KOS PHARMACEUTICALS INC
S-1/A, 1997-02-10
PHARMACEUTICAL PREPARATIONS
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  AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 10, 1997 
                                                    REGISTRATION NO. 333-17991 
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                      SECURITIES AND EXCHANGE COMMISSION 
                            WASHINGTON D.C. 20549 
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                               AMENDMENT NO. 2 
                                      TO 
                                   FORM S-1 
                            REGISTRATION STATEMENT 
                                    UNDER 
                          THE SECURITIES ACT OF 1933 
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                          KOS PHARMACEUTICALS, INC. 
            (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) 
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<S>                                  <C>                               <C>

              FLORIDA                        2834                            65-0670898 
    (STATE OR OTHER JURISDICTION    (PRIMARY STANDARD INDUSTRIAL          (I.R.S. EMPLOYER 
  OF INCORPORATION OR ORGANIZATION)  CLASSIFICATION CODE NUMBER)       IDENTIFICATION NUMBER) 
</TABLE>

<TABLE>
<CAPTION>
<S>                                                  <C>
                                                                 DANIEL M. BELL 
       1001 BRICKELL BAY DRIVE, SUITE 2502,           1001 BRICKELL BAY DRIVE, SUITE 2502, 
                 MIAMI, FL 33131                                MIAMI, FL 33131 
                   305-577-3464                                   305-577-3464 
          (ADDRESS, INCLUDING ZIP CODE,                  (ADDRESS, INCLUDING ZIP CODE, 
   AND TELEPHONE NUMBER, INCLUDING AREA CODE,           AND TELEPHONE NUMBER, INCLUDING 
  OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)          AREA CODE, OF AGENT FOR SERVICE) 

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                                  COPIES TO: 
        STEVEN SONBERG, ESQ.                                     BRUCE K. DALLAS, ESQ. 
          HOLLAND & KNIGHT                                       DAVIS POLK & WARDWELL 
 ONE EAST BROWARD BOULEVARD, SUITE 1300                           450 LEXINGTON AVENUE 
     FORT LAUDERDALE, FL 33301                                     NEW YORK NY 10017 
            954-525-1000                                              212-450-4000 
    TELECOPIER NO. 954-463-2030                               TELECOPIER NO. 212-450-4800 
</TABLE>

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       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. [ ] 

                     CALCULATION OF THE REGISTRATION FEE 
    

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<S>                                            <C>                  <C>                     <C>                      <C>
                                                                                            PROPOSED 
                                                                       PROPOSED             MAXIMUM 
TITLE OF EACH CLASS OF                         AMOUNT TO BE         MAXIMUM OFFERING        AGGREGATE                AMOUNT OF 
SECURITIES TO BE REGISTERED                    REGISTERED(1)         PRICE PER SHARE(2)   OFFERING PRICE(2)     REGISTRATION FEE(3)
Common Stock, par value $.01 per share            4,025,000         $15.00                  $60,375,000              $18,296 
</TABLE>

   
(1) Includes 525,000 shares that the underwriters have an option to purchase 
    to cover over-allotments, if any. 

(2) Estimated solely for the purpose of calculating the registration fee 
    pursuant to Rule 457(a). 

(3) Of which $12,122 was paid with the initial filing of this registration 
    statement. 
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   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 WHICH SPECIFICALLY STATES THAT THIS 
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH 
SECTION 8(A) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS 
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES 
AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. 
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<PAGE>
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 JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE 
WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES 
LAWS OF ANY SUCH JURISDICTION. 

   
PROSPECTUS (Subject to Completion) 
Dated February 10, 1997 

                               3,500,000 Shares 
    

                          KOS PHARMACEUTICALS, INC. 

                                 Common Stock 
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   All of the shares of Common Stock, par value $.01 per share (the "Common 
Stock"), offered are being sold by Kos Pharmaceuticals, Inc. ("Kos" or the 
"Company"). 

   Prior to this offering, there has been no public market for the Common 
Stock of the Company. It is estimated that the initial public offering price 
will be between $13.00 and $15.00 per share. See "Underwriting" for a 
discussion of the factors to be considered in determining the initial public 
offering price. Application has been made to have the Common Stock approved 
for quotation on the Nasdaq National Market under the symbol "KOSP", subject 
to notice of issuance. 
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          THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF 
       RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 6 OF THIS PROSPECTUS. 
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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. 
<TABLE>
<CAPTION>
<S>              <C>            <C>                   <C>
                                      Underwriting 
                     Price to         Discounts and      Proceeds to 
                     Public           Commissions(1)     Company(2)
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Per Share            $                  $                   $ 
Total(3)           $                  $                  $ 
</TABLE>

   
(1) The Company has agreed to indemnify the Underwriters against certain 
    liabilities, including liabilities under the Securities Act of 1933, as 
    amended. See "Underwriting." 

