of financial position and measure those
     instruments at fair value. For a derivative not designated as a hedging
     instrument, changes in the fair value of the derivative are recognized in
     earnings in the period of change. The Company must adopt SFAS No. 133 in
     2001. The Company does not believe the adoption of SFAS No. 133 will have a
     material effect on the financial position or results of operations of the
     Company.

     On December 3, 1999, the SEC staff issued Staff Accounting Bulletin No.
     101, Revenue Recognition in Financial Statements (SAB 101). SAB 101
     summarizes certain of the staff's views in applying generally accepted
     accounting principles to revenue recognition in financial statements. The
     Company will incorporate the guidance of SAB 101 in the first quarter of
     fiscal 2001. Management has not yet determined the impact that SAB 101 will
     have on the financial position or results of operations of the Company.

(14) Subsequent Event

     On February 3, 2000, the Company entered into definitive agreements for the
     private placement of an aggregate of 3.9 million shares of its common stock
     to selected institutional and other accredited investors at a purchase
     price of $12.00 per share. The Company will receive an estimated $43.5
     million net of fees and expenses upon the closing of the transaction. The
     closing will occur promptly following the declaration of effectiveness of a
     registration statement on Form S-3 relating to the shares which was filed
     with the Securities and Exchange Commission on February 7, 2000.

                                      F-26