SIBIA NEUROSCIENCES INC, S-1/A, 1997-11-06

SIBIA NEUROSCIENCES INC
S-1/A, 1997-11-06
PHARMACEUTICAL PREPARATIONS

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 6, 1997

REGISTRATION NO. 333-39389

================================================================================

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

AMENDMENT NO. 1

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------

SIBIA NEUROSCIENCES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

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<S> <C> <C>
DELAWARE 2834 95-3616229
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>

505 COAST BOULEVARD SOUTH, SUITE 300
LA JOLLA, CA 92037-4641
(619) 452-5892
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

WILLIAM T. COMER, PH.D.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
SIBIA NEUROSCIENCES, INC.
505 COAST BOULEVARD SOUTH, SUITE 300
LA JOLLA, CA 92037-4641
(619) 452-5892
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)

COPIES TO:

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<S> <C>
THOMAS A. COLL, ESQ. MARK B. WEEKS, ESQ.
CARL R. SANCHEZ, ESQ. JON E. GAVENMAN, ESQ.
JANE K. ADAMS, ESQ. KEITH A. MILLER, ESQ.
COOLEY GODWARD LLP VENTURE LAW GROUP
4365 EXECUTIVE DRIVE, SUITE 1100 A PROFESSIONAL CORPORATION
SAN DIEGO, CA 92121 2800 SAND HILL ROAD
(619) 550-6000 MENLO PARK, CA 94025
(650) 854-4488
</TABLE>

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the Registration Statement becomes effective.

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]

If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]

If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.

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<PAGE> 2

Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor
may offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws
of any such State.

Subject to Completion, Dated November 6, 1997

PROSPECTUS

2,500,000 Shares

LOGO
Common Stock
---------------------------

Of the 2,500,000 shares of Common Stock offered hereby (the "Offering"),
2,250,000 are being sold by SIBIA Neurosciences, Inc. ("SIBIA" or the
"Company"), and 250,000 shares are being sold by one of the Company's
stockholders (the "Selling Stockholder"). See "Principal and Selling
Stockholders." The Company will not receive any of the proceeds from the sale of
shares by the Selling Stockholder. The Company's Common Stock is quoted on the
Nasdaq National Market under the symbol "SIBI." On October 31, 1997, the last
reported sale price of the Company's Common Stock was $7.875 per share. See
"Price Range of Common Stock."

The Common Stock offered hereby involves a high degree of risk. See "Risk
Factors," beginning on page 6.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

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<S> <C> <C> <C> <C>
================================================================================================
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS PROCEEDS TO SELLING
PUBLIC AND COMMISSIONS(1) COMPANY(2) STOCKHOLDER
- ------------------------------------------------------------------------------------------------
Per Share........... $ $ $ $
- ------------------------------------------------------------------------------------------------
Total(3)............ $ $ $ $
================================================================================================
</TABLE>

1. For information regarding indemnification of the Underwriters, see
"Underwriting."

2. Before deducting expenses of the Offering payable by the Company, estimated
at $450,000.

3. The Company has granted to the Underwriters an option, exercisable within 30
days from the date hereof, to purchase up to 375,000 additional shares of
Common Stock, on the same terms as set forth above, solely to cover over-
allotments, if any. If such option is exercised in full, the total Price to
Public will be $ , the Underwriting Discounts and Commissions will be
$ and the Proceeds to Company will be $ . See "Underwriting."

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

The shares of Common Stock offered by the Underwriters are subject to prior
sale, receipt and acceptance by them and subject to the right of the
Underwriters to reject any order in whole or in part and to certain other
conditions. It is expected that delivery of such shares will be made through the
offices of UBS Securities LLC, 299 Park Avenue, New York, New York, on or about
November , 1997.

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

UBS Securities
Piper Jaffray Inc.
Vector Securities International, Inc.

November , 1997
<PAGE> 3

AVAILABLE INFORMATION

The Company has filed with the Commission a Registration Statement on Form
S-1 (which, together with all amendments, exhibits and schedules thereto, is
referred to as the "Registration Statement"), under the Securities Act of 1933,
as amended (the "Securities Act"), with respect to the shares of Common Stock
offered hereby. This Prospectus, which constitutes part of the Registration
Statement, does not contain all of the information set forth in the Registration
Statement and the exhibits thereto. For further information with respect to the
Company and the Common Stock offered hereby, reference is made to the
Registration Statement and the exhibits thereto. Statements contained in this
Prospectus regarding the contents of any contract or any other document to which
reference is made are not necessarily complete, and in each instance reference
is made to the copy of such contract or other document filed as an exhibit to
the Registration Statement, each such statement being qualified in all respects
by such reference.

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). The Registration
Statement, together with such reports, proxy statements and other information
filed by the Company with the Commission can be inspected without charge and
copied at the public reference facilities maintained by the Commission at Room
1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549, and at
the Commission's following Regional Offices: Chicago Regional Office, Suite
1400, 500 West Madison Street, Chicago, Illinois 60661; and New York Regional
Office, Seven World Trade Center, Suite 1300, New York, New York 10048. Copies
of such material can also be obtained at prescribed rates from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Judiciary Plaza,
Washington, D.C. 20549. The Commission also maintains a site on the World Wide
Web that contains reports, proxy and information statements and other
information regarding the Company. The address for such site is
http://www.sec.gov.

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

IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY) OR THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN PASSIVE MARKET
MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN
ACCORDANCE WITH RULE 103 OF REGULATION M UNDER THE SECURITIES EXCHANGE ACT OF
1934, AS AMENDED. SEE "UNDERWRITING."

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING BY ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING
TRANSACTIONS OR IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE "UNDERWRITING."

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PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and the Financial Statements and Notes thereto, contained elsewhere
in this Prospectus. This Prospectus contains forward-looking statements which
involve risks and uncertainties. The Company's actual results may differ
significantly from the results discussed in these forward-looking statements.
Factors that might cause such a difference include, but are not limited to,
those discussed in "Risk Factors" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations," as well as those discussed
elsewhere in this Prospectus. Except as otherwise specified, all information in
this Prospectus assumes no exercise of the Underwriters' over-allotment option.
See "Underwriting."

THE COMPANY

SIBIA Neurosciences, Inc. ("SIBIA" or the "Company") is engaged in the
discovery and development of novel small molecule therapeutics for the treatment
of nervous system disorders. The Company's focus is on the development of
therapeutics for the treatment of neurodegenerative, neuropsychiatric and
neurological disorders, many of which affect large patient populations and
represent critical unmet medical needs. SIBIA is a leader in the development of
proprietary drug discovery platforms that combine key tools necessary for modern
drug discovery, including genomics, high throughput screening, advanced
combinatorial chemistry techniques and pharmacology. These platforms are based
on two primary technologies in which the Company has established a leading
scientific and proprietary position: human receptor/ion channel subtype
technology and human protease technology. The Company's expertise with its drug
discovery technologies and its proprietary molecular targets and drug candidates
has enabled the Company to establish several corporate collaborations, which
include Novartis AG ("Novartis"), Bristol-Myers Squibb Company ("Bristol-Myers
Squibb") and Meiji Seika Kaisha, Ltd. ("Meiji"), and multiple technology
licensing arrangements, which include The Salk Institute for Biological Studies
("The Salk Institute"), Aurora Biosciences Corporation ("Aurora") and Neurocrine
Biosciences, Inc. ("Neurocrine"). SIBIA believes its proprietary drug discovery
technology platform and drug candidates will lead to additional corporate
collaborations and licensing opportunities with pharmaceutical, biotechnology
and drug discovery service companies.

The first compound to enter clinical trials from the Company's drug
discovery program was SIB-1508Y, currently in development for Parkinson's
disease. This compound was selected as a potential drug candidate on the basis
of its nicotinic acetylcholine receptor ("nAChR") subtype selectivity and
behavioral profile. In contrast to current therapies, which treat only motor
dysfunction, SIB-1508Y is being developed for the treatment of motor, affective
and cognitive dysfunctions of Parkinson's disease. In September 1997, SIBIA
completed Phase I clinical trials of SIB-1508Y and expects to commence Phase II
clinical trials in early 1998. The Company has a collaboration with Meiji for
the development and commercialization of SIB-1508Y in Japan and certain other
Asian countries and plans to establish additional corporate collaborations for
advanced clinical trials and commercialization of SIB-1508Y in other areas of
the world. In addition, the Company has selected another nAChR subtype-selective
compound, SIB-1553A, as a development candidate for the treatment of Alzheimer's
disease. SIBIA plans to identify a collaborative partner for SIB-1553A and
initiate Phase I clinical trials in 1998.

SIBIA believes that its drug discovery platforms based on human
receptor/ion channel subtype and human protease technologies will enable the
discovery and development of new classes of drugs for the treatment of nervous
system disorders. The human nervous system is a complex network of
interconnected neurons that are responsible for coordination of virtually all
bodily functions. Receptors and ion channels and the neurotransmitters that
modulate them are key components in the communication between neurons. Such
communication is fundamental to many neurological functions, including
cognition, memory, sensory perception and motor control. Calcium ions are among
the most important primary and secondary messengers in the nervous system.
Calcium ions enter neurons through ion channels, specifically nAChRs, excitatory
amino acid receptors ("EAARs") and voltage-gated calcium channels ("VGCCs").

SIBIA is focusing its human receptor/ion channel subtype technology
platform on subtypes of these receptor/ion channel classes as molecular targets.
To date, SIBIA has developed a proprietary library of more than 50 complete
genes cloned from human brain tissue which code for multiple, distinct subtypes
within

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these three receptor/ion channel classes. The Company has also expressed over 30
subtypes of receptor/ion channels in stable cell lines, each of which represents
a potential molecular and therapeutic target for nervous system disorders.

SIBIA's human protease technology platform is focused on small molecule
compounds able to control specific proteases involved in neurodegenerative
disorders, including amyloid precursor protein ("APP") modulators for
Alzheimer's disease and caspase inhibitors for apoptosis and neuroprotection.
Proteases are enzymes which play an important role in the processing of
proteins. In neurons, specific proteases control pathways critical to neuronal
communication and survival. SIBIA, in collaboration with Bristol-Myers Squibb,
has identified several series of small molecules which inhibit amyloid beta
protein ("A(LOGO)") production in vitro and in vivo. The most advanced compounds
from this collaboration are in pre-clinical development.

Integral to the Company's drug discovery platforms is the combination of
key tools necessary for modern drug discovery, including genomics, high
throughput screening, advanced combinatorial chemistry techniques and
pharmacology. SIBIA has developed functional cell-based assays incorporating its
receptor/ion channel subtype and protease targets for use with its high
throughput screening systems for the rapid characterization, profiling and
optimization of selected compounds through an interactive process with chemistry
and pharmacology in order to develop lead candidates for further development.
The Company synthesizes targeted compound libraries internally using the
Company's proprietary high throughput organic synthesis ("HTOS") combinatorial
chemistry technology to optimize compounds identified through screening. By
integrating its high throughput screening capabilities with its HTOS
technologies, SIBIA can rapidly convert hits identified through screening to
potential lead compounds.

SIBIA's strategy is to (i) focus on drug discovery and early stage drug
development; (ii) utilize its large portfolio of proprietary molecular targets
to develop compounds that address a broad spectrum of nervous system disorders;
(iii) establish corporate alliances with pharmaceutical and biotechnology
companies for the discovery, development and commercialization of its drug
candidates; and (iv) establish multiple technology licensing arrangements to
enhance its nervous system drug discovery capabilities. The Company is applying
its drug discovery technologies to discover and develop potential drug
candidates independently and in collaboration with established pharmaceutical
companies. The Company currently expects that late stage clinical development
and commercialization of independently discovered compounds will be accomplished
in conjunction with corporate partners. The Company believes, assuming
successful pre-clinical studies, that compounds discovered with its technologies
and in conjunction with its corporate partners will enter clinical trials within
the next 12 to 18 months. Since 1992, the Company has received approximately $55
million in equity, license fees, research support and milestone payments from
corporate partners.

SIBIA directly holds, or has exclusive licenses to, 19 issued U.S. and
seven foreign patents relating to molecular targets, technologies, compounds and
assay methods integral to its drug discovery effort for various nervous system
diseases and disorders. In addition, SIBIA has 57 pending U.S. applications
relating to these enabling technologies, 15 of which have been allowed, and
numerous pending foreign applications.

The Company was incorporated in Delaware on April 15, 1981. The Company is
located at 505 Coast Boulevard South, Suite 300, La Jolla, CA 92037-4641, and
its telephone number is (619) 452-5892.

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THE OFFERING

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<S> <C>
Common Stock Offered by the Company.................. 2,250,000 shares
Common Stock Offered by the Selling Stockholder...... 250,000 shares
Common Stock Outstanding after this Offering......... 11,539,480 shares(1)
Use of Proceeds...................................... For research and development activities,
working capital and general corporate
purposes, which may include capital
expenditures and acquisitions.
Nasdaq National Market Symbol........................ SIBI
</TABLE>

SUMMARY FINANCIAL DATA
(in thousands, except per share data)

<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
------------------------
AS
ACTUAL ADJUSTED(5)
-------- -----------
<S> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and investment securities................................ $ 35,745 $ 51,961
Working capital (6)............................................................. 33,801 50,017
Total assets.................................................................... 38,541 54,757
Long-term capital lease obligations............................................. 527 527
Accumulated deficit............................................................. (26,808) (26,808)
Total stockholders' equity...................................................... 34,735 50,951
</TABLE>

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

(1) Excludes, as of September 30, 1997, (i) 1,345,848 shares of Common Stock
available for issuance pursuant to the Company's stock option plans, (ii)
842,014 shares of Common Stock issuable pursuant to outstanding options
under the Company's stock option plans at a weighted average exercise price
of approximately $4.17 per share, (iii) 373,062 shares of Common Stock
issuable pursuant to outstanding options under the Company's Management
Change of Control Plan (the "Change of Control Plan") at an exercise price
of $0.85 per share, and (iv) 478,794 shares of Common Stock available for
issuance pursuant to the Company's Employee Stock Purchase Plan. See
"Management -- Change in Control Arrangements," "-- 1996 Equity Incentive
Plan," "-- Employee Stock Purchase Plan" "-- 1996 Non-Employee Directors'
Stock Option Plan" and Note 10 of Notes to Financial Statements.

(2) Includes a gain of $5,296,000 on the sale of the Company's interest in the
SISKA Diagnostics, Inc. joint venture. See Note 6 of Notes to Financial
Statements.

(3) Includes income (net of legal expenses) of $3,146,000 received by the
Company under settlement agreements with two law firms for failure to
properly file a foreign patent application. See Note 7 of Notes to Financial
Statements.

(4) See Note 1 of Notes to Financial Statements for information concerning the
computation of net income (loss) per share.

(5) Adjusted to reflect the net proceeds from the sale of the 2,250,000 shares
of Common Stock offered by the Company hereby and the receipt by the Company
of the estimated net proceeds therefrom, at an assumed public offering price
of $7.88 per share and after deducting underwriting discounts and
commissions and estimated offering expenses payable by the Company. See "Use
of Proceeds" and "Capitalization."

(6) Working capital is calculated as total current assets less total current
liabilities.

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RISK FACTORS

Prospective investors in the shares of Common Stock offered hereby should
carefully consider the following risk factors, in addition to the other
information contained in this Prospectus. This Prospectus contains
forward-looking statements which involve risks and uncertainties. The Company's
actual results may differ significantly from the results discussed in the
forward-looking statements. Factors that might cause such a difference include,
but are not limited to, those discussed below and in "Management's Discussion
and Analysis of Financial Condition and Results of Operations," as well as those
discussed elsewhere in this Prospectus.

Absence of Developed Products; Early Stage of Development. SIBIA is an
early stage biotechnology company. The Company has no products available for
sale and does not expect to have any products resulting from its research
efforts, including its collaborations with others, commercially available for at
least several years, if at all. SIBIA has only filed an Investigational New Drug
("IND") application with the United States Food and Drug Administration ("FDA")
for one of its compounds (SIB-1508Y) currently under research and development,
and no INDs have been filed by the Company's collaborative partners for any
compound in connection with their collaborations with the Company. Even though
clinical trials with respect to SIB-1508Y have commenced, SIB-1508Y may prove to
be ineffective in the treatment of neural disorders, or have undesirable or
unintended side effects or other characteristics that prevent or limit its
commercial use, either of which could have a material adverse effect on the
Company's business. Furthermore, there can be no assurance that any products
will be successfully discovered or developed by the Company or its collaborative
partners, be approved for clinical trials, prove to be safe and efficacious in
clinical trials, meet applicable regulatory standards, be capable of being
produced in commercial quantities at acceptable costs or be marketed
successfully. The failure of the Company or its collaborative partners to
discover or develop commercially viable products or successfully market such
products would have a material adverse effect on the Company's business. See
"Business -- Discovery and Development Platforms."

The Company's area of therapeutic focus, disorders of the nervous system,
is not thoroughly understood and there can be no assurance that the compounds
the Company is seeking to develop will prove to be safe and effective in
treating nervous system disorders. The development of such compounds will
require the commitment of substantial resources to continue research and to
conduct the pre-clinical development and clinical trials necessary to bring such
compounds to market and to establish production and marketing capabilities. Drug
research, discovery and development by nature are uncertain. There is a risk of
delay or failure at any stage, and the time required and cost involved in
successfully accomplishing the Company's objectives cannot be predicted. Actual
drug research, discovery and development costs could exceed budgeted amounts,
which could have a material adverse effect on the Company's business.

Dependence on Collaborative Relationships. The Company's strategy for the
development, clinical testing, manufacturing and commercialization of certain of
its compounds includes entering into various collaborations with corporate
partners, licensors, licensees and others. The Company has entered into
collaborative arrangements with Novartis, Bristol-Myers Squibb and Meiji and
intends to enter into additional collaborations.

The Company's current collaborators have received from SIBIA certain
exclusive rights to commercialize any products developed under their respective
agreements. These collaborators have generally agreed to fund the research and
development of compounds discovered under their respective agreements, conduct
clinical testing of lead compounds, prepare and file submissions for regulatory
approval, make milestone payments to SIBIA upon the achievement of certain goals
and pay royalties on any resulting products. Under its agreements with these
collaborators, the Company is restricted in its ability to conduct research with
third parties with respect to the technology subject to the respective
agreement. Pursuant to the terms of the Company's agreement with Novartis,
Novartis has exclusive rights to compounds discovered by the Company during the
term thereof and rights of first negotiation to compounds discovered by the
Company during the three-year period following the term of such agreement. Under
the Company's agreement with Bristol-Myers Squibb, Bristol-Myers Squibb has
exclusive rights to compounds discovered by the Company during the term of such
agreement. There can be no assurance that these collaborations will continue or
be successful or that any products will be developed. Moreover, Novartis and
Bristol-Myers Squibb, under their respective agreements,

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have the sole and exclusive right to select compounds for further development
and halt or delay the testing of any compounds selected for development. Under
the Company's agreement with Meiji, all clinical development, product finishing,
marketing and sales for Japan and certain other Asian countries with respect to
products produced from SIB-1508Y, if any, will be controlled by Meiji. The
amount and timing of resources dedicated by these collaborators under their
respective agreements also is not within the control of the Company. There can
be no assurance that the Company will ever receive any milestone or royalty
payments under these agreements. In addition, if products that may be developed
under such agreements are approved for marketing, any revenues to the Company
from such products will be dependent on the marketing and sales efforts of these
collaborators.

Each of the collaborative parties has the right to terminate its respective
collaboration under certain circumstances, including upon the occurrence of a
material breach and, in certain cases, upon a change in control. Effective as of
September 1997, Novartis can terminate its collaboration with the Company, with
or without cause, upon six months' prior written notice. There can be no
assurance that one or more of the Company's relationships with its collaborative
partners will not be terminated or that the Company will be able to enter into
additional collaborations in the future. In addition, there can be no assurance
that collaborators will not pursue alternative technologies to develop
treatments for the diseases targeted by the respective collaborative programs.
If any of the Company's collaborative partners terminates or breaches its
agreement with the Company or fails to devote adequate resources to or to
conduct in a timely manner its collaborative activities, the research program
under the applicable collaborative agreement or the development and
commercialization of drug candidates subject to such collaboration would be
materially adversely affected, which would have a material adverse effect on the
Company's business. In addition, because the Company's collaborative agreements
have accounted for 89%, 81%, 97% and 64% of total revenues for the years ended
December 31, 1994, 1995, 1996 and the nine months ended September 30, 1997,
respectively, such a termination or breach could materially adversely affect the
Company's results of operations and financial condition. Also, there can be no
assurance that a research program covered by a particular collaborative
agreement does not or will not conflict with any research programs covered by
the Company's other collaborations. The occurrence of any such conflict could
have a material adverse effect on the Company's business.

The Company and Eli Lilly & Company ("Lilly") completed their collaborative
research in the area of VGCCs in October 1997. The Company and Lilly will
independently pursue discovery and development of drug leads that act on VGCC
drug targets identified under this collaboration. The Company will no longer
receive research support payments in connection with this collaboration. The
Company is entitled to receive milestone payments and royalties on sales of
products commercialized by Lilly and is free to develop compounds it discovers
in this area on its own or with other partners. The amount and timing of
resources dedicated by Lilly to development and commercialization of such
products is not within the control of the Company. There can be no assurance
that the Company will ever receive any milestone or royalty payments from Lilly.
In addition, if any products are developed and approved for marketing, any
revenues to the Company from such products will be dependent on the marketing
and sales efforts of Lilly.

A key element of the Company's strategy is to enter into additional
collaborative arrangements with pharmaceutical and biotechnology companies to
develop and commercialize its drug candidates. There can be no assurance that
the Company will be able to negotiate collaborative arrangements in the future
on acceptable terms, if at all, or that such collaborative arrangements will be
successful. Most of the Company's competitors similarly are seeking to develop
or expand their collaborative relationships with pharmaceutical and
biotechnology companies, which could adversely impact the Company's ability to
enter into additional collaborative arrangements. To the extent that the Company
is not able to establish such arrangements or any of its existing arrangements
are terminated, it would require significant capital to undertake development,
regulatory, manufacturing and marketing activities at its own expense and may be
required to curtail significantly or eliminate one or more of its research,
discovery or development programs, either of which could have a material adverse
effect on the Company's business. In addition, the Company may encounter
significant delays in introducing products that it may develop into certain
markets or may find that the

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development, manufacture or sale of such products in such markets is adversely
affected by the absence of such collaborative arrangements.

New and Uncertain Technology. The Company's proprietary nervous system
discovery technologies, which comprise the human receptor/ion channel subtype
technology and human protease technology, are unproven and relatively new
compared to traditional methods of drug discovery. The Company uses its
technologies to isolate and identify molecular targets that it believes play an
important role in nervous system function and nervous system disorders. The
ability of the Company to screen potential compounds, select product candidates
and develop products is dependent in large part upon the number of such targets
available for screening and whether the expected functionality of such targets
plays an important role in nervous system function and nervous system disorders.
There can be no assurance that the use of such technologies will lead to the
discovery or development of commercial pharmaceutical products that are safe and
efficacious in treating any nervous system disorder. Failure to develop any such
product would have a material adverse effect on the Company's business.

History of Operating Losses. The Company is at an early stage of
development with respect to its nervous system technologies and its compounds.
Except for 1995, the Company has incurred net losses every year since it shifted
its area of therapeutic focus to the central nervous system in 1991. As of
September 30, 1997, the Company had an accumulated deficit of approximately
$26.8 million. The Company is continuing to incur losses and expects to incur
increasing operating losses over the next several years as the Company's
research and development expenditures increase. The Company's revenue for the
short term will be limited to payments under its existing or future strategic
alliance agreements. There can be no assurance that the Company will ever
achieve or sustain significant revenues or profitable operations. To achieve
significant revenues or profitable operations, the Company, alone or with its
collaborators, must successfully develop, manufacture and market safe and
efficacious products and obtain the regulatory approvals required for their
testing, manufacture and sale. Failure to achieve significant revenues or
profitable operations could impair the Company's ability to sustain operations.
There can be no assurance that the Company will be successful in entering into
additional collaborative arrangements or that any such arrangements will result
in revenues or that the Company will receive additional revenues under existing
collaborative arrangements. The Company has not yet received any revenues from
the achievement of milestones from the discovery or development of, or royalties
from the sale of, commercial drugs by Lilly, Novartis, Bristol-Myers Squibb or
Meiji, and such revenues, if any, are not expected to represent a material
amount of the Company's total revenues for several years, if at all.

Future Capital Needs; Uncertainty of Additional Funding. The Company will
require substantial additional funds to conduct the research and development and
pre-clinical and clinical testing of its compounds and to manufacture and market
any products that may be developed. Although the Company plans to contract with
third parties to manufacture and market any products that may be developed, to
the extent the Company is unsuccessful and is required to establish its own
manufacturing capacity or marketing program, it will require substantial
additional capital. The Company's future capital needs will be dependent upon
many factors, including progress in its research and development activities, the
magnitude and scope of these activities, progress with pre-clinical and clinical
trials, the cost of preparing, filing, prosecuting, maintaining, defending and
enforcing patent claims and other intellectual property rights, competing
technological and market developments, changes in or terminations of existing
collaborative arrangements, the establishment of additional collaborative
arrangements and the cost of manufacturing scale-up and development of marketing
activities, if undertaken by the Company. The Company expects to expend
substantial funds in connection with research and development and in the
prosecution and enforcement of its intellectual property rights. Funds generated
from this Offering, together with payments under existing collaborative
agreements and the Company's current cash reserves, will be insufficient to fund
the Company's operations through the completion of any clinical trials and
commercialization of its first product, if developed. Although the Company will
seek to obtain additional funds through public or private equity or debt
financings, collaborative or other arrangements with corporate partners or from
other sources, there can be no assurance that additional financing will be
available or, if available, that it will be available on acceptable terms. If
additional funds are raised by issuing equity securities, further dilution to
then existing stockholders would

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<PAGE> 10

result. If adequate funds are not available, the Company may be required to
curtail significantly or eliminate one or more of its research, discovery or
development programs or obtain funds through additional arrangements with
corporate partners or others which may require the Company to relinquish rights
to certain of its technologies or product candidates that the Company would not
otherwise relinquish, any of which could have a material adverse effect on the
Company's business.

Intense Competition; Rapid Technological Change. The field in which the
Company is involved is characterized by extensive research efforts, rapid
technological change and intense competition from numerous organizations
including pharmaceutical companies, biotechnology companies, drug discovery
service companies, universities and other research organizations. Technologies,
products and therapies currently exist on the market that would compete directly
with those that the Company is seeking to develop and market. In addition, new
developments occur and are expected to continue to occur at a rapid pace.
Competition from pharmaceutical, biotechnology and drug discovery service
companies is intense and is expected to increase. Many of these companies have
significantly greater financial resources and expertise in research and
development, manufacturing, pre-clinical and clinical testing, obtaining
regulatory approvals and marketing than the Company. Smaller companies may also
prove to be significant competitors, particularly through collaborative
arrangements with large pharmaceutical companies. Many of these competitors have
significant nervous system products approved or in development and operate
large, well-funded nervous system research and development programs. Academic
institutions, governmental agencies and other public and private research
organizations also conduct research, and establish collaborative arrangements
for the clinical development of compounds and marketing of products aimed at
treating nervous system disorders. The Company's competitors may succeed in
discovering and developing products more rapidly or products that are more
effective or more affordable than any that may be developed by the Company and
its collaborative partners, and such competitors may also prove to be more
successful than the Company and its collaborative partners in production and
marketing of such products. There can be no assurance that research, discoveries
or commercial developments by others will not render any of the Company's or its
collaborative partners' programs or potential products obsolete or
noncompetitive, any of which would have a material adverse effect on the
Company's business. Moreover, there can be no assurance that the Company's
competitors will not obtain patent protection or other intellectual property
rights that would limit the Company's or its collaborative partners' ability to
use the Company's technology or commercialize products that may be developed.

Uncertainty Regarding Patents and Proprietary Rights. The Company's success
will depend in part on its ability to obtain patents, maintain trade secrets and
operate without infringing on the proprietary rights of others, both in the
United States and other countries. The patent positions of biotechnology and
pharmaceutical companies can be highly uncertain and involve complex legal and
factual questions, and therefore, the breadth of claims allowed in biotechnology
and pharmaceutical patents cannot be predicted. There can be no assurance that
patents issued to or licensed by the Company will not be infringed or will not
be challenged, invalidated or circumvented, or that the rights granted
thereunder will provide proprietary protection to the Company's technology, to
products that the Company may develop, or to other competitive advantages that
the Company may possess.

SIBIA has 57 pending applications for U.S. patents on its technology
relating to drug discovery for various nervous system disorders. To date, the
Company has licensed four U.S. patents from The Salk Institute related to
SIBIA's human receptor/ion channel subtype technology, as well as
continuations-in-part and foreign counterparts of these patents. The Company
intends to file additional applications as appropriate for patents covering its
technologies, compounds and processes. There can be no assurance that the
Company will develop additional technologies, compounds or processes that are
patentable, that patents will issue from any patent application or that claims
allowed will be sufficient to protect the Company's technologies, compounds or
processes. Competitors may have filed applications, may have been issued patents
or may obtain additional patents and proprietary rights relating to
technologies, compounds or processes competitive with those of the Company. The
failure by the Company to adequately protect its technologies, compounds or
processes covered by issued patents or to obtain patents based on the
applications referred to herein or any future applications could have a material
adverse effect on the Company's business.

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<PAGE> 11

The success of the Company will also depend in part on SIBIA not infringing
patents issued to competitors and not breaching the technology licenses upon
which any Company compounds or processes are based. It is uncertain whether any
third-party patents will require the Company to alter its technologies,
compounds or processes, obtain licenses or cease certain activities. A number of
pharmaceutical companies, biotechnology companies, universities and research
institutions have filed patent applications or received patents in the field in
which the Company is involved. Some of these applications or patents may be
competitive with the Company's applications or conflict in certain respects with
claims made under the Company's applications. Such conflict could result in a
significant reduction of the coverage of the Company's patents, if issued. In
addition, if patents issued to other companies contain competitive or
conflicting claims and such claims are ultimately determined to be valid, the
Company may be required to obtain licenses to these patents or to develop or
obtain alternative technology. If any licenses are required, there can be no
assurance that the Company will be able to obtain any such license on
commercially favorable or acceptable terms, if at all. The Company's breach of
an existing license or failure to obtain a license to any technology that it may
require to develop and commercialize its compounds would have a material adverse
effect on the Company's business.

Litigation, which could result in substantial economic costs to the Company
and diversion of management and other resources, may also be necessary to
enforce any patents issued to the Company or to determine the scope and validity
of third-party proprietary rights. Moreover, if competitors of the Company
prepare and file patent applications in the United States that claim technology
also claimed by the Company, the Company may have to participate in interference
proceedings declared by the United States Patent and Trademark Office ("PTO") to
determine priority of invention, which could result in substantial cost to the
Company, even if the eventual outcome is favorable to the Company. Similarly,
the Company may have to participate in opposition proceedings with respect to
granted foreign patents. The Company is aware of third-party patent applications
that may elicit an interference proceeding with three of the Company's patent
applications in the PTO. There can be no assurance that the Company will prevail
in these proceedings. Also, there can be no assurance that the validity of the
Company's patents, if issued, would be upheld by a court of competent
jurisdiction. An adverse outcome in patent prosecution or in litigation with
respect to the validity of any of the Company's patents could subject the
Company to significant liabilities to third parties, require disputed rights to
be licensed from third parties or require the Company to cease using such
technology, any of which could have a material adverse effect on the Company's
business. See "Business -- Patents and Proprietary Rights" and "-- Legal
Proceedings."

On July 9, 1996, the Company filed an action for patent infringement
against Cadus Pharmaceutical Corporation ("Cadus") in the United States District
Court for the Southern District of California. The complaint asserts that Cadus'
assay technology infringes the Company's U.S. Patent No. 5,401,629 (the "629
patent"), entitled "Assay Methods and Compositions Useful for Measuring the
Transduction of an Intracellular Signal." Through the complaint, the Company
seeks damages in an unspecified amount and a preliminary and permanent
injunction. On August 1, 1996, Cadus filed its answer and a counterclaim to the
Company's complaint. The counterclaim asserts claims that the 629 patent and the
Company's U.S. Patent No. 5,436,128, entitled "Assay Methods and Composition for
Detecting and Evaluating the Intracellular Transduction of an Extracellular
Signal," are invalid, unenforceable and not infringed, and further asserts
claims for intentional interference with prospective economic advantage and
unfair competition. The counterclaim seeks declaratory relief and compensatory
and punitive damages in an unspecified amount. Although the Company believes
that its complaint against Cadus is well-founded, there can be no assurance that
the Company will prevail on its claim, or be able to successfully defend against
Cadus' counterclaim.

In addition to patents, the Company relies on trade secret laws to protect
its technology, especially where patent protection is not believed to be
appropriate or obtainable. Thus, SIBIA relies on protecting its proprietary
technology and processes in part by confidentiality agreements with its
employees, consultants and certain contractors. There can be no assurance that
these agreements will not be breached, that the Company would have adequate
remedies for any breach, or that the Company's trade secrets will not otherwise
become known or be independently discovered by competitors. If the Company is
unable to sufficiently protect its trade secrets, such inability could have a
material adverse effect on the Company's business.

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<PAGE> 12

No Assurance of Regulatory Approval; Government Regulation. The production
and marketing of products that the Company may develop and its ongoing research
and development activities are subject to extensive regulation by numerous
governmental authorities in the United States and other countries. Prior to
marketing in the United States, any drug developed by the Company must undergo
rigorous pre-clinical and clinical testing and an extensive regulatory approval
process implemented by the FDA under the federal Food, Drug and Cosmetic Act. To
market products abroad, the Company also would be subject to foreign regulatory
requirements, implemented by foreign health authorities, governing clinical
trials and marketing approval for drugs. Satisfaction of such regulatory
requirements, which includes demonstrating to the satisfaction of the FDA that
the product is both safe and effective, typically takes several years or more
depending upon the type, complexity and novelty of the product and requires the
expenditure of substantial resources. Pre-clinical studies must be conducted, as
appropriate, in conformance with the FDA's good laboratory practice regulations.
Clinical trials will be vigorously regulated and must meet requirements for
institutional review board oversight and informed consent as well as FDA review
and oversight and under good clinical practice regulations. The Company has no
experience in developing a product through the clinical trial process, which is
necessary to obtain regulatory approval. The Company intends to establish
collaborative relationships to conduct clinical trials and seek regulatory
approvals to market products that it may develop, although there can be no
assurance that such approvals will be received on a timely basis, if at all.
Clinical trials require the recruitment of large numbers of test subjects,
particularly for products that are intended to treat nervous system disorders.
There can be no assurance that those conducting clinical trials for the Company
will be able to initiate such trials at preferred clinical test sites or recruit
sufficient test subjects, or that such trials will be started or completed
successfully within any specified time period, if at all, with respect to any of
the products that the Company may develop. Furthermore, the Company or the FDA
may suspend clinical trials at any time if it is determined that the subjects
participating in such trials are being exposed to unacceptable health risks.
There can be no assurance that the Company will not encounter problems in
clinical trials which would cause the Company or the FDA to delay or suspend
clinical trials. Any such delay or suspension could have a material adverse
effect on the Company's business. There can be no assurance that any compound
that may be developed by the Company alone or in conjunction with others will
prove to be safe and efficacious in clinical trials and meet all of the
applicable regulatory requirements needed to receive marketing approval. If
regulatory approval of a product is granted, such approval will be limited to
those disease states and conditions for which the product is useful, as
demonstrated through clinical studies. The failure to obtain marketing approval
for any drug candidate could have a material adverse effect on the Company's
business.

There can be no assurance that delays or rejections will not be encountered
based upon additional government regulation from future legislation or
administrative action or that changes will not be made in FDA policy during the
period of product development and FDA regulatory review of each submitted new
drug application. Similar delays may also be encountered in foreign countries.
Furthermore, product approval may entail ongoing requirements for post-marketing
studies. Even if such regulatory approval is obtained, a marketed product, its
manufacturer and its manufacturing facilities are subject to continual review
and periodic inspections, and the regulatory standards for manufacturing are
currently being applied stringently by the FDA. Later discovery of previously
unknown problems with a product, a manufacturer or its facility may result in
restrictions on such product or manufacturer, including withdrawal of the
product from the market, which would have a material adverse effect on the
Company's business.

Reliance on Third-Party Manufacturers. The Company currently has no
manufacturing facilities for clinical or commercial production of any compounds
currently under development or marketing capability for the distribution of any
products that may be developed. The Company is currently relying on third-party
manufacturers to produce its compounds for pre-clinical and clinical purposes.
The Company's only compound in human clinical trials, SIB-1508Y, has never been
manufactured on a commercial scale and there can be no assurance that such
compound, or any other compound the Company or its collaborators may develop,
can be manufactured at a cost or in quantities to make commercially viable
products.