(2) Before deducting expenses payable by the Company estimated to be 
    $600,000. 

(3) The Company has granted the Underwriters an option, exercisable within 30 
    days of the date hereof, to purchase an aggregate of up to 525,000 
    additional shares at the Price to Public, less Underwriting Discounts and 
    Commissions to cover over-allotments, if any. If all such additional 
    shares are purchased, the total Price to Public, Underwriting Discounts 
    and Commissions, and Proceeds to Company will be $         , $       , 
    and $         , respectively. See "Underwriting." 
    -------------------------------------------------------------------------
    

   The Common Stock is offered by the several Underwriters named herein when, 
as and if received and accepted by them, and subject to their right to reject 
orders in whole or in part and subject to certain other conditions. It is 
expected that delivery of certificates for the shares will be made at the 
offices of Cowen & Company, New York, New York on or about         , 1997. 
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COWEN & COMPANY 
                           DILLON, READ & CO. INC. 
                                                          SALOMON BROTHERS INC 

       , 1997 
<PAGE>
   
                            AVAILABLE INFORMATION 

   The Company has filed with the Securities and Exchange Commission (the 
"Commission") a Registration Statement on Form S-1 (the "Registration 
Statement") under the Securities Act, with respect to the securities offered 
hereby. This Prospectus, which constitutes part of the Registration 
Statement, does not contain all the information set forth in the Registration 
Statement, certain portions of which have been omitted in accordance with the 
rules and regulations of the Commission. For further information with respect 
to the Company and the securities offered hereby, reference is made to the 
Registration Statement and to the exhibits and schedules thereto. Statements 
made in this Prospectus as to the contents of any contract, agreement or 
other document referred to are not necessarily complete. With respect to each 
such contract, agreement or other document filed as an exhibit to the 
Registration Statement, reference is made to the exhibit for a more complete 
description of the matter involved, and each such statement is qualified in 
its entirety by such reference. The Registration Statement, including the 
exhibits and schedules thereto, may be inspected without charge at the public 
reference facilities maintained by the Commission at Judiciary Plaza, Room 
1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional 
offices of the Commission located at 7 World Trade Center, Suite 1300, New 
York, New York 10048 and the Citicorp Center, 500 West Madison Street, Suite 
1400, Chicago, Illinois 60661. Copies of such material may also be obtained 
from the Public Reference Section of the Commission located at Judiciary 
Plaza, Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, upon 
payment of prescribed fees. The Commission maintains a Web site that contains 
reports, proxy and information statements and other information regarding 
registrants that file electronically with the Commission with a Web site 
address of http://www.sec.gov. 

   The Company intends to furnish its shareholders with annual reports 
containing financial statements audited by the Company's independent 
accountants and to make available to its shareholders quarterly reports for 
the first three quarters of each fiscal year containing unaudited interim 
financial information. 
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   NIASPAN/registered trademark/ is a registered trademark of the Company. 
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   IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR 
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE 
COMMON STOCK OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE 
PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ 
NATIONAL MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE 
DISCONTINUED AT ANY TIME. 
    

                                2           
<PAGE>
                              PROSPECTUS SUMMARY 

   THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED 
INFORMATION AND CONSOLIDATED FINANCIAL STATEMENTS APPEARING ELSEWHERE IN THIS 
PROSPECTUS, INCLUDING "RISK FACTORS" HEREIN. EXCEPT AS OTHERWISE NOTED, ALL 
INFORMATION IN THIS PROSPECTUS ASSUMES NO EXERCISE OF THE UNDERWRITERS' 
OVER-ALLOTMENT OPTION. 

                                 THE COMPANY 

   Kos Pharmaceuticals, Inc. ("Kos", pronounced Kos, or the "Company") is 
engaged primarily in the development of proprietary prescription 
pharmaceutical products for the treatment of certain chronic cardiovascular 
and respiratory diseases. The Company intends to manufacture its products and 
to market such products directly through its own specialty sales force. The 
Company's cardiovascular products under development consist of 
controlled-release, once-a-day, oral dosage formulations. The Company's 
respiratory products under development consist of aerosolized inhalation 
formulations to be used primarily with the Company's proprietary inhalation 
devices. 