The Company intends to establish additional arrangements with third-party
manufacturers to supply compounds for pre-clinical and clinical trials and
commercial sales of products that may be developed, as well as for the
packaging, labeling and distribution of such products. If the Company is unable
to contract for a

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<PAGE> 13

sufficient supply of its compounds on acceptable terms, the Company's
pre-clinical and clinical testing schedule would be delayed, resulting in the
delay of submission of compounds for regulatory approval and initiation of new
development programs, which would have a material adverse effect on the
Company's business. If the Company should encounter delays or difficulties in
establishing relationships with manufacturers to produce, package and distribute
products that the Company may develop, market introduction or penetration of
such products would be adversely affected. Moreover, third-party manufacturers
that the Company may use must adhere to good manufacturing practice regulations
enforced by the FDA through its facilities inspection program. If facilities of
third-party manufacturers cannot pass a pre-approval plant inspection, the FDA
approval of products that may be developed by the Company will be adversely
affected.

Absence of Sales and Marketing Organization. The Company has no experience
in sales, marketing or distribution. In order to market directly any products
that it may develop, the Company must develop or obtain access to a substantial
marketing staff and sales force with technical expertise and supporting
distribution capability. Alternatively, the Company may seek to obtain the
assistance of a pharmaceutical or biotechnology company with a large
distribution system and a large direct sales force. There can be no assurance
that the Company will be able to establish such a marketing staff or sales
force, that the Company's sales and marketing efforts will be successful, or
that the Company will be able to obtain the assistance of another pharmaceutical
or biotechnology company in these efforts. To the extent the Company enters into
arrangements with third parties for the marketing and sale of products it may
develop, any revenues received by the Company will be dependent on the efforts
of such third parties, and there can be no assurance that such efforts will be
successful. Failure to establish adequate sales, marketing and distribution
capabilities independently or with others would have a material adverse effect
on the Company's business.

Management of Growth; Dependence on Key Personnel; Need to Attract and
Retain Key Employees and Consultants. To expand its research and development
programs and pursue its product development plans, the Company will be required
to hire additional qualified scientific personnel to perform research and
development, as well as personnel with expertise in clinical testing and
government regulation. These requirements are also expected to necessitate the
addition of management personnel and the development of additional expertise by
existing management personnel. The failure to attract such personnel or to
develop or acquire such expertise would have a material adverse effect on the
Company's business. As part of this growth, the Company will be required to
enter into additional collaborative arrangements and successfully manage these,
along with its current, collaborative arrangements. To the extent the Company
does not enter into collaborative agreements with third parties, it will also be
required to hire manufacturing and marketing personnel. If the Company is unable
to manage its growth effectively, the Company's business would be materially
adversely affected.

The Company is highly dependent on the principal members of its scientific
and management staff, and the loss of any of these members might significantly
delay the achievement of the Company's development objectives. The Company does
not maintain "key man" insurance on any of its employees, nor does the Company
intend to secure such insurance. In addition, the Company relies on consultants
and advisors, including its scientific advisors, to assist the Company in
formulating its research and development strategy. Retaining and attracting
qualified personnel, consultants and advisors will be critical to the Company's
success. The Company faces competition for qualified individuals from numerous
pharmaceutical and biotechnology companies, universities and other research
institutions. There can be no assurance that the Company will be able to attract
and retain such individuals on acceptable terms or at all. The failure to
attract or retain such personnel would have a material adverse effect on the
Company's business.

Control by Principal Stockholders; Anti-Takeover Provisions. The Salk
Institute and its affiliates beneficially owned approximately 21.4% of the
outstanding shares of Common Stock of SIBIA as of September 30, 1997. In
addition, as of September 30, 1997, the present directors and executive officers
of the Company beneficially owned approximately 8.8% of the outstanding shares
of Common Stock. Accordingly, together with The Salk Institute, the present
directors and executive officers of the Company have the ability to exercise
substantial influence over the outcome of most stockholders' actions. Moreover,
the Company's Certificate of Incorporation does not provide for cumulative
voting with respect to the election of directors. Consequently, the present
directors and executive officers, together with The Salk Institute, are able to
exercise substantial influence over

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<PAGE> 14

the election of the members of the Board of Directors. Such concentration of
ownership could have an adverse effect on the price of SIBIA's Common Stock. In
addition, the Company's Certificate of Incorporation provides that any action
required or permitted to be taken by stockholders of the Company must be
effected at a duly called annual or special meeting of stockholders and may not
be effected by any consent in writing. Special meetings of the stockholders of
the Company may be called only by the Chairman of the Board of Directors, the
President of the Company, by the Board of Directors pursuant to a resolution
adopted by a majority of the total number of authorized directors, or by the
holders of 10% of the outstanding voting stock of the Company. Moreover, the
Company's Certificate of Incorporation and Bylaws provide for a classified Board
of Directors and eliminate the ability of stockholders to remove a director
without cause. The Company's Certificate of Incorporation and Bylaws also
require that the holders of at least 66 2/3% of the voting stock of the Company
must approve any amendment to either the Certificate of Incorporation or Bylaws
affecting certain provisions, including the provisions described above. These
provisions may have the effect of making hostile takeovers of the Company more
difficult, but may also render more difficult the accomplishment of mergers or
the assumption of control by a principal stockholder because they make it more
difficult to remove the Company's management. In addition, the Board of
Directors has the authority, without action by stockholders, to issue additional
shares of Common Stock and to fix the rights and preferences of and issue shares
of Preferred Stock, either of which may have the effect of delaying or
preventing a change in control of the Company. See "Description of Capital
Stock -- Certain Anti-Takeover Effects of Provisions of the Certificate of
Incorporation, Bylaws and Delaware Law."

Further, the Company has issued rights (the "Rights") to the holders of its
Common Stock to purchase a specified class of Preferred Stock of the Company
pursuant to a Preferred Share Purchase Rights Plan (the "Rights Plan"). Although
the Rights Plan will not prevent a takeover of the Company, it may discourage
abusive and coercive takeover tactics that result in a rapid, forced sale of the
Company at a lower price than might otherwise be obtainable. The existence of a
Rights Plan may confront the Board of Directors with difficult decisions with
respect to redemption or amendment of the outstanding Rights. In addition, once
a hostile bidder crosses a certain threshold, the Rights become non-redeemable
and the Board of Directors' ability to enter into a negotiated acquisition would
be impaired. There can be no assurance that the Rights Plan will maximize
shareholder value. Furthermore, there can be no assurance that the Rights Plan
will not discourage potential bidders from attempting to gain control of the
Company. The foregoing charter provisions as well as other charter provisions,
the rights of first refusal in favor of the Company, the Rights Plan and certain
provisions of Delaware law may discourage certain types of transactions
involving an actual or potential change in control of the Company or its
management (including transactions in which stockholders might otherwise receive
a premium for their shares over then current prices) and may limit the ability
of stockholders to remove current management of the Company or approve
transactions that stockholders may deem to be in their best interests. See
"Description of Capital Stock -- Shares Purchase Rights Plan; Junior Preferred
Stock."

In addition, certain of the Company's collaborative partners have the right
to terminate their respective agreements with the Company upon certain changes
in control of the Company, which may discourage acquisitions or other changes in
control (including those in which stockholders of the Company might otherwise
receive a premium for their shares over then current market prices).

Product Liability Exposure and Uninsured Risks. The testing of compounds
and the marketing and sale of commercial pharmaceutical products involves
unavoidable risks. The use of any of the Company's compounds or its
collaborative partners' compounds in clinical trials and the sale of any
products that may be developed may expose the Company to potential liability
resulting from the use of such compounds or products. Such liability might
result from claims made directly by consumers or by regulatory agencies,
pharmaceutical companies or others using or selling such compounds or products.
The Company has obtained insurance coverage for its current clinical trials. The
Company intends to seek additional insurance coverage if and when it develops
products that are ready to be commercialized. There can be no assurance that the
Company will be able to obtain or maintain product liability insurance in the
future on acceptable terms or that, if obtained, the insurance coverage will be
sufficient to cover any potential claims or liabilities. The inability of the
Company

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<PAGE> 15

to obtain product liability coverage in amounts sufficient to cover any damages
resulting from a product liability claim could have a material adverse effect on
the Company's business.

Hazardous Materials. The Company's research and development involves the
controlled use of hazardous materials, chemicals and various radioactive
compounds. Although the Company believes that its safety procedures for storing,
handling and disposing of such 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 such an
accident, the Company could be held liable for any resulting damages, which
could have a material adverse effect on the Company's business.

Possible Volatility of Stock Price. The market prices for securities of
biopharmaceutical and biotechnology companies, including that of SIBIA,
historically have been highly volatile, and the market from time to time has
experienced significant price and volume fluctuations that are unrelated to the
operating performance of such companies. Factors that may have a significant
impact on the market price and marketability of the Company's Common Stock
include: announcements of technological innovations or new commercial
therapeutic products by the Company, its collaborative partners or the Company's
present or potential competitors; announcements by the Company or others of
results of preclinical testing and clinical trials; developments or disputes
concerning patent or other proprietary rights; developments in the Company's
relationships with its existing or future collaborative partners; acquisitions;
litigation; adverse legislation; changes in governmental regulation, third party
reimbursement policies, or the status of the Company's regulatory approvals or
applications; changes in earnings; changes in securities analysts'
recommendations; changes in health care policies and practices; economic and
other external factors; and period-to-period fluctuations in financial results
of the Company and general market conditions. Fluctuations in the trading price
or liquidity of the Company's Common Stock may adversely affect the Company's
ability to raise capital through future equity financing, which could have a
material adverse effect on the Company's business.

Shares Eligible for Future Sale; Registration Rights. Sales of substantial
amounts of Common Stock in the public market following the Offering made hereby
could have an adverse effect on the price of the Company's Common Stock. Upon
completion of this Offering, the Company will have outstanding 11,539,480 shares
of Common Stock (which amount does not include shares of Common Stock issuable
upon the exercise of outstanding options). Of these shares, 4,934,945 will be
freely tradable in the public market without restriction or limitation under the
Securities Act unless held by "affiliates" of the Company as that term is
defined in Rule 144 under the Securities Act. The remaining 6,604,535 shares of
Common Stock held by existing stockholders will be "restricted securities" as
that term is defined in Rule 144 of the Securities Act. Such restricted shares
may be sold in the public market only if registered under the Securities Act or
if they qualify for an exemption from registration under Rule 144 promulgated
under the Securities Act. Sales of such restricted shares in the public market,
or the availability of such shares for sale, could adversely affect the market
price of the Common Stock.

The directors, executive officers and certain stockholders of the Company
holding 4,908,153 shares of Common Stock have entered into lock-up agreements in
connection with this Offering whereby they have agreed not to offer, sell,
contract to sell or otherwise dispose of any shares of Common Stock of the
Company held by such stockholders for a period of 90 days after the effective
date of the registration statement for this Offering (without the prior written
consent of UBS Securities LLC). Upon the expiration of the lock-up agreements,
the shares subject to such agreements will become available for immediate sale,
subject to compliance with Rule 144 of the Securities Act.

The holders of approximately 5,249,040 shares of Common Stock are entitled
to certain piggy-back registration rights with respect to such shares. If the
Company is required to include in a Company-initiated registration shares held
by such holders pursuant to the exercise of their piggy-back registration
rights, sales made by such holders may have an adverse effect on the Company's
ability to raise needed capital and on the price of the Common Stock. In
addition, Novartis and Bristol-Myers Squibb hold demand registration rights
which permit them to request the Company to register the shares of Common Stock
held by Novartis and Bristol-Myers Squibb. If Novartis or Bristol-Myers Squibb,
by exercising its demand registration rights, causes a large number of shares to
be registered and sold in the public market, such sales may have an adverse
effect on

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<PAGE> 16

the market price for the Common Stock. In addition, shares of Common Stock that
are issued by the Company to fund its operations or in connection with an
acquisition could also have an adverse effect on the market price for the Common
Stock. See "Description of Capital Stock -- Registration Rights" and "Shares
Eligible for Future Sale."

From time to time The Salk Institute has indicated to the Company its
desire to liquidate all or a portion of its holdings of Company Common Stock. In
addition to the 250,000 shares being offered hereby by The Salk Institute,
following the expiration of the 90-day lock-up agreement executed and delivered
by The Salk Institute in connection with this Offering, The Salk Institute may
also sell other shares of Common Stock of SIBIA held by it pursuant to Rule 144.
SIBIA's stock has historically had a very low trading volume, and sales by The
Salk Institute of even a small number of shares of Company Common Stock could
have a material adverse effect on the market price of the Common Stock.

Substantial Dilution. The public offering price will be substantially
higher than the net tangible book value per share of Common Stock. Investors
purchasing shares of Common Stock in this Offering will therefore incur
immediate and substantial dilution. In addition, investors purchasing shares of
Common Stock in this Offering will incur additional dilution to the extent
outstanding options are exercised. Also, the Company may issue shares of Common
Stock in connection with a corporate collaboration, strategic alliance or
technology licensing transaction, which could result in dilution to investors
purchasing shares of Common Stock in this Offering. See "Dilution."

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<PAGE> 17

USE OF PROCEEDS

The net proceeds to the Company from the sale of the 2,250,000 shares of
Common Stock offered by the Company hereby are estimated to be approximately
$16.2 million ($19.0 million if the Underwriters' over-allotment option is
exercised in full), assuming a public offering price of $7.88 per share and
after deducting underwriting discounts and commissions and estimated expenses
payable by the Company. The Company will not receive any proceeds from the sale
of the 250,000 shares of Common Stock being offered by The Salk Institute.

The Company expects to use a majority of the net proceeds of this Offering
to fund the continued enhancement of its drug discovery technologies and to fund
pre-clinical and early clinical development of drug candidates. The amount and
timing of the net proceeds allocated to specific research and development
activities have not been determined and will depend upon numerous factors, such
as the progress of the Company's drug discovery and development programs, the
receipt of necessary regulatory approvals, the cost of preparing, filing,
prosecuting, maintaining, defending and enforcing patent claims and other
intellectual property rights, the status of competitive products and
technologies and the timing and availability of alternative methods of financing
for the Company, including existing or future strategic alliances and joint
ventures with third parties. The Company's research and development expenditures
will vary as product candidates, if any, are added or abandoned or as additional
collaborations are established. In addition, the Company intends to use some of
the proceeds of this Offering for working capital and general corporate
purposes, which may include capital expenditures for improvements to the
Company's facilities. Pending such uses, the Company intends to invest the net
proceeds from this Offering in United States government securities and
investment grade, interest-bearing instruments.

In the ordinary course of business the Company investigates, evaluates and
discusses with others the potential acquisition of businesses, technologies and
products which complement the Company's business. Although the Company currently
has no understandings or agreements with respect to any such acquisition, net
proceeds from this Offering may be used for such purpose.

The Company believes that the net proceeds of this Offering, together with
the Company's available cash reserves and funds from collaborative research and
development agreements, should be adequate to satisfy its capital requirements
through 1999, although there can be no assurance that the Company will not
require additional funds prior to such date. The Company's future capital needs
will be dependent upon many factors, including progress in its research and
development activities, the magnitude and scope of these activities, progress
with pre-clinical and clinical trials, the cost of preparing, filing,
prosecuting, maintaining, defending and enforcing patent claims and other
intellectual property rights, competing technological and market developments,
changes in or terminations of existing collaborative arrangements, the
establishment of additional licensing and/or collaborative arrangements, and the
cost of manufacturing scale-up and development of marketing activities, if
undertaken by the Company. See "Risk Factors -- Future Capital Needs;
Uncertainty of Additional Funding" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

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PRICE RANGE OF COMMON STOCK

The Company's Common Stock commenced trading on the Nasdaq National Market
under the symbol "SIBI" on May 9, 1996. The following table sets forth, for the
periods indicated, the high and low sales prices per share of the Common Stock
as reported on the Nasdaq National Market:

<TABLE>
<CAPTION>
HIGH LOW
----- ----
<S> <C> <C>
1997
Fourth Quarter (through October 31, 1997).................... $9 $7 5/8
Third Quarter................................................ 9 1/8 6
Second Quarter............................................... 9 5 1/4
First Quarter................................................ 9 1/2 7 1/2
1996
Fourth Quarter............................................... $8 1/4 $6 1/4
Third Quarter................................................ 8 1/4 5 1/2
Second Quarter (from May 9, 1996)............................ 11 1/2 6 7/8
</TABLE>

The last reported sale price of the Common Stock on the Nasdaq National
Market on October 31, 1997 was $7.875. As of September 30, 1997, there were
approximately 121 stockholders of record of the Company's Common Stock.

DIVIDEND POLICY

The Company has not declared or paid any cash dividends on its capital
stock since its inception. The Company currently intends to retain all of its
cash and any future earnings to finance the growth and development of its
business and therefore does not anticipate paying any cash dividends in the
foreseeable future. Any future determination to pay cash dividends will be at
the discretion of the Board of Directors and will be dependent upon the
Company's financial condition, results of operations, capital requirements and
such other factors as the Board of Directors deems relevant.

17
<PAGE> 19

CAPITALIZATION

The following table sets forth, at September 30, 1997, (i) the actual
capitalization of the Company and (ii) the capitalization of the Company as
adjusted to reflect the sale by the Company of 2,250,000 shares of Common Stock
offered hereby and receipt by the Company of the estimated net proceeds
therefrom, at an assumed public offering price of $7.88 per share and after
deducting underwriting discounts and commissions and estimated offering expenses
payable by the Company.

<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
---------------------
AS
ACTUAL ADJUSTED
-------- --------
(in thousands)
<S> <C> <C>
Long-term capital lease obligations.................................... $ 527 $ 527
Stockholders' equity:
Preferred Stock, $.001 par value; 5,000,000 shares authorized (of
which 150,000 shares have been designated as Series A Junior
Participating Preferred Stock, $.001 par value); no shares issued
and outstanding actual and as adjusted...........................
Common Stock, $.001 par value; 25,000,000 shares authorized;
9,289,480 shares issued and outstanding, actual; 11,539,480
shares issued and outstanding, as adjusted(1).................... 9 12
Additional paid-in capital............................................. 59,941 76,154
Deferred compensation.................................................. (745) (745)
Notes receivable from stockholders..................................... (87) (87)
Net unrealized gains on investment securities available-for-sale....... 2,425 2,425
Accumulated deficit.................................................... (26,808) (26,808)
-------- --------
Total stockholders' equity................................... 34,735 50,951
-------- --------
Total capitalization......................................... $ 35,262 $ 51,478
======== ========
</TABLE>

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

(1) Excludes, as of September 30, 1997, (i) 1,345,848 shares of Common Stock
available for issuance pursuant to the Company's stock option plans, (ii)
842,014 shares of Common Stock issuable pursuant to outstanding options
under the Company's stock option plans at a weighted average exercise price
of approximately $4.17 per share, (iii) 373,062 shares of Common Stock
issuable pursuant to outstanding options under the Change of Control Plan at
an exercise price of $0.85 per share, and (iv) 478,794 shares of Common
Stock available for issuance pursuant to the Company's Employee Stock
Purchase Plan. See "Management -- Change in Control Arrangements," "-- 1996
Equity Incentive Plan," "-- Employee Stock Purchase Plan" and "-- 1996
Non-Employee Directors' Stock Option Plan" and Note 10 of Notes to Financial
Statements.

18
<PAGE> 20

DILUTION

The net tangible book value of the Company as of September 30, 1997 was
$34,735,000, or approximately $3.74 per share of Common Stock. The net tangible
book value per share of Common Stock represents the amount of the Company's
total tangible assets, less total liabilities, divided by the number of shares
of Common Stock outstanding. Net tangible book value dilution per share
represents the difference between the amount per share paid by purchasers of
shares of Common Stock offered by the Company hereby and the pro forma net
tangible book value per share of Common Stock immediately after completion of
this Offering. After giving effect to the sale by the Company of the 2,250,000
shares of Common Stock offered by the Company hereby (at an assumed public
offering price of $7.88 per share and after deducting underwriting discounts and
commissions and estimated offering expenses payable by the Company), the pro
forma net tangible book value of the Company as of September 30, 1997 would have
been $50,951,000, or approximately $4.42 per share of Common Stock. This
represents an immediate increase in pro forma net tangible book value per share
of approximately $0.68 to existing stockholders and an immediate dilution in net
tangible book value of approximately $3.46 per share to new investors purchasing
shares of Common Stock in this Offering.

The following table illustrates this per share dilution:

<TABLE>
<S> <C> <C>
Assumed public offering price per share(1)........................... $7.88
Net tangible book value per share as of September 30, 1997......... $3.74
Increase per share attributable to new investors in this
Offering........................................................ 0.68
-----
Pro forma net tangible book value per share after this Offering...... 4.42
-----
Dilution per share to new investors in this Offering................. $3.46
=====
</TABLE>

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

(1) Before deduction of underwriting discounts and commissions and
estimated expenses payable by the Company in connection with the
offering.

The following table summarizes, on a pro forma basis as of September 30,
1997, the differences between existing stockholders and new investors with
respect to the number of shares of Common Stock purchased from the Company, the
total consideration paid to the Company and the average price per share paid.

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
-------------------- --------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders..................... 9,289,480 80.5% $59,666,000 77.1% $ 6.42
New investors............................. 2,250,000 19.5 17,730,000 22.9 $ 7.88
---------- ----- ----------- -----
Total................................ 11,539,480 100.0% $77,396,000 100.0%
========== ===== =========== =====
</TABLE>

The above tables and calculations assume no exercise of options outstanding
as of September 30, 1997. As of September 30, 1997, there were outstanding
options to purchase 1,215,076 shares of Common Stock (which amount includes
outstanding options to purchase 373,062 shares of Common Stock granted pursuant
to the Company's Change of Control Plan at an exercise price of $0.85 per share)
at a weighted average exercise price of approximately $3.15 per share. Assuming
the exercise of these outstanding options, the total dilution in net tangible
book value per share to new investors would be $3.59. As of September 30, 1997,
there were 1,824,642 shares reserved for future grants under the Company's stock
option plans and the Company's Employee Stock Purchase Plan. To the extent that
any of these shares are issued, there will be further dilution to new investors.
See "Management -- Change in Control Arrangements," "-- 1996 Equity Incentive
Plan," "-- Employee Stock Purchase Plan," "-- 1996 Non-Employee Directors' Stock
Option Plan" and Note 10 of Notes to Financial Statements.

19
<PAGE> 21

SELECTED FINANCIAL DATA

The selected financial data set forth below with respect to the Company's
statement of operations for each of the three years in the period ended December
31, 1996 and with respect to the balance sheets at December 31, 1995 and 1996
are derived from the Company's financial statements included elsewhere in this
Prospectus that have been audited by Price Waterhouse LLP, independent
accountants. The statement of operations data for the years ended December 31,
1992 and 1993 and the balance sheets data at December 31, 1992, 1993 and 1994
are derived from audited financial statements of the Company not included in
this Prospectus. The selected financial data as of September 30, 1997 and for
the nine months ended September 30, 1997 and 1996 are derived from unaudited
financial statements. The unaudited financial statements have been prepared on
the same basis as the audited financial statements and in the opinion of
management contain all adjustments, consisting only of normal recurring
adjustments, necessary for fair presentation of the financial position at such
date and the results of operations for such periods. Operating results for the
nine months ended September 30, 1997 are not necessarily indicative of the
results to be expected for the year ending December 31, 1997. The selected
financial data presented below should be read in conjunction with the Company's
Financial Statements and Notes thereto and "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and other information included
elsewhere in this Prospectus.

<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------------------- -----------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- ------- ------- -------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Contract........................................ $ 2,314 $ 4,072 $ 4,454 $ 5,563 $ 8,215 $ 6,368 $ 5,829
License and royalty............................. 882 1,005 398 4,885 266 83 3,223
------- ------- ------- ------- ------- ------- -------
3,196 5,077 4,852 10,448 8,481 6,451 9,052
Expenses:
Research and development........................ 5,446 7,713 8,663 8,949 12,268 8,902 12,160
General and administrative...................... 2,114 2,202 1,917 2,178 3,561 2,702 3,715
------- ------- ------- ------- ------- ------- -------
7,560 9,915 10,580 11,127 15,829 11,604 15,875
------- ------- ------- ------- ------- ------- -------
Income (loss) from operations..................... (4,364) (4,838) (5,728) (679) (7,348) (5,153) (6,823)
Other income...................................... 366 288 5,701(1) 3,680(2) 1,784 1,188 1,708
------- ------- ------- ------- ------- ------- -------
Income (loss) before provision for income taxes... (3,998) (4,550) (27) 3,001 (5,564) (3,965) (5,115)
Provision for income taxes........................ -- -- -- 75 -- -- --
------- ------- ------- ------- ------- ------- -------
Net income (loss)................................. $(3,998) $(4,550) $ (27) $ 2,926 $(5,564) $(3,965) $(5,115)
======= ======= ======= ======= ======= ======= =======
Net income (loss) per share(3).................... $ 0.42 $ (0.73) $ (0.56) $ (0.55)
======= ======= ======= =======
Shares used in computing net income (loss) per
share(3)........................................ 6,928 7,596 7,116 9,224
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------- SEPTEMBER 30,
1992 1993 1994 1995 1996 1997
-------- -------- -------- -------- -------- -------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and investment securities...... $ 7,820 $ 4,584 $ 5,944 $ 16,488 $ 37,464 $ 35,745
Working capital(4).................................... 6,614 2,016 4,523 14,338 35,324 33,801
Total assets.......................................... 8,873 6,451 8,005 18,251 39,983 38,541
Long-term capital lease obligations................... 151 761 860 721 519 527
Accumulated deficit................................... (14,478) (19,028) (19,055) (16,129) (21,693) (26,808)
Total stockholders' equity............................ 6,986 2,588 5,166 15,107 36,572 34,735
</TABLE>

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

(1) Includes a gain of $5,296,000 on the sale of the Company's interest in the
SISKA Diagnostics, Inc. joint venture. See Note 6 of Notes to Financial
Statements.

(2) Includes income (net of legal expenses) of $3,146,000 received by the
Company under settlement agreements with two law firms for failure to
properly file a foreign patent application. See Note 7 of Notes to Financial
Statements.

(3) See Note 1 of Notes to Financial Statements for information concerning the
computation of net income (loss) per share.

(4) Working capital is calculated as total current assets less total current
liabilities.

20
<PAGE> 22

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of the financial condition and results of
operations should be read in conjunction with the Financial Statements and the
Notes thereto appearing elsewhere in this Prospectus. This Prospectus contains
forward-looking statements which involve risks and uncertainties. The Company's
actual results may differ significantly from the results discussed in the
forward-looking statements. Factors that might cause such a difference include,
but are not limited to, those discussed below and in "Risk Factors," as well as
those discussed elsewhere in this Prospectus. Readers are cautioned not to place
undue reliance on these forward-looking statements, which speak only as of the
date hereof. The Company undertakes no obligation to publicly release the
results of any revisions to these forward-looking statements which may be made
to reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.

OVERVIEW

SIBIA, incorporated in Delaware in 1981, was established by The Salk
Institute. Through 1990, SIBIA successfully developed several proprietary
life-sciences technologies in collaboration with corporate partners. In 1987,
SIBIA initiated research in the neuroscience field and in 1991 shifted its focus
completely to the development of novel therapeutics to treat nervous system
disorders.

The Company receives contract revenue and license and royalty revenue.
Contract revenue includes payments for research to support a specified number of
the Company's scientists and payments upon the achievement of specified research
and drug development milestones. Research contracts are generally conducted on a
best efforts basis. Contract revenue is recognized as the research is performed
using the percentage-of-completion method of accounting, primarily based on
contract costs incurred to date compared with total estimated costs at
completion. Revenue related to milestones is recognized upon the achievement of
the related milestone and when collection is probable. License revenue is
recognized when earned as generally evidenced by certain factors including:
receipt of such fees, satisfaction of any performance obligations and the
non-refundable nature of such fees. Royalty revenue is recognized when earned
and collection is probable.

Research and development costs are expensed as incurred and include costs
associated with collaborative agreements. These costs consist of direct and
indirect costs related to specific projects as well as fees paid to other
entities which conduct certain research activities on behalf of the Company.

The Company has no products available for sale and does not expect to have
any products resulting from its research efforts, including its collaborations
with others, commercially available for at least several years, if at all.
Except for 1995, the Company has incurred net losses every year since shifting
its area of therapeutic focus to the central nervous system in 1991. The Company
is continuing to incur losses and expects to incur increasing operating losses
over the next several years as the Company's research and development
expenditures increase. The Company expects that its revenue and other income for
the next several years will fluctuate significantly from quarter to quarter and
will be limited to payments under its collaborative relationships, license fees,
interest income and other miscellaneous income.

During the years ended December 31, 1994, 1995 and 1996 and the nine months
ended September 30, 1997, the Company had two, three, three and three
collaborative research agreements that accounted for 89%, 81%, 97% and 64%,
respectively, of total revenue.

To date, the majority of the Company's expenditures have been for research
and development activities. SIBIA expects to receive royalties on sales of
Myotrophin, a product based on the insulin-like growth factor-1 ("IGF-1")
molecule being developed by Cephalon, Inc. ("Cephalon"), if it receives FDA
approval, although there can be no assurances that Myotrophin will receive such
approval. With the exception of Myotrophin, the Company does not expect to
receive royalties based upon net sales of drugs that may be developed for a
significant number of years, if at all. SIBIA expects research and development
expenses to increase significantly over the next several years as its discovery
and development programs progress. In addition, general and administrative
expenses necessary to support such expanded programs are also expected to
increase over the next several years.

21
<PAGE> 23

As of September 30, 1997, the Company had an accumulated deficit of
approximately $26,808,000. The Company expects to continue to incur significant
additional net losses over the next several years as its research, development
and clinical trial efforts expand. Operating losses may fluctuate from quarter
to quarter as a result of differences in the timing of expenses incurred and
revenues recognized. To date, the Company's operations have been funded
primarily through equity financings, research contracts, option, license and
royalty revenues. In addition, SIBIA has received funds from the sale of its
interest in a corporate joint venture in 1994 and from the settlement of certain
litigation in 1995, with which it has purchased investment securities and which
it has used to finance its operations.

RESULTS OF OPERATIONS

Nine Months Ended September 30, 1997 and 1996

Total revenue increased by 40%, from $6,451,000 in the first nine months of
1996 to $9,052,000 in the comparable period in 1997. The increase was due
primarily to one-time license fees of $3,000,000 recognized in 1997 related to
the Company's agreement with Meiji for the development of SIB-1508Y, SIBIA's
lead compound for Parkinson's disease.

Total expenses increased by 37%, from $11,604,000 in the first nine months
of 1996 to $15,875,000 in the comparable period in 1997. The increase in total
expenses was primarily attributable to an increase in research and development
expenses of 37%, from $8,902,000 in the first nine months of 1996 to $12,160,000
in the comparable period in 1997. This was primarily the result of expanded
programs in drug discovery and for expenses associated with clinical trials of
SIB-1508Y. General and administrative expenses increased 37%, from $2,702,000 in
the first nine months of 1996 to $3,715,000 in the comparable period in 1997.
The increase in general and administrative expenses was primarily due to the
payment, in 1997, of foreign taxes related to payments received under the Meiji
agreement and increased legal fees related to various patent and litigation
matters. Such increases were offset by decreased compensation expense relating
to stock option grants.

Other income increased by 44%, from $1,188,000 in the first nine months of
1996 to $1,708,000 in the comparable period in 1997. The increase in other
income was due primarily to an increase in interest income earned on proceeds
from the Company's initial public offering of Common Stock in May 1996.

Years Ended December 31, 1996 and 1995

Total revenue decreased by 19%, from $10,448,000 in 1995 to $8,481,000 in
1996. The decrease was due primarily to the recognition, in 1995, of a one-time
license fee of $3,000,000 received from Bristol-Myers Squibb for an exclusive
commercialization license to use certain proprietary technologies related to
APP, a one-time payment of $1,750,000 related to Cephalon's buy-down of its
royalty percentage due on sales of Myotrophin, and revenue related to Novartis'
purchase of certain equipment. Such decrease was partially offset by a net
increase in 1996 contract revenue that was primarily attributable to the
Company's collaborative agreement with Bristol-Myers Squibb and reimbursement of
additional costs and fees from Novartis, pursuant to the terms of the extension
of a collaborative agreement.

Total expenses increased by 42%, from $11,127,000 in 1995 to $15,829,000 in
1996. The increase in total expenses was primarily attributable to an increase
in research and development expenses of 37%, from $8,949,000 in 1995 to
$12,268,000 in 1996. This was a result of an increase in research and
development personnel and other costs related to the collaborative agreement
with Bristol-Myers Squibb, expanded programs in drug discovery, increased
outside pre-clinical expenses, occupancy costs and compensation expense relating
to stock option grants. Partially offsetting the above increases was a decrease
in costs related to Novartis' purchase of certain equipment. General and
administrative expenses increased 63%, from $2,178,000 in 1995 to $3,561,000 in
1996. The increase in general and administrative expenses was primarily due to
increased 1996 legal fees related to various general and litigation matters,
increased 1996 compensation expense relating to stock option grants, increases
in salaries and fringe benefit expenses in 1996 due to an increased number of
employees and other expenses related to being a publicly traded company.

22
<PAGE> 24

Other income decreased by 52%, from $3,680,000 in 1995 to $1,784,000 in
1996. The decrease in other income was due primarily to the net effect of
$3,146,000 of litigation settlements in 1995 and $1,834,000 of interest income
in 1996 related to investing of the proceeds of the Company's initial public
offering of Common Stock.

Years Ended December 31, 1995 and 1994

Total revenue increased by 115%, from $4,852,000 in 1994 to $10,448,000 in
1995. The increase was due primarily to the recognition, in 1995, of a one-time
license fee of $3,000,000 received from Bristol-Myers Squibb for an exclusive
commercialization license to use certain proprietary technologies related to
APP, increased revenue related to a new collaborative agreement with
Bristol-Myers Squibb, a one-time payment of $1,750,000 related to Cephalon's
buy-down of its royalty percentage due on sales of Myotrophin and revenue
related to Novartis' purchase of certain equipment.

Total expenses increased by 5%, from $10,580,000 in 1994 to $11,127,000 in
1995. The increase in total expenses was primarily attributable to an increase
in research and development expenses of 3%, from $8,663,000 in 1994 to
$8,949,000 in 1995, primarily due to an increase in pre-clinical development
expenses. General and administrative expenses increased 14%, from $1,917,000 in
1994 to $2,178,000 in 1995. The increase in general and administrative expenses
was primarily due to increased 1995 outside patent legal expenses.

Other income decreased by 35%, from $5,701,000 in 1994 to $3,680,000 in
1995. The decrease in other income was due primarily to the net effect of a
$5,296,000 gain from the sale of the Company's interest in the SISKA
Diagnostics, Inc. joint venture in 1994 and $3,146,000 of litigation settlements
in 1995.

LIQUIDITY AND CAPITAL RESOURCES

SIBIA has financed its operations primarily through equity financings,
research contracts (generally conducted on a best efforts basis) and option,
license and royalty revenues. The Company has also received funds from the sale
of its interest in the SISKA Diagnostics, Inc. joint venture and the settlement
of certain litigation, with which it has invested in investment securities and
which it expects to use to finance its operations. Since 1991, the Company has
received approximately $41,775,000 in net proceeds from the sale of Convertible
Preferred Stock and Common Stock to investors and collaborative partners and
approximately $45,791,000 in contract, license and royalty revenue. The Company
is entitled to receive additional payments under the collaborative agreements in
the form of contract revenue, milestone payments, if milestones are achieved,
and royalties, if products are commercialized. As of September 30, 1997, the
Company had an accumulated deficit of $26,808,000.

The Company believes its proprietary drug discovery platform will lead to
corporate collaboration and licensing opportunities which may generate future
revenues in the form of license fees, milestone payments and/or royalties.

The Company anticipates that the cash, cash equivalents and investment
securities balance of $35,745,000 as of September 30, 1997 will be used to
support continued research and development of its technologies. The Company
leases laboratory and office facilities under an agreement expiring on December
31, 2001. The average minimum annual payment under the lease is approximately
$1,456,000, before consideration of sublease income. The Company believes that
its present facility will be adequate to conduct its research activities through
December 2001. Management believes that it should be able to secure additional
space at commercially reasonable rates, if necessary. The Company has an option
to extend its lease for an additional five years. Since 1991, the Company has
invested $3,411,000 in property and equipment. Included within this amount is
$2,743,000 of equipment under capital leases. The net present value of
obligations under such capital leases as of December 31, 1996 was $1,071,000. In
February 1997, the Company received a firm commitment to fund a $1,500,000 lease
line through March 31, 1998. The fundings will have terms generally consistent
with those of the Company's existing lease commitments.

23
<PAGE> 25

The Company expects to incur substantial research and development expenses
including continued increases in personnel costs and costs related to the
continued expansion of its drug discovery platform and pre-clinical testing and
early stage clinical trials. Although the Company plans to contract with third
parties to manufacture and market any products that may be developed, to the
extent the Company is unsuccessful and is required to establish its own
manufacturing capacity and marketing program, it will require substantial
additional capital. The Company's future capital needs will be dependent upon
many factors, including progress in its research and development activities, the
magnitude and scope of these activities, progress with pre-clinical and clinical
trials, the cost of preparing, filing, prosecuting, maintaining, defending and
enforcing patent claims and other intellectual property rights, competing
technological and market developments, changes in or terminations of existing
collaborative arrangements, the establishment of additional licensing and/or
collaborative arrangements, and the cost of manufacturing scale-up and
development of marketing activities, if undertaken by the Company. The Company
intends to seek additional funding through research and development
relationships with suitable corporate collaborators or through public or private
financing. There can be no assurance that the Company will be successful in its
efforts to collaborate with additional partners or that additional financing
from other sources will be available on favorable terms, if at all.