   
   The Company was founded in 1988 by the former Chief Executive Officer, 
Chief Operating Officer, and Director of Product Development of Key 
Pharmaceuticals, Inc., which was acquired by Schering-Plough Corporation in 
June 1986. The Company believes that substantial market opportunities exist 
for developing drugs that are reformulations of existing approved 
prescription pharmaceutical products but which offer certain safety 
advantages, such as reduced harmful side effects, or patient compliance 
advantages, such as once-a-day rather than multiple daily dosing regimens, 
over such currently existing products. Kos believes that developing 
proprietary products based on currently approved drugs, rather than new 
chemical entities, may reduce regulatory and development risks and, in 
addition, facilitate the marketing of such products because physicians are 
generally familiar with the safety and efficacy of such products. Seven of 
the Company's nine products under development require new drug application 
("NDA") filings with the United States Food and Drug Administration ("FDA"). 
Although more expensive and time consuming, developing products that require 
NDA approval offers several advantages compared with generic products, 
including potential for higher gross margins, limited competition resulting 
from significant clinical and formulation development challenges, and a 
three-year statutory barrier to generic competition. 
    

   The Company's objective is to become a fully-integrated specialty 
pharmaceutical company that develops, manufactures, and markets its 
proprietary products. The Company's management has significant experience in 
implementing the principal elements of the Company's business strategy. These 
elements consist of the following: (i) select products with unrealized 
commercial potential where safety or patient compliance may be improved; (ii) 
focus initially on the large, rapidly growing cardiovascular and respiratory 
markets, which include many chronic diseases requiring long-term therapy; 
(iii) develop proprietary formulations of currently approved pharmaceutical 
compounds, which can reduce regulatory and development risks typically 
associated with the development of new chemical entities; (iv) manage 
internally the clinical development of its products; (v) manufacture its 
products internally; (vi) market its products directly through the Company's 
specialty sales force; and (vii) leverage its core competencies through 
additional corporate and academic alliances. 

   
   On May 6, 1996, Kos submitted a NDA to the FDA for NIASPAN, its lead 
product under development. NIASPAN is a once-a-day, oral, controlled-release 
formulation of niacin for the treatment of multiple lipid disorders, which 
are primary risk factors for coronary heart disease. Niacin is a water 
soluble vitamin long recognized by the National Institutes of Health and the 
American Heart Association as an effective pharmacological agent for the 
treatment of multiple lipid disorders, including elevated low-density 
lipoprotein ("LDL") cholesterol, total cholesterol, and triglycerides and low 
high-density lipoprotein ("HDL") cholesterol. The Company submitted its NDA 
based on six clinical trials, including three double-blinded, 
placebo-controlled pivotal clinical trials, involving an aggregate of 633 
NIASPAN-treated subjects at 17 sites throughout the United States. The 
results of these 
    

                                3           
<PAGE>
trials produced statistically significant changes in all major lipid 
components without serious treatment-related adverse events. Treatment with 
NIASPAN demonstrated a 14% to 19% reduction in LDL cholesterol, a 25% to 35% 
reduction in triglycerides, an increase of 22% to 29% in HDL cholesterol, and 
a reduction of 24% to 29% in Lp(a). Moreover, NIASPAN'S controlled-release 
formulation and dosing regimen reduced the liver toxicity and intolerable 
side effects generally associated with currently available formulations of 
niacin. There can be no assurance that the FDA will approve the Company's NDA 
for NIASPAN on a timely basis, or at all. 

   The Company expects to launch NIASPAN in 1997, and Kos is establishing a 
specialty sales force to market NIASPAN to the approximately 16,000 
physicians who account for approximately 40% of the total prescriptions for 
lipid-altering medications in the United States. The Company's marketing of 
NIASPAN will focus on niacin's long-recognized position as first-line drug 
therapy for the treatment of hyperlipidemia and on informing specialist 
physicians as to the manner in which NIASPAN achieves its safety and efficacy 
profile. In 1995, the market for cholesterol reducing drugs exceeded $2.0 
billion in the United States and was one of the fastest growing sectors of 
the cardiovascular market. 

   
   In addition to NIASPAN, Kos has three other once-a-day, controlled-release 
cardiovascular products under development: (i) a combination of two currently 
approved drugs for the treatment of multiple lipid disorders; (ii) a 
formulation of captopril, an angiotensin converting enzyme ("ACE") inhibitor 
for hypertension; and (iii) a branded generic form of 
isosorbide-5-mononitrate, a nitrate for angina. In 1995, the disease segments 
of the cardiovascular market for which the Company is developing its products 
achieved aggregate sales in the United States of approximately $10.2 billion. 