Funds generated from this Offering, together with payments under existing
collaborative agreements and the Company's current cash reserves, will be
insufficient to fund the Company's operations through the completion of any
clinical trials and commercialization of its first product, if developed.
Although the Company will seek to obtain additional funds through public or
private equity or debt financings, collaborative or other arrangements with
corporate partners or from other sources, there can be no assurance that
additional financing will be available or, if available, that it will be
available on acceptable terms. If additional funds are raised by issuing equity
securities, further dilution to then existing stockholders would result. If
adequate funds are not available, the Company may be required to curtail
significantly or eliminate one or more of its research, discovery or development
programs or to obtain funds through additional arrangements with corporate
partners or others which may require the Company to relinquish rights to certain
of its technologies or product candidates that the Company would not otherwise
relinquish, which could have a material adverse effect on the Company's
business.

NET OPERATING LOSSES

As of December 31, 1996, the Company had available net operating loss
carryforwards for federal and state income tax purposes of approximately
$20,730,000 and $700,000, respectively, which expire beginning in 2006 and 2002,
respectively. As of December 31, 1996, the Company had federal and state tax
credits for research activities totaling approximately $1,116,000 and $370,000,
respectively, which are available to offset future income taxes. The federal tax
credits expire during the years 2004 to 2010. The Company's ability to utilize
net operating loss carryforwards and tax credits is subject to limitations as
set forth in applicable federal and state tax laws. As specified in the Internal
Revenue Code, an ownership change of more than 50% by a combination of the
Company's significant stockholders during any three-year period would result in
certain limitations on the Company's ability to utilize its net operating loss
and tax credit carryforwards. As a result of this Offering, the Company expects
to incur limitations on the Company's ability to utilize its net operating loss
and tax credit carryforwards.

24
<PAGE> 26

BUSINESS

This Prospectus contains forward-looking statements which involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed in the
description of the Company's business below and in the sections entitled "Risk
Factors" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations," as well as those discussed elsewhere in this Prospectus.

OVERVIEW

The Company is applying its drug discovery technologies to discover and
develop potential drug candidates independently and in collaboration with
established pharmaceutical companies. The Company currently expects that late
stage clinical development and commercialization of independently discovered
compounds will be accomplished in conjunction with corporate partners. The
Company believes, assuming successful pre-clinical studies, that compounds
discovered with its technologies and in conjunction with its corporate partners
will enter clinical trials within the next 12 to 18 months. Since 1992, the
Company has received over $55 million in equity, license fees, research support
and milestone payments from corporate partners.

SIBIA'S DRUG DISCOVERY PLATFORMS

SIBIA is pursuing a molecular target-based approach to drug discovery. The
Company believes that its proprietary drug discovery platform technologies will
enable the early identification of compounds that are selective for specific
receptor/ion channel subtypes and proteases, facilitating the discovery and
development of new classes of drugs that may be more effective and have fewer
side effects than existing drugs for the treatment of nervous system disorders.
SIBIA's drug discovery platforms are based on two primary technolo-

25
<PAGE> 27

gies that define the molecular targets on which the Company has focused, and in
which the Company has established a leading scientific and proprietary position:
human receptor/ion channel subtype technology and human protease technology.

The Role of Calcium in Nervous System Function and Disease

The human nervous system is a complex network of interconnected neurons
that are responsible for coordination of virtually all bodily functions,
including movement, sensory perception, learning and memory. Neurons receive,
conduct and transmit signals; this communication between neurons and with other
cells is essential to the function of the nervous system. Neuronal cell death or
dysfunction that impairs the ability of neurons to communicate can result in
neurodegenerative disorders (e.g., Alzheimer's and Parkinson's diseases),
neurological disorders (e.g., epilepsy and chronic pain), and psychiatric
disorders (e.g., schizophrenia and depression).

Communication between neurons occurs through complex electrical and
chemical processes. Neurons communicate with each other and with target cells
through the transmission and reception of molecules known as neurotransmitters.
Nerve impulses, in the form of voltage changes, cause the release of
neurotransmitters, activating specific receptors on the surface of an adjacent
neuron or target cell and cause a response in the receiving cell. This
interaction takes place at a synapse, which is the point at which a nerve
impulse is transmitted from one neuron to another. Each different
neurotransmitter interacts with a specific corresponding receptor or family of
receptors and transmits primary messages that control important processes within
those neurons and target cells. These processes include the regulation of
secondary messenger systems that, in turn, modulate a wide array of signal
transduction pathways involved in neuronal communication and survival.

One of the most important messengers in the nervous system is calcium ions,
which facilitate the communication between neurons. Calcium ions regulate many
essential functions in neurons, such as the release of neurotransmitters,
electrical activity, activation of enzymes and transcription of genes. Calcium
ions perform this function by entering neurons through ion channels
("receptor/ion channels") which open and close (i.e., are gated) either through
neurotransmitter reception (more generally, ligand/receptor interactions) or
voltage changes such as nerve impulses.

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[ARTWORK DEPICTING CALCIUM AND RECEPTOR/ION CHANNELS IN THE NERVOUS SYSTEM]

Because calcium is central to so many critical neuronal functions, the
Company believes that controlling calcium levels within neurons is a key
strategy for potential therapeutic intervention in a number of nervous system
disorders, including Parkinson's disease, Alzheimer's disease and other
dementias, stroke, epilepsy, chronic pain and migraine. Over the past 20 years,
drugs blocking calcium influx through certain receptor/ion channels (e.g.,
voltage-gated calcium channels ("VGCCs") have been successfully developed and
commercialized for the treatment of cardiovascular diseases such as angina and
hypertension. However, these existing calcium channel blockers are either
generally ineffective or have significant side effects when evaluated for
nervous system disorders. The Company believes this is due to their lack of
selectivity or activity on specific neuronal VGCC subtypes and that the
Company's drug discovery technologies will enable it to identify lead compounds
that are highly selective for receptor/ion channel subtypes.

Calcium ions enter neurons primarily through: (i) two receptor classes that
function as ligand-gated ion channels -- nAChRs and excitatory amino acid
receptors ("EAARs"); and (ii) VGCCs. These three classes are the major
receptor/ion channel classes involved in regulating neuronal calcium. Each class
is comprised of numerous structurally and pharmacologically distinct subtypes.
In addition, subtypes within these receptor/ion

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channel classes are anatomically distinct, located not only in different organs
of the body (such as the heart and brain), but also localized within specific
substructures of organs (such as the hippocampus and cerebellum of the brain).
The large number and diversity of nAChR, EAAR and VGCC subtypes have only
recently been identified through modern gene cloning techniques.

SIBIA was a pioneer in the discovery and functional expression of cloned
genes encoding important human subtypes in these three receptor/ion channel
classes. This has enabled SIBIA to characterize a large number of previously
unrecognized receptor/ion channel subtypes and establish them as targets for
drug discovery. SIBIA has further incorporated these molecular targets into
functional cell-based assays for drug screening.

SIBIA's Human Receptor/Ion Channel Subtype Technology

SIBIA's human receptor/ion channel subtype technology is based on (i) the
identification and cloning of the genes encoding for nAChRs, EAARs and VGCCs
from human brain tissue, (ii) the expression of these genes in mammalian cells
to afford fully functional receptor/ion channels of defined subtype and (iii)
the use of these cells in in vitro high throughput functional drug screening
assays. Each cell line or assay contains only a single human receptor/ion
channel subtype representing a pure molecular target for drug screening. In
contrast to traditional binding assays, these proprietary assays can quantify
the functional effect of test compounds and characterize them as agonists,
antagonists or modulators, at any functional site, known or unknown, on a
specific receptor/ion channel subtype, all in a primary screen.

SIBIA has established a leading proprietary position in drug discovery
based on human receptor/ion channel subtypes. Each of the following scientific
and technological developments by SIBIA was critical in building this position
and has represented a significant advance:

- - The Company has discovered, isolated and developed an extensive library of
more than 50 complete genes cloned from human brain tissue which code for
multiple, distinct subtypes of nAChRs, EAARs and VGCCs.

- - SIBIA has expressed more than 30 functional receptor/ion channel subtypes in
the nAChR, EAAR and VGCC classes in stable cell lines. Each subtype
potentially represents a novel molecular target for developing therapeutic
compounds for nervous system disorders. This was a difficult and significant
technical challenge, since most receptor/ion channel subtypes are multimeric
(i.e., molecular complexes of two or more proteins) and require the
expression of multiple complex genes to form a functional subtype.

- - SIBIA has developed proprietary functional cell-based assays encompassing
these molecular targets and uses these assays with its proprietary high
throughput screening technology, which includes novel assay methods and
instrumentation, to rapidly identify and select compounds for further
development.

Human Protease Technology

Proteases are a class of enzymes which play an important role in the
processing of proteins. The body uses this mechanism to control several critical
pathways or biochemical cascades, such as blood clot formation. In neurons,
specific proteases control pathways critical to neuronal communication and
survival. Abnormal neuronal protease activity can lead to degenerative
processes, as occurs during progressive disorders such as Alzheimer's disease
and in phases of acute neuronal cell death resulting from head trauma and
ischemia due to stroke. For example, these proteases can generate products that
are neurotoxic, such as the amyloid beta protein ("A(Beta)) which forms the
senile plaques seen in Alzheimer's disease patients, or initiate degradative
cascades that are involved in breaking down the neuronal cytoskeleton, leading
to nerve cell death. The Company believes that modulating the activity of
selected proteases may control these degenerative processes and have therapeutic
benefit leading to neuroprotection and reduced neuronal cell loss.

SIBIA believes there are significant new opportunities for protease-based
therapeutics for nervous system disorders, particularly neurodegenerative
conditions. To pursue this class of molecular targets the Company has
established its human protease technology platform, which includes the
identification and characterization of specific proteases and their functional
activity, the development of proprietary assays to measure specific protease
activity and the use of novel combinatorial chemistry techniques to design
proprietary and selective

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<PAGE> 30

protease inhibitors. The Company has established a panel of more than 15
protease targets to be able to evaluate the selectivity of its compounds. These
targets have been incorporated into assays that include isolated enzymes and
cell-based approaches. This has facilitated the discovery of specific small
molecule inhibitors that have demonstrated effectiveness in animal models of
human neurodegenerative diseases.

DRUG DISCOVERY TECHNOLOGIES

SIBIA is a leader in the development of proprietary drug discovery
platforms which combine key tools necessary for modern drug discovery, including
genomics, high throughput screening, advanced combinatorial chemistry techniques
and pharmacology.

The Company's expertise with its drug discovery technologies and its
proprietary molecular targets and drug candidates has enabled the Company to
establish several corporate collaborations and resulted in a number of compounds
being evaluated for, or developed in, clinical trials. The Company believes its
technology platform, including its human receptor/ion channel subtype and human
protease technologies, and product candidates will lead to additional corporate
collaborations and licensing opportunities with pharmaceutical, biotechnology
and drug discovery service companies.

Molecular Targets

Genomics. For nearly ten years, SIBIA has been involved in the cloning of
complete genes encoding selected receptor/ion channel subtypes from human brain
tissue. This has been critical for the Company's target based approach to drug
discovery. Receptor/ion channel subunit genes have been cloned through molecular
biological, biochemical, immunological and functional approaches and using
molecular hybridization techniques and homology screening, related subunits and
splice variants of those genes have been identified. SIBIA is now incorporating
more sophisticated bioinformatics-based approaches to its target identification
efforts and has developed a collection of more than 50 complete receptor/ion
channel genes encompassing all known subtypes of the targeted nAChR, EAAR and
VGCC classes. This has provided SIBIA with a strong proprietary position with
respect to those particular drug targets. These techniques are now being applied
in the protease area.

Functional Genomics. In an effort to establish functions for specific
isolated receptor/ion channel subtypes and proteases, SIBIA has pursued various
functional genomic approaches either internally or in conjunction with leading
academic collaborators. These include anatomical (mapping studies in normal and
diseased tissue using clones and antibodies to expressed proteins),
pharmacological (utilizing molecular target-specific compounds in cell, tissue
or animal models) and genetic (chromosomal mapping, linkage studies, knockouts
and transgenic animals) approaches.

Functional Assay Technology and High Throughput Screening

High throughput screening utilizing functional assays is a key component of
SIBIA's target-based approach to drug discovery. SIBIA utilizes its human
receptor/ion channel subtype technology and human protease technology with high
throughput screening in two modes: first, for the testing of large random
compound libraries to discover novel structures that are selective and potent
substrates for more in-depth research and evaluation; and second, for the rapid
characterization, profiling and optimization of selected compounds through an
interactive process with chemistry and pharmacology in order to develop lead
candidates for further in vitro and in vivo study.

SIBIA's proprietary high throughput functional cell-based assays are
applicable to all of SIBIA's drug discovery programs -- nAChRs, EAARs, VGCCs and
proteases. SIBIA's proprietary assays are based on the receptor/ion
channel-induced changes in cellular calcium levels, or protease-mediated changes
in fluorescent substrates. In contrast to traditional binding assays, these
assays also allow for simultaneous analysis of the selectivity, potency,
efficacy and pharmacological nature (e.g., agonist, antagonist or modulator) of
test compounds with respect to specific molecular targets.

Fluorescence-Based Ion Assay. SIBIA's proprietary fluorescence-based ion
assay technology measures changes in intracellular events (e.g., calcium
concentrations) through the use of ion-sensitive fluorescent dyes. SIBIA, in
collaboration with a third party, has developed a microtiter plate-imaging
fluorimeter to perform functional high throughput screening. The equipment is
fully automated with robotics and analyzes the fluorescent signals of all 96
wells in a standard microtiter plate simultaneously, rather than sequentially in
a

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<PAGE> 31

time-delayed manner. This system is being adapted to a 384 well plate format.
This equipment incorporates a sophisticated computer control and data capture
system which allows SIBIA to perform more than 12,000 functional receptor/ion
channel assays per day. SIBIA is in the process of expanding its capacity in
this area and expects to significantly increase high throughput screening.

Transcription-Based Assay. SIBIA's proprietary transcription-based assay
technology measures the functional activity of test compounds on cell-surface
proteins using a wide array of specifically responsive promoter-reporter gene
constructs and products. SIBIA believes its proprietary transcription-based
assay technology is broadly applicable to virtually any cell-surface protein,
such as receptors and ion channels, that control signal transduction processes
affecting gene transcription. In addition, the Company believes that
transcription-based assays have applications beyond SIBIA's current receptor/ion
channel subtype targets and could support the expansion of SIBIA's drug
discovery efforts to other human molecular targets involved in nervous system
disorders or to other therapeutic categories.

Chemistry

Medicinal Chemistry. SIBIA has established in-house a state-of-the-art
medicinal chemistry capability which incorporates structure-based drug design,
computer assisted molecular modeling, pharmacophore development based on
structure-activity relationships and organic synthesis. These activities are
closely integrated with combinatorial chemistry.

Combinatorial Chemistry. SIBIA has developed a combinatorial chemistry
capability referred to as high throughput organic synthesis ("HTOS"). HTOS is
currently focused on the rapid generation of analogues of "hits" from high
throughput screening. The Company's HTOS laboratory is automated and is able to
produce up to 1,000 individual compounds per week at several milligram yields
with identity confirmed and at purity levels greater than 90%. Novel synthetic
approaches and strategies have also been developed and are being utilized in
SIBIA's drug discovery programs. SIBIA has integrated its high throughput
screening capabilities with its proprietary HTOS technologies to rapidly convert
hits identified through screening to potential lead compounds.

Pharmacology

Neuropharmacology. SIBIA has established in-house a number of in vitro and
in vivo assays for evaluating properties of specific test compounds such as
second messenger modulation, neurotransmitter release from tissue slices, by in
vivo microdialysis, as well as systems to measure, neuroprotective and
neurodegenerative potential.

Behavioral Pharmacology. SIBIA has developed in-house a panel of more than
20 different animal models that permit the evaluation and optimization in vivo
of compound activity in a range of potential therapeutic indications.

Developmental Pharmacology. SIBIA has established an in-house group capable
of performing safety and ADME (absorption, distribution, metabolism and
excretion) studies in rodents, which are a precursor to the development of drug
candidate compounds.

OVERVIEW OF SELECTED NERVOUS SYSTEM DISORDERS

The Company is seeking to discover and develop receptor/ion channel and
protease specific compounds that may be used for the treatment of Parkinson's
disease, Alzheimer's disease, chronic pain including migraine, stroke, head
trauma, epilepsy, schizophrenia and other neurological, psychiatric and
neurodegenerative disorders, many of which have large patient populations and
represent critical unmet medical needs.

Parkinson's Disease. Parkinson's disease is a progressive neurodegenerative
disorder displaying motor symptoms of rigidity, akinesia and tremor and is
frequently accompanied by depression and cognitive deficits that can progress to
dementia. It affects an estimated one million people in the United States, with
approximately 60,000 new cases reported each year. An estimated two-thirds of
patients diagnosed with the disease are disabled within five years of diagnosis.
There currently is no cure for Parkinson's disease and no treatment which stops
its degenerative course. The motor symptoms of early- to mid-stage Parkinson's
disease can be treated with various drugs that mimic the action of dopamine, a
neurotransmitter that is reduced in

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<PAGE> 32

certain brain regions in these patients. Current therapy is primarily the oral
administration of L-dopa (a precursor molecule that neurons are able to convert
into dopamine) or dopamine agonists. There currently is no FDA-approved
therapeutic for the treatment of cognitive deficits associated with Parkinson's
disease.

Alzheimer's Disease. Alzheimer's disease is a neurodegenerative disorder
exhibiting symptoms of memory loss, loss of language function, disorientation,
inability to think abstractly, inability to care for oneself, personality
change, emotional instability and behavior problems. Dementia of the Alzheimer's
type currently constitutes a large and growing health problem among the elderly,
and its prevalence is increasing as this segment of the population grows.
Alzheimer's disease accounts for about 70% of all cases of dementia,
representing about four million cases in the United States. Conservative
estimates indicate that by the year 2000, there will be five to eight million
cases of Alzheimer's disease in the United States. At present, there is no
effective therapy that will prevent the onset of Alzheimer's disease or slow or
reverse the degenerative process, and there are only a few products available
for treating symptoms for Alzheimer's dementia, which are effective for only a
short period of time.

Epilepsy. Over two million people in the United States suffer from epilepsy
with approximately 100,000 new cases reported each year. At present, there is no
cure for this disorder, nor is there a broad-spectrum anti-epileptic available.
Existing symptomatic therapies produce significant adverse effects and are
ineffective for approximately 15% of the epilepsy patient population.

Stroke. In the United States, 400,000 to 500,000 strokes are suffered each
year, resulting in approximately 150,000 fatalities. Stroke is the third-leading
cause of death in the United States. Almost two-thirds of the survivors of
strokes are handicapped, with more than two million people in the United States
now living with disabilities caused by stroke. Current therapies for stroke have
limited ability to reduce the neuronal cell damage that results. Presently no
effective means exist for treating or reducing the areas of the brain damaged by
stroke.

Chronic Pain. Pain is a complex response and is classified into two broad
categories: acute and chronic. If acute pain problems are not effectively
treated, they may progress to chronic states. Chronic pain is recognized as
being the most frequent cause of disability in the United States and many
industrialized nations. Incidence of pain in the United States exceeds 97
million cases. Major causes of chronic pain include arthritis, cancer pain, back
injuries and migraine.

Attention-Deficit Hyperactivity Disorder (ADHD). ADHD affects 3% to 5% of
U.S. children. This is a childhood mental disorder characterized by easy
distractability, excessive talking, fidgeting and squirming and other disruptive
behavior. ADHD usually begins before age 6 but more often by age 2 to 3.
Approximately one-third to two-thirds of those afflicted with ADHD continue to
have the disorder into adulthood.

Head Trauma. An estimated one million people in the United States suffer
from the effects of head injuries, and more than 400,000 hospital admissions
each year are attributed to such injuries. The economic cost of head trauma is
high because it includes long-term rehabilitation, support services and lost
income.

Schizophrenia. Schizophrenia is a group of serious mental disorders that
can be classified, in terms of symptoms, into four major stereotypes: paranoid,
catatonic, disorganized and undifferentiated. The patient often appears to be
mentally impaired, manifesting behavior that is bizarre and inappropriate. About
one percent of the world's population is affected by schizophrenia, and it is
estimated that about two million people in the United States suffer from the
disease.

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DISCOVERY AND DEVELOPMENT PROGRAMS

<TABLE>
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------
DEVELOPMENT COMMERCIAL
PROGRAM THERAPEUTIC TARGET STATUS(1) RIGHTS(2)
- ----------------------------------------------------------------------------------------------------------
HUMAN RECEPTOR/ION CHANNEL SUBTYPE TECHNOLOGY

nAChR Agonists

SIB-1508Y Parkinson's Disease, Cognitive Phase II clinical trials Meiji/SIBIA
Disorders to commence in Q1 1998
SIB-1553A Alzheimer's Disease and other Pre-clinical SIBIA
Cognitive Disorders, ADHD

Schizophrenia, Depression, Discovery SIBIA
Eating Disorders, Chronic Pain

EAAR Antagonists

SIB-1893 Series Epilepsy, Stroke Leads identified Novartis/SIBIA

Metabotropic, NMDA Stroke, Epilepsy, Head Trauma, Leads identified/Discovery Novartis/SIBIA
and AMPA/kainate Chronic Pain
antagonists

VGCC Antagonists

Stroke Leads identified Lilly

Chronic Pain, Migraine, Leads identified/Discovery SIBIA
Stroke, Epilepsy

HUMAN PROTEASE TECHNOLOGY

APP Modulators Alzheimer's Disease Pre-clinical/Discovery Bristol-Myers Squibb/
SIBIA

Caspase-3 Neuroprotection Discovery SIBIA
Inhibitors
- ----------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
DRUG DISCOVERY TECHNOLOGY LICENSEES(2)
- -------------------------------------------------------------------------------------------------------
Transcription-Based Assay Novartis; Aurora; Neurocrine
Fluorescence-Based Ion Assay Novartis; Aurora; Lilly (option)
Phage Display Technology Affymax/Glaxo Wellcome
- -------------------------------------------------------------------------------------------------------
</TABLE>

(1) "Discovery" activities include initial research related to specific
molecular targets and assay development for the identification of new lead
compounds.

"Leads identified" indicates that lead compounds have been discovered that
meet certain criteria of the Company. Lead compounds may undergo
structural modification and more extensive evaluation prior to selection
of candidates for preclinical development.

"Pre-clinical" indicates that SIBIA is conducting pharmacology testing,
toxicology testing, formulation, process development and/or manufacturing
scale-up prior to possible submission of an IND.

"Phase II clinical trials" are those in which the drug is administered to
patients to evaluate safety, tolerability and efficacy. This indicates
that SIBIA has completed the initial introduction of the drug into healthy
human subjects (Phase I), where it has successfully been tested for
safety, dosage tolerance, metabolism, distribution, excretion and
pharmacodynamics.

(2) See "-- Strategic Alliances" and "-- Drug Dicovery Technology Licenses."

HUMAN RECEPTOR/ION CHANNEL SUBTYPE TECHNOLOGY

nAChR Program

In the late 1980s, SIBIA began exploring nAChR subtypes as targets for drug
discovery because of the growing awareness of the diversity and importance of
the nAChR system and its endogenous neurotransmitter,

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acetylcholine, in excitatory processes, particularly cognition; the discovery of
a number of distinct nAChR subtypes located in the brain; and the complex
pharmacology of the exogenous ligand nicotine. The complexity of nicotine's
activity was believed to be due to its non-selective nature (acting at all
nAChRs), and SIBIA sought to separate the potential therapeutic benefits of
nicotinic compounds from less desirable effects with receptor subtype-selective
compounds. Until recently, the pharmaceutical industry has not focused on nAChRs
as important drug targets. Mapping and pharmacological studies have revealed
that nAChR subtypes are widely but discretely distributed in the brain and
appear to be associated with specific neuronal structures and functions. The
Company's nAChR drug discovery program is focused on the identification,
optimization and early-stage development of nAChR subtype-selective compounds as
novel drug candidates.

There is strong evidence that nAChRs are important in a number of nervous
system disorders. In particular, deficits of nAChRs have been demonstrated in
Parkinson's and Alzheimer's patients. Studies by the Company indicate that
nAChRs are involved in modulating the release of dopamine, acetylcholine and
other important neurotransmitters in different brain regions. The Company
believes that it may be able to develop subtype-selective nAChR drugs, such as
SIB-1508Y and SIB-1553A, to ameliorate the disease symptoms that result from
reduced concentrations of dopamine and acetylcholine in Parkinson's and
Alzheimer's patients, respectively. In addition, SIBIA believes that nAChR
compounds with different subtype selectivities may be useful for the treatment
of other nervous system disorders such as schizophrenia, ADHD, depression and
chronic pain as well as nervous system-related addictive behaviors, such as
eating disorders and smoking addiction.

SIB-1508Y. The first compound discovered by SIBIA to enter clinical trials
was SIB-1508Y, currently in development for Parkinson's disease. In contrast to
current Parkinson's disease therapies which treat only motor dysfunction,
SIB-1508Y is being developed for the treatment of motor, affective and cognitive
dysfunctions of this disease. SIB-1508Y exhibits subtype-selective nAChR agonist
activity and releases dopamine, acetylcholine and norepinephrine from selected
brain regions. SIB-1508Y has been tested in a number of animal models, and
demonstrated activity in rodent and primate models of Parkinson's disease, in
rodent models of depression and in primate models of cognitive function.
Pre-clinical data suggests that SIB-1508Y may be useful both as a stand-alone
therapeutic agent and as an adjunctive therapy with L-dopa. In September 1997,
the Company completed Phase I clinical trials of SIB-1508Y and expects to
commence Phase II clinical trials of SIB-1508Y in Parkinson's disease patients
in early 1998. The first Phase II trial is expected to be a multi-site,
placebo-controlled study with motor and cognitive endpoints, and should be
completed in the second half of 1998, assuming satisfactory patient recruitment
rates. There can be no assurance that these Phase II clinical trials will be
successful.

In March 1997, the Company announced a collaboration with Meiji Seika
Kaisha, Ltd. ("Meiji") for the development and commercialization of SIB-1508Y in
Japan and certain other Asian countries. SIBIA has retained worldwide rights to
manufacture the clinical supplies and bulk drug material required for the
commercial production of SIB-1508Y. The Company plans to establish additional
corporate collaborations for advanced clinical trials and commercialization of
SIB-1508Y in other areas of the world.

SIB-1553A. Another compound discovered by SIBIA's proprietary drug
discovery platforms is SIB-1553A, currently in development for Alzheimer's
disease. The Company's studies indicate that this compound strongly stimulates
acetylcholine release in specific brain regions associated with memory and
learning, the same regions which exhibit deficits of this neurotransmitter in
Alzheimer's disease. In the first half of 1997, the Company reported
pre-clinical data demonstrating that in animals, SIB-1553A significantly
stimulates the release of acetylcholine. In addition, SIB-1553A was demonstrated
to improve working (short-term) and reference (long-term) memory deficits due to
injury, drugs or aging in studies in rodents and monkeys. Based on these and
other findings, the Company plans to identify a collaborative partner for
SIB-1553A and initiate Phase I clinical studies in 1998. See
"Business -- Strategic Alliances."

EAAR Program

The excitatory amino acid system is a major excitatory system in the brain.
EAARs are divided into three categories: NMDA-type receptor/ion channels,
non-NMDA-type receptor/ion channels and metabotropic

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<PAGE> 35

receptors, a category of G protein-coupled receptors which do not directly flux
calcium but rather function via other cellular second messenger molecules. Each
category is comprised of multiple subtypes that are activated by excitatory
amino acid neurotransmitters such as glutamate and each subtype has unique
anatomical distributions.

The NMDA- and non-NMDA-type receptor/ion channel categories are
ligand-gated ion channels, and a significant number of these subtypes directly
flux calcium into neurons. These receptor/ion channel subtypes are important for
diverse brain functions, including memory and learning, and are also implicated
in neurodegenerative processes. For example, when nerve cells are subjected to
ischemic conditions, as occurs during and after a stroke, large amounts of
glutamate are released. Normally, excess glutamate is removed by nearby cells,
but in ischemic conditions these cells do not function properly and are unable
to dispose of this excess glutamate. The glutamate then binds to EAARs on nerve
cells and activates them, leading to a large influx of calcium which triggers a
biochemical cascade that damages cells and can ultimately lead to cell death.
The newly injured nerve cells release more glutamate, and the process repeats
itself, spreading neuronal damage from cell to cell. For this reason, there is
significant interest in developing subtype-selective EAAR antagonists as a
potential treatment for stroke. The Company believes compounds that modulate
NMDA- and non-NMDA-type EAARs may be able to selectively control calcium entry
into nerve cells, under ischemic conditions.

Metabotropic receptors also appear to be involved in certain nervous system
disorders. Clones for genes encoding a number of different and novel
metabotropic EAARs have been isolated by SIBIA from human brain tissue and have
been demonstrated to be functional in several types of assays. Stable cell lines
expressing metabotropic EAARs have been established and are being used in
SIBIA's functional high throughput screening assays. Potent and selective
compounds have been identified and are being evaluated in various animal models.

The Company believes drugs acting at different and specific EAAR subtypes
may have application to certain neurodegenerative diseases such as Alzheimer's,
Parkinson's and Huntington's diseases and various nervous system disorders,
including stroke, epilepsy, chronic pain and head trauma. To date, developing
therapeutically useful EAAR drugs has been difficult. Traditional drug discovery
approaches have produced non-specific EAAR antagonists which generally have
intolerable side effects. SIBIA has discovered a number of novel and distinct
human EAAR subtypes, each with different pharmacological properties. By
identifying receptor subtype-specific EAAR antagonists, the Company believes it
may be possible to effectively treat certain nervous system disorders without
the side effects caused by non-selectively blocking multiple EAAR subtypes.

The first EAAR gene was cloned at The Salk Institute, and SIBIA has an
exclusive license to broad patents relating to this research. It has
subsequently filed its own patents on additional EAAR subtypes. SIBIA is engaged
in a corporate collaboration with Novartis in the area of drug discovery for
EAAR subtypes. SIBIA and Novartis are screening compounds from a Novartis
library in functional EAAR subtype assays. In addition, SIBIA has identified the
SIB-1893 series of subtype-specific human metabotropic receptor antagonists.
Under the terms of their collaborative agreement, SIBIA and Novartis are working
together to design and optimize potential lead compounds which are selective for
EAARs. Such compounds will be further developed by Novartis. Based on
preliminary studies, SIBIA believes that subtype-specific metabotropic receptor
antagonists may provide a novel approach to the treatment of epilepsy. See
"-- Strategic Alliances" and "-- Patents and Proprietary Rights."

VGCC Program

VGCCs are a major receptor/ion channel family involved in regulating
neuronal calcium flux and cell excitability. VGCCs have traditionally been
classified as L-, T-, N- and P-type calcium channels based on their biophysical
and pharmacological properties. SIBIA's pioneering research in the
characterization of VGCCs by molecular structure has led to the identification
of other classes of calcium channels as well as channel subtypes within these
classes, resulting in a new structure-based understanding of VGCCs. The critical
role of

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<PAGE> 36

VGCC subtypes in the function and potential dysfunction of nerve cells indicates
that they may be important targets for therapeutic intervention in a number of
nervous system disorders.

Calcium flux through distinct VGCC subtypes at presynaptic nerve terminals
controls the release of different neurotransmitters, including glutamate,
serotonin, dopamine and acetylcholine. The Company believes that the ability to
selectively control neurotransmitter release with subtype-selective VGCC drugs
could impact many nervous system disorders. For example, control of glutamate
release may have application in the treatment of stroke, epilepsy and pain, and
control of serotonin release may have application in the treatment of depression
and migraine. Further, a synthetic version of the VGCC subtype-selective peptide
(LOGO)-conotoxin MVIIA is currently in late stage clinical development by a
third party for chronic pain. This molecule has demonstrated efficacy in early
trials, but its widespread use will likely be limited by its peptidic nature and
resulting poor pharmaceutical properties. Nonetheless, it validates particular
VGCC subtypes as molecular targets for pain. SIBIA believes that small molecule
drugs of the type SIBIA is identifying will offer significant advantages over
peptides or their derivatives. In addition, recent studies have identified
specific mutations in one of the Company's proprietary human VGCC genes
associated with an inherited form of migraine. The Company believes this
provides insight as to a novel therapeutic approach for the treatment of
migraine. The Company further believes modulation of synaptic activity by
controlling neurotransmitter release, neuronal calcium levels and neuronal
excitability with VGCC subtype-selective drugs may prove to be a more effective
approach with broader applicability than current drug therapy for many nervous
system disorders.

The Company believes it was the first to clone and functionally express a
human neuronal N-type VGCC, has generated a number of stable mammalian cell
lines which functionally express additional distinct VGCC subtypes and has
developed these cell lines into assays that currently are being employed by
SIBIA in efforts to discover selective drugs using high throughput screening
technology. SIBIA has an extensive patent portfolio in this area. Potent and
selective compounds have been identified by the Company and are being evaluated
in various animal models. Under the terms of the agreement between SIBIA and
Lilly, the parties will independently pursue discovery and development of drug
leads that act on VGCC drug targets identified under the collaboration with
SIBIA. Lilly is obligated to make milestone and royalty payments to SIBIA on
compounds it identifies within a certain period of time and commercializes. See
"-- Strategic Alliances" and "-- Patents and Proprietary Rights."

HUMAN PROTEASE TECHNOLOGY

APP Modulators

SIBIA's Amyloid Precursor Protein (APP) Modulator program is currently
focused on controlling degradative proteases that generate A(Beta), the
neurotoxic fragment of APP. A(Beta), which is derived from APP, is generally
understood to be a key molecule in the development of Alzheimer's disease.
A(Beta) is found at autopsy in senile plaques and in deposits surrounding the
small blood vessels in brain tissue, both of which are diagnostic for
Alzheimer's disease. A number of studies indicate that mutations in the APP gene
are associated with early-onset familial Alzheimer's disease. The clinical
presentation and histopathology of early-onset Alzheimer's disease are
indistinguishable from that seen in the more prevalent late-onset Alzheimer's
disease. The Company therefore believes the inhibition of A(Beta) formation may
be broadly applicable to early- and late-onset Alzheimer's disease.

SIBIA has conducted extensive research concerning the role of APP in
Alzheimer's disease. It has developed technology related to the metabolism of
APP in Alzheimer's disease and methods for controlling the formation of A(Beta).
The other important APP metabolic product, secreted APP(s(Alpha)), has been
shown in in vitro and in vivo studies to have neuroprotective properties and has
been shown by SIBIA to be significantly decreased in the cerebrospinal fluid of
Alzheimer's disease patients. SIBIA is seeking to develop compounds which
selectively modulate the enzymatic processing of APP, such that the formation of
A(Beta) is inhibited and that of APP(s(Alpha)) is maintained or enhanced. SIBIA
believes such compounds could slow disease progression or possibly modify the
underlying disease process. In the A(Beta) inhibitor program, SIBIA has
developed neuronal-type cell lines able to process human APP and produce
APP(s(Alpha)), A(Beta) and other processing fragments which can

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be detected with the use of various antibodies, and which have been established
as functional assays for compound screening and drug development. SIBIA's
biochemical assays allow quantification of A(Beta) and APP(s(Alpha)) in cultured
cells, tissues and biological fluids (for example, cerebrospinal fluid) from
animals (normal and transgenic mice) and sporadic and familial Alzheimer's
patients. The Company believes its assays, and the ability to biochemically
evaluate the effect of test compounds on APP processing in biological systems,
and potentially in patients in clinical trials, provide it a significant
competitive advantage.

SIBIA, in collaboration with its partner in the A(Beta) inhibitor program,
Bristol-Myers Squibb, has identified several series of small molecules which
inhibit A(Beta) production in vitro and in vivo. The most advanced compounds
from this collaboration are in pre-clinical development. See "-- Strategic
Alliances."

Other Protease Targets

SIBIA has built an integrated drug discovery platform able to address a
broad range of human proteases as molecular targets. The Company is developing a
novel neuronal protease cell-based assay format for high throughput screening
utilizing proprietary technology licensed from Aurora for monitoring the
inhibitory effects of test compounds. SIBIA is currently pursuing the enzyme
caspase-3, a protease involved in apoptosis. See "-- Research Collaborations."

STRATEGY

The Company's strategy is to utilize its two proprietary drug discovery
platforms -- human receptor/ion channel subtype technology and human protease
technology -- to discover novel small molecule therapeutics for the treatment of
nervous system disorders. Key elements of the Company's strategy include:

- - Focusing on drug discovery and early stage drug development. SIBIA uses its
advanced drug discovery technologies, including its proprietary functional
assays, high throughput screening systems and combinatorial chemistry, to
identify compounds for preclinical development and provide new opportunities
for strategic alliances. SIB-1508Y and SIB-1553A are nAChR agonists resulting
from the Company's internal drug discovery efforts and a number of other lead
compounds have been generated both internally and through its collaborations
with corporate partners.

- - Utilizing its large portfolio of proprietary molecular targets to develop
compounds that address a broad spectrum of nervous system disorders. SIBIA
targets a broad range of disorders having significant market potential in
order to reduce reliance on any single program and increase its potential for
successful development efforts. To date, SIBIA has identified over 30 human
receptor/ion channel subtypes and several neuronal proteases as molecular
targets and has developed corresponding cell-based functional assays for high
throughput drug screening. SIBIA believes that compounds acting on these
targets may have application to the treatment of a broad range of
neurological, neuropsychiatric and neurodegenerative disorders, many of which
represent critical unmet medical needs.

- - Establishing corporate alliances to discover, develop and commercialize drug
candidates. SIBIA focuses on drug discovery and early-stage development and
establishes collaborations with pharmaceutical or biotechnology companies for
the advanced development and commercialization of its drug candidates. These
relationships typically provide the Company access to its partners'
development, regulatory and marketing expertise and resources. Currently, the
Company has strategic alliances with Novartis, Bristol-Myers Squibb and Meiji.

- - Establishing multiple technology licensing arrangements to enhance its nervous
system drug discovery capabilities. SIBIA continues to expand its portfolio of
molecular targets through internal research, collaborations and, as
appropriate, licensing. SIBIA also intends to expand its technology platform
through the licensing and cross-licensing of certain of its proprietary and
enabling drug discovery technologies. To date, the Company has established
several technology licensing partnerships which include The Salk Institute,
Aurora and Neurocrine.

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STRATEGIC ALLIANCES

Strategic alliances with major pharmaceutical and biotechnology companies
are an integral part of SIBIA's business strategy. Currently, SIBIA has
collaborative agreements with Novartis, Bristol-Myers Squibb and Meiji.

Novartis AG

In October 1992, SIBIA entered into a three-year collaborative agreement
(which included research funding and a $5,000,000 equity investment) with
Novartis to develop and utilize SIBIA's receptor/ion channel technology in the
area of EAARs for the discovery of drugs that interact with these molecular
targets. In March 1996, the initial term of the Novartis agreement was extended
through September 1998, unless extended by mutual consent or terminated by
either party upon six months' notice, which may be provided after September
1997. Under the agreement, Novartis has been granted exclusive worldwide rights
to manufacture and market products it or SIBIA discovers using the EAAR
technology during the collaboration, and SIBIA is entitled to receive milestone
payments at certain stages of the development of product candidates, if any are
identified, and royalties on sales of products that are developed, if any are
developed. During the term of the collaboration agreement, SIBIA will work
exclusively with Novartis in the area of EAARs, and Novartis has an exclusive
license during the term of the collaboration agreement to use the Company's EAAR
technology. Upon expiration of the collaboration agreement, SIBIA retains the
rights to use the program technology for its own drug discovery efforts and may
screen molecules from other sources against EAARs and pursue development of
these molecules, subject to Novartis' right of first negotiation with respect to
such molecules discovered during the three years following expiration of the
collaboration agreement. Novartis also received a non-exclusive license to the
Company's transcription-based assay technology and flourescence-based ion assay
technology. The collaboration agreement may be terminated by either party upon
six months' prior written notice.

Pursuant to the extended agreement, Novartis paid SIBIA $500,000 to fund
certain capital expenditures (which may be credited against future milestone
payments) and agreed to purchase $7,500,000 of the Company's Common Stock,
$5,000,000 of which was purchased in conjunction with the initial public
offering of the Company's Common Stock and the remaining $2,500,000 of which
will be purchased upon the achievement of certain research milestones.

Bristol-Myers Squibb Company

In August 1995, SIBIA entered into a collaborative agreement with
Bristol-Myers Squibb under which Bristol-Myers Squibb agreed to fund research
for a minimum of four years to discover and develop compounds able to
selectively modulate the processing of APP for the treatment of Alzheimer's
disease and related neurodegenerative disorders. During the joint research
effort, neither SIBIA nor Bristol-Myers Squibb may enter into any other
third-party agreements directed toward the discovery and development of products
for use in the area of APP metabolism. In addition, Bristol-Myers Squibb has the
sole discretion to determine which compounds, if any, it will pursue to develop.
Under the terms of the agreement, all pre-clinical and clinical development of
lead compounds will be undertaken by Bristol-Myers Squibb. SIBIA has a right of
first negotiation to obtain a license to certain compounds discovered during the
collaboration in the event Bristol-Myers Squibb elects not to pursue the
development of such compounds. Pursuant to the collaborative agreement, except
with regard to SIBIA's assay technology, SIBIA has granted to Bristol-Myers
Squibb an exclusive, worldwide, royalty-bearing license to commercialize
products arising out of the collaboration. Furthermore, upon the termination of
the collaboration, SIBIA and Bristol-Myers Squibb have granted to one another
non-exclusive licenses to the other's assay technology for the discovery and
development of new compounds. The agreement may not be terminated prior to
August 1999 without the parties' mutual consent.

Coincident with the collaborative agreement, Bristol-Myers Squibb made an
equity investment in the amount of $7,000,000 and paid a non-refundable license
fee of $3,000,000. Bristol-Myers Squibb is also obligated to make a further
equity investment of $6,000,000 upon the initiation of clinical trials relating
to any product developed from the collaboration. In addition to research
funding, SIBIA is entitled to receive certain

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milestone payments at certain stages during the development of product
candidates, if any are identified. The agreement also provides that
Bristol-Myers Squibb will pay SIBIA royalties on net sales of products resulting
from the joint research, if any are developed.

Meiji Seika Kaisha, Ltd.

In February 1997, the Company entered into a development and license
agreement with Meiji for the development and commercialization of the Company's
proprietary nAChR agonist, SIB-1508Y, as a treatment for Parkinson's disease and
other nervous system disorders in Japan and other Asian countries. Under the
agreement, the Company received a one-time license fee of $3,000,000 for the
license of certain technology to Meiji. In addition, the Company may receive
development milestone payments and royalties on future product sales, if the
product is successfully commercialized in such countries. SIBIA has retained
rights to develop and commercialize SIB-1508Y outside of Japan and certain other
Asian countries, and has retained rights to manufacture clinical supplies and
commercial material worldwide.

Other Collaborations

In October 1997, the Company and Lilly completed their collaborative
research in the area of VGCCs. The Company and Lilly will independently pursue
discovery and development of drug leads that act on VGCC drug targets identified
under this collaboration. The Company is entitled to receive milestone payments
and royalties on sales of products identified by Lilly within a certain period
of time and commercialized, and is free to develop compounds it discovers in
this area on its own or with other partners. Lilly has an option to obtain a
license to the Company's flourescence-based ion assay technology.

DRUG DISCOVERY TECHNOLOGY LICENSES

Consistent with the Company's strategy of enhancing and leveraging its
proprietary drug discovery platform technologies, from time to time the Company
enters into technology licensing arrangements with third parties.

The Salk Institute for Biological Studies

In 1988, SIBIA entered into a license agreement with The Salk Institute on
a number of nAChR subunit clones on which five U.S. patents have issued. This
agreement was amended in March 1996 such that the license to the issued U.S.
patents and related patent applications became an exclusive worldwide license.
Pursuant to the agreement, as amended, SIBIA is obligated to pay royalties to
The Salk Institute on sales of products resulting from The Salk Institute's
nAChR technology. In addition, the Company is required to make minimum annual
royalty payments to The Salk Institute beginning in 2002. Failure to pay such
royalties will result in the related license becoming non-exclusive.

In 1990, SIBIA entered into a three-year agreement with The Salk Institute
in the area of EAARs. This agreement provided for the support of research at The
Salk Institute by SIBIA and the transfer of research materials and research
results in the EAAR area from The Salk Institute to SIBIA. SIBIA also received
an exclusive worldwide license to certain EAAR-related patents and patent
applications held by The Salk Institute. The agreement was amended in March
1996. Pursuant to the agreement, as amended, the Company is required to make
certain annual minimum royalty payments to The Salk Institute beginning in 2002.
Failure to pay such royalties will result in the related license becoming
non-exclusive.

Aurora Biosciences Corporation

In January 1997, the Company entered into an agreement with Aurora. Under
the agreement, the Company licensed to Aurora non-exclusive rights to practice
its patented transcription-based assay technology, and certain aspects of its
flourescence-based ion assay technology related to automated drug screening. In
return, in addition to other consideration, the Company received from Aurora
non-exclusive rights to several assay technologies, including novel reporter
molecules, that will facilitate the Company's high throughput

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screening and drug discovery efforts directed to certain receptor, ion channel
and enzyme targets associated with nervous system disorders. Both parties have
limited sublicensing rights to each other's patents.

Cognetix, Inc.

In July 1996, SIBIA entered into an agreement with Cognetix, Inc.
("Cognetix") to conduct research on conopeptides (peptides derived from the
Conus species of marine snails) with the objective of identifying and
characterizing highly selective compounds for different receptors and ion
channels found on nerve cells. Such compounds could have potential as
therapeutics for nervous system disorders. In addition, the agreement provides
SIBIA with a nonexclusive license to use certain materials for research purposes
and with an option for an exclusive, worldwide license to intellectual property
and specific molecules resulting from the collaborative work. Under the
collaborative agreement, SIBIA will apply its proprietary functional drug
screening assays to specific conopeptides and Conus venoms supplied by Cognetix.

Neurocrine Biosciences, Inc.

In October 1997, SIBIA entered into an agreement with Neurocrine
Biosciences, Inc. ("Neurocrine"). Under the agreement, the Company licensed to
Neurocrine non-exclusive rights to practice its patented transcription-based
assay technology for use with a specified molecular target. In exchange, SIBIA
has been granted access to a compound library developed by Neurocrine's
combinatorial chemistry group. SIBIA intends to use the Neurocrine compound
library in its drug discovery and high throughput screening programs directed to
certain receptor/ion channel and enzyme targets associated with nervous system
disorders.

Affymax/Glaxo Wellcome

In 1993, SIBIA entered into a semi-exclusive license with Affymax, which
was subsequently acquired by Glaxo Wellcome, regarding SIBIA patents covering
phage display technology for drug discovery. This technology covers the display
of random peptide epitopes on the surface of viral coat proteins, which can then
be screened for activity in various types of assays. SIBIA retains exclusive
rights to this technology for vaccine and other applications.

SELECTED ACADEMIC RESEARCH COLLABORATIONS

The Mayo Clinic, Jacksonville

SIBIA is collaborating with and providing research support to Dr. Steven G.
Younkin, Director of Research at the Mayo Clinic, Jacksonville. Research is
focused on measuring the effects of lead compounds on A(Beta) levels in
biological samples from in vitro and in vivo models of APP processing and
Alzheimer's disease.

The Rockefeller University

SIBIA is collaborating with Dr. Rong Wang, a researcher in the Mass
Spectrometry Laboratory at Rockefeller, on the detection and quantitation of
A(LOGO) and related APP fragments in tissue culture, cerebrospinal fluid and
plasma samples.

University of California, Los Angeles, School of Medicine

SIBIA is collaborating with Robert Baloh, M.D., Professor, Department of
Neurology and Joanna Jen, M.D., Ph.D., Clinical Instructor, Department of
Neurology, in the area of genetic disorders involved with calcium channels.

Thomas Jefferson University

SIBIA is collaborating with Jay S. Schneider, Ph.D. in the evaluation of
various compounds on cognitive deficits in motor asymptomatic macaques treated
with MPTP.

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Medical College of Georgia

SIBIA is collaborating with Jerry J. Buccafusco, Ph.D., Professor,
Director, ARC Animal Behavior Center, in the evaluation of various compounds in
aged rhesus monkeys.

University of Chicago

SIBIA is collaborating with Dr. Richard J. Miller, Professor, Department of
Pharmacology and Physiological Sciences, University of Chicago, on the
biophysical and pharmacological characterization of certain VGCC subtypes.

PATENTS AND PROPRIETARY RIGHTS

SIBIA files patent applications to protect molecular targets, technologies,
compounds, processes and assay methods that are important to the development of
its business. The Company also relies upon trade secrets, know-how, continuing
technological innovations and licensing opportunities to develop and maintain
its competitive position.

SIBIA has established an extensive patent portfolio which it intends to
protect on behalf of its shareholders. On July 9, 1996, the Company filed an
action for patent infringement against Cadus Pharmaceutical Corporation
("Cadus") in the United States District Court for the Southern District of
California. The complaint asserts that Cadus infringes the Company's U.S. Patent
No. 5,401,629 (the "629 patent"), entitled "Assay Methods and Compositions
Useful for Measuring the Intracellular Transduction of an Intracellular Signal."
Through the complaint, the Company seeks damages in an unspecified amount and a
preliminary and permanent injunction. On August 1, 1996, Cadus filed its answer
and a counterclaim to the Company's complaint. The counterclaim asserts claims
that the 629 patent and the Company's U.S. Patent No. 5,436,128, entitled "Assay
Methods and Composition for Detecting and Evaluating the Intracellular
Transduction of an Extracellular Signal," are invalid, unenforceable and not
infringed, and further asserts claims for intentional interference with
prospective economic advantage and unfair competition. The counterclaim seeks
declaratory relief and compensatory and punitive damages in an unspecified
amount. See "-- Legal Proceedings."

SIBIA has two issued patents which include claims to DNAs encoding key
structural components of VGCCs, one of which, the (Alpha)(2)(Delta) component,
is thought to be essential for all VGCC subtypes. Another issued patent covers
VGCCs which can be utilized in assays to identify compounds that modulate VGCC
function. SIBIA also has been issued a U.S. patent covering an assay method for
the identification of modulators of VGCCs containing an (Alpha)(1C), (Alpha)(1D)
and/or (Alpha)(2)(Delta) subunit, singly or in combination. SIBIA has been
granted a European patent covering DNA encoding VGCC (Alpha)(2)(Delta) subunits,
cells expressing the same and a method to identify compounds that modulate VGCC
function. Fourteen of the pending U.S. patent applications cover the composition
or use of VGCC genes and the encoded subtypes and assay methods; seven of these
have been allowed.

SIBIA has been issued one U.S. patent which claims DNAs encoding key
structural components of nAChRs and has an exclusive license from the Salk
Institute to five issued U.S. patents which claim DNAs encoding various nAChR
subunits and assay methods. SIBIA also has been granted three patents in Great
Britain covering nAChR subtypes and assay methods. Eight of SIBIA's pending U.S.
applications cover the composition or use of human nAChR genes and encoded
subtypes and assay methods.

SIBIA has one issued U.S. patent with claims to DNAs encoding human
metabotropic receptors and cells containing the same and a corresponding patent
has been granted in Great Britain. SIBIA also has an exclusive license from the
Salk Institute to an issued U.S. patent with broad claims to DNAs encoding
various NMDA-and non-NMDA-type ligand gated EAA receptor/ion channel subtypes.
SIBIA has six pending U.S.

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applications covering human NMDA receptor genes and encoded subtypes, one of
which has been allowed, and three pending U.S. applications covering human
metabotropic glutamate receptor ("mGLuR") genes and assay methods.

Several of SIBIA's pending U.S. patent applications relate to functional
screening techniques that can be utilized in conjunction with receptor/ion
channel compositions for identifying drugs which have the potential for
treatment of disorders associated with the particular receptor or ion channel.
Two issued U.S. patents cover methods and compositions for identifying
receptor-modulating compounds based on detection of reporter gene transcription.
In addition, one issued U.S. patent, one granted foreign patent and six pending
U.S. patent applications cover fluorescence-based automated systems and methods
for high throughput functional screening of receptor-modulating compounds.

SIBIA has four issued U.S. patents covering the composition, use, or
methods or preparation of compounds which modulate the activity of nAChRs for
the treatment of diseases and disorders involving these receptors, including an
issued U.S. patent covering, inter alia, SIB-1508Y. Additionally, SIBIA has ten
pending U.S. applications, six of which have been allowed, covering new series
of nAChR and EAA compounds. Two of the applications covering EAA compounds are
jointly assigned to SIBIA and Novartis.

SIBIA has ten U.S. patent applications pending covering the composition or
use of compounds that modulate the processing of proteins implicated in
Alzheimer's disease and assay methods for the detection of Alzheimer's disease.
One of these applications has been allowed.

Applications for foreign patents corresponding to the majority of the above
described U.S. patents and applications covering molecular targets, compounds,
screening technologies and assay methods have also been filed.

SIBIA has a non-exclusive worldwide license to various patents and patent
applications held by Aurora. The technology covered by these patents and patent
applications include several assay technologies. See "-- Research Collaborations
and Licenses."

The Company intends to file additional applications as appropriate for
patents covering its technologies, compounds and processes. There can be no
assurance that the Company will develop additional technologies, compounds or
processes that are patentable, that patents will issue from any patent
application or that claims allowed will be sufficient to protect the Company's
technologies, compounds or processes. Competitors may have filed applications,
may have been issued patents or may obtain additional patents and proprietary
rights relating to technologies, compounds or processes competitive with those
of the Company. The failure by the Company to adequately protect its
technologies, compounds or processes covered by issued patents or to obtain
patents based on the applications referred to herein or any future applications
could have a material adverse effect on the Company's business.

The patent positions of pharmaceutical and biotechnology firms, including
SIBIA, are uncertain and involve complex legal and factual questions. In
addition, the coverage claimed in a patent application can be significantly
reduced before the patent is issued. Consequently, the Company does not know
whether any more of its 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. Since patent applications in
the United States are maintained in secrecy until a patent issues, and since
publication of discoveries in the scientific or patent literature often lag
behind actual discoveries, the Company cannot be certain that it was the first
creator of inventions covered by its pending patent applications or that it was
the first to file patent applications for such inventions.

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Company's applications. Such conflict could result in a significant reduction of
the coverage of the Company's patents, if issued. In addition, if patents issued
to other companies contain competitive or conflicting claims and such claims are
ultimately determined to be valid, the Company may be required to obtain
licenses to these patents or to develop or obtain alternative technology. If any
licenses are required, there can be no assurance that the Company will be able
to obtain any such license on commercially favorable or acceptable terms, if at
all. The Company's breach of an existing license or failure to obtain a license
to any technology that it may require to develop and commercialize its compounds
would have a material adverse effect on the Company's business.

Litigation, which could result in substantial costs to the Company, may
also be necessary to enforce any patents issued to the Company or to determine
the scope and validity of third-party proprietary rights. See "-- Legal
Proceedings." Moreover, if competitors of the Company prepare and file patent
applications in the United States that claim technology also claimed by the
Company, the Company may have to participate in interference proceedings
declared by the United States Patent and Trademark Office ("PTO") to determine
priority of invention, which could result in substantial cost to the Company,
even if the eventual outcome is favorable to the Company. Similarly, the Company
may have to participate in opposition proceedings with respect to granted
foreign patents. The Company is aware of third-party patent applications that
may elicit an interference proceeding with three of the Company's patent
applications in the PTO. There can be no assurance that the Company will prevail
in these proceedings. Also, there can be no assurance that the validity of the
Company's patents, if issued, would be upheld by a court of competent
jurisdiction. An adverse outcome in patent prosecution or in litigation with
respect to the validity of any of the Company's patents could subject the
Company to significant liabilities to third parties, require disputed rights to
be licensed from third parties or require the Company to cease using such
technology, any of which could have a material adverse effect on the Company's
business.

In addition, the recombinant Pichia pastoris yeast expression system
developed at SIBIA is protected by several patents that have issued to Phillips
Petroleum. These patents include claims to key Pichia gene regulatory elements,
marker genes and transformation methods that form the basis of the recombinant
expression system. SIBIA retains full rights to the general expression system
protected by these patents but does not have the right to sublicense this
technology. SIBIA has filed numerous applications and has been granted six U.S.
patents and two foreign patents pertaining to Pichia-based recombinant systems
for the production of certain proteins including human epidermal growth factor,
human IGF-1 and aprotinin. SIBIA also has patents in vaccine-related technology.
See "Risk Factors -- Uncertainty Regarding Patents and Proprietary Rights."

COMPETITION

Competition to develop drugs to treat nervous system disorders is intense
and expected to increase as knowledge and interest in the disorders addressed by
the products the Company is seeking to develop increases. The Company's most
significant competitors are pharmaceutical companies and established
biotechnology companies. Smaller companies may also prove to be significant
competitors, particularly through collaborative arrangements with large
pharmaceutical companies. In addition, the Company faces competition from
academic institutions, governmental agencies and other public and private
research organizations which conduct research, seek patent protection, and
establish collaborative arrangements for product and clinical development and
marketing. Furthermore, these companies and institutions compete with the
Company in recruiting and retaining highly qualified scientific and management
personnel.

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Many of the Company's competitors have substantially greater financial,
technical and human resources than the Company and have significant products
approved or in development. In addition, many of these competitors have
significantly greater experience than the Company in undertaking preclinical
testing and clinical trials of new pharmaceutical products and in obtaining FDA
approval for products more rapidly than the Company. The Company has not sought
the approval of the FDA for any product based on any of its compounds under
development. Furthermore, if the Company is permitted to commence commercial
sales of products that it may develop, it will also be competing with respect to
manufacturing efficiency and marketing capabilities, areas in which it has no
experience. See "Risk Factors -- No Assurance of Regulatory Approval; Government
Regulation," and "-- Reliance on Third-Party Manufacturers."

Any product that the Company may succeed in developing, and for which it
gains regulatory approval, must then compete for market acceptance and market
share. For certain of the Company's potential products, an important competitive
factor will be the timing of market introduction. Accordingly, the Company
expects that the relative speed with which companies can develop products,
complete the clinical testing and approval processes and supply commercial
quantities of the product to the market will be important competitive factors.
With respect to clinical testing, competition may delay progress by limiting the
number of clinical investigators and patients available to test the Company's
potential products.

In addition to the above factors, competition is based on product efficacy
and safety, the timing and scope of regulatory approvals, availability of
supply, marketing and sales capability, price, patent position and reimbursement
coverage. See "Risk Factors -- Intense Competition; Rapid Technological Change."

MANUFACTURING

The Company currently has no manufacturing facilities for clinical or
commercial production of any compounds currently under development or the
manufacture and distribution of products that may be developed. The Company is
currently relying on third-party manufacturers to produce its compounds for
preclinical and clinical purposes. Furthermore, the compounds under development
by the Company have never been manufactured on a commercial scale and may not be
able to be manufactured at a cost or in quantities to make commercially viable
products.

The Company intends to establish arrangements with third-party
manufacturers to supply compounds for preclinical and clinical trials and
commercial sales of products that may be developed, as well as for the
packaging, labeling and distribution of such products. If the Company is unable
to contract for a sufficient supply of its compounds on acceptable terms, the
Company's preclinical and clinical testing schedule would be delayed, resulting
in the delay of submission of products for regulatory approval and initiation of
new development programs, which would have a material adverse effect on the
Company's business. If the Company should encounter delays or difficulties in
establishing relationships with manufacturers to produce, package and distribute
products that it may develop, market introduction or penetration of such
products would be adversely affected. See "Risk Factors -- Reliance on
Third-Party Manufacturers."

SALES AND MARKETING

The commercialization of products, such as those that may be developed by
the Company, is an expensive and time-consuming process. The Company has no
experience in sales, marketing or distribution. In order to market directly any
products that the Company may develop, the Company must develop a marketing and
sales force with technical expertise and supporting distribution capability.
Alternatively, the Company may seek to obtain the assistance of a pharmaceutical
or biotechnology company with a large distribution system and a large direct
sales force. See "Risk Factors -- Absence of Sales and Marketing Organization."

GOVERNMENT REGULATION

The manufacturing and marketing of pharmaceutical products in the United
States requires the approval of the FDA under the federal Food, Drug and
Cosmetic Act. Similar approvals by the comparable agencies are required in most
foreign countries. The FDA has established mandatory procedures and safety
standards that

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apply to the preclinical and clinical testing, manufacture and marketing of
pharmaceutical products. Obtaining FDA approval for a new therapeutic takes
several years and involves substantial expenditures. Pharmaceutical
manufacturing facilities are also regulated by state, local and other
authorities.

As an initial step in the FDA regulatory approval process, preclinical
studies are typically conducted in animal models to assess a drug's efficacy and
to identify potential safety problems. The results of these studies are
submitted to the FDA as part of an IND, which is filed to comply with FDA
regulations prior to beginning clinical trials.

Clinical trials are typically conducted in three sequential phases, but the
phases may overlap. In Phase I, the initial introduction of the drug into
healthy human subjects, the drug is tested for safety (adverse effects), dosage
tolerance, metabolism, distribution, excretion and pharmacodynamics (clinical
pharmacology). Phase II involves studies in a limited patient population to (i)
assess the potential of the drug for specific, targeted indications; (ii)
evaluate dosage tolerance and optimal dosage; and (iii) 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 further evaluate clinical efficacy and to further test for
safety within an expanded patient population at geographically dispersed
clinical study sites. Data from clinical trials are submitted to the FDA in a
New Drug Application ("NDA") or Product License Application ("PLA"). Preparing
an NDA or PLA involves considerable data collection, verification, analysis and
expense.

The testing and approval process requires substantial time and effort and
there can be no assurance that any approval will be granted on a timely basis,
if at all. The time period required for NDA review and approval may be affected
by a number of factors, including the severity of the disease, the availability
of alternative treatments and the risks and benefits demonstrated in clinical
trials. Additional animal studies or clinical trials may be requested during the
FDA review period. The FDA may ask one of its advisory committees to aid in its
assessment of the drug. All of these factors may delay marketing approval. The
FDA may also require post-marketing testing to monitor for adverse effects,
which can involve significant expense. FDA approval is limited to specified
indications. Moreover, the product label and promotional labeling and
prescription drug advertising are highly regulated by the FDA under the federal
Food, Drug and Cosmetic Act. In order to permit promotion of the approved
product for indications not included in the scope of the original approval,
further clinical trials and FDA approval may be necessary. See "Risk
Factors -- No Assurance of Regulatory Approval; Government Regulation."

NDA approval requires, among other things, that the prospective
manufacturer's quality control and manufacturing procedures conform to Good
Manufacturing Practices ("GMP") regulations. All manufacturing facilities,
whether foreign or domestic, may be subjected to a pre-NDA approval inspection.
Additionally, domestic manufacturing facilities are subject to biennial FDA
inspections and foreign manufacturing facilities are subject to periodic
inspection by foreign regulatory authorities as well as by the FDA where the FDA
has a reciprocal inspection agreement with the foreign regulatory authorities.

For clinical investigation and marketing outside the United States, the
Company also is subject to foreign regulatory requirements governing clinical
trials and marketing approval for drugs. The requirements governing the conduct
of clinical trials, product licensing, pricing and reimbursement vary widely
from country to country. The Company's approach to the European regulatory
process involves the identification of respected clinical investigators in the
member states of the European Union ("EU") to conduct clinical studies. The
Company intends to design these studies to meet both FDA and EU standards.
Provided regulatory harmonization is finalized in the EU, these studies are
designed to develop a regulatory package sufficient for multi-country approval
in the Company's European target markets without the need to duplicate studies
for individual country approvals. This approach also takes advantage of
regulatory requirements in some countries, such as in the United Kingdom, which
allow Phase I studies to commence after appropriate toxicology and preclinical
pharmacology studies but prior to formal regulatory approval.

In December 1996, the Company filed an IND with respect to SIB-1508Y for
the treatment of Parkinson's disease and completed Phase I clinical trials in
September 1997. See "Risk Factors -- Absence of Developed Products; Early Stage
of Development."

44
<PAGE> 46

HUMAN RESOURCES

As of September 30, 1997, the Company had 110 employees, 35 of whom hold
Ph.D. degrees. 100 employees are engaged in, or directly support, research and
development. The Company's employees are not covered by a collective bargaining
agreement and the Company considers its relations with its employees to be
excellent.

PROPERTIES

The Company's facilities are located in La Jolla, California. As of the
date of this Prospectus, the Company leases approximately 52,088 square feet of
space used for laboratory and administrative purposes of which approximately
10,792 square feet is sublet. SIBIA believes that its present facility will be
adequate to conduct its research activities through December 2001, when its
current lease expires. The Company has an option to extend its lease for an
additional five years. Management believes that it will be able to secure
additional space at commercially reasonable rates during the terms of such
lease, if necessary.

LEGAL PROCEEDINGS

On July 9, 1996, the Company filed an action for patent infringement
against Cadus in the United States District Court for the Southern District of
California. The complaint asserts that Cadus' assay technology infringes the
Company's U.S. Patent No. 5,401,629 (the "629 patent"), entitled "Assay Methods
and Compositions Useful for Measuring the Transduction of an Intracellular
Signal." Through the complaint, the Company seeks damages in an unspecified
amount and a preliminary and permanent injunction.

On August 1, 1996, Cadus filed its answer and a counterclaim to the
Company's complaint. The counterclaim asserts claims that the 629 patent and the
Company's U.S. Patent No. 5,436,128, entitled "Assay Methods and Composition for
Detecting and Evaluating the Intracellular Transduction of an Extracellular
Signal," are invalid, unenforceable and not infringed, and further asserts
claims for intentional interference with prospective economic advantage and
unfair competition. The counterclaim seeks declaratory relief and compensatory
and punitive damages in an unspecified amount.

Company management believes that its complaint against Cadus is
well-founded and necessary to protect the value of its intellectual property
portfolio. Management believes that Cadus' counterclaim is without merit and
intends to vigorously prosecute its claim of infringement and oppose Cadus'
counterclaim.

Management believes that the ultimate resolution of the above matter will
not have a material adverse impact on the Company's financial position, results
of operations or cash flows.

45
<PAGE> 47

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The following table sets forth certain information with respect to the
Company's executive officers and directors as of September 30, 1997:

<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------- --- ----------------------------------------------------
<S> <C> <C>
William T. Comer, Ph.D.(1) 61 President, Chief Executive Officer and Director
Michael J. Dunn 41 Vice President, Business Development
Michael M. Harpold, Ph.D. 47 Vice President, Research
G. Kenneth Lloyd, Ph.D. 53 Vice President, Pharmaceuticals -- Biology
David E. McClure, Ph.D. 50 Vice President, Clinical Development and Regulatory
Ian A. McDonald, Ph.D. 50 Vice President, Pharmaceuticals -- Chemistry
Thomas A. Reed 41 Vice President, Finance/Administration and Chief
Financial Officer
Stanley T. Crooke, M.D., Ph.D.(2) 52 Director
Gunnar Ekdahl(3) 54 Director
William R. Miller(3) 69 Chairman of the Board of Directors
Frederick B. Rentschler(2) 58 Director
James D. Watson, Ph.D.(3) 69 Director
</TABLE>

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

(1) Member of the Non-Officer Stock Option Committee

(2) Member of the Audit Committee

(3) Member of the Compensation and Stock Option Committee

Dr. Comer has been President, Chief Executive Officer and a director of
SIBIA since April 1991. Prior to joining SIBIA, Dr. Comer worked for
Bristol-Myers Squibb for 30 years in various scientific and management
positions. He served as Executive Vice President, Science & Technology, and then
President, Pharmaceutical Research & Licensing at Bristol-Myers Squibb from
April 1989 until April 1990. Thereafter, he served as Senior Vice President,
Strategic Management -- Pharmaceuticals and Nutritionals at Bristol-Myers Squibb
until March 1991. Dr. Comer is currently a director of Cytel Corporation, the
University of California, San Diego ("UCSD") Cancer Center Foundation and The
San Diego Chamber Orchestra. He is also a member of the Governor's Council on
Biotechnology, the Executive Committee of BIOCOM and the UCSD Industrial
Advisory Committee for the Department of Chemistry and Biochemistry. Dr. Comer
received a B.A. degree from Carleton College and a Ph.D. degree in Organic
Chemistry and Pharmacology from the University of Iowa.

Mr. Dunn has been with SIBIA since the Company's inception. He has been
Vice President, Business Development since August 1995. From 1992 to 1995, he
was Director, Business Development and was Manager of Business Development from
September 1991 to April 1992. He received a B.A. degree from the University of
Chicago and an M.B.A. degree from the University of San Diego.

Dr. Harpold has been Vice President, Research since 1986 and was a founding
member of SIBIA's scientific staff and Research Director from 1981 to 1986. From
1979 to 1981, he was Assistant Professor of Biochemistry at the University of
Southern California School of Medicine and Member of the Kenneth Norris, Jr.
Comprehensive Cancer Center. Dr. Harpold received a B.S. degree from Texas
Christian University and a Ph.D. degree in Developmental and Molecular Cell
Biology from Tulane University and was a Helen Hay Whitney Research Fellow at
The Rockefeller University from 1976 to 1979.

Dr. Lloyd has been Vice President, Pharmaceuticals -- Biology since 1994.
He joined SIBIA in October 1992. Beginning in 1977, Dr. Lloyd worked for
Synthelabo S.A. where he held various management positions culminating with six
years as Associate Director, Biology with responsibility for nervous system,
cerebrovascular, bronchopulmonary, gastrointestinal and inflammation research.
From 1990 to 1992, Dr. Lloyd was Assistant Vice President of Research and
Director of Research (U.K.) for Wyeth-Ayerst Research. Dr. Lloyd

46
<PAGE> 48

serves on the Scientific Advisory Boards of Epigenesis and the Huntington Chorea
Society of Canada. He received B.S. and M.S. degrees from McGill University and
a Ph.D. degree from the University of Toronto. He held a postdoctoral position
at F. Hoffman-La Roche & Co. Ltd. in Basel, Switzerland.

Dr. McClure has been Vice President, Clinical Development and Regulatory
since September 1996. From 1992 to 1996, Dr. McClure served as Director, Product
Development and Project Management at Molecular Biosystems, Inc. From 1988 to
1992, he served as Assistant Director, Oncology Clinical and Medical Affairs,
and as Senior Project Development Manager, Drug Development Department at ICI
Pharmaceuticals Group. From 1983 to 1988, Dr. McClure served as Development Team
Chairperson and Section Head, Medicinal Chemistry at McNeil Pharmaceutical
(Johnson & Johnson). He started his career at Merck Research Laboratories as a
medicinal chemist. He received a B.S. degree in Chemistry from Nebraska Wesleyan
University, a Ph.D. degree in Organic Chemistry from Stanford University, and
conducted post-doctoral work from 1973 to 1975 at Columbia University.

Dr. McDonald has been Vice President, Pharmaceuticals -- Chemistry since
1994. He joined SIBIA as Director of Chemistry in February 1993. He has held
senior scientist positions at the State Health Laboratory Service in Perth,
Australia, at the Australian National University; the Centre de Recherche
Merrell International, Strasbourg, France; and he was a Group Leader and Senior
Research Scientist, Marion Merrell Dow Research Institute (formerly Merrell
Dow), Cincinnati, Ohio during the period July 1985 to February 1993. He received
B.S. and Ph.D. degrees from the School of Chemistry, the University of Western
Australia. He completed his postdoctoral studies at the Organic Chemistry
Institute of the University of Zurich, Switzerland.

Mr. Reed has been with SIBIA since the Company's inception. He has been
Vice President, Finance/Administration and Chief Financial Officer since August
1995. From 1991 to 1995, he was Director, Finance and was Manager of Business
and Market Evaluation from January 1989 to April 1991. He received a B.A. degree
from the University of California, Berkeley and an M.B.A. degree from the
University of San Diego.

Dr. Crooke has been a director of the Company since April 1992. He is the
founder of ISIS Pharmaceuticals, Inc., a biotechnology company, and has been its
Chief Executive Officer since its inception in January 1989 and Chairman of the
Board of Directors since February 1991. From 1980 until January 1989, Dr. Crooke
was employed by SmithKline Beckman Corporation, a pharmaceutical company, most
recently as President of Research and Development of SmithKline & French
Laboratories. Dr. Crooke received a Ph.D. and an M.D. degree from Baylor College
of Medicine. He is Chairman of the Board of Directors of GeneMedicine, Inc. a
biotechnology company, and EPIX Medical, Inc. and is an Adjunct Professor of
Pharmacology at the Baylor College of Medicine and UCSD.

Mr. Ekdahl has been a director of the Company since 1995. He was appointed
Chairman of the Board of Directors of Skandigen AB in 1995. Mr. Ekdahl has
extensive experience with Swedish finance and investment companies and was
President and Chief Executive Officer of Latour AB from 1985 to 1992, with
controlling holdings in large Swedish industrial companies. Mr. Ekdahl has been
active as a non-executive board member of several Swedish companies, including
Chairman of Arcona AB, G&L Beijer AB, Lofbergs Lila AB, and Philipson Bil AB.
Mr. Ekdahl received a B.A. degree from the Stockholm School of Economics.

Mr. Miller has been a director of the Company since August 1991 and
Chairman of the Board of Directors since August 1992. In January 1991, he
retired as Vice Chairman of the Board of Directors of Bristol-Myers Squibb
Company, after six years in that position. Mr. Miller is a director of ImClone
Systems, Inc., ISIS Pharmaceuticals, Inc., St. Jude Medical, Inc., Transkaryotic
Therapies, Inc., Westvaco Corporation, Xomed Surgical Products, Inc. and is an
Advisory Director of Chugai Pharmaceuticals, Inc. He is Chairman of the Board of
Vion Pharmaceuticals, Inc. Mr. Miller is Vice Chairman of the Board of Trustees
of the Cold Spring Harbor Laboratory and is a past Chairman of the Board of the
Pharmaceutical Manufacturers Association. Mr. Miller is a Trustee of the
Manhatten School of Music, Metropolitan Opera Association, Opera Orchestra of
New York, a member of Oxford University Chancellor's Court of Benefactors;
Honorary Fellow of St. Edmund Hall, and Chairman of the English-Speaking Union
of the United States.