   Kos is also developing five aerosolized inhalation pharmaceutical 
products, dispensed in metered-dose inhalation ("MDI") devices for the 
treatment of asthma. The Company is developing a generic version of 
albuterol, a beta-agonist for asthma, dispensed in a generic MDI with a 
chloroflourocarbon ("CFC") propellant. Kos anticipates that it will submit an 
abbreviated new drug application ("ANDA") for its CFC albuterol in 1997. Kos 
is also developing three non-CFC formulations using its proprietary breath 
coordinated inhaler: two different inhaled steroids for asthma, triamcinolone 
and flunisolide, and albuterol. In addition, the Company is developing a 
proprietary breath actuated inhaler for pediatric and geriatric use with one 
of its non-CFC formulations. The market for asthma products in 1995 was $2.4 
billion in the United States. 
    

   In 1996, the Company entered into certain agreements with Fuisz 
Technologies, Ltd., for the development of up to six products using Fuisz' 
proprietary microsphere formulation technology. Fuisz has commenced the 
development of three of these products, including the Company's combination 
product for treatment of multiple lipid disorders, captopril and 
isosorbide-5-mononitrate; up to three other products will commence 
development during 1997. The Company is also presently sponsoring basic 
research at Tufts University and Boston University and intends to enter into 
corporate alliances to develop products identified through these research 
programs. 

   
   Since its inception, the Company's operations have been funded entirely by 
Michael Jaharis, one of the Company's founders and its Chairman who was 
previously the Chief Executive Officer of Key Pharmaceuticals, Inc. The 
Company employs approximately 105 people, of whom 68 are in product 
development and 19 in manufacturing. 
    

   The Company was incorporated in Florida on June 25, 1996, as the successor 
to Kos Holdings, Inc. (formerly named Kos Pharmaceuticals, Inc.), which was 
incorporated in Florida on July 1, 1988. References in this Prospectus to the 
Company include the operations of its predecessor until June 30, 1996 and its 
wholly-owned subsidiary, Aeropharm Technology, Inc. 

                                4           
<PAGE>
                                 THE OFFERING 
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<CAPTION>
<S>                                      <C>
   
 Common Stock offered hereby  .......... 3,500,000 shares 

Common Stock to be outstanding 
  after this offering .................. 13,500,000 shares(1) 
Use of proceeds ........................ For research and development, recruitment
                                         of a sales force for the anticipated
                                         commercial launch of NIASPAN, repayment
                                         of all or a portion of a loan from Kos
                                         Investments, Inc., working capital, and
                                         other general corporate purposes. 
Proposed Nasdaq National Market symbol ..KOSP 
</TABLE>

                     SUMMARY CONSOLIDATED FINANCIAL DATA 
                      (IN THOUSANDS, EXCEPT SHARE DATA) 
    

<TABLE>
<CAPTION>
                                                                                                          SIX MONTHS ENDED 
                                                                       YEAR ENDED JUNE 30,                  DECEMBER 31, 
                                                           -------------------------------------------   --------------------- 
                                                                1994           1995           1996        1995        1996 
                                                           ------------- -------------  -------------    --------------------- 
                                                                                                            (UNAUDITED) 
<S>                                                        <C>           <C>           <C>              <C>         <C>
STATEMENT OF OPERATIONS: 
REVENUES ................................................  $         22  $        14   $       --       $       --  $       --
OPERATING EXPENSES: 
 RESEARCH AND DEVELOPMENT ...............................         6,663        8,387       13,816            6,426       6,057 
 GENERAL AND ADMINISTRATIVE .............................         1,619        1,614        1,772              789       1,936 
 COMPENSATION RECOGNIZED ON MODIFICATION OF STOCK
  OPTION GRANTS(2).......................................            --           --        5,436               --          --
                                                           ------------- -----------   ----------       ----------  ----------
TOTAL OPERATING EXPENSES ................................         8,282       10,001       21,024            7,215       7,993 
OTHER INCOME ............................................            (2)          --           - -              --          --
INTEREST (INCOME) EXPENSE, NET ..........................         1,108        1,052          (14)              (8)        131 
MINORITY INTEREST (3) ...................................          (164)           1           16                1          --
                                                           ------------- ------------  ----------       ----------  ----------
NET LOSS ................................................   $    (9,530) $   (11,038)  $  (20,994)      $   (7,206) $   (8,124) 
                                                           ============= ============= ==========       ==========  ========== 
NET LOSS PER SHARE (4) ..................................   $     (0.84) $     (0.98)  $    (1.86)      $    (0.64) $    (0.72) 
                                                           ============= ============  ==========       ==========  ==========
WEIGHTED AVERAGE COMMON SHARES IN COMPUTING NET LOSS
 PER SHARE