47
<PAGE> 49

Mr. Rentschler has been a director of the Company since January 1993. Since
1990, he has been a director of several U.S. companies, including The Salk
Institute for Biological Studies. In addition, during 1990, he was President and
Chief Executive Officer of Northwest Airlines. From 1986 to 1987, Mr. Rentschler
held several positions at Beatrice Company, the most recent being President and
Chief Executive Officer. From 1980 to 1984, Mr. Rentschler was President and
Chief Executive Officer of Hunt-Wesson Foods, Inc. Prior to joining HuntWesson
Foods, Inc., Mr. Rentschler was President and a director of Armour International
from 1976 to 1977 and President of Armour-Dial from 1977 to 1979. In addition,
Mr. Rentschler is a director of International Game Technology, Inc. and
Bionutrics, Inc. Mr. Rentschler received a B.A. degree from Vanderbilt
University and an M.B.A. degree from Harvard Business School. He joined The Salk
Institute Board of Trustees in 1988 and has been Chairman of the Board of
Trustees since November 1995.

Dr. Watson has been a director of the Company since July 1992. Dr. Watson
served as director of the Cold Spring Harbor Laboratory from 1968 to 1994, at
which time he was appointed President. From 1956 to 1976, Dr. Watson was a
member of the Department of Biology (then Molecular Biology) at Harvard
University. Between 1988 and 1992, he directed the National Center for Human
Genome Research at the National Institute of Health. In 1962, Dr. Watson, along
with Drs. Francis H.C. Crick and Maurice Wilkins, was awarded the Nobel Prize in
Physiology or Medicine for discovering the structure of deoxyribonucleic acid.
Dr. Watson has won numerous awards in addition to the Nobel Prize and is a
member of the U.S. National Academy of Sciences, the Royal Society in London,
the Danish Academy of Arts and Sciences and the Academy of Sciences of Russia.
Dr. Watson holds a B.S. degree from the University of Chicago and a Ph.D. degree
from Indiana University and has also received honorary degrees from 21 colleges
and universities. He is a director of the Pall Corporation and a director of
Diagnostic Products Corporation.

Each officer serves at the discretion of the Board of Directors. The
Company's Certificate of Incorporation permits the Board of Directors to
establish by resolution the authorized number of directors, and the Company
currently has six directors authorized. There are no family relationships among
any of the directors or officers of the Company.

BOARD COMPOSITION

The Company currently has authorized six directors. In accordance with the
Company's Restated Certificate of Incorporation, the Board of Directors is
divided into three classes with staggered three-year terms. Class I consists of
Dr. Comer and Mr. Ekdahl, Class II consists of Mr. Rentschler and Dr. Watson and
Class III consists of Dr. Crooke and Mr. Miller. At each annual meeting of
stockholders, the successors to directors whose term then expires will be
elected to serve from the time of election and qualification until the third
annual meeting following election. Any additional directorships resulting from
an increase in the number of directors will be distributed among the three
classes so that, as nearly as possible, each class will consist of one-third of
the directors. This classification of the Board of Directors may have the effect
of delaying or preventing changes in control or management of the Company.

BOARD COMMITTEES

The Board's Non-Officer Stock Option Committee consists of Dr. Comer as the
sole member. The function of the Non-Officer Stock Option Committee is to review
and approve stock option grants under the Company's 1996 Equity Incentive Plan
in accordance with guidelines approved by the Board to eligible persons under
the plan that are not subject to Section 16 of the Securities Exchange Act of
1934, as amended, by reason of their status as an officer, director or
stockholder of the Company.

The Audit Committee is composed of two non-employee directors: Dr. Crooke
and Mr. Rentschler. The Audit Committee meets with the Company's independent
accountants at least annually to review the results of the annual audit and
discuss the financial statements, recommends to the Board the independent
accountants to be retained, and receives and considers the accountants' comments
as to controls, adequacy of staff and management performance and procedures in
connection with audit and financial controls.

The Compensation and Stock Option Committee is composed of three
non-employee directors: Messrs. Ekdahl and Miller and Dr. Watson. The
Compensation and Stock Option Committee makes

48
<PAGE> 50

recommendations concerning salaries and incentive compensation, awards stock
options to employees and consultants under the Company's stock option plan and
otherwise determines compensation levels and performs such other functions
regarding compensation as the Board of Directors may delegate.

DIRECTOR COMPENSATION

Prior to May 9, 1996 (the effective date of the Company's initial public
offering), each non-employee director received an annual retainer of $12,000 and
an additional amount of $1,000 for each meeting of the Board of Directors such
non-employee director attended. The annual retainer was paid in two equal
installments during the year. Effective upon the Company's initial public
offering, each non-employee director of the Company became entitled to receive
an annual retainer of $15,000, with the Chairman of the Board of Directors
receiving $25,000. Such annual retainer is paid in two equal installments over
the year. The members of the Board of Directors are also eligible for
reimbursement for their expenses incurred in connection with attendance at Board
meetings in accordance with Company policy. During fiscal year 1996, certain
non-employee directors also received compensation for their services as members
of the Company's Scientific Advisory Board.

In the fiscal year ended December 31, 1996, the total compensation paid to
non-employee directors for service on the Board of Directors and/or committees
of the Board of Directors was as follows: Dr. Crick -- $7,500; Dr.
Crooke -- $12,500; Mr. Ekdahl -- $7,500; Mr. Miller -- $21,500; Mr.
Rentschler -- $7,500; -- Dr. Watson -- $16,500. In addition, each of Drs. Crick
and Watson received $10,000 for their service on the Company's Scientific
Advisory Board.

In addition to cash compensation, non-employee directors are eligible to
receive annual grants of options to purchase Common Stock of the Company. Each
person who for the first time becomes a non-employee director shall be granted
upon the date of his or her initial election to the Board of Directors, an
option to purchase 10,000 shares of Common Stock of the Company. In addition, on
the date of each annual meeting of stockholders, each non-employee director who
is reelected at such meeting shall be granted an option to purchase 3,000 shares
of Common Stock of the Company; provided, however, that a non-employee director
who is then serving as the Chairman of the Board shall be granted an option to
purchase 5,000 shares of Common Stock of the Company.

During fiscal year 1996, the Company granted an option to purchase 3,000
shares of Common Stock of the Company to each non-employee director and an
option to purchase 5,000 shares of Common Stock of the Company to the Chairman
of the Board of Directors an exercise price per share of $9.75. The fair market
value of the Company's Common Stock on the date of grant was $9.75 per share
(based upon the closing sales price reported in the National Market System on
the date of grant). As of September 30, 1997, no options granted to the
non-employee directors had been exercised. In addition, during fiscal year 1996,
each of Messrs. Gunnar and Rentschler and Dr. Crick received an option to
purchase 10,000 shares of Common Stock of the Company, which reflected the
option each was entitled to receive upon his initial election to the Board of
Directors.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

No member of the Compensation and Stock Option Committee of the Board of
Directors was, at any time during the fiscal year ended December 31, 1996, or at
any other time, an officer or employee of the Company. Each of the Company's
directors, other than Frederick B. Rentschler, has acquired shares of the
Company's Common Stock. See "Certain Transactions" and "Principal and Selling
Stockholders."

SCIENTIFIC ADVISORY BOARD

SIBIA has a Scientific Advisory Board that provides consulting services to
SIBIA. The Scientific Advisory Board meets as a group at least twice each year,
and on an individual basis with management when so requested, to discuss
research priorities and new developments. The Scientific Advisory Board consists
of independent professionals with recognized expertise in relevant sciences or
clinical medicine who advise the

49
<PAGE> 51

Company about present and long-term scientific planning, research and
development. SIBIA's Scientific Advisory Board consists of the following
persons:

Dennis W. Choi, M.D., Ph.D., Professor and Head of Neurology at Washington
University Medical School and Neurologist-in-Chief at Barnes-Jewish Hospital.
Dr. Choi is a molecular neuropharmacologist and clinical neurologist, and his
research is directed toward understanding the basic mechanisms which underlie
brain or spinal cord injury in acute or chronic neurological disease states. In
1992 he received the Wakeman Award and in 1994 the Silvio Cone Decade of the
Brain Award for his research.

Ronald M. Evans, Ph.D., Professor and Director of the Gene Expression
Laboratory and Investigator of the Howard Hughes Medical Institute at The Salk
Institute. Dr. Evans' research focuses on the regulation of gene expression,
with intracellular receptor systems being the primary experimental models. He is
a member of the U.S. National Academy of Sciences.

Stephen F. Heinemann, Ph.D., Professor and Director of the Molecular
Neurobiology Laboratory at The Salk Institute. Dr. Heinemann's research focuses
on the structure and function of brain receptors and their role in neurological
diseases and mental illness. He is a member of the U.S. National Academy of
Sciences.

Lewis L. Judd, M.D., Professor and Chairman of the Department of
Psychiatry, UCSD. Dr. Judd was the Director of the National Institute of Mental
Health and is an acknowledged expert on neuropsychiatric diseases. He is a
member of the U.S. National Academy of Sciences and the National Institute of
Medicine.

Richard J. Miller, Ph.D., Professor in the Department of Pharmacology and
Physiological Sciences and member of the Committee on Neurobiology, University
of Chicago. Dr. Miller is a neuropharmacologist whose current research involves
different neuronal receptor/ion channel systems that flux calcium.

Sangram S. Sisodia, Ph.D., Associate Professor of Pathology and
Neuroscience, The Johns Hopkins University School of Medicine. Dr. Sisodia is a
molecular neurobiologist who is studying the molecular basis of Alzheimer's
disease.

James D. Watson, Ph.D. See "-- Executive Officers and Directors."

There is no fixed term of service on the Scientific Advisory Board; current
members may resign or be removed at any time, and additional members may be
appointed by SIBIA. Members do not serve on an exclusive basis to SIBIA, are not
under contract with SIBIA (other than with respect to confidentiality
obligations) and are not obligated to present corporate opportunities to SIBIA.
To the Company's knowledge, none of the members of the Scientific Advisory Board
is working on the development of a competitive product. Inventions or products
developed by members of the Scientific Advisory Board who are not otherwise
affiliated with SIBIA will not become SIBIA's property but will remain the
member's property.

Members of the Scientific Advisory Board generally receive a stock option
grant upon joining such Board as well as $10,000 per year for their services.
All members receive reimbursement for expenses incurred in traveling to and
attending meetings on behalf of SIBIA. Certain members of the Scientific
Advisory Board have previously received stock options under the Company's stock
option plans in amounts determined from time-to-time by the Board of Directors.

50
<PAGE> 52

EXECUTIVE COMPENSATION

The following table shows for the fiscal years ended December 31, 1995 and
1996, certain compensation awarded or paid to, or earned by, the Company's Chief
Executive Officer and the Company's six other most highly compensated executive
officers (collectively, the "Named Executive Officers").

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS(2)
ANNUAL COMPENSATION(1) ------------
-------------------------------------- SECURITIES ALL OTHER
FISCAL OTHER ANNUAL UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($) OPTIONS(#)(3) (#)(4)
- ------------------------------- ------ --------- -------- --------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
William T. Comer, Ph.D......... 1996 249,000 28,800 -- 15,040 4,491
Chief Executive Officer and 1995 237,200 18,000 -- 12,925 3,608
President
Michael M. Harpold, Ph.D....... 1996 182,500 16,000 -- 8,225 5,253
Vice President, Research 1995 174,875 9,650 -- 7,050 5,530
G. Kenneth Lloyd, Ph.D......... 1996 178,000 15,200 10,000(5) 8,225 5,248
Vice President, 1995 170,250 9,000 10,000(5) 6,815 5,505
Pharmaceuticals -- Biology
Ian A. McDonald, Ph.D.......... 1996 153,250 13,300 10,000(5) 7,050 5,144
Vice President, 1995 146,000 9,150 10,000(5) 5,875 5,139
Pharmaceuticals -- Chemistry
Michael J. Dunn................ 1996 113,000 7,500 -- 4,700 3,865
Vice President, Business 1995 86,100 4,700 -- 15,275(6) 3,027
Development
Thomas A. Reed................. 1996 123,500 9,700 -- 4,700 4,224
Vice President, 1995 98,000 5,200 -- 15,745(6) 3,447
Finance/Administration and
Chief Financial Officer
David E. McClure,Ph.D.(7)...... 1996 51,667 10,000 -- 33,500 --
Vice President, Clinical 1995 -- -- -- -- --
Development and Regulatory
</TABLE>

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

(1) As permitted by rules promulgated by the SEC, no amounts are shown with
respect to certain perquisites where such amounts do not exceed the lesser
of 10% of the sum of the amount in the salary and bonus columns or $50,000.

(2) None of the Named Executive Officers held restricted stock awards as of
September 30, 1997.

(3) Unless otherwise noted, all options were granted under the Company's 1996
Plan or 1992 Plan.

(4) All amounts include the value of excess group term life insurance premiums
and matching 401(k) Plan contributions paid on behalf of the Named Executive
Officers.

(5) Includes forgiveness of $10,000 of principal amount owed to the Company for
certain indebtedness.

(6) Includes options to purchase up to 11,750 shares of the Company's Common
Stock granted pursuant to the Company's Management Change of Control Plan.

(7) Dr. McClure joined the Company in September, 1996. Salary amount represents
the total amount of base salary actually paid to Dr. McClure in 1996. Dr.
McClure's annual base salary for 1996 was $155,000. Bonus amount of $10,000
represents Dr. McClure's sign-on bonus. Upon joining the Company, Dr.
McClure was granted an option to purchase 33,500 shares of Common Stock of
the Company at an exercise price of $6.63 per share. The option vests and
becomes exercisable in four equal annual installments commencing on
September 1, 1997.

51
<PAGE> 53

STOCK OPTION GRANTS AND EXERCISES

The Company currently grants options to its executive officers under its
1996 Equity Incentive Plan (the "1996 Plan"). The following tables show, for the
fiscal year ended December 31, 1996, certain information regarding options
granted to, exercised by, and held at year end by, the Named Executive Officers:

OPTION GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
AT
INDIVIDUAL GRANTS ASSUMED ANNUAL
---------------------------------------------------------------------- RATES OF STOCK
NUMBER OF PRICE
SECURITIES APPRECIATION
UNDERLYING % OF TOTAL FOR OPTION
OPTIONS OPTIONS GRANTED EXERCISE OR MARKET TERM(3)
GRANTED TO EMPLOYEES IN BASE PRICE VALUE ON EXPIRATION ----------------
NAME (#)(1) FISCAL YEAR(2) ($/SH)(3) GRANT DATE DATE 5%($) 10%($)
- ------------------------ ---------- ----------------- ----------- ---------- ---------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
William T. Comer,
Ph.D. ................ 15,040 5.2% $1.91 $ 1.91 2/21/01 $7,937 $17,538
Michael M. Harpold,
Ph.D. ................ 8,225 2.9% 1.91 1.91 2/21/01 4,340 9,591
G. Kenneth Lloyd,
Ph.D. ................ 8,225 2.9% 1.91 1.91 2/21/01 4,340 9,591
Ian A. McDonald,
Ph.D. ................ 7,050 2.5% 1.91 1.91 2/21/01 3,720 8,221
Michael J. Dunn......... 4,700 1.6% 1.91 1.91 2/21/01 2,480 5,481
Thomas A. Reed.......... 4,700 1.6% 1.91 1.91 2/21/01 2,480 5,481
</TABLE>

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

(1) Options were granted under the Company's 1992 Plan prior to the Company's
initial public offering of Common Stock in May 1996. The options vest at an
annual rate of 25% over a period of four years.

(2) Based on options to purchase 286,757 shares of the Company's Common Stock
granted to employees, including Named Executive Officers, under the 1996
Plan and the Company's 1992 Plan during fiscal year 1996.

(3) The potential realizable value is calculated based on the term of the option
at its time of grant (5 or 10 years). It is calculated 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. These amounts represent certain assumed rates of appreciation only,
in accordance with the rules of the SEC, and do not reflect the Company's
estimate or projection of future stock price performance. Actual gains, if
any, are dependent on the actual future performance of the Company's Common
Stock and no gain to the optionee is possible unless the stock price
increases over the option term, which will benefit all stockholders.

52
<PAGE> 54

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES

The following table sets forth, with respect to each of the Named Executive
Officers, information regarding the number and value of securities underlying
unexercised options held by the Named Executive Officers as of December 31,
1996:

<TABLE>
<CAPTION>
NUMBER OF SECURITIES
SHARES UNDERLYING VALUE OF UNEXERCISED
ACQUIRED UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
ON VALUE DECEMBER 31, 1996 (#)(2) DECEMBER 31, 1996 ($)(3)
EXERCISE REALIZED ---------------------------- ----------------------------
NAME (#) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------- ------- ------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
William T. Comer, Ph.D..... 258,500 0 31,432 99,933 $ 203,089 $ 638,801
Michael M. Harpold, 138,650 808,400 26,439 60,511 133,278 388,011
Ph.D.....................
G. Kenneth Lloyd, Ph.D..... 1,636 8,425 45,894 60,335 291,581 386,947
Ian A. McDonald, Ph.D...... 0 0 42,007 57,868 267,538 372,708
Michael J. Dunn............ 24,910 167,555 16,863 52,697 110,511 342,769
Thomas A. Reed............. 16,098 79,315 2,409 53,168 14,222 345,589
David E. McClure, Ph.D..... 0 0 0 33,500 0 29,145
</TABLE>

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

(1) Calculation of value realized is based on the fair market value of the
Company's Common Stock on the date of exercise minus the exercise price.
Includes (i) the value of shares acquired upon the exercise of options prior
to the Company's initial public offering of Common Stock in May 1996,
whereby the fair market value of the Company's shares was determined solely
by the Board of Directors on such date, and (ii) the value of shares
acquired upon exercise of options after the Company's initial public
offering whereby the fair market value on the date of exercise was equal to
the closing sales price of the Company's Common Stock as reported on the
Nasdaq National Market. Does not reflect any losses that may have been
incurred as a result of option exercises at fair market values below the
exercise price.

(2) Includes both "in-the-money" and "out-of-the-money" options. "In-the-money"
options are options with an exercise price below the fair market value of
the Company's Common Stock.

(3) Calculation based on the fair market value of the Company's Common Stock at
December 31, 1996 ($7.50), minus the exercise price.

CHANGE IN CONTROL ARRANGEMENTS

In November 1994, the Company adopted a Management Change of Control Plan,
which was subsequently amended in December 1995, March 1996 and June 1997 (as
amended, the "Change of Control Plan") applicable to William T. Comer, Michael
J. Dunn, Michael M. Harpold, G. Kenneth Lloyd, David E. McClure, Ian A. McDonald
and Thomas A. Reed. The Change of Control Plan generally provides for the
payment of benefits to its participants upon the occurrence of certain defined
change of control events. Among the benefits provided are: (i) cash bonuses of
up to 25% of annual base salary, depending on the valuation of the Company at
the time of the change of control; (ii) acceleration of vesting of certain stock
options granted to each participant; (iii) severance payments of up to two times
annual base salary, depending on the participant's position with the Company at
the time of a change of control; and (iv) the payment of health insurance
premiums and outplacement expenses incurred upon a change of control.

Under the Change of Control Plan, a "change of control" of the Company is
defined as any one of the following: (i) the sale of all or substantially all of
the assets of the Company; (ii) a merger or consolidation in which the Company
is not the surviving corporation (other than a transaction the principal purpose
of which is to change the state of the Company's incorporation or a transaction
in which the voting securities of the Company are exchanged for beneficial
ownership of at least 50% of the voting securities of the controlling acquiring
corporation); (iii) a merger or consolidation in which the Company is the
surviving corporation and less than 50% of the voting securities of the Company
which are outstanding immediately after the consummation of such transaction are
beneficially owned, directly or indirectly, by the persons who owned such voting
securities immediately prior to such transaction; (iv) any transaction or series
of related transactions after which any person (as such term is used in Section
13(d)(3) of the Securities Exchange Act of 1934, as amended), other than any
employee benefit plan (or related trust) sponsored or maintained by the Company
or any subsidiary of the Company, becomes the beneficial owner of voting
securities of the

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<PAGE> 55

Company representing 50% or more of the combined voting power of all of the
voting securities of the Company; (v) during any period of two consecutive
years, individuals who at the beginning of such period constitute the membership
of the Company's Board of Directors ("Incumbent Directors") cease for any reason
to have authority to cast at least a majority of the votes which all directors
on the Board of Directors are entitled to cast, unless the election, or the
nomination for election by the Company's stockholders, of a new director was
approved by a vote of at least two-thirds of the votes entitled to be cast by
the Incumbent Directors, in which case such director shall also be treated as an
Incumbent Director in the future; or (vi) the liquidation or dissolution of the
Company.

1996 EQUITY INCENTIVE PLAN

In February 1996, the Board of Directors adopted the Company's 1996 Equity
Incentive Plan (the "1996 Plan") under which 1,513,141 shares of Common Stock
are reserved for issuance pursuant to the exercise of stock awards granted to
employees, directors and consultants. The 1996 Plan was adopted by the Board to
replace the Company's 1981 Employee Stock Option Plan (the "1981 Plan") and its
1992 Stock Option and Restricted Stock Plan (the "1992 Plan," and, together with
the 1981 Plan, the "Prior Plans"). The 1981 Plan terminated by its terms in
1991; provided, however, that options outstanding under the 1981 Plan will be
exercisable according to their terms. The 1992 Plan was terminated upon the
closing of the Company's initial public offering and no further options were to
be issued thereunder; provided, however, that options outstanding under the 1992
Plan would be exercisable according to their terms. The 1996 Plan will terminate
in February 2006, unless sooner terminated by the Board.

The 1996 Plan provides a means by which selected officers and employees of
and consultants to the Company and its affiliates could be given an opportunity
to receive stock in the Company, to assist in retaining the services of
employees holding key positions, to secure and retain the services of persons
capable of filling such positions and to provide incentives for such persons to
exert maximum efforts for the success of the Company. Substantially all of the
Company's employees are eligible to participate in the 1996 plan.

The 1996 Plan permits the granting of options intended to qualify as
incentive stock options ("Incentive Options") within the meaning of Section 422
of the Internal Revenue Code of 1986 (the "Code") to employees (including
officers and employee directors) and options that do not so qualify
("Nonstatutory Options," and, together with Incentive Options, the "Options") to
employees (including officers and employee directors) and consultants (including
non-employee directors). In addition, the 1996 Plan permits the granting of
stock appreciation rights ("SARs") appurtenant to or independently of Options,
as well as stock bonuses and rights to purchase restricted stock (Options, SARs,
stock bonuses and rights to purchase restricted stock are hereinafter referred
to as "Stock Awards"). No person shall be eligible to be granted Options and
SARs covering more than 500,000 shares of Common Stock in any 12-month period.

In June 1997, the Board amended the 1996 Plan to provide for acceleration
of vesting of options outstanding under such plan held by any employee of the
Company who within 12 months following certain defined change of control events
either (i) is terminated by the Company without cause or (ii) terminates his or
her employment with the Company for good reason (as defined in such plan). The
definition of a "change of control" under the 1996 Plan is identical to the
definition thereof under the Change of Control Plan. The amendment was designed
to deter hostile takeovers and may have the effect of delaying or preventing a
change in control of the Company.

As of September 30, 1997, the Company had granted Options to purchase up to
369,180 shares of Common Stock under the 1996 Plan. No other Stock Awards have
been granted or awarded under the 1996 Plan.

EMPLOYEE STOCK PURCHASE PLAN

In February 1996, the Board of Directors adopted, and the stockholders
subsequently approved, the Employee Stock Purchase Plan (the "Purchase Plan").
The purpose of the Purchase Plan is to assist the Company in retaining the
services of its employees, to secure and retain the services of new employees
and to provide incentives for such persons to exert maximum efforts for the
success of the Company. The Purchase

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<PAGE> 56

Plan provides a means by which employees of the Company and its affiliates may
purchase Common Stock of the Company at a discount through accumulated payroll
deductions. The rights to purchase Common Stock granted under the Purchase Plan
are intended to qualify as options issued under an "employee stock purchase
plan" as that term is defined in Section 423(b) of the Code. The maximum number
of shares of Common Stock that may be issued under the Purchase Plan is 500,000.
Substantially all of the Company's employees are eligible to participate in the
Purchase Plan.

Under the Purchase Plan, the Board may provide for the grant of rights to
purchase Common Stock to eligible employees (an "Offering") on a date or dates
to be selected by the Board of Directors. The first Offering under the Purchase
Plan began May 9, 1996, the effective date of the Company's initial public
offering, and extends until April 30, 1998. Subsequent Offerings will commence
on May 1 every year, beginning with calendar year 1998 and shall end on the day
prior to the first anniversary of the date the Offering commences. As of
September 30, 1997, the Company had issued 21,206 shares of Common Stock to
employees under the Purchase Plan.

1996 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN

In February 1996, the Board of Directors adopted, and the stockholders
subsequently approved, the 1996 Non-Employee Directors' Stock Option Plan (the
"Directors' Plan"). The purpose of the Directors' Plan is to attract and retain
the services of persons capable of serving as non-employee directors on the
Board of Directors and to provide incentives for such persons to exert maximum
efforts to promote the success of the Company. The Directors' Plan provides for
the automatic grant of nonstatutory stock options to purchase shares of Common
Stock to non-employee directors of the Company. The maximum number of shares of
Common Stock that may be issued pursuant to options granted under the Directors'
Plan is 235,000. Option grants under the Directors' Plan are non-discretionary.

Under the Directors' Plan, each person who for the first time becomes a
non-employee director shall be granted upon the date of his or her initial
election to the Board of Directors, an option to purchase 10,000 shares of
Common Stock of the Company. In addition, on the date of each annual meeting of
stockholders, each non-employee director who is reelected at such meeting shall
be granted an option to purchase 3,000 shares of Common Stock of the Company;
provided, however, that a non-employee director who is then serving as the
Chairman of the Board shall be granted an option to purchase 5,000 shares of
Common Stock of the Company.

In June 1997, the Board of Directors amended the Directors' Plan to provide
for acceleration of vesting of options outstanding under such plan held by any
non-employee director whose continuous status as a director of the Company
terminates for any reason or for no reason within 12 months following certain
defined change of control events. The definition of a "change of control" under
the Directors' Plan is identical to the definition thereof under the Change of
Control Plan. The amendment was designed to deter hostile takeovers and may have
the effect of delaying or preventing a change in control of the Company.

As of September 30, 1997, options to purchase 37,000 shares had been
granted under the Directors' Plan. Options granted under the Directors' Plan are
not intended to qualify as Incentive Options.

401(K) PLAN

The Company adopted a tax-qualified employee savings and retirement plan
under Section 401(k) of the Code (the "401(k) Plan") covering all of the
Company's employees who meet minimum age requirements. Pursuant to the 401(k)
Plan, employees may elect to reduce their current compensation by up to 9% of
their salaries, but not in excess of the statutory prescribed annual limit and
have the amount of such reduction contributed to the 401(k) Plan. The Company
currently matches 50% of employee contributions up to 6% of an employee's
salary, limited to the maximum contribution allowable for income tax purposes.
Employer contributions vest proportionally over five years of service.
Contributions to the 401(k) Plan made by employees or by the Company, and income
earned on such contributions made by the Company, if any, will be deductible by
the Company when made. The 401(k) Plan may be amended or discontinued at any
time by the Company.

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<PAGE> 57

LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS

The Company's Bylaws provide that the Company shall indemnify its directors
and executive officers and may indemnify its other officers, employees and other
agents to the fullest extent permitted by Delaware law. The Company is also
empowered under its Bylaws to enter into indemnification contracts with its
directors and executive officers and to purchase insurance on behalf of any
person whom it is required or permitted to indemnify. Pursuant to this
provision, the Company has entered into indemnity agreements with each of its
directors and executive officers. In addition, the Company is required, subject
to certain exceptions, to advance all expenses incurred by any director or
executive officer in connection with a completed, pending or threatened action,
suit or proceeding upon receipt of an undertaking by such director or executive
officer to repay all amounts advanced by the Company on such person's behalf if
it is ultimately determined that such person is not entitled to be indemnified
under the Bylaws or otherwise.

The Company's Certificate of Incorporation provides that to the fullest
extent permitted by Delaware law, the Company's directors will not be personally
liable to the Company and its stockholders for monetary damages for any breach
of a director's fiduciary duty. The Company's Certificate of Incorporation does
not, however, eliminate the duty of care, and in appropriate circumstances
equitable remedies such as an injunction or other forms of non-monetary relief
would remain available under Delaware law. Each director will continue to be
subject to liability for breach of the director's duty of loyalty to the
Company, for acts or omissions not in good faith or involving intentional
misconduct or knowing violations of law, for acts or omissions that the director
believes to be contrary to the best interests of the Company or its
stockholders, for any transaction from which the director derived an improper
personal benefit, for acts or omissions involving a reckless disregard for the
director's duty to the Company or its stockholders when the director was aware
or should have been aware of a risk of serious injury to the Company or its
stockholders, for acts or omissions that constitute an unexcused pattern of
inattention that amounts to an abdication of the director's duty to the Company
or its stockholders, for improper transactions between the director and the
Company and for improper distributions to stockholders and loans to directors
and officers. This provision also does not affect a director's responsibilities
under any other laws, such as the federal securities laws or state or federal
environmental laws.

There is no pending litigation or proceeding involving any director,
officer, employee or other agent of the Company as to which indemnification is
being sought, nor is the Company aware of any pending or threatened litigation
that may result in claims for indemnification by any director, officer, employee
or other agent.

CERTAIN TRANSACTIONS

TRANSACTIONS WITH DIRECTORS AND EXECUTIVE OFFICERS

In February 1996, William T. Comer, President, Chief Executive Officer and
a Director of the Company, exercised an option to purchase 258,500 shares of
Common Stock pursuant to the Company's 1981 Employee Stock Option Plan at an
exercise price of $2.13 per share for a total purchase price of $550,000. In
accordance with the terms of the 1981 Employee Stock Option Plan, such purchase
price was paid in cash in the amount of $11,000 and by delivery of a full
recourse promissory note payable in the principal amount of $539,000 and bearing
interest at 7% per annum. Such note was paid in full in May 1997.

In July 1992, the Company loaned to Dr. Harpold $43,600 pursuant to a
promissory note bearing interest at the rate of 7.5% per annum. In February
1996, the Company loaned to Dr. Harpold $44,100 as the purchase price for
certain options to purchase Common Stock of the Company pursuant to a promissory
note bearing interest at the rate of 7.0% per annum. As of September 30, 1997,
the total amount of principal and interest outstanding under the promissory
notes was $96,529.

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<PAGE> 58

TRANSACTION WITH 5% STOCKHOLDERS

In March 1996, the Company executed an agreement with Novartis to extend
the term of its collaborative agreement to September 1998, unless extended by
mutual consent or terminated by either party upon six months' notice, which may
be provided after September 1997. In exchange for providing a certain level of
scientific research under the agreement, the Company will receive payments from
Novartis; additional payments may be received by the Company upon the
achievement of certain development milestones and the Company may receive
royalties in the event there are sales of products containing a compound
developed under the agreement. As part of the agreement, Novartis agreed to make
a further equity investment in shares of the Company's Common Stock of
$7,500,000, of which $5,000,000 was made in conjunction with the initial public
offering of the Company's Common Stock and the remaining $2,500,000 will be made
upon the achievement of certain research milestones. Novartis has also paid the
Company $500,000 to fund certain capital expenditures, which may be credited
against future milestone payments. Upon expiration or termination of the
agreement, each party will continue to have a non-exclusive right to use
technology developed and, for a period of three years after the agreement,
Novartis will have a right of first negotiation related to any compounds
developed from the technology related to the agreement.

In 1990, the Company entered into a three-year agreement with the Salk
Institute in the area of EAARs. This agreement provided for the support of
research in 1992 and 1993 at The Salk Institute by the Company and the transfer
of research materials and research results in the EAAR area from The Salk
Institute to the Company. The Company also received an exclusive worldwide
license to certain EAAR-related patents and patent applications held by The Salk
Institute. The agreement was amended in March 1996. Pursuant to the agreement,
as amended, the Company is required to make certain minimum annual royalty
payments to The Salk Institute beginning in 2002. Failure to pay such royalties
will result in the related license becoming non-exclusive.

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<PAGE> 59

PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth certain information with respect to the
beneficial ownership of the Company's outstanding Common Stock as of September
30, 1997, and as adjusted to reflect the sale of the Common Stock being offered
hereby by: (i) each director; (ii) each of the executive officers named in the
Summary Compensation Table; (iii) all directors and executive officers of the
Company as a group; and (iv) all those known by the Company to be beneficial
owners of more than five percent of the outstanding shares of Common Stock
(including The Salk Institute as "Selling Stockholder").

<TABLE>
<CAPTION>
NUMBER OF SHARES
BENEFICIALLY OWNED NUMBER OF SHARES
PRIOR BENEFICIALLY OWNED
TO OFFERING(1) SHARES OF AFTER OFFERING
------------------- COMMON STOCK -------------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT OFFERED HEREBY NUMBER PERCENT
- ------------------------------------------- --------- ------- -------------- --------- -------
<S> <C> <C> <C> <C> <C>
The Salk Institute for Biological
Studies.................................. 1,983,461 21.4% 250,000 1,733,461 15.0%
10010 North Torrey Pines Road
La Jolla, CA 92037
Novartis AG................................ 1,035,324 11.1% -- 1,035,324 9.0%
CH-4002 Basel
Switzerland
Skandigen AB............................... 986,696 10.6% -- 986,696 8.6%
Norrlandsgatan 15
111 43 Stockholm, Sweden
Bristol-Myers Squibb Company............... 658,000 7.1% -- 658,000 5.7%
345 Park Avenue
New York, NY 10154
Biotechnology Value Fund, L.P.(2).......... 553,000 6.0% -- 553,000 4.8%
333 West Wacker Drive, Suite 1600
Chicago, IL 60606
State of Wisconsin Investment Board........ 482,300 5.2% -- 482,300 4.2%
P.O. Box 7842
Madison, WI 53707
William T. Comer, Ph.D.(3)................. 325,338 3.5% -- 325,338 2.8%
Michael M. Harpold, Ph.D.(4)............... 116,966 1.3% -- 116,966 1.0%
William R. Miller(5)....................... 60,375 * -- 60,375 *
G. Kenneth Lloyd, Ph.D.(6)................. 56,601 * -- 56,601 *
Ian A. McDonald, Ph.D.(7).................. 60,392 * -- 60,392 *
Thomas A. Reed(8).......................... 59,712 * -- 59,712 *
David E. McClure(9)........................ 10,108 * -- 10,108 *
Stanley T. Crooke, M.D., Ph.D.(10)......... 17,250 * -- 17,250 *
James D. Watson, Ph.D.(11)................. 39,750 * -- 39,750 *
Michael J. Dunn(12)........................ 51,953 * -- 51,953 *
Frederick B. Rentschler(13)................ 26,250 * -- 26,250 *
Gunnar Ekdahl(14).......................... 20,500 * -- 20,500 *
All executive officers and directors as a
group
(12 persons)(15)......................... 845,195 8.8% -- 845,195 7.1%
</TABLE>

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

* Represents beneficial ownership of less than one percent.

(1) This table is based upon information supplied by officers, directors and
principal stockholders and Schedules 13D and 13G, if any, filed with the
Securities and Exchange Commission (the "SEC"). Unless otherwise indicated
in the footnotes to this table and subject to community property laws where
applicable, the Company believes that each of the stockholders named in
this table has sole voting and investment power with respect to the shares
indicated as beneficially owned. Applicable percentages are based on
9,289,480 shares outstanding on September 30, 1997, adjusted as required by
the rules promulgated by the SEC.

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<PAGE> 60

(2) BVF Partners L.P., a Delaware limited partnership ("Partners"), is the
general partner of Biotechnology Value Fund, L.P., a Delaware limited
partnership ("BVF"). BVF Inc., a Delaware corporation ("BVF Inc."), is an
investment adviser to and the general partner of Partners. Mark N. Lampert,
an individual, is the sole stockholder, sole director and an officer of BVF
Inc. BVF may be deemed to have beneficial ownership of 323,000 shares of
Common Stock of the Company, and Partners and BVF Inc. may be deemed to
have beneficial ownership of 553,000 shares of Common Stock of the Company.
BVF shares voting and dispositive power over the 323,000 shares of Common
Stock it beneficially owns with Partners. Partners and BVF Inc. share
voting and dispositive power over the 553,000 shares of Common Stock they
beneficially own with, in addition to BVF, the managed accounts on whose
behalf Partners, as investment managers, purchased such shares.

(3) Includes 66,838 shares subject to options exercisable within 60 days of
September 30, 1997.

(4) Includes 41,156 shares subject to options exercisable within 60 days of
September 30, 1997.

(5) Includes 7,500 shares subject to options exercisable within 60 days of
September 30, 1997.

(6) Includes 41,038 shares subject to options exercisable within 60 days of
September 30, 1997.

(7) Includes 59,392 shares subject to options exercisable within 60 days of
September 30, 1997.

(8) Includes 21,766 shares subject to options exercisable within 60 days of
September 30, 1997.

(9) Includes 9,415 shares subject to options exercisable within 60 days of
September 30, 1997.

(10) Includes 16,250 shares subject to options exercisable within 60 days of
September 30, 1997.

(11) Includes 10,375 shares subject to options exercisable within 60 days of
September 30, 1997.

(12) Includes 36,043 shares subject to options exercisable within 60 days of
September 30, 1997.

(13) Includes 26,250 shares subject to options exercisable within 60 days of
September 30, 1997. Does not include 1,983,461 shares beneficially owned by
The Salk Institute. Mr. Rentschler is currently the Chairman of the Board
of Trustees for The Salk Institute for Biological Studies.

(14) Includes 14,500 shares subject to options exercisable within 60 days of
September 30, 1997. Does not include 986,696 shares beneficially owned by
Skandigen AB, of which Mr. Ekdahl is the Chairman of the Board.

(15) Includes 350,523 shares subject to options exercisable within 60 days of
September 30, 1997.

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<PAGE> 61

DESCRIPTION OF CAPITAL STOCK

The following description of the capital stock of the Company and the
provisions of the Company's Certificate of Incorporation and Bylaws is a summary
and is qualified in its entirety by reference to such documents which have been
filed as exhibits to the Company's Registration Statement, of which this
Prospectus is a part.

The authorized capital stock of the Company consists of 25,000,000 shares
of Common Stock, $.001 par value, and 5,000,000 shares of Preferred Stock, $.001
par value.

COMMON STOCK

As of September 30, 1997, there were 9,289,480 shares of Common Stock
outstanding held of record by approximately 121 stockholders.

The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. Subject to
preferences that may be applicable to any outstanding Preferred Stock, holders
of Common Stock are entitled to receive ratably such dividends as may be
declared by the Board of Directors out of funds legally available therefor. In
the event of a liquidation, dissolution or winding up of the Company, holders of
Common Stock are entitled to share ratably in all assets remaining after payment
of liabilities and the liquidation preferences of any outstanding shares of
Preferred Stock. Holders of Common Stock have no preemptive rights and no right
to convert their Common Stock into any other securities. There are no redemption
or sinking fund provisions applicable to the Common Stock. All outstanding
shares of Common Stock are, and all shares of Common Stock to be outstanding
upon completion of this Offering will be, fully paid and nonassessable.

Delaware law does not require stockholder approval for any issuance of
authorized shares of Common Stock. These additional shares may be issued for a
variety of corporate purposes, including future public offerings to raise
additional capital or to facilitate corporate acquisitions. One of the effects
of the existence of unissued and unreserved Common Stock may be to enable the
Board of Directors to issue shares to persons friendly to current management,
which issuance could render more difficult or discourage an attempt to obtain
control of the Company by means of a merger, tender offer, proxy contest or
otherwise, and thereby protect the continuity of the Company's management and
possibly deprive the stockholders of opportunities to sell their shares of
Common Stock at prices higher than prevailing market prices. See "-- Certain
Anti-Takeover Effects of Provisions of the Certificate of Incorporation, Bylaws
and Delaware Law."

PREFERRED STOCK

Under the Certificate of Incorporation, the Board has the authority,
without further action by stockholders, to issue up to 5,000,000 shares of
Preferred Stock in one or more series, and to fix the rights, designations,
preferences, privileges, qualifications and restrictions thereof, including
dividend rights, conversion rights, voting rights, rights and terms of
redemption, liquidation preferences and sinking fund terms, any or all of which
may be greater than the rights of the Common Stock. The issuance of Preferred
Stock could adversely affect the voting power of holders of Common Stock and
reduce the likelihood that such holders will receive dividend payments and
payments upon liquidation. Such issuance could have the effect of decreasing the
market price of the Common Stock. The issuance of Preferred Stock may have the
effect of delaying, deterring or preventing a change in control of the Company
without any further action by the stockholders. There are currently no shares of
Preferred Stock outstanding, and the Company has no present plans to issue any
shares of Preferred Stock. See "-- Certain Anti-Takeover Effects of Provisions
of the Certificate of Incorporation, Bylaws and Delaware Law."

SHARES PURCHASE RIGHTS PLAN; JUNIOR PREFERRED STOCK

On March 17, 1997 the Board of Directors approved the adoption of a Share
Purchase Rights Plan (the "Rights Plan"). Terms of the Rights Plan provide for a
dividend distribution of one preferred share purchase right (a "Right") for each
outstanding share of Common Stock, of the Company. The dividend was payable on

60
<PAGE> 62

April 2, 1997 (the "Record Date") to the stockholders of record on that date.
Each Right entitles the registered holder to purchase from the Company one
one-hundredth of a share of Series A Junior Participating Preferred Stock, par
value $.001 per share (the "Preferred Shares"), at a price of $60.00 per one
one-hundredth of a Preferred Share (the "Purchase Price"), subject to
adjustment. Each one one-hundredth of a share of Preferred Shares has
designations and powers, preferences and rights, and the qualifications,
limitations and restrictions which make its value approximately equal to the
value of a share of Common Stock. The description and terms of the Rights are
set forth in a Rights Agreement (the "Rights Agreement"), dated as of March 17,
1997 entered into between the Company and ChaseMellon Shareholder Services,
L.L.C., as rights agent (the "Rights Agent").

Initially, the Rights will be evidenced by the stock certificates
representing the Common Stock then outstanding, and no separate Right
Certificates, as defined, will be distributed. Until the earlier to occur of (i)
the date of a public announcement that a person, entity or group of affiliated
or associated persons have acquired beneficial ownership of 15% or more of the
outstanding Common Stock (an "Acquiring Person") or (ii) 10 business days (or
such later date as may be determined by action of the Board of Directors prior
to such time as any person or entity becomes an Acquiring Person) following the
commencement of, or announcement of an intention to commence, a tender offer or
exchange offer the consummation of which would result in any person or entity
becoming an Acquiring Person (the earlier of such dates being called the
"Distribution Date"), the Rights will be evidenced, with respect to any of the
Common Share certificates outstanding as of the Record Date, by such Common
Stock certificate with or without a copy of the Summary of Rights, which is
included in the Rights Agreement.

Until the Distribution Date, the Rights will be transferable with and only
with the Common Stock. Until the Distribution Date (or earlier redemption or
expiration of the Rights), new Common Stock certificates issued after the Record
Date, upon transfer or new issuance of Common Shares, will contain a notation
incorporating the Rights Agreement by reference. Until the Distribution Date (or
earlier redemption or expiration of the Rights), the surrender or transfer of
any certificates for Common Stock outstanding as of the Record Date, even
without such notation or a copy of the Summary of Rights being attached thereto,
will also constitute the transfer of the Rights associated with the Common Stock
represented by such certificate. As soon as practicable following the
Distribution Date, separate certificates evidencing the Rights ("Right
Certificates") will be mailed to holders of record of Common Stock as of the
close of business on the Distribution Date and such separate Right Certificates
alone will evidence the Rights.

The Rights are not exercisable until the Distribution Date. The Rights will
expire on March 17, 2007 (the "Final Expiration Date"), unless the Rights are
earlier redeemed or exchanged by the Company, in each case, as described below.

The Purchase Price payable, and the number of Preferred Shares or other
securities or other property, upon exercise of the Rights are subject to
adjustment from time to time to prevent dilution (i) in the event of a stock
dividend on, or a subdivision, combination or reclassification of, the Preferred
Shares, (ii) upon the grant to holders of the Preferred Shares of certain rights
or warrants to subscribe for or purchase Preferred Shares at a price, or
securities convertible into Preferred Shares with a conversion price, less than
the then current market price of the Preferred Shares or (iii) upon the
distribution to holders of the Preferred Shares of evidences of indebtedness or
assets (excluding regular periodic cash dividends paid out of earnings or
retained earnings or dividends payable in Preferred Shares) or of subscription
rights or warrants (other than those referred to above). The exercise of Rights
for Preferred Shares is at all times subject to the availability of a sufficient
number of authorized but unissued Preferred Shares.

The number of outstanding Rights and the number of one one-hundredths of a
Preferred Share issuable upon exercise of each Right are also subject to
adjustment in the event of a stock split of the Common Stock or a stock dividend
on the Common Stock payable in Common Stock or subdivisions, consolidation or
combinations of the Common Stock occurring, in any case, prior to the
Distribution Date.

Preferred Shares purchasable upon exercise of the Rights will not be
redeemable. Each Preferred Share will be entitled to a minimum preferential
quarterly dividend payment of $1.00 but will be entitled to an aggregate
dividend of 100 times the dividend declared per share of Common Stock. In the
event of liquidation, the

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<PAGE> 63

holders of the Preferred Shares would be entitled to a minimum preferential
liquidation payment of $100 per share, but would be entitled receive an
aggregate payment equal to 100 times the payment made per share of Common Stock.
Each Preferred Share will have 100 votes, voting together with the Common Stock.
Finally, in the event of any merger, consolidation or other transaction in which
shares of Common Stock are exchanged, each Preferred Share will be entitled to
receive 100 times the amount of consideration received per Common Share. These
rights are protected by customary anti-dilution provisions. Because of the
nature of the Preferred Shares' dividend and liquidation rights, the value of
one one-hundredth of a Preferred Share should approximate the value of one share
of Common Stock. The Preferred Shares would rank junior to any other series of
the Company's preferred stock.

In the event that any person becomes an Acquiring Person, proper provision
shall be made so that each holder of a Right, other than Rights beneficially
owned by the Acquiring Person and its associates and affiliates (which will
thereafter be void), will for a 60-day period have the right to receive upon
exercise that number of shares of Common Stock having a market value of two
times the exercise price of the Right (or, if such number of shares is not and
cannot be authorized, the Company may issue Preferred Shares, cash, debt, stock
or a combination thereof in exchange for the Rights). This right will terminate
60 days after the date on which the Rights become nonredeemable (as described
below), unless there is an injunction or similar obstacle to exercise of the
Rights, in which event this right will terminate 60 days after the date on which
the Rights again become exercisable.

Generally, under the Rights Plan, an "Acquiring Person" shall not be deemed
to include (i) the Company, (ii) a subsidiary of the Company, (iii) any employee
benefit or compensation plan of the Company, (iv) any entity holding Common
Stock for or pursuant to the terms of any such employee benefit or compensation
plan, or (v) The Salk Institute; provided, however, that The Salk Institute
shall be deemed an Acquiring Person in the event it becomes the beneficial owner
of any additional Common Shares without the Company's prior written consent (as
defined below). In addition, except under limited circumstances, no person or
entity shall become an Acquiring Person as the result of (i) the acquisition of
Common Stock by the Company which, by reducing the number of shares outstanding,
increases the proportionate number of shares beneficially owned by such person
or entity to 15% or more of the Common Shares then outstanding, or (ii)
acquiring Common Stock directly from the Company.

In the event that the Company is acquired in a merger or other business
combination transaction or 50% or more of its consolidated assets or earning
power are sold to an Acquiring Person, its associates or affiliates or any
person in which any of them have an interest, or in a transaction in which all
of the stockholders of the Company are not treated the same, proper provision
will be made so that each holder of a Right will thereafter have the right to
receive, upon the exercise thereof at the then current exercise price of the
Right, that number of shares of common stock of the acquiring company which at
the time of such transaction will have a market value of two times the exercise
price of the Right.

At any time after the acquisition by a person or group of affiliated or
associated persons of beneficial ownership of 15% or more of the outstanding
Common Stock and prior to the acquisition by such person or group of 50% or more
of the outstanding Common Stock, the Board of Directors of the Company may
exchange the Rights (other than Rights owned by such person or group which have
become void), in whole or in part, at an exchange ratio of one share of Common
Stock, or one one-hundredth of a Preferred Share, per Right (or, at the election
of the Company, the Company may issue cash, debt, stock or a combination thereof
in exchange for the Rights), subject to adjustment.

With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Purchase Price. No fractional Preferred Shares will be issued (other than
fractions which are integral multiples of the number of one one-hundredths of a
Preferred Share issuable upon the exercise of one Right, which may, at the
option of the Company, be evidenced by depositary receipts), and in lieu
thereof, an adjustment in cash will be made based on the market price of the
Preferred Shares on the last trading day prior to the date of exercise.

At any time prior to the earliest of (i) the day of the first public
announcement that a person has become an Acquiring Person or (ii) the Final
Expiration Date, the Board of Directors of the Company may redeem the

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<PAGE> 64

Rights in whole, but not in part, at a price of $.001 per Right (the "Redemption
Price"). Following the expiration of the above periods, the Rights become
nonredeemable. Under certain circumstances, the Board of Director's right to
redeem the Rights may be suspended for 180 days. Immediately upon any redemption
of the Rights, the right to exercise the Rights will terminate and the only
right of the holders of Rights will be to receive the Redemption Price.

The terms of the Rights may be amended by the Board of Directors of the
Company without the consent of the holders of the Rights, except that from and
after such time as the rights are distributed no such amendment may adversely
affect the interest of the holders of the Rights excluding the interests of an
Acquiring Person. Under certain circumstances, the Board of Director's right to
amend the Rights may be suspended for 180 days.

Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of the Company, including, without limitation, the right
to vote or to receive dividends.

The Rights have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire the Company
on terms not approved by the Company's Board of Directors. The Rights should not
interfere with any merger or other business combination approved by the Board of
Directors since the Rights may be amended to permit such acquisition or redeemed
by the Company at $.001 per Right prior to the earliest of (i) the time that a
person or group has acquired beneficial ownership of 15% or more of the Common
Stock or (ii) the final expiration date of the rights.

WARRANTS

As of September 30, 1997, the Company had issued warrants to purchase an
aggregate of 258,359 shares of Common Stock (the "Warrants"). All of such
Warrants were issued in connection with the Company's acquisition of Protease
Corporation in September 1991 (the "Protease Acquisition"). The Warrants may not
be exercised until the Company shall have received $50,000,000 in aggregate net
sales of products which incorporate the technology received under a license
agreement entered into in connection with the Protease Acquisition. Such license
agreement has been terminated, and the Company is no longer using such
technology and does not plan to use such technology in the future. Accordingly,
such Warrants are not presently exercisable, and the Company believes that they
will never become exercisable.

REGISTRATION RIGHTS

Bristol-Myers Squibb Company

Bristol-Myers Squibb, the holder of 658,000 shares of Common Stock (the
"Bristol-Myers Squibb Registration Rights Shares") is entitled to certain rights
with respect to the registration of such shares under the Securities Act
pursuant to that certain Investment Agreement dated August 10, 1995 (the
"Agreement") among such holder and the Company. Under the terms of the
Agreement, in the event the Company proposes to register any of its securities
under the Securities Act for a public offering for cash, whether as a primary or
secondary offering, Bristol-Myers Squibb is entitled to notice of such
registration and is entitled, subject to certain limitations, to include shares
in such registration. In addition, upon the later of one year after the
Company's initial public offering and the conclusion of research funding by
Bristol-Myers Squibb, Bristol-Myers Squibb is entitled to demand on two
occasions that the Company use its best efforts to register the shares under the
Securities Act pursuant to such registration method deemed most appropriate.
Bristol-Myers Squibb's registration rights are subject to certain conditions and
limitations, including the right of the underwriters of an offering to limit the
number of shares included in any such registration. The Company is required to
bear all expenses of registration, except that Bristol-Myers Squibb is required
to reimburse the Company for all expenses incurred by the Company in effecting
any demand registrations.

The Salk Institute; Skandigen AB

The Salk Institute, the holder of 1,983,461 shares of Common Stock (the
"Salk Registration Rights Shares"), and its permitted transferees, and Skandigen
AB, the holder of 986,696 shares of Common Stock (the

63
<PAGE> 65

"Skandigen Registration Rights Shares"), and its permitted transferees, are
entitled to certain rights with respect to the registration of such shares under
the Securities Act. Pursuant to an agreement between the Company, The Salk
Institute and Skandigen AB, upon the request of The Salk Institute or Skandigen
AB, the Company is required to use its best efforts to include such shares in
any proposed registration statement to be filed by the Company pursuant to the
Securities Act, subject to certain conditions and limitations, including the
right of the underwriters of an offering to limit the number of shares to be
included in such registration statement. In connection with the Offering, The
Salk Institute has requested that the Company register 250,000 shares of Company
Common Stock held by The Salk Institute. The Company is required to bear all
expenses in connection with the registration of such shares, except underwriting
commissions and discounts.

Novartis AG

Novartis is entitled to certain rights with respect to the registration of
580,779 shares of Common Stock (the "Novartis Registration Rights Shares") under
the Securities Act pursuant to that certain Stock Purchase Agreement dated
September 15, 1992 between the Company and Novartis. Whenever the Company
proposes to register any shares of Common Stock under the Securities Act (or
pursuant to registration rights granted to holders of other securities of the
Company), the Company shall use its best efforts, upon the written request of
Novartis, to include in the registration statement the Novartis Registration
Rights Shares. In addition, commencing with the third anniversary of the
Company's initial public offering of its Common Stock or at such earlier time
should the Company be obligated to file a registration statement at the demand
of another stockholder, Novartis may demand that the Company file a registration
statement with respect to the Novartis Registration Rights Shares. The foregoing
registration rights are subject to certain conditions and limitations, including
the right of the underwriters in an offering to limit the number of shares
included in such registration statement. All of the expenses incurred in
connection with a registration statement undertaken by the Company (except
demand registration statements and excluding underwriting commissions and
discounts) shall be borne by the Company.

In addition to the foregoing registration rights, Novartis has certain
registration rights with respect to 454,545 shares of Common Stock (the
"Novartis Shares") purchased by Novartis in connection with the Company's
initial public offering in May 1996. The Company has agreed to use its best
efforts to qualify to use Form S-3 under the Securities Act and to promptly file
a registration statement on such form upon such qualification to register for
resale by Novartis, from time to time, the Novartis Shares.

Eli Lilly and Company

Under an agreement between Lilly and the Company, Lilly is entitled to
certain registration rights with respect to the registration under the
Securities Act of 276,470 shares of Common Stock held by Lilly (the "Lilly
Registration Rights Shares"). Whenever the Company proposes to register any
shares of Common Stock under the Securities Act (or pursuant to registration
rights granted to holders of other securities of the Company), the Company shall
use its best efforts, upon the written request of Lilly, to include in the
registration statement the Lilly Registration Rights Shares. The foregoing
registration rights are subject to certain conditions and limitations, including
the right of the underwriters in an offering to limit the number of shares
included in such registration statement. All of the expenses incurred in
connection with a registration statement undertaken by the Company (except
underwriting commissions and discounts) shall be borne by the Company.

Others

In addition to the foregoing registration rights, the holders of 559,089
shares of Common Stock are entitled to certain rights with respect to the
registration of such shares under the Securities Act pursuant to an agreement
between the Company and such holders. Under the terms of the agreement, upon the
request of such holders, the Company is required to use its best efforts to
include in any proposed registration statement to be filed by the Company
pursuant to the Securities Act, subject to certain conditions and limitations,
including the right of the underwriters of an offering to limit the number of
shares to be included in such

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<PAGE> 66

registration statement, the shares of Common Stock held by such holders. The
Company is required to bear all expenses in connection with the registration of
such shares, except underwriting commissions and discounts.

CERTAIN ANTI-TAKEOVER EFFECTS OF PROVISIONS OF THE CERTIFICATE OF INCORPORATION,
BYLAWS AND DELAWARE LAW

General

Certain provisions of the Delaware General Corporation Law ("DGCL") and the
Company's Certificate of Incorporation and Bylaws could have the effect of
making it more difficult for a third party to acquire, or of discouraging a
third party from acquiring, control of the Company. Such provisions could limit
the price that certain investors might be willing to pay in the future for
shares of Common Stock. These provisions of Delaware law and provisions of the
Company's Certificate of Incorporation and Bylaws may also have the effect of
discouraging or preventing certain types of transactions involving an actual or
threatened change of control of the Company (including unsolicited takeover
attempts), even though such a transaction may offer the Company's stockholders
the opportunity to sell their stock at a price above the prevailing market
price. Certain of these provisions allow the Company to issue Preferred Stock
with rights senior to those of the Common Stock and other rights that could
adversely affect the interests of holders of Common Stock without any further
vote or action by stockholders. The issuance of Preferred Stock, for example,
could decrease the amount of earnings or assets available for distribution to
the holders of Common Stock or could adversely affect the rights and powers,
including voting rights, of the holders of Common Stock. In certain
circumstances, such issuance could have the effect of decreasing the market
price of the Common Stock, as well as having the anti-takeover effect discussed
above. See "Risk Factors -- Control by Principal Stockholders; Anti-Takeover
Provisions."

Delaware Takeover Statute

The Company is subject to the provisions of Section 203 of the DGCL. In
general, Section 203 prohibits a publicly held Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date that the person became an interested
stockholder unless (with certain exceptions) the business combination or the
transaction in which the person became an interested stockholder is approved in
a prescribed manner. Generally, a "business combination" includes a merger,
asset or stock sale, or other transaction resulting in a financial benefit to
the stockholder. Generally, an "interested stockholder" is a person who,
together with affiliates and associates, owns (or within three years prior to
such transaction, did own) 15% or more of the corporation's voting stock.

Certificate of Incorporation and Bylaws

The Company's Certificate of Incorporation requires that any action
required or permitted to be taken by stockholders of the Company must be
effected at a duly called annual or special meeting of stockholders and may not
be effected by a consent in writing. In addition, special meetings of the
stockholders of the Company may be called only by the Chairman of the Board of
Directors, the President of the Company, by the Board of Directors pursuant to a
resolution adopted by a majority of the total number of authorized directors or
by the holders of at least 10% of the outstanding voting stock of the Company.
The Company's Certificate of Incorporation and Bylaws also require advance
notice by a stockholder of a proposal or director nomination which such
stockholder desires to present at the annual meeting of stockholders. These
provisions may delay stockholder approval and may preclude stockholders from
bringing matters before the stockholders at an annual or special meeting,
including making nominations for directors. The Company's Certificate of
Incorporation does not include a provision for cumulative voting in the election
of directors. Under cumulative voting, a minority stockholder holding a
sufficient number of shares may be able to ensure the election of one or more
directors. The absence of cumulative voting may have the effect of limiting the
ability of minority stockholders to effect changes in the Board of Directors
and, as a result, may have the effect of deterring a hostile takeover or
delaying or preventing changes in control or management of the Company.

The Company's Certificate of Incorporation also provides that the
authorized number of directors may be changed only by resolution of the Board of
Directors. In addition, any vacancies on the Board of Directors,

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<PAGE> 67

including any newly created directorships resulting from any increase in the
number of directors, shall be filled only by affirmative vote of a majority of
the directors then in office, even though less than a quorum of the Board of
Directors. Accordingly, the Board of Directors may be able to prevent any
stockholder from obtaining majority representation on the Board of Directors by
increasing the size of the Board of Directors and filling newly created
directorships with its own nominees. The Company's Certificate of Incorporation
and Bylaws also provide for a classified Board and do not permit stockholders to
remove a director without cause. Each of such provisions may have the effect of
deterring a hostile takeover or delaying or preventing changes in control or
management of the Company.

The Company's Certificate of Incorporation and Bylaws also require that the
holders of at least 66 2/3% of the voting stock of the Company must approve any
amendment to either the Certificate of Incorporation or Bylaws affecting certain
provisions, including the provisions described above. The provisions described
above may have the effect of deterring hostile takeovers or delaying or
preventing changes in control or management of the Company.

Transfer Agent and Registrar

ChaseMellon Shareholder Services, L.L.C. has been appointed as the transfer
agent and registrar for the Company's Common Stock.

SHARES ELIGIBLE FOR FUTURE SALE

Future sales of substantial amounts of Common Stock in the public market
could adversely affect market prices prevailing from time to time and the
ability of the Company to raise equity capital in the future.

Upon completion of this offering, the Company will have outstanding
11,539,480 shares of Common Stock (which amount does not include shares of
Common Stock issuable upon the exercise of outstanding options). Of these
shares, 4,934,945 will be freely tradable in the public market without
restriction or limitation under the Securities Act unless held by "affiliates"
of the Company as that term is defined in Rule 144 under the Securities Act. The
remaining 6,604,535 shares of Common Stock held by existing stockholders will be
"restricted securities" as that term is defined in Rule 144 of the Securities
Act. Such restricted shares may be sold in the public market only if registered
under the Securities Act or if they qualify for an exemption from registration
under Rule 144 promulgated under the Securities Act. Sales of such restricted
shares in the public market, or the availability of such shares for sale, could
adversely affect the market price of the Common Stock.

The directors, executive officers and certain stockholders of the Company
holding 4,908,153 shares of Common Stock have entered into lock-up agreements in
connection with the Offering whereby they have agreed not to offer, sell,
contract to sell or otherwise dispose of any shares of Common Stock of the
Company held by such stockholders for a period of 90 days after the effective
date of the registration statement for this Offering (without the prior written
consent of UBS Securities LLC). Upon the expiration of the lock-up agreements,
the shares subject to such agreements will become eligible for immediate sale,
subject to compliance with Rule 144 of the Securities Act.

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<PAGE> 68

Salk Institute, following the expiration of the 90-day lock-up agreement
executed and delivered by The Salk Institute in connection with this Offering,
The Salk Institute may also sell other shares of Common Stock of SIBIA held by
it pursuant to Rule 144. SIBIA's stock has historically had a very low trading
volume, and sales by The Salk Institute of even a small number of shares of
Company Common Stock could have a material adverse effect on the market price of
the Common Stock.

In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including an affiliate, who has beneficially owned
shares for at least one year is entitled to sell, within any three-month period
commencing 90 days after the Effective Date, a number of shares that does not
exceed the greater of (i) 1% of the then outstanding shares of Common Stock
(115,395 shares immediately after this Offering) or (ii) the average weekly
trading volume in the Common Stock during the four calendar weeks preceding such
sale, subject to the filing of a Form 144 with respect to such sale and certain
other limitations and restrictions. In addition, a person who is not deemed to
have been an affiliate of the Company at any time during the 90 days preceding a
sale, and who has beneficially owned the shares proposed to be sold for at least
two years, would be entitled to sell such shares under Rule 144(k) without
regard to the requirements described above.

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<PAGE> 69

UNDERWRITING

Subject to the terms and conditions of the Underwriting Agreement, the
underwriters named below (the "Underwriters"), for whom UBS Securities LLC,
Piper Jaffray Inc. and Vector Securities International, Inc. are acting as
representatives (the "Representatives"), have agreed to purchase from the
Company and the Selling Stockholder the following respective number of shares of
Common Stock:

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
-------------------------------------------------------------------------- ---------
<S> <C>
UBS Securities LLC........................................................
Piper Jaffray Inc.........................................................
Vector Securities International, Inc......................................
---------
Total........................................................... 2,500,000
=========
</TABLE>

The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent, including the absence
of any material adverse change in the Company's business and the receipt of
certain certificates, opinions and letters from the Company, the Selling
Stockholder and their respective counsel. The nature of the Underwriters'
obligation is such that they are committed to purchase all shares of Common
Stock offered hereby if any of such shares are purchased. The Underwriting
Agreement contains certain provisions whereby if any Underwriter defaults in its
obligation to purchase shares, and the aggregate obligations of the Underwriters
so defaulting do not exceed 10% of the shares of Common Stock offered hereby,
the remaining Underwriters, or some of them, must assume such obligations.

The Representatives have advised the Company and the Selling Stockholder
that the Underwriters propose to offer the shares of Common Stock directly to
the public at the offering price set forth on the cover page of this Prospectus,
and to certain dealers at such price less concession not in excess of
$ per share. The Underwriters may allow and such dealers may reallow a
concession not in excess of $ per share to certain other dealers. After
the public offering of the shares of Common Stock, the offering price and other
selling terms may be changed by the Underwriters.

The Company has granted to the Underwriters an option, exercisable no later
than 30 days after the date of this Prospectus, to purchase up to 375,000
additional shares of Common Stock to cover over-allotments, if any, at the
public offering price set forth on the cover page of this Prospectus, less the
underwriting discounts and commissions. To the extent that the Underwriters
exercise such option, each of the Underwriters will have a firm commitment to
purchase approximately the same percentage thereof which the number of shares of
Common Stock to be purchased by it shown in the above table bears to the total
number of shares of Common Stock offered hereby. The Company will be obligated,
pursuant to the option, to sell such shares to the Underwriters to the extent
the option is exercised.

The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, and to contribute
to payments the Underwriters may be required to make in respect thereof.

The officers, directors and certain other shareholders of the Company, who
will beneficially own in the aggregate 4,908,153 shares of Common Stock after
the Offering, have agreed that, except as noted below, they will not, without
the prior written consent of UBS Securities LLC, during the period ending 90
days after the effective date of the registration statement for this Offering,
(i) sell, offer, contract to sell, make any short sale, pledge, sell any option
or contract to purchase, purchase any option or contract to sell, grant any
option, right or warrant to purchase or otherwise transfer or dispose of any
shares of Common Stock or any securities convertible into or exchangeable or
exercisable for or any rights to purchase or acquire Common Stock or (ii) enter
into any swap or other agreement that transfers, in whole or in part, any of the
economic consequences of ownership of Common Stock, whether any such transaction
described in clause (i) or (ii) above is to be settled by delivery of Common
Stock or such other securities, in cash or otherwise. The Company has agreed
that it will not, without the prior written consent of UBS Securities LLC,
offer, sell or otherwise dispose of any shares of Common Stock, options or
warrants to acquire shares of Common Stock or securities exchangeable for or
convertible into shares of Common Stock during the 90-day period following the

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<PAGE> 70

date of this Prospectus, except that the Company may issue stock upon the
exercise of options and warrants granted prior to the date hereof, and may issue
additional stock and grant additional options, under its stock option and stock
purchase plans in effect on the date hereof.

In connection with the offering the Common Stock and in compliance with
applicable law and industry practice, the Underwriters may over-allot or effect
transactions which stabilize, maintain or otherwise affect the market price of
the Common Stock at levels above those which might otherwise prevail in the open
market, including by entering stabilizing bids, effecting syndicate covering
transactions or imposing penalty bids. A stabilizing bid means the placing of
any bid or effecting of any purchase, for the purpose of pegging, fixing or
maintaining the price of the Common Stock. A syndicate covering transaction
means the placing of any bid on behalf of the underwriting syndicate or the
effecting of any purchase to reduce a short position created in connection with
the Offering. A penalty bid means an arrangement that permits UBS Securities
LLC, as managing underwriter, to reclaim a selling concession from a syndicate
member in connection with the Offering when shares of Common Stock originally
sold by the syndicate member are purchased in syndicate covering transactions.
Such transactions may be effected on the Nasdaq National Market, in the
over-the-counter market or otherwise. The Underwriters are not required to
engage in any of these activities. Any such activities, if commenced, may be
discontinued at any time.

LEGAL MATTERS

Certain legal matters with respect to the validity of the issuance of the
shares of Common Stock offered hereby will be passed upon for the Company by
Cooley Godward LLP, San Diego, California. Certain legal matters in connection
with this offering will be passed upon for the Underwriters by Venture Law
Group, A Professional Corporation, Menlo Park, California.

EXPERTS

The financial statements as of December 31, 1996 and 1995 and for each of
the three years in the period ended December 31, 1996 included in this
Prospectus have been so included in reliance on the report of Price Waterhouse
LLP, independent accountants, given on the authority of said firm as experts in
auditing and accounting.

The statements in this Prospectus under the captions "Risk
Factors -- Uncertainty Regarding Patents and Proprietary Rights" and
"Business -- Patents and Proprietary Rights" and all other disclosure in this
Prospectus relating to intellectual property matters have been reviewed and
approved by Brown, Martin, Haller & McClain, LLP and Gray Cary Ware &
Freidenrich, A Professional Corporation, as experts in such matters, and are
included herein in reliance upon such review and approval.

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SIBIA NEUROSCIENCES, INC.

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants..................................................... F-2
Balance Sheet as of December 31, 1995 and 1996 (audited) and September 30, 1997
(unaudited)......................................................................... F-3
Statement of Operations for the years ended December 31, 1994, 1995 and 1996 (audited)
and for the nine months ended September 30, 1996 and 1997 (unaudited)............... F-4
Statement of Stockholders' Equity for the years ended December 31, 1994, 1995 and 1996
(audited) and for the nine months ended September 30, 1997 (unaudited).............. F-5
Statement of Cash Flows for the years ended December 31, 1994, 1995 and 1996 (audited)
and for the nine months ended September 30, 1996 and 1997 (unaudited)............... F-7
Notes to Financial Statements......................................................... F-8
</TABLE>

F-1
<PAGE> 72

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and
Stockholders of SIBIA Neurosciences, Inc.

In our opinion, the accompanying balance sheet and the related statements
of operations, of stockholders' equity and of cash flows present fairly, in all
material respects, the financial position of SIBIA Neurosciences, Inc. at
December 31, 1996 and 1995, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1996, in conformity
with generally accepted accounting principles. These financial statements are
the responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.

/s/ PRICE WATERHOUSE LLP
- ---------------------------------------------------------
PRICE WATERHOUSE LLP
San Diego, California
February 28, 1997

F-2
<PAGE> 73

SIBIA NEUROSCIENCES, INC.

BALANCE SHEET

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------- SEPTEMBER 30,
1995 1996 1997
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents....................... $ 2,274,000 $ 1,412,000 $ 3,140,000
Investment securities........................... 14,214,000 36,052,000 32,605,000
Contract and accounts receivable................ 35,000 68,000 586,000
Prepaid expenses and other current assets....... 238,000 684,000 749,000
------------ ------------ ------------
Total current assets.................... 16,761,000 38,216,000 37,080,000
Property and equipment, net....................... 1,387,000 1,307,000 1,358,000
Other assets...................................... 103,000 460,000 103,000
------------ ------------ ------------
$ 18,251,000 $ 39,983,000 $ 38,541,000
=========== =========== ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................ $ 1,006,000 $ 1,212,000 $ 1,553,000
Accrued liabilities............................. 1,167,000 1,249,000 1,726,000
Deferred revenue................................ 250,000 431,000 --
------------ ------------ ------------
Total current liabilities............... 2,423,000 2,892,000 3,279,000
Long-term capital lease obligations............... 721,000 519,000 527,000
Commitments and contingencies (Note 11)
Stockholders' equity:
Preferred Stock, $.001 par value; 5,000,000
shares authorized (Notes 9 and 12):
Series A Convertible Preferred Stock
Series B Convertible Preferred Stock
Series C Convertible Preferred Stock
Series A Junior Participating Preferred Stock
Common Stock, $.001 par value; 25,000,000 shares 5,000 9,000 9,000
authorized; 4,899,884, 9,154,157 and
9,289,480 shares issued and outstanding at
December 31, 1995 and 1996 and September 30,
1997, respectively...........................
Additional paid-in capital...................... 31,869,000 59,746,000 59,941,000
Deferred compensation........................... (635,000) (1,039,000) (745,000)
Notes receivable from stockholders.............. (82,000) (640,000) (87,000)
Net unrealized gain on investment securities 79,000 189,000 2,425,000
available-for-sale...........................
Accumulated deficit............................. (16,129,000) (21,693,000) (26,808,000)
------------ ------------ ------------
Total stockholders' equity.............. 15,107,000 36,572,000 34,735,000
------------ ------------ ------------
$ 18,251,000 $ 39,983,000 $ 38,541,000
=========== =========== ===========
</TABLE>

See accompanying notes to financial statements.

F-3
<PAGE> 74

SIBIA NEUROSCIENCES, INC.

STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------- -------------------------
1994 1995 1996 1996 1997
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue:
Contract..................... $ 4,454,000 $ 5,563,000 $ 8,215,000 $ 6,368,000 $ 5,829,000
License and royalty.......... 398,000 4,885,000 266,000 83,000 3,223,000
----------- ----------- ----------- ----------- -----------
Total revenue (Note 1).... 4,852,000 10,448,000 8,481,000 6,451,000 9,052,000
----------- ----------- ----------- ----------- -----------
Expenses:
Research and development..... 8,663,000 8,949,000 12,268,000 8,902,000 12,160,000
General and administrative... 1,917,000 2,178,000 3,561,000 2,702,000 3,715,000
----------- ----------- ----------- ----------- -----------
10,580,000 11,127,000 15,829,000 11,604,000 15,875,000
----------- ----------- ----------- ----------- -----------
(5,728,000) (679,000) (7,348,000) (5,153,000) (6,823,000)
----------- ----------- ----------- ----------- -----------
Other income (expense):
Settlement of litigation
(Note 7).................. 3,146,000
Gain from sale of joint
venture (Note 6).......... 5,296,000
Interest income.............. 424,000 567,000 1,834,000 1,234,000 1,747,000
Interest expense............. (63,000) (71,000) (68,000) (50,000) (43,000)
Other........................ 44,000 38,000 18,000 4,000 4,000
----------- ----------- ----------- ----------- -----------
5,701,000 3,680,000 1,784,000 1,188,000 1,708,000
----------- ----------- ----------- ----------- -----------
Income (loss) before provision
for income taxes............. (27,000) 3,001,000 (5,564,000) (3,965,000) (5,115,000)
Provision for income taxes... 75,000
----------- ----------- ----------- ----------- -----------
Net income (loss).............. $ (27,000) $ 2,926,000 $(5,564,000) $(3,965,000) $(5,115,000)
=========== =========== =========== =========== ===========
Net income (loss) per share.... $ 0.42 $ (0.73) $ (0.56) $ (0.55)
=========== =========== =========== ===========
Weighted average number of
common and common equivalent
shares outstanding........... 6,928,323 7,596,380 7,116,130 9,224,416
=========== =========== =========== ===========
</TABLE>

See accompanying notes to financial statements.

F-4
<PAGE> 75

SIBIA NEUROSCIENCES, INC.

STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
SERIES A, B AND C
CONVERTIBLE
PREFERRED STOCK COMMON STOCK
---------------------- ---------------------- ADDITIONAL DEFERRED
SHARES SHARES PAID-IN COMPEN-
OUTSTANDING AMOUNT OUTSTANDING AMOUNT CAPITAL SATION
------------ ------- ------------ ------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AS OF DECEMBER 31, 1993............ 24,450 4,839,019 $5,000 $21,733,000 $ (22,000)
Net unrealized gain on investment
securities available-for-sale at January
1, 1994..................................
Issuance of Common Stock................... 23,500 10,000
Issuance of Series A Convertible Preferred
Stock.................................... 173,611 2,500,000
Stock option compensation expense.......... 217,000 (201,000)
Stock cancellations -- Series B Convertible
Preferred Stock.......................... (1,550) (6,000)
Payment on notes receivable................
Exercise of stock options.................. 13,865 7,000
Net decrease in unrealized gain on
investment securities
available-for-sale.......................
Net loss...................................
--------- ------ --------- ------ ----------- ------------
BALANCE AS OF DECEMBER 31, 1994............ 196,511 4,876,384 5,000 24,461,000 (223,000)
Issuance of Series C Convertible Preferred
Stock.................................... 280,000 6,930,000
Stock option compensation expense.......... 461,000 (412,000)
Stock cancellations -- Series B Convertible
Preferred Stock.......................... (300) (2,000)
Exercise of stock options.................. 23,500 19,000
Net increase in unrealized gain on
investment securities
available-for-sale.......................
Net income.................................
--------- ------ --------- ------ ----------- ------------

<CAPTION>
NET
UNREALIZED
NOTES GAIN ON
RECEIVABLE INVESTMENT
FROM SECURITIES TOTAL
STOCK- AVAILABLE- ACCUMULATED STOCKHOLDERS'
HOLDERS FOR-SALE DEFICIT EQUITY
---------- ----------- ------------- -------------
<S> <<C> <C> <C> <C>
BALANCE AS OF DECEMBER 31, 1993............ $(100,000) $ (19,028,000) $ 2,588,000
Net unrealized gain on investment
securities available-for-sale at January
1, 1994.................................. $ 219,000 219,000
Issuance of Common Stock................... 10,000
Issuance of Series A Convertible Preferred
Stock.................................... 2,500,000
Stock option compensation expense.......... 16,000
Stock cancellations -- Series B Convertible
Preferred Stock.......................... 5,000 (1,000)
Payment on notes receivable................ 11,000 11,000
Exercise of stock options.................. 7,000
Net decrease in unrealized gain on
investment securities
available-for-sale....................... (157,000) (157,000)
Net loss................................... (27,000) (27,000)
--------- ---------- ------------ -----------
BALANCE AS OF DECEMBER 31, 1994............ (84,000) 62,000 (19,055,000) 5,166,000
Issuance of Series C Convertible Preferred
Stock.................................... 6,930,000
Stock option compensation expense.......... 49,000
Stock cancellations -- Series B Convertible
Preferred Stock.......................... 2,000
Exercise of stock options.................. 19,000
Net increase in unrealized gain on
investment securities
available-for-sale....................... 17,000 17,000
Net income................................. 2,926,000 2,926,000
--------- ---------- ------------ -----------
</TABLE>

F-5
<PAGE> 76

SIBIA NEUROSCIENCES, INC.

STATEMENT OF STOCKHOLDERS' EQUITY (CONTINUED)
<TABLE>
<CAPTION>
SERIES A, B AND C
CONVERTIBLE
PREFERRED STOCK COMMON STOCK
------------------------- ---------------------- ADDITIONAL DEFERRED
SHARES SHARES PAID-IN COMPEN-
OUTSTANDING AMOUNT OUTSTANDING AMOUNT CAPITAL SATION
------------ ---------- ------------ ------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AS OF DECEMBER 31, 1995.......... 476,211 4,899,884 5,000 31,869,000 (635,000)
Issuance of Common Stock................. 2,554,545 3,000 25,842,000
Stock option compensation expense........ 1,167,000 (404,000)
Exercise of stock options................ 120,200 288,765 815,000
Stock purchase plan...................... 9,408 54,000
Payments on notes receivable.............
Conversion of Preferred Stock............ (596,411) 1,401,566 1,000 (1,000)
Net increase in unrealized gain on
investment securities
available-for-sale.....................
Cancellation of partial shares........... (11)
Net loss.................................
--------- ------ --------- ------ ----------- ------------
BALANCE AS OF DECEMBER 31, 1996.......... 9,154,157 9,000 59,746,000 (1,039,000)
Stock option compensation expense
(unaudited)............................ 294,000
Exercise of stock options (unaudited).... 123,525 126,000
Stock purchase plan (unaudited).......... 11,798 69,000
Payments on notes receivable
(unaudited)............................
Net increase in unrealized gain on
investment securities
available-for-sale (unaudited).........
Net loss (unaudited).....................
--------- ------ --------- ------ ----------- ------------
BALANCE AS OF SEPTEMBER 30, 1997
(UNAUDITED)............................ 9,289,480 $9,000 $59,941,000 $ (745,000)
========= ====== ========= ====== =========== ============

<CAPTION>
NET
UNREALIZED
NOTES GAIN ON
RECEIVABLE INVESTMENT
FROM SECURITIES TOTAL
STOCK- AVAILABLE- ACCUMULATED STOCKHOLDERS'
HOLDERS FOR-SALE DEFICIT EQUITY
---------- ----------- ------------- -------------
<S> <<C> <C> <C> <C>
BALANCE AS OF DECEMBER 31, 1995.......... (82,000) 79,000 (16,129,000) 15,107,000
Issuance of Common Stock................. 25,845,000
Stock option compensation expense........ 763,000
Exercise of stock options................ (593,000) 222,000
Stock purchase plan...................... 54,000
Payments on notes receivable............. 35,000 35,000
Conversion of Preferred Stock............
Net increase in unrealized gain on
investment securities
available-for-sale..................... 110,000 110,000
Cancellation of partial shares...........
Net loss................................. (5,564,000) (5,564,000)
--------- ---------- ------------ -----------
BALANCE AS OF DECEMBER 31, 1996.......... (640,000) 189,000 (21,693,000) 36,572,000
Stock option compensation expense
(unaudited)............................ 294,000
Exercise of stock options (unaudited).... 126,000
Stock purchase plan (unaudited).......... 69,000
Payments on notes receivable
(unaudited)............................ 553,000 553,000
Net increase in unrealized gain on
investment securities
available-for-sale (unaudited)......... 2,236,000 2,236,000
Net loss (unaudited)..................... (5,115,000) (5,115,000)
--------- ---------- ------------ -----------
BALANCE AS OF SEPTEMBER 30, 1997
(UNAUDITED)............................ $ (87,000) $2,425,000 $ (26,808,000) $34,735,000
========= ========== ============ ===========
</TABLE>

See accompanying notes to financial statements.

F-6
<PAGE> 77

SIBIA NEUROSCIENCES, INC.

STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------- ---------------------------
1994 1995 1996 1996 1997
----------- ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)...................................... $ (27,000) $ 2,926,000 $ (5,564,000) $ (3,965,000) $ (5,115,000)
Adjustments to reconcile net income (loss) to net
cash provided (used) by operating activities:
Gain on sale of corporate joint venture.............. (5,296,000)
Depreciation and amortization........................ 449,000 497,000 598,000 426,000 479,000
Compensation from issuance of common stock options... 16,000 49,000 763,000 559,000 294,000
Gain on disposal of property......................... (44,000) (37,000) (1,000) (1,000) (4,000)
Net amortization of premium and discount on
investment securities.............................. (261,000) (271,000) (447,000) (410,000) (96,000)
Increase (decrease) in cash resulting from changes
in:
Contract and accounts receivable..................... (52,000) 201,000 (33,000) 14,000 (518,000)
Prepaid expenses and other assets.................... (18,000) 47,000 (813,000) (863,000) 286,000
Accounts payable and accrued liabilities............. (102,000) 271,000 237,000 201,000 785,000
Deferred revenue..................................... (1,038,000) 76,000 181,000 432,000 (431,000)
----------- ------------ ------------ ------------ ------------
Net cash provided (used) by operating
activities.................................... (6,373,000) 3,759,000 (5,079,000) (3,607,000) (4,320,000)
----------- ------------ ------------ ------------ ------------
Cash flows from investing activities:
Purchases of investment securities held-to-maturity.... (10,685,000) (17,312,000)
Maturities of investment securities held-to-maturity... 7,370,000 7,295,000 13,992,000 13,992,000
Purchase of investment securities available-for-sale... (42,624,000) (38,044,000) (11,920,000)
Maturities of investment securities
available-for-sale................................... 7,300,000 2,800,000 17,681,000
Principal payments received on investment securities
available-for-sale................................... 1,167,000 88,000 51,000 32,000 18,000
Proceeds from sale of corporate joint venture........ 5,196,000
Proceeds from disposal of property and equipment....... 52,000 44,000 5,000 5,000 4,000
Acquisition of property and equipment................ (79,000) (120,000) (182,000) (156,000) (88,000)
----------- ------------ ------------ ------------ ------------
Net cash provided (used) by investing
activities.................................... 3,021,000 (10,005,000) (21,458,000) (21,371,000) 5,695,000
----------- ------------ ------------ ------------ ------------
Cash flows from financing activities:
Proceeds from payments on notes receivable............. 11,000 35,000 26,000 553,000
Proceeds from issuance of stock........................ 2,507,000 6,949,000 26,121,000 25,994,000 195,000
Principal payments on capital lease obligations........ (276,000) (377,000) (481,000) (342,000) (395,000)
----------- ------------ ------------ ------------ ------------
Net cash provided by financing activities....... 2,242,000 6,572,000 25,675,000 25,678,000 353,000
----------- ------------ ------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents..... (1,110,000) 326,000 (862,000) 700,000 1,728,000
Cash and cash equivalents at beginning of period......... 3,058,000 1,948,000 2,274,000 2,274,000 1,412,000
----------- ------------ ------------ ------------ ------------
Cash and cash equivalents at end of period............... $ 1,948,000 $ 2,274,000 $ 1,412,000 $ 2,974,000 $ 3,140,000
=========== ============ ============ ============ ============
Supplemental Information:
Income taxes paid -- Note 8
Interest paid -- Note 11
Equipment under capital leases -- Note 11
</TABLE>

See accompanying notes to financial statements.

F-7
<PAGE> 78

SIBIA NEUROSCIENCES, INC.

NOTES TO FINANCIAL STATEMENTS

NOTE 1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company

SIBIA Neurosciences, Inc., formerly The Salk Institute
Biotechnology/Industrial Associates Inc. (the "Company" or "SIBIA"), was founded
by The Salk Institute for Biological Studies ("The Salk Institute") and
incorporated in Delaware in 1981. SIBIA is engaged in the discovery and
development of novel small molecule therapeutics for the treatment of nervous
system disorders. The Company is pursuing a molecular target-based approach to
drug discovery, and its targets have been selected based on their known or
postulated roles in molecular processes critical to normal and pathologic
neuronal function. The Company's focus is on the development of therapeutics for
the treatment of neurodegenerative, neuropsychiatric and neurological disorders,
many of which have large patient populations and represent critical unmet
medical needs.

The Company has been funded to date principally through equity financings,
research contracts (generally conducted on a best efforts basis), option,
license and royalty revenues. The Company has also received income from the sale
of its interest in a joint venture (Note 6) and from the settlement of certain
litigation (Note 7).

Interim Financial Information

The accompanying interim financial information as of September 30, 1997,
and for the nine-month periods ended September 30, 1996 and 1997 is unaudited
and, in the opinion of management, reflects all adjustments that are necessary
for a fair presentation of the Company's financial position, results of
operations and cash flows for the periods then ended. All such adjustments are
of a normal and recurring nature. Financial data and other information disclosed
in these notes to the financial statements related to those periods are
unaudited. The results for the nine months ended September 30, 1997 are not
necessarily indicative of the results to be expected for the year ending
December 31, 1997.

Significant Ownership

The Salk Institute owned 37%, 33%, 22% and 21% of the Company's outstanding
Common Stock as of December 31, 1994, 1995, 1996, and September 30, 1997,
respectively. Skandigen AB owned 18%, 16%, 11% and 11% of the Company's
outstanding Common Stock as of December 31, 1994, 1995, 1996, and September 30,
1997, respectively. Novartis AG, formerly CIBA-GEIGY Limited, owned 11% of the
Company's outstanding Common Stock as of December 31, 1996 and September 30,
1997.

Use of Estimates

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

Fair Value of Financial Instruments

It is management's belief that the carrying amounts shown for the Company's
financial instruments, including cash, investment securities, contracts and
accounts receivable, and accounts payable and accrued liabilities, are
reasonable estimates of their fair value (Notes 2 and 3).

F-8
<PAGE> 79

SIBIA NEUROSCIENCES, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

Concentration of Risk

Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash equivalents and
investment securities. The Company invests in high-grade debt instruments. No
significant losses have been incurred related to these investments.

During the years ended December 31, 1994, 1995, 1996, and the nine months
ended September 30, 1997, the Company had two, three, three and three
collaborative research agreements that accounted for 89%, 81%, 97% and 64%,
respectively, of total revenue (Note 4).

Collaborative Agreements

The Company enters into collaborative agreements from time to time with
third parties. Such agreements may call for an equity investment by the
collaborative partner as well as a commitment for current and future research
funding in exchange for best efforts research to be provided by the Company. The
collaborative agreements may also provide for license fees, milestone payments
and royalties. Such agreements define the rights of each party related to the
results of such research. The amounts recognized by the Company related to
equity investments are recorded at the fair market value, per share, of the
Company's securities. Amounts related to research funding and license and
royalty rights are recognized in accordance with the specific terms of each
collaborative agreement to the extent the Company determines that such
recognition is consistent with the substance of the agreement (Note 4).

Revenue Recognition

Contract revenue is recognized as the research is performed using the
percentage-of-completion method of accounting, primarily based on contract costs
incurred to date compared with total estimated costs at completion. Revenue
related to milestones is recognized upon the achievement of the related
milestone and when collection is probable. License revenue is recognized when
earned as generally evidenced by certain factors including: receipt of such
fees, satisfaction of any performance obligations and the non-refundable nature
of such fees. Royalty revenue is recognized when earned and collection is
probable.

Total revenue for the years ended December 31, 1994, 1995, 1996, and the
nine months ended September 30, 1997, includes related party revenue of
$2,691,000, $4,139,000, $6,606,000 and $2,755,000, respectively.

Research and Development Costs

Research and development costs are expensed as incurred and include costs
associated with collaborative agreements. These costs consist of direct and
indirect internal costs related to specific projects as well as fees paid to
other entities which conduct certain research activities on behalf of the
Company.

Cash Equivalents

Cash equivalents are highly liquid investments purchased with an original
maturity of three months or less. As of December 31, 1995, $2,000,000 of the
$2,274,000 total cash and cash equivalents was invested in certificates of
deposit that are carried at cost. As of December 31, 1996, $932,000 of the
$1,412,000 total cash and cash equivalents was invested in money market funds.

Investment Securities

Management determines the appropriate classification of its investment
securities at the time of purchase and reevaluates such designation as of each
balance sheet date. The Company has classified its investment securities as
"available-for-sale" or "held-to-maturity". Available-for-sale securities are
recorded at fair value

F-9
<PAGE> 80

SIBIA NEUROSCIENCES, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

with the corresponding unrealized gain or loss reflected as a component of
stockholders' equity. Held-to-maturity securities are recorded at amortized
cost. Actual gains or losses, if any, on investment securities are reflected in
the statement of operations when the underlying securities are sold.

Property and Equipment

Property and equipment is recorded at cost and depreciated over estimated
useful lives of 4 to 8 years using the straight-line method. Property and
equipment acquired under capital leases is amortized over the shorter of the
useful life or the related lease terms using the straight-line method.

Long-Lived Assets

The Company assesses potential impairments to its long-lived assets, on an
exception basis, when there is evidence that events or changes in circumstances
have made recovery of the asset's carrying value unlikely. An impairment loss
would be recognized when the sum of the expected future net cash flows is less
than the carrying amount of the asset. No such impairment losses have been
recorded by the Company.

Income Taxes

Current income tax expense is the amount of income taxes expected to be
payable for the current year. A deferred income tax asset or liability is
established for the expected future consequences resulting from the differences
in the financial reporting and tax bases of assets and liabilities. The Company
establishes a valuation allowance, if necessary, to reflect the likelihood of
realization of net deferred tax assets. Deferred income tax expense is the
change during the year in the deferred income tax asset or liability.

Net Income (Loss) Per Share

Net income (loss) per share is computed pursuant to the treasury stock
method using the weighted average number of common and common equivalent shares
outstanding during the period. All equity securities issued by the Company
during the twelve months preceding the initial public offering date at prices
below the offering price have been included in the calculation of weighted
average shares outstanding for the year ended December 31, 1995. The net income
per share in 1995 includes the effect of the Company's Convertible Preferred
Stock that was convertible at the option of the holder or automatically in the
event of an initial public offering. Earnings per share in 1994 is not presented
because such amounts are not believed to be meaningful. All Common Stock share
and per share information has been adjusted for the 2.35-for-1 stock split of
the outstanding shares of Common Stock for all periods presented (Note 9).

In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 128, "Earnings per Share," which
establishes standards for computing and presenting earnings per share (EPS).
SFAS No. 128 will be adopted by the Company as required for the interim periods
and fiscal years ending after December 15, 1997. Upon adoption of SFAS No. 128,
the Company will present basic EPS data as well as diluted EPS in the period of
adoption and restate all prior-period EPS presented for comparative purposes.
Basic EPS will be computed by dividing income available to holders of Common
Stock by the weighted average number of shares of Common Stock outstanding.
Diluted EPS will be computed similarly to basic EPS except that the weighted
average number of shares of Common Stock outstanding will be increased to
include the number of additional shares of Common Stock that would have been
outstanding if the dilutive potential common shares had been issued. Pro forma
EPS calculations under SFAS No. 128 are not presented as they are not materially
different than those currently presented.

F-10
<PAGE> 81

SIBIA NEUROSCIENCES, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

NOTE 2. INVESTMENT SECURITIES

The Company's investment securities as of December 31, 1995, 1996, and
September 30, 1997 consist primarily of United States government and
mortgage-backed securities. These investment securities were classified as
available-for-sale and held-to-maturity as follows:

<TABLE>
<CAPTION>
DECEMBER 31, 1995
---------------------------------------------------------
GROSS GROSS
ESTIMATED UNREALIZED UNREALIZED
COST FAIR VALUE GAINS LOSSES
----------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Available-for-sale
investment
securities............. $ 343,000 $ 422,000 $ 84,000 $5,000
=========== =========== ======= ======
Held-to-maturity
investment
securities............. $13,792,000 $13,788,000 $ 1,000 $5,000
=========== =========== ======= ======
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, 1996
---------------------------------------------------------
GROSS GROSS
ESTIMATED UNREALIZED UNREALIZED
COST FAIR VALUE GAINS LOSSES
----------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Available-for-sale
investment
securities............. $35,863,000 $36,052,000 $ 198,000 $9,000
=========== =========== ======= ======
</TABLE>

<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
(UNAUDITED)
---------------------------------------------------------
GROSS GROSS
ESTIMATED UNREALIZED UNREALIZED
COST FAIR VALUE GAINS LOSSES
----------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Available-for-sale
investment
securities........... $30,180,000 $32,605,000 $2,440,000 $ 15,000
=========== =========== ========== ======
</TABLE>

The amortized cost and estimated fair value of the debt securities as of
December 31, 1996 by contractual maturity, are shown below. Actual maturities
may differ from the contractual maturities as the issuers of the securities may
have the right to call the obligation.

<TABLE>
<CAPTION>
ESTIMATED
COST FAIR VALUE
----------- -----------
<S> <C> <C>
Available-for-sale
Due in one year or less......................... $14,493,000 $14,510,000
=========== ===========
Due in one to five years........................ $21,075,000 $21,174,000
=========== ===========
Due after ten years............................. $ 295,000 $ 368,000
=========== ===========
</TABLE>

F-11
<PAGE> 82

SIBIA NEUROSCIENCES, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

NOTE 3. COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------- SEPTEMBER 30,
1995 1996 1997
----------- ----------- -------------
(UNAUDITED)
<S> <C> <C> <C>
PROPERTY AND EQUIPMENT
Lab equipment...................... $ 3,690,000 $ 3,708,000 $ 4,124,000
Computer equipment................. 265,000 284,000 306,000
Other.............................. 85,000 108,000 153,000
----------- ----------- -----------
4,040,000 4,100,000 4,583,000
Accumulated depreciation and
amortization.................... (2,653,000) (2,793,000) (3,225,000)
----------- ----------- -----------
$ 1,387,000 $ 1,307,000 $ 1,358,000
=========== =========== ===========
ACCRUED LIABILITIES
Capital leases obligations, current
portion......................... $ 431,000 $ 482,000 $ 514,000
Accrued vacation................... 264,000 288,000 346,000
Accrued bonuses.................... 202,000 183,000 354,000
Other.............................. 270,000 296,000 512,000
----------- ----------- -----------
$ 1,167,000 $ 1,249,000 $ 1,726,000
=========== =========== ===========
</TABLE>

NOTE 4. SIGNIFICANT COLLABORATIVE AGREEMENTS

Eli Lilly & Company

In May 1992, the Company entered into a three-year agreement with Eli Lilly
& Company ("Lilly") providing for the discovery and development of drugs which
specifically interact with human neuronal calcium channels. In January 1997, the
agreement was revised and extended to October 1998. Under the terms of the
extended agreement, Lilly will provide research funding for the identification
and characterization of a new VGCC subtype for use in the discovery of drugs for
central nervous system disorders. In exchange for providing a certain level of
scientific research under the agreement, the Company will receive payments from
Lilly; additional payments may be received by the Company upon the achievement
of certain development milestones and the Company may receive royalties in the
event there are sales of products containing a compound developed under the
agreement. The Company has granted Lilly an exclusive license to use certain
proprietary technology of the Company during the term of the agreement, and
non-exclusively thereafter. Either party may terminate the current agreement
upon three months advance written notice provided anytime after August 1, 1997.
As part of the original agreement, Lilly purchased 276,470 shares of Common
Stock. The Company recognized contract revenue related to this agreement of
$1,621,000, $1,663,000, $1,609,000 and $607,000 for the years ended December 31,
1994, 1995, 1996, and the nine months ended September 30, 1997, respectively
(Note 12).

Novartis AG (Formerly CIBA-GEIGY Limited)

In October 1992, the Company entered into a three-year collaborative
agreement (which included research funding and a $5,000,000 equity investment)
with Novartis AG ("Novartis") to develop and utilize SIBIA's receptor/ion
channel technology in the area of EAARs for the discovery of drugs that interact
with these molecular targets. During March 1994, pursuant to the agreement,
Novartis purchased 173,611 shares of Series A Convertible Preferred Stock (Note
9). In March 1996, the Company executed an agreement with Novartis to extend the
term of its collaborative agreement to September 1998, unless extended by mutual
consent or terminated by either party upon six months' notice, which may be
provided after September 1997.

F-12
<PAGE> 83

SIBIA NEUROSCIENCES, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

In exchange for providing a certain level of scientific research under the
agreement, the Company will receive payments from Novartis; additional payments
may be received by the Company upon the achievement of certain development
milestones and the Company may receive royalties in the event there are sales of
products containing a compound developed under the agreement. Pursuant to the
extended agreement, Novartis paid SIBIA $500,000 to fund certain capital
expenditures (which may be credited against future milestone payments) and
agreed to purchase $7,500,000 of the Company's Common Stock, $5,000,000 of which
was purchased in conjunction with the initial public offering of the Company's
Common Stock and the remaining $2,500,000 of which will be purchased upon the
achievement of certain research milestones. Upon expiration of the collaboration
agreement, SIBIA retains the rights to use the program technology for its own
drug discovery efforts and may screen molecules from other sources against EAARs
and pursue development of these molecules, subject to Novartis' right of first
negotiation with respect to such molecules discovered during the three years
following expiration of the collaboration agreement. The Company recognized
contract revenue related to this agreement of $2,691,000, $2,281,000, $3,383,000
and $2,755,000 for the years ended December 31, 1994, 1995, 1996, and the nine
months ended September 30, 1997, respectively.

Bristol-Myers Squibb Company

In August 1995, the Company entered into a four-year collaborative
agreement with Bristol-Myers Squibb Company ("Bristol-Myers Squibb") relating to
the discovery and development of compounds relating to amyloid precusor protein.
The collaborative effort includes identifying compounds that are suitable for
development into products for commercialization and to conduct preclinical
development and clinical trials for such compounds. In exchange for providing a
certain level of scientific research under the agreement, the Company will
receive payments from Bristol-Myers Squibb; additional payments may be received
by the Company upon the achievement of certain development milestones.
Bristol-Myers Squibb will also pay royalties based on the level of its net sales
of products, if any, developed under the agreement. The Company recognized
contract revenue related to this agreement of $1,169,000, $3,223,000, and
$2,466,000 in 1995, 1996 and the nine months ended September 30, 1997,
respectively.

Concurrent with the execution of the agreement, Bristol-Myers Squibb paid a
non-refundable $3,000,000 license fee for an exclusive commercialization license
to use certain related existing proprietary technologies and purchased 280,000
shares of the Company's Series C Convertible Preferred Stock (Note 9).
Bristol-Myers Squibb also agreed to make an additional equity investment of
$6,000,000 in shares of Common Stock upon the initiation of clinical trials
relating to any product developed from the collaboration but not before January
1, 1997.

Total costs incurred under the Company's various collaborative agreements
for the years ended December 31, 1994, 1995, 1996, and the nine months ended
September 30, 1997, including certain administrative costs, aggregated
$3,232,000, $4,381,000, $5,671,000, and $4,458,000, respectively.

NOTE 5. SIGNIFICANT OPTION AND LICENSE AGREEMENTS

The Salk Institute

In 1988, SIBIA entered into a license agreement with The Salk Institute
covering a number of nAChR subunit clones. This agreement was amended in March
1996 such that the license to the issued U.S. patents and related patent
applications became an exclusive worldwide license. Pursuant to the agreement,
as amended, SIBIA is obligated to pay royalties to The Salk Institute on sales
of products resulting from The Salk Institute's nAChR technology. In addition,
the Company is required to make certain minimum annual royalty payments to The
Salk Institute beginning in 2002. Failure to pay such royalties will result in
the related license becoming non-exclusive.

F-13
<PAGE> 84

SIBIA NEUROSCIENCES, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

In 1990, SIBIA entered into a three-year agreement with The Salk Institute
in the area of EAARs. This agreement provided for the support of certain
research in 1992 and 1993 at The Salk Institute by SIBIA and the transfer of
research materials and research results in the EAAR area from The Salk Institute
to SIBIA. SIBIA also received an exclusive worldwide license to certain
EAAR-related patents and patent applications held by The Salk Institute. The
agreement was amended in March 1996. Pursuant to the agreement, as amended,
SIBIA is required to make certain annual minimum royalty payments to The Salk
Institute beginning in 2002. Failure to pay such royalties will result in the
related license agreement becoming non-exclusive.

Cephalon, Inc.

In October 1991, the Company entered into a development and
option-to-license agreement with Cephalon, Inc. ("Cephalon") for certain
proprietary technology related to the development and production of recombinant
insulin-like growth factor ("IGF-1"), known as Myotrophin, on a commercial basis
for certain applications. The option-to-license was subsequently expanded to
include additional applications. All options-to-license the IGF-1 technology
were exercised and the license agreements, as executed, include a provision for
the payment of licensing fees upon the occurrence of certain development
milestones and royalties on the sales of products using licensed technology. In
1995, the Company received a non-refundable payment of $1,750,000 from Cephalon
to reduce the royalty percentage on sales of an IGF-1 product within the
neurology field.

NOTE 6. SALE OF JOINT VENTURE

In February 1984, the Company received 1,000,000 shares of Common Stock of
SISKA Diagnostics, Inc. ("SISKA"), a corporation formed in 1984, in exchange for
the assignment of rights to certain inventions in the field of nucleic acid
probe diagnostics. The Company's investment in the SISKA corporate joint
venture, accounted for under the equity method of accounting, was assigned no
value as the intangible assets exchanged had no recorded value. The remaining
1,000,000 shares of SISKA Common Stock outstanding was owned by Skandigen AB, a
corporation of Sweden.

In January 1994, the Company forfeited its right to receive certain
royalties in exchange for an additional 10% interest in the SISKA corporate
joint venture. In March 1994, the Company entered into an agreement with Organon
Teknika Corporation to sell its 60% interest in SISKA for $5,196,000 and
recorded a gain of $5,296,000 which included the reversal of $100,000
representing the Company's share of the SISKA's stockholders' deficit.

NOTE 7. SETTLEMENT OF LITIGATION

In October 1995, the Company entered into settlements with two law firms
for failure to properly file a foreign patent application. The Company accepted
$4,633,000 in total damages and received $3,146,000 in net proceeds after
payment of $1,487,000 in legal expenses.

NOTE 8. INCOME TAXES

As of December 31, 1996, the Company had net operating loss carryforwards
for federal and state income tax purposes of approximately $20,730,000 and
$700,000, respectively, which expire beginning in 2006 and 2002, respectively.
As of December 31, 1996, the Company had federal and state tax credits for
research activities totaling approximately $1,116,000 and $370,000,
respectively, which are available to offset future income taxes. The federal
credits expire during the years 2004 to 2010.

The Company's ability to utilize net operating loss carryforwards and tax
credits is subject to limitations as set forth in applicable federal and state
tax laws. As specified in the Internal Revenue Code, an ownership change of more
than 50% by a combination of the Company's significant stockholders during any
three-year

F-14
<PAGE> 85

SIBIA NEUROSCIENCES, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

period would result in certain limitations on the Company's ability to utilize
its net operating loss and credit carryforwards.

Deferred tax liabilities and assets are summarized as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1995 1996
----------- ------------
<S> <C> <C>
Deferred tax liabilities:
Depreciation................................... $ (447,000) $ (431,000)
----------- -----------
Deferred tax assets:
Net operating loss carryforwards............... 5,224,000 6,581,000
Research and development credits............... 1,304,000 1,486,000
Purchased research and development............. 76,000 50,000
Research and development capitalized for state
tax purposes................................ 890,000 1,855,000
Capital lease obligations...................... 473,000 408,000
Other.......................................... 230,000 327,000
----------- -----------
Total deferred tax assets................... 8,197,000 10,707,000
----------- -----------
Net deferred tax assets.......................... 7,750,000 10,276,000
Valuation allowance.............................. (7,750,000) (10,276,000)
----------- -----------
Deferred taxes................................... $ -- $ --
=========== ===========
</TABLE>

As of December 31, 1996, the Company has provided a deferred tax asset
valuation allowance for net deferred tax assets which "more likely than not"
will not be realized based on recent and expected trends in operating results.

The Company paid state franchise taxes of $12,000, $13,000 and $31,000
during 1994, 1995 and 1996, respectively.

NOTE 9. STOCKHOLDERS' EQUITY

Amendments to Certificate of Incorporation

In March 1996, the Company amended and restated its Certificate of
Incorporation to: (i) change the name of the Company to "SIBIA Neurosciences,
Inc.", (ii) split each outstanding share of Common Stock into 2.35 shares of
Common Stock, (iii) increase the authorized number of shares of Common Stock to
25,000,000, (iv) adjust the conversion rate of Convertible Preferred Stock to
2.35-for-1 and (v) provide for the automatic conversion of the Series B
Preferred Stock into Common Stock upon the closing of an initial public
offering. The 1995 stockholders' equity accounts have been restated to give
effect to the Common Stock split and increased share authorization. All earnings
per share, option and other data presented have also been restated to give
effect to the stock split.

Convertible Preferred Stock

In July 1995, the Company amended and restated its Certificate of
Incorporation to issue up to 280,000 shares of the Company's Series C
Convertible Preferred Stock in conjunction with the Bristol-Myers Squibb stock
purchase agreement (Note 4). In August 1995, Bristol-Myers Squibb purchased
280,000 shares of Series C Convertible Preferred Stock (658,000 shares of Common
Stock on an as-if-converted basis) for an aggregate amount of $7,000,000 that
was recorded net of $70,000 in issuance costs.

In March 1994, the Company amended and restated its Certificate of
Incorporation to issue up to 173,611 shares of the Company's Series A
Convertible Preferred Stock in conjunction with the Novartis stock purchase

F-15
<PAGE> 86

SIBIA NEUROSCIENCES, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

agreement (Note 4). In March 1994, Novartis purchased 173,611 shares of Series A
Convertible Preferred Stock (407,986 shares of Common Stock on an
as-if-converted basis) for an aggregate amount of $2,500,000.

In March 1996, certain officers of the Company exercised options to
purchase 120,200 shares of Series B Convertible Preferred Stock at $5.00 per
share in exchange for cash and $589,000 of notes receivable that bear interest
at 7% per annum.

In May 1996, the Series A, B and C Convertible Preferred Stock were
automatically converted into Common Stock upon the Company's initial public
offering of Common Stock.

In March 1997, the Company adopted a Share Purchase Rights Plan (Note 12).

Warrants

As of December 31, 1995 and 1996, warrants to purchase 258,359 shares of
Common Stock (the "warrants") were outstanding. The warrants were issued in
September 1991 as part of an acquisition. The warrants are exercisable through
October 31, 2001 upon the Company's achieving $50,000,000 from net sales
of, or royalties from, products utilizing the related acquired technology. The
license agreement to which the technology relates was cancelled in 1994 and the
Company is no longer utilizing the related technology. The warrants are not
presently exercisable and management believes that the warrants will never be
exercisable. No separate value was assigned to the warrants in 1991 as the
Company determined their value to be de minimis.

NOTE 10. EMPLOYEE BENEFIT PLANS

Stock-Based Compensation

The Company applies Accounting Principles Board Opinion No. 25 and related
Interpretations in accounting for its stockbased compensation. Compensation
expense, as appropriate, has been recorded related to option grants and is being
amortized to operations over the related vesting period. No compensation expense
has been recognized for its stock purchase plan. Had compensation cost for the
Company's stock-based compensation awards issued during 1995 and 1996 been
determined based on the fair value at the grant dates of awards consistent with
the method of Financial Accounting Standards Board Statement No. 123, the
Company's net income (loss) and pro forma net income (loss) per share would have
been reduced to the pro forma amounts indicated below (in thousands, except per
share data):

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1995 1996
---------- -----------
<S> <C> <C>
Net income (loss):
As reported...................................... $2,926,000 $(5,564,000)
Pro forma........................................ 2,698,000 (5,556,000)
Primary net income (loss) per share:
As reported...................................... $ 0.42 $ (0.73)
Pro forma........................................ 0.39 (0.73)
</TABLE>

For purposes of determining the pro forma amounts, the fair value of each
option grant is estimated on the date of grant using the Black-Scholes option
pricing model with the following weighted average assumptions used for grants
during the years ended December 31, 1995 and 1996, respectively: dividend yield
of 0.0% for both years, risk-free interest rates of 6.01% and 6.16%, expected
volatility of 0.0% and 34.2%, and expected lives of 4 and 5.81 years. The
weighted average fair value of options granted during 1995 and 1996 for which
the exercise price equals the market price on the grant date was $.30 and $5.29,
respectively. The weighted average fair value of options granted during 1995 and
1996 for which the exercise price was less than the market price on the grant
date was $4.58 and $6.21, respectively. The fair value of the employees'
purchase rights is estimated using the Black-Scholes model with the following
assumptions: dividend yield of 0.0%, a

F-16
<PAGE> 87

SIBIA NEUROSCIENCES, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

risk-free interest rate of 5.35%, expected volatility of 67.7%, and an expected
life of 6 months. The weighted average fair value of those purchase rights
granted in 1996 was $3.44.

Stock Option and Equity Incentive Plans

The Company has various stock option plans and an equity incentive plan
whereby 2,694,306 shares of the Company's Common Stock have been reserved for
issuance to its officers, directors, employees and consultants. The plans are
administered by the Board of Directors or its designees and provide generally
that, for incentive stock options, the exercise price shall not be less than the
fair market value of the shares on the date of grant and, for non-qualified
stock options, the price shall not be less than 85% of the fair market value of
the shares on the date of grant as determined by the Board of Directors. The
options expire not later than ten years from the date of grant and are generally
subject to vesting over four years, as determined by the Board of Directors. A
summary of the changes in options outstanding under the plans for the three
years ended December 31, 1996 is as follows:

<TABLE>
<CAPTION>
WEIGHTED
OPTIONS AVERAGE
OUTSTANDING EXERCISE PRICE
----------- --------------
<S> <C> <C>
Balance, December 31, 1993........................... 766,095 $ 1.54
Options granted:
Price equal to the market price of stock on
grant date.................................... 122,701 1.65
Price less than the market price of stock on
grant date.................................... 373,062 0.86
Options exercised.................................. (13,865) 0.51
Options forfeited.................................. (38,184) 3.27
---------
Balance, December 31, 1994........................... 1,209,809 1.30
Options granted:
Price equal to the market price of stock on
granted date.................................. 128,310 1.45
Price less than the market price of stock on
grant date.................................... 110,919 1.18
Options exercised.................................. (23,500) 0.80
Options forfeited.................................. (56,559) 1.29
---------
Balance, December 31, 1995........................... 1,368,979 1.31
Options granted:
Price equal to the market price of stock on
grant date.................................... 173,975 7.32
Price less than the market price of stock on
grant date.................................... 186,282 2.01
Options exercised.................................. (570,706) 1.43
Options forfeited.................................. (36,910) 3.06
---------
Balance, December 31, 1996........................... 1,121,620 2.24
Options granted:
Price equal to the market price of stock on
grant date (unaudited)........................ 229,880 6.69
Options exercised (unaudited)...................... (112,304) 0.95
Options forfeited (unaudited)...................... (24,120) 4.89
---------
Balance, September 30, 1997 (unaudited).............. 1,215,076 3.15
=========
Exercisable, December 31, 1996....................... 377,545
=========
Available for future grant, December 31, 1996........ 1,572,686
=========
Exercisable, September 30, 1997 (unaudited).......... 523,082
=========
Available for future grant, September 30, 1997
(unaudited)........................................ 1,345,848
=========
</TABLE>

F-17
<PAGE> 88

SIBIA NEUROSCIENCES, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

Included as options outstanding as of December 31, 1996 in the above table
are options to purchase 373,062 shares of Common Stock under the Management
Change of Control Plan which, in the event of a change of control, may have
accelerated vesting of unvested options as determined by the value of the
Company on the date of such a change of control. Also included as options
outstanding as of December 31, 1996 in the above table are options to purchase
155,455 shares of Common Stock under the 1996 Equity Incentive Plan. Shares of
Common Stock issued under the 1996 Equity Incentive Plan may be subject to a
repurchase feature in favor of the Company in accordance with a vesting schedule
to be determined by the Board of Directors, provided however, that the right to
repurchase at the original purchase price will lapse at a minimum rate of 20%
per year over the five-year period following the date that the award was
granted. The repurchase feature can be exercised by the Company within the
90-day period following the stockholder's termination of employment or the
relationship as a director or consultant.

The following table summarizes information concerning currently outstanding
and exercisable stock options:

<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
REMAINING WEIGHTED WEIGHTED
RANGE OF NUMBER CONTRACTUAL AVERAGE NUMBER AVERAGE
EXERCISE PRICES OUTSTANDING LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- --------------- ----------- ----------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$0.37 - $0.85 417,947 7.09 $ 0.80 127,137 $ 0.68
1.23 - 2.13 516,468 3.20 1.59 213,658 1.39
6.38 - 9.88 187,205 9.18 7.28 36,750 7.40
--------- -------
1,121,620 377,545
========= =======
</TABLE>

Employee Stock Purchase Plan

In February 1996, the Company adopted the Employee Stock Purchase Plan
under Section 423 of the Internal Revenue Code in which eligible employees may
use funds from accumulated payroll deductions to purchase shares of Common Stock
at the end of each designated purchase period. Employees may contribute up to
15% of base salary toward such purchases, not to exceed $25,000 per calendar
year. The purchase price is 85% of the fair market value of Common Stock
determined at the beginning or end of each purchase period, whichever is lower.
The Company has reserved 500,000 shares of Common Stock for issuance under the
plan. In 1996, the Company issued 9,408 shares of Common Stock under the plan.

Retirement Savings Plan

The Company has a savings plan under Section 401(k) of the Internal Revenue
Code which covers all employees who meet minimum age requirements. Employees can
contribute up to 9% of their salaries, but not in excess of the amount
deductible for income tax purposes. The Company currently matches 50% of
employee contributions up to 6% of an employee's salary, limited to the maximum
contribution allowable for income tax purposes. Employer contributions are
vested proportionately over five years of service. The plan may be amended or
discontinued at anytime by the Company. During 1994, 1995 and 1996, the Company
contributed $87,000, $104,000 and $121,000, respectively, to the plan.

NOTE 11. COMMITMENTS AND CONTINGENCIES

Capital Leases

Certain scientific instrumentation, computer equipment and other equipment
acquired under available lease-line credit facilities are subject to leases
which are classified as capital leases. These capital leases mature at various
dates through 2000 and have interest rates between 4.9% and 8.1%. As of December
31, 1996, $2,110,000 ($946,000 net of accumulated amortization) of such leased
equipment is included in property and

F-18
<PAGE> 89

SIBIA NEUROSCIENCES, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

equipment. For the years ended December 31, 1994, 1995 and 1996, $297,000,
$392,000 and $483,000 in amortization expense, respectively, was recorded
related to property acquired under capital leases.

During 1994, 1995 and 1996, $63,000, $71,000 and $66,000, respectively, was
paid in imputed interest on capital leases.

For the years ended December 31, 1994, 1995 and 1996, and the nine months
ended September 30, 1997 the Company had non-cash financing activities in the
form of capital leases for $468,000, $264,000, $330,000 and $436,000,
respectively.

Operating Leases

The Company leases its principal facilities under a long-term operating
lease which expires December 31, 1997. The Company has the option to extend the
lease for a period of five years. Rent expense was $559,000, $563,000 and
$705,000, net of sub-lease income of $567,000, $571,000 and $586,000 for 1994,
1995 and 1996, respectively.

Future minimum lease payments for capital and operating leases as of
December 31, 1996 are as follows (operating lease payments are net of
noncancellable sub-lease income of $352,000).

<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
---------- ----------
<S> <C> <C>
1997.............................................. $ 528,000 $1,023,000
1998.............................................. 369,000 129,000
1999.............................................. 145,000
2000.............................................. 29,000
---------- ----------
Total minimum lease payments...................... 1,071,000 $1,152,000
==========
Amount representing interest...................... 70,000
----------
Obligations under capital leases.................. 1,001,000
Less portion due within one year.................. 482,000
----------
Long-term capital lease obligations............... $ 519,000
==========
</TABLE>

Commitments

The Company has contracted for a fully automated, functional high
throughput screening system and update of related equipment with an expected
cost of approximately $750,000, of which $500,000 has been provided by Novartis
(Note 4).

Legal Proceedings

On July 9, 1996, the Company filed an action for patent infringement
against Cadus Pharmaceutical Corporation ("Cadus") in the United States District
Court for the Southern District of California. Through the complaint, the
Company seeks damages in an unspecified amount and a preliminary and permanent
injunction. On August 1, 1996, Cadus filed its answer and counterclaim to the
Company's complaint. The counterclaim asserts claims that the 629 patent and the
Company's U.S. Patent No. 5,436,128, entitled "Assay Methods and Composition for
Detecting and Evaluating the Intracellular Transduction of an Extracellular
Signal," are invalid, unenforceable and not infringed, and further asserts
claims for intentional interference with prospective economic advantage and
unfair competition. The counterclaim seeks declaratory relief and compensatory
and punitive damages in an unspecified amount. Company management believes that
its complaint against Cadus is well-founded and necessary to protect the value
of its intellectual property portfolio. Management believes that Cadus'
counterclaim is without merit and intends to vigorously prosecute

F-19
<PAGE> 90

SIBIA NEUROSCIENCES, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

its claim of infringement and oppose Cadus' counterclaim. Management believes
that the ultimate resolution of the above matter will not have a material
adverse impact on the Company's financial position, results of operations or
cash flows.

In addition to the above, the Company is involved in certain legal or
administrative proceedings generally incidental to its normal business
activities. While the outcome of any such proceeding cannot be accurately
predicted, the Company does not believe the ultimate resolution of any such
existing matters will have a material adverse effect on its financial position,
results of operations or cash flows.

NOTE 12. -- SUBSEQUENT EVENTS

Cross-Licensing Agreement

In January 1997, the Company entered into an agreement with Aurora
Biosciences Corporation ("Aurora"). Under the agreement, the Company will
license to Aurora non-exclusive rights to practice its patented
transcription-based assay technology, and certain other technologies related to
automated drug screening. In return, the Company received 160,000 shares of
Aurora's Common Stock and non-exclusive rights to several assay technologies,
including novel reporter molecules, that will facilitate the Company's high
throughput screening and drug discovery efforts directed to certain receptor,
ion channel and enzyme targets associated with nervous system disorders. Both
parties will receive limited sublicensing rights to each other's patents.

Lease Line Funding

In February 1997, the Company received a firm commitment to fund a
$1,500,000 lease line through March 31, 1998. The fundings will have terms
generally consistent with those of the Company's existing lease commitments.

Development Agreement

In February 1997, the Company entered into a development and license
agreement with Meiji Seika Kaisha, Ltd for the development and commercialization
of the Company's proprietary nicotinic acetylcholine receptor agonist,
SIB-1508Y, as a treatment for Parkinson's disease and other nervous system
disorders in Japan and other Asian countries. Under the agreement, the Company
received a one-time license fee of $3,000,000 for the license of certain
technology to Meiji. In addition, the Company may receive substantial
development milestone payments and royalties on future product sales, if the
product is successfully commercialized in such countries. SIBIA has retained
rights to develop and commercialize SIB-1508Y outside of Japan and certain other
Asian countries, and has retained rights to manufacture clinical supplies and
commercial material worldwide.

Share Purchase Rights Plan (unaudited)

In March 1997, the Board of Directors of the Company designated 150,000
shares of $.001 par value Preferred Stock as Series A Junior Participating
Preferred Stock and adopted a Share Purchase Rights Plan pursuant to which
preferred share purchase rights (the "Rights") were distributed for each share
of Common Stock of the Company held as of the close of business on April 2,
1997. Each Right, under certain circumstances, entitles the holder thereof to
purchase from the Company one one-hundredth of a share of Series A Junior
Participating Preferred Stock (each a "Preferred Share") at an exercise price of
$60.00 per one one-hundredth of a Preferred Share. Each one one-hundredth of a
share of Preferred Share has rights, preferences and privileges equal to the
value of a share of Common Stock. The Rights will expire on March 17, 2007,
unless the Rights are earlier redeemed or exchanged by the Company. The Rights
will cause substantial dilution to a person or group that attempts to acquire
the Company on terms not approved by the Company's Board of Directors.

F-20
<PAGE> 91

SIBIA NEUROSCIENCES, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

Eli Lilly & Company (unaudited)

In October 1997, the Company and Lilly completed their collaborative
research in the area of VGCCs. The Company is entitled to receive milestone
payments and royalties on sales of products identified by Lilly within a certain
period of time and commercialized, and is free to develop compounds it discovers
in this area on its own or with other partners.

F-21
<PAGE> 92

======================================================

No dealer, salesperson or any other person has been authorized to give any
information or make any representation not contained in this Prospectus in
connection with the offer made by this Prospectus and, if given or made, such
information or representation must not be relied upon as having been authorized
by the Company or the Underwriters. This Prospectus does not constitute an offer
to sell or a solicitation of an offer to buy any of the securities offered
hereby by anyone in any jurisdiction in which such offer or solicitation is not
authorized or in which the person making such offer or solicitation is not
qualified to do so or to anyone to whom it is unlawful to make such offer or
solicitation. Neither the delivery of this Prospectus nor any sale made
hereunder shall, under any circumstances, create any implication that the
information herein is correct as of any time subsequent to the date of this
Prospectus or that there has been no change in the affairs of the Company since
such date.

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

Table of Contents

<TABLE>
<CAPTION>
Page
-----
<S> <C>
Available Information...................... 2
Prospectus Summary......................... 3
Risk Factors............................... 6
Use of Proceeds............................ 16
Price Range of Common Stock................ 17
Dividend Policy............................ 17
Capitalization............................. 18
Dilution................................... 19
Selected Financial Data.................... 20
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................... 21
Business................................... 25
Management................................. 46
Certain Transactions....................... 56
Principal and Selling Stockholders......... 58
Description of Capital Stock............... 60
Shares Eligible for Future Sale............ 66
Underwriting............................... 68
Legal Matters.............................. 69
Experts.................................... 69
Index to Financial Statements.............. F-1
</TABLE>

======================================================
======================================================

2,500,000 Shares

[LOGO]

Common Stock

------------------------------
PROSPECTUS
November , 1996
------------------------------

UBS Securities
Piper Jaffray Inc.
Vector Securities International, Inc.
======================================================
<PAGE> 93

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth all expenses other than the underwriting
discounts payable by the Registrant in connection with the sale of the Common
Stock being registered. All the amounts shown are estimates, except for the
registration fee and the Nasdaq filing fee.

<TABLE>
<S> <C>
Registration fee.................................................. $ 6,860
Nasdaq............................................................ 17,500
Blue sky qualification fees and expenses.......................... 15,000
Printing and engraving expenses................................... 100,000
Legal fees and expenses........................................... 150,000
Accounting fees and expenses...................................... 75,000
Transfer agent and registrar fees................................. 15,000
Miscellaneous..................................................... 70,640
--------
Total............................................................. $450,000
========
</TABLE>

ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS.

The Registrant's Certificate of Incorporation and Bylaws include provisions
to (i) eliminate the personal liability of its directors for monetary damages
resulting from breaches of their fiduciary duty to the extent permitted by
Section 102(b)(7) of the Delaware General Corporation Law (the "Delaware Law")
and (ii) require the Registrant to indemnify its directors and officers to the
fullest extent permitted by Section 145 of the Delaware Law, including
circumstances in which indemnification is otherwise discretionary. Pursuant to
Section 145 of the Delaware Law, a corporation generally has the power to
indemnify its present and former directors, officers, employees and agents
against expenses incurred by them in connection with any suit to which they are,
or are threatened to be made, a party by reason of their serving in such
positions so long as they acted in good faith and in a manner they reasonably
believed to be in, or not opposed to, the best interests of a corporation, and
with respect to any criminal action, they had no reasonable cause to believe
their conduct was unlawful. The Registrant believes that these provisions are
necessary to attract and retain qualified persons as directors and officers.
These provisions do not eliminate liability for breach of the director's duty of
loyalty to the Registrant or its stockholders, for acts or omissions not in good
faith or involving intentional misconduct or knowing violations of law, for any
transaction from which the director derived an improper personal benefit or for
any willful or negligent payment of any unlawful dividend or any unlawful stock
purchase agreement or redemption.

The Registrant has entered into agreements with its directors and executive
officers that require the Registrant to indemnify such persons against expenses,
judgments, fines, settlements and other amounts actually and reasonably incurred
(including expenses of a derivative action) in connection with any proceeding,
whether actual or threatened, to which any such person may be made a party by
reason of the fact that such person is or was a director or officer of the
Registrant or any of its affiliated enterprises, provided such person acted in
good faith and in a manner such person reasonably believed to be in or not
opposed to the best interests of the Registrant and, with respect to any
criminal proceeding, had no reasonable cause to believe his or her conduct was
unlawful. The indemnification agreements also set forth certain procedures that
will apply in the event of a claim for indemnification thereunder.

The Underwriting Agreement filed as Exhibit 1.1 to this Registration
Statement provides for indemnification by the Underwriters of the Registrant and
its officers and directors for certain liabilities arising under the Securities
Act of 1933, as amended (the "Securities Act") or otherwise.

The Registrant has an insurance policy covering the officers and directors
of the Registrant with respect to certain liabilities, including liabilities
arising under the Securities Act or otherwise.

II-1
<PAGE> 94

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

Since October 1, 1994, the Registrant has sold and issued the following
securities which were not registered under the Securities Act:

(1) In May 1996, the Registrant issued and sold an aggregate of
454,545 shares of its Common Stock to Novartis for a total sales price of
$5,000,000. Such shares were sold pursuant to the Stock Purchase Agreement
dated March 20, 1996 between the Registrant and Novartis filed as Exhibit
10.30 to this Registration Statement.

(2) In March 1996, the Registrant effected a 2.35-for-1 split of the
outstanding Common Stock, whereby each share of outstanding Common Stock
was exchanged for 2.35 shares of Common Stock. As a result of the stock
split, each share of outstanding Series A, Series B and Series C
Convertible Preferred Stock became convertible into 2.35 shares of Common
Stock. The Series A, Series B and Series C Convertible Preferred Stock will
convert automatically into shares of Common Stock effective upon the
closing of the offering referred to herein. All numbers of shares of Common
Stock and Series A, Series B and Series C Convertible Preferred Stock set
forth in this Registration Statement have been adjusted to reflect this
stock split and the automatic conversion of the Series A, Series B and
Series C Convertible Preferred Stock into Common Stock.

(3) In August 1995, the Registrant issued and sold an aggregate of
280,000 shares of its Series C Convertible Preferred Stock, $.001 par
value, to Bristol-Myers Squibb for an aggregate purchase price of
$7,000,000 in cash. Such shares were sold pursuant to the investment
agreement filed as Exhibit 10.19 to this Registration Statement.

(4) In November 1994, Registrant granted to six employees options to
purchase an aggregate of 364,250 shares of Common Stock of Registrant at an
exercise price of $.85 per share under its Change of Control Plan. In
December 1995, Registrant granted to two employees additional options to
purchase an aggregate of 23,500 shares of Common Stock of Registrant at an
exercise price of $.85 per share under its Change of Control Plan.

(5) From October 1, 1994 to October 31, 1997, the Registrant granted
stock options to employees, directors and consultants under its 1992 Stock
Option and Restricted Stock Plan (the "Option Plan") and its Management
Change of Control Plan covering an aggregate of 792,488 shares of Common
Stock at a weighted average exercise price of $1.24 per share. During that
same period, options to purchase an aggregate of 122,200 shares of Series B
Convertible Preferred Stock have been exercised for an aggregate purchase
price of $608,700. In addition, between October 1, 1994 and May 9, 1996
(the date of the Company's initial public offering), options to purchase
422,528 shares of the Company's Common Stock were issued pursuant to the
exercise of options at an aggregate exercise price of $744,768.45.

The sales and issuances of securities in the transactions described in
paragraphs (4) and (5) above were deemed to be exempt from registration under
the Securities Act by virtue of Rule 701 promulgated thereunder in that they
were offered and sold either pursuant to written compensatory benefit plans or
pursuant to a written contract relating to compensation, as provided by Rule
701.

With respect to the grant of stock options described in paragraph (5) above
and shares issued in connection with the stock split referred to in paragraph
(2) above, exemption from registration under the Securities Act was unnecessary
in that none of such transactions involved a "sale" of securities as such term
is used in Section 2(3) of the Securities Act.

The sales and issuances of securities in the transactions described in
paragraphs (1) and (3) above were deemed to be exempt from registration under
the Securities Act by virtue of Section 4(2) and/or Regulation D promulgated
thereunder.

The recipients represented their intention to acquire the securities for
investment purposes only and not with a view to the distribution thereof.
Appropriate legends are affixed to the stock certificates issued in such
transactions. Similar legends were imposed in connection with any subsequent
sales of any such securities. All

II-2
<PAGE> 95

recipients either received adequate information about the Registrant or had
access, through employment or other relationships, to such information.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) EXHIBITS.

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- ------------------------------------------------------------------------------------
<C> <S>
*1.1 Form of Underwriting Agreement.
3.1 Amended and Restated Certificate of Incorporation of the Registrant. (4)
3.2 Amended and Restated Bylaws of the Registrant. (4)
3.3 Registrant's Certificate of Designation of Series A Junior Participating Preferred
Stock. (2)
4.1 Reference is made to Exhibits 3.1, 3.2 and 3.3.
4.2 Specimen stock certificate. (1)
5.1 Opinion of Cooley Godward LLP. (6)
10.1 Form of Indemnification Agreement entered into between Registrant and its directors
and officers. (1)
10.2 Registrant's 1981 Employee Stock Option Plan. (1)
10.3 Form of Employee Incentive Stock Option Agreement under the 1981 Employee Stock
Option Plan. (1)
10.4 Registrant's 1981 Consultant Stock Option Plan. (1)
10.5 Form of Consultant Nonstatutory Stock Option Agreement. (1)
10.6 Registrant's 1992 Stock Option and Restricted Stock Plan, as amended (the "1992
Option Plan"). (4)
10.7 Form of Incentive Stock Option Agreement under the 1992 Option Plan. (1)
10.8 Form of Nonstatutory Stock Option Agreement under the 1992 Option Plan. (1)
10.9 Registrant's 1996 Equity Incentive Plan as amended (the "1996 Equity Plan"). (4)
10.10 Form of Incentive Stock Option Agreement under the 1996 Equity Plan. (1)
10.11 Form of Nonstatutory Stock Option Agreement under the 1996 Equity Plan. (1)
10.12 Registrant's 1996 Non-Employee Directors' Stock Option Plan as amended (the
"Non-Employee Directors' Option Plan"). (4)
10.13 Form of Nonstatutory Stock Option Agreement under the Non-Employee Directors' Option
Plan. (1)
10.14 Registrant's Employee Stock Purchase Plan and related offering document. (1)
10.15 Registrant's Management Change of Control Plan, as amended (the "Change of Control
Plan"). (4)
10.16 Form of Nonqualified Stock Option Agreement under the Change of Control Plan. (1)
10.17 Lease Agreement dated April 7, 1989 between Registrant and Regency Associates
Limited, as subsequently amended on March 1, 1993, and July 1, 1995. (1)(5)
10.18 Equipment Lease Line Agreement dated June 30, 1992 between Registrant and GE
Capital, as amended. (1)
10.19 Investment Agreement dated August 10, 1995 between Registrant and Bristol-Myers
Squibb Company. (1)(5)
10.20 Collaborative Research and License Agreement dated August 10, 1995 between
Registrant and Bristol-Myers Squibb Company. (1)(5)
10.21 Stockholders Agreement dated as of October 1, 1991, by and among Registrant,
Phillips Petroleum Company, The Salk Institute for Biological Studies, Skandigen AB
and the Stockholders of Protease Corporation. (1)(5)
</TABLE>

II-3
<PAGE> 96

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- ------------------------------------------------------------------------------------
<C> <S>
10.22 License Agreement dated March 8, 1988 between Registrant and The Salk Institute for
Biological Studies, as amended by that certain First Amendment to License Agreement
dated March 10, 1996. (1)(5)
10.23 License Agreement dated December 15, 1990 between Registrant and The Salk Institute
for Biological Studies, as amended by that certain First Amendment to License
Agreement dated March 10, 1996. (1)(5)
10.24 Stock Purchase and Stockholders Agreement dated April 11, 1988 among Registrant,
Phillips Petroleum Company, The Salk Institute for Biological Studies and Skandigen
AB, as amended by that certain Amendment to Stock Purchase and Shareholders
Agreement dated April 12, 1990. (1)(5)
10.25 Agreement dated December 20, 1991 between Registrant, Phillips Petroleum Company,
The Salk Institute for Biological Studies and Skandigen AB. (1)(5)
10.26 License Agreement dated December 20, 1991 between Registrant and Phillips Petroleum
Company. (1)(5)
10.27 Amended and Restated Research and Development and License Agreement dated March 20,
1996 between Registrant and CIBA-GEIGY Limited. (1)(5)
10.28 Stock Purchase Agreement dated September 15, 1992 between Registrant and CIBA-GEIGY
Limited. (1)(5)
10.29 Subscription Agreement dated April 11, 1994 between Registrant and CIBA-GEIGY
Limited. (1)(5)
10.30 Stock Purchase Agreement dated March 20, 1996 between Registrant and CIBA-GEIGY
Limited. (1)(5)
10.31 Agreement dated May 1, 1992 between Registrant and Eli Lilly and Company, as amended
and extended by that certain Extension Agreement dated May 1, 1995. (1)(5)
10.32 Stock Purchase Agreement dated May 7, 1992 between Registrant and Eli Lilly and
Company. (1)(5)
10.33 Option and License Agreement dated April 30, 1995 between Registrant and Eli Lilly
and Company. (1)(5)
10.34 License Agreement dated March 5, 1992 between Registrant and Cephalon, Inc., as
amended by that certain Letter dated March 22, 1995. (1)(5)
10.35 Patent License Agreement dated June 21, 1993 between Registrant and Affymax
Technologies, N.V., as amended by that certain Letter dated July 15, 1993. (1)(5)
10.36 Agreement dated October 1, 1993 between Registrant and Hafslund Nycomed Pharma AG.
(1)(5)
10.37 Development and License Agreement dated February 28, 1997 between Registrant and
Meiji Seika Kaisha, Ltd. (3)(5)
10.38 Further Extension Agreement dated November 1, 1996 between Registrant and Eli Lilly
and Company. (3)(5)
10.39 Third Amendment to Lease dated December 31, 1996 between Registrant and Regency
Properties, L.P. (3)(5)
10.40 Equipment Lease Line Agreement dated March 4, 1997 between Registrant and G.E.
Capital. (3)
10.41 Rights Agreement dated as of March 17, 1997 among Registrant and ChaseMellon
Shareholder Services, L.L.C. (2)
10.42 Specimen Rights Certificate. (2)
11.1 Computation of net income per share. (6)
23.1 Consent of Price Waterhouse LLP.
23.2 Consent of Cooley Godward LLP. Reference is made to Exhibit 5.1.
23.3 Consent of Brown, Martin, Haller & McClain, LLP, Patent Counsel.
</TABLE>

II-4
<PAGE> 97

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- ------------------------------------------------------------------------------------
<C> <S>
23.4 Consent of Gray Cary Ware & Freidenrich, A Professional Corporation, Patent Counsel.
24.1 Power of Attorney. Reference is made to page II-7.(6)
27.1 Financial Data Schedule.
</TABLE>

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

* To be filed by amendment.

(1) Filed as an exhibit to Registrant's Registration Statement on Form S-1 (No.
333-2586) or amendments thereto and incorporated herein by reference.

(2) Filed as an exhibit to Registrant's current report on Form 8-K filed with
the Commission on March 31, 1997 and incorporated herein by reference.

(3) Filed as an exhibit to Registrant's annual report on Form 10-K for the year
ended December 31, 1996 and incorporated herein by reference.

(4) Filed as an exhibit to Registrant's quarterly report on Form 10-Q for the
quarter ended June 30, 1997 and incorporated herein by reference.

(5) Confidential treatment has been requested with respect to certain portions
of this exhibit. Omitted portions have been filed separately with the
Securities and Exchange Commission.

(6) Previously filed.

(b) Schedules

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

II-5
<PAGE> 98

ITEM 17. UNDERTAKINGS.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers, and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer, or controlling person of the Registrant in the
successful defense of any action, suit, or proceeding) is asserted by such
director, officer, or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.

The undersigned Registrant hereby undertakes that:

(1) It will provide the Underwriters at the closing specified in the
Underwriting Agreement certificates in such denominations and registered in
such names as required by the Underwriters to permit prompt delivery to
each purchaser.

(2) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.

(3) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.

II-6
<PAGE> 99

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of La Jolla,
County of San Diego, State of California, on the 5th day of November, 1997.

SIBIA NEUROSCIENCES, INC.

By: /s/ THOMAS A. REED

------------------------------------
Thomas A. Reed
Vice President,
Finance/Administration
and Chief Financial Officer

Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed below by the following persons on
November 5, 1997 in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- --------------------------- --------------------
<C> <S> <C>

* President, Chief Executive November 5, 1997
- --------------------------------------------- Officer and Director
William T. Comer, Ph.D. (Principal Executive
Officer)

/s/ THOMAS A. REED Vice President, November 5, 1997
- --------------------------------------------- Finance/Administration and
Thomas A. Reed Chief Financial Officer
(Principal Financial and
Accounting Officer)

* Chairman of the Board November 5, 1997
- ---------------------------------------------
William R. Miller

* Director November 5, 1997
- ---------------------------------------------
Stanley T. Crooke, M.D., Ph.D.

* Director November 5, 1997
- ---------------------------------------------
Gunnar Ekdahl

* Director November 5, 1997
- ---------------------------------------------
Frederick B. Rentschler

* Director November 5, 1997
- ---------------------------------------------
James D. Watson, Ph.D.
</TABLE>

*By: /s/ THOMAS A. REED

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

Thomas A. Reed

Attorney-in-fact

II-7
<PAGE> 100

INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -------------------------------------------------------------------------------------
<C> <S>
*1.1 Form of Underwriting Agreement.
3.1 Amended and Restated Certificate of Incorporation of the Registrant. (4)
3.2 Amended and Restated Bylaws of the Registrant. (4)
3.3 Registrant's Certificate of Designation of Series A Junior Participating Preferred
Stock. (2)
4.1 Reference is made to Exhibits 3.1, 3.2 and 3.3.
4.2 Specimen stock certificate. (1)
5.1 Opinion of Cooley Godward LLP. (6)
10.1 Form of Indemnification Agreement entered into between Registrant and its directors
and officers. (1)
10.2 Registrants 1981 Employee Stock Option Plan. (1)
10.3 Form of Employee Incentive Stock Option Agreement under the 1981 Employee Stock
Option Plan. (1)
10.4 Registrant's 1981 Consultant Stock Option Plan. (1)
10.5 Form of Consultant Nonstatutory Stock Option Agreement. (1)
10.6 Registrant's 1992 Stock Option and Restricted Stock Plan, as amended (the "1992
Option Plan"). (4)
10.7 Form of Incentive Stock Option Agreement under the 1992 Option Plan. (1)
10.8 Form of Nonstatutory Stock Option Agreement under the 1992 Option Plan. (1)
10.9 Registrant's 1996 Equity Incentive Plan, as amended (the "1996 Equity Plan"). (4)
10.10 Form of Incentive Stock Option Agreement under the 1996 Equity Plan. (1)
10.11 Form of Nonstatutory Stock Option Agreement under the 1996 Equity Plan. (1)
10.12 Registrant's 1996 Non-Employee Directors' Stock Option Plan, as amended (the
"Non-Employee Directors' Option Plan"). (4)
10.13 Form of Nonstatutory Stock Option Agreement under the Non-Employee Directors' Option
Plan. (1)
10.14 Registrant's Employee Stock Purchase Plan and related offering document. (1)
10.15 Registrant's Management Change of Control Plan, as amended (the "Change of Control
Plan"). (4)
10.16 Form of Nonqualified Stock Option Agreement under the Change of Control Plan. (1)
10.17 Lease Agreement dated April 7, 1989 between Registrant and Regency Associates
Limited, as subsequently amended on March 1, 1993, and July 1, 1995. (1)(5)
10.18 Equipment Lease Line Agreement dated June 30, 1992 between Registrant and GE Capital,
as amended. (1)
10.19 Investment Agreement dated August 10, 1995 between Registrant and Bristol-Myers
Squibb Company. (1)(5)
10.20 Collaborative Research and License Agreement dated August 10, 1995 between Registrant
and Bristol-Myers Squibb Company. (1)(5)
10.21 Stockholders Agreement dated as of October 1, 1991, by and among Registrant, Phillips
Petroleum Company, The Salk Institute for Biological Studies, Skandigen AB and the
Stockholders of Protease Corporation. (1)(5)
10.22 License Agreement dated March 8, 1988 between Registrant and The Salk Institute for
Biological Studies, as amended by that certain First Amendment to License Agreement
dated March 10, 1996. (1)(5)
10.23 License Agreement dated December 15, 1990 between Registrant and The Salk Institute
for Biological Studies, as amended by that certain First Amendment to License
Agreement dated March 10, 1996. (1)(5)
</TABLE>

<PAGE> 101

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -------------------------------------------------------------------------------------
<C> <S>
10.24 Stock Purchase and Stockholders Agreement dated April 11, 1988 among Registrant,
Phillips Petroleum Company, The Salk Institute for Biological Studies and Skandigen
AB, as amended by that certain Amendment to Stock Purchase and Shareholders Agreement
dated April 12, 1990. (1)(5)
10.25 Agreement dated December 20, 1991 between Registrant, Phillips Petroleum Company, The
Salk Institute for Biological Studies and Skandigen AB. (1)(5)
10.26 License Agreement dated December 20, 1991 between Registrant and Phillips Petroleum
Company. (1)(5)
10.27 Amended and Restated Research and Development and License Agreement dated March 20,
1996 between Registrant and CIBA-GEIGY Limited. (1)(5)
10.28 Stock Purchase Agreement dated September 15, 1992 between Registrant and CIBA-GEIGY
Limited. (1)(5)
10.29 Subscription Agreement dated April 11, 1994 between Registrant and CIBA-GEIGY
Limited. (1)(5)
10.30 Stock Purchase Agreement dated March 20, 1996 between Registrant and CIBA-GEIGY
Limited. (1)(5)
10.31 Agreement dated May 1, 1992 between Registrant and Eli Lilly and Company, as amended
and extended by that certain Extension Agreement dated May 1, 1995. (1)(5)
10.32 Stock Purchase Agreement dated May 7, 1992 between Registrant and Eli Lilly and
Company. (1)(5)
10.33 Option and License Agreement dated April 30, 1995 between Registrant and Eli Lilly
and Company. (1)(5)
10.34 License Agreement dated March 5, 1992 between Registrant and Cephalon, Inc., as
amended by that certain Letter dated March 22, 1995. (1)(5)
10.35 Patent License Agreement dated June 21, 1993 between Registrant and Affymax
Technologies, N.V., as amended by that certain Letter dated July 15, 1993. (1)(5)
10.36 Agreement dated October 1, 1993 between Registrant and Hafslund Nycomed Pharma AG.
(1)(5)
10.37 Development and License Agreement dated February 28, 1997 between Registrant and
Meiji Seika Kaisha, Ltd. (3)(5)
10.38 Further Extension Agreement dated November 1, 1996 between Registrant and Eli Lilly
and Company. (3)(5)
10.39 Third Amendment to Lease dated December 31, 1996 between Registrant and Regency
Properties, L.P. (3)(5)
10.40 Equipment Lease Line Agreement dated March 4, 1997 between Registrant and G.E.
Capital. (3)
10.41 Rights Agreement dated as of March 17, 1997 among Registrant and ChaseMellon
Shareholder Services, L.L.C. (2)
10.42 Specimen Rights Certificate. (2)
11.1 Computation of net income per share. (6)
23.1 Consent of Price Waterhouse LLP.
23.2 Consent of Cooley Godward LLP. Reference is made to Exhibit 5.1.
23.3 Consent of Brown, Martin, Haller & McClain, LLP, Patent Counsel.
23.4 Consent of Gray Cary Ware & Freidenrich, A Professional Corporation, Patent Counsel.
24.1 Power of Attorney. Reference is made to page II-7.(6)
27.1 Financial Data Schedule.
</TABLE>

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

* To be filed by amendment.

(1) Filed as an exhibit to Registrant's Registration Statement on Form S-1 (No.
333-2586) or amendments thereto and incorporated herein by reference.
<PAGE> 102

(2) Filed as an exhibit to Registrant's current report on Form 8-K filed with
the Commission on March 31, 1997 and incorporated herein by reference.

(3) Filed as an exhibit to Registrant's annual report on Form 10-K for the year
ended December 31, 1996 and incorporated herein by reference.

(4) Filed as an exhibit to Registrant's quarterly report on Form 10-Q for the
quarter ended June 30, 1997 and incorporated herein by reference.

(5) Confidential treatment has been requested with respect to certain portions
of this exhibit. Omitted portions have been filed separately with the
Securities and Exchange Commission.

(6) Previously filed.

<PAGE> 1
EXHIBIT 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated February 28, 1997,
relating to the financial statements of SIBIA Neurosciences, Inc., which appears
in such Prospectus. We also consent to the references to us under the headings
"Experts" and "Selected Financial Data" in such Prospectus. However, it should
be noted that Price Waterhouse LLP has not prepared or certified such "Selected
Financial Data."

PRICE WATERHOUSE LLP
San Diego, California
November 5, 1997

<PAGE> 1
EXHIBIT 23.3

[BROWN, MARTIN, HALLER & MCCLAIN, LLP LETTERHEAD]

The Board of Directors and
Stockholders
SIBIA Neurosciences, Inc.

Re: Consent of Brown Martin Haller
& McClain, Patent Counsel
-------------------------------

To Whom It May Concern:

We consent to the reference to our firm under the caption "Experts" and to
the use of our name wherever appearing in the Registration Statement (Form S-1
dated November 5, 1997) and related Prospectus of SIBIA Neurosciences, Inc. and
any amendment thereto.

BROWN MARTIN HALLER & MCCLAIN

/s/ STEPHANIE L. SEIDMAN
-----------------------------
Stephanie L. Seidman
Partner

<PAGE> 1
[GRAY CARY WARE & FREIDENRICH LETTERHEAD]

EXHIBIT 23.4

November 5, 1997

The Board of Directors and Stockbrokers
SIBIA Neurosciences, Inc.
505 Coast Blvd. South
Suite 300
La Jolla, CA 92037-4641

Re: Consent of Gray Cary Ware & Freidenrich, Patent Counsel
-------------------------------------------------------

To Whom It May Concern:

We consent to the reference to our firm under the caption "Expert" and to
the use of our name wherever appearing in the Registration Statement (Form S-1
dated November 5, 1997) and related Prospectus of SIBIA Neurosciences, Inc. and
any amendment thereto.

Sincerely,

GRAY CARY WARE & FREIDENRICH
A Professional Corporation

/s/ STEPHEN E. REITER

Stephen E. Reiter

SER:mfd

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED BALANCE SHEET AS OF SEPTEMBER 30, 1997 AND UNAUDITED STATEMENT OF
OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>

<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 3,140,000
<SECURITIES> 32,605,000
<RECEIVABLES> 586,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 37,080,000
<PP&E> 1,358,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 38,541,000
<CURRENT-LIABILITIES> 3,279,000
<BONDS> 0
0
0
<COMMON> 9,000
<OTHER-SE> 34,726,000
<TOTAL-LIABILITY-AND-EQUITY> 38,541,000
<SALES> 0
<TOTAL-REVENUES> 9,052,000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 15,875,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 43,000
<INCOME-PRETAX> (5,115,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,115,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,115,000)
<EPS-PRIMARY> (0.55)
<EPS-DILUTED> (0.55)

</TABLE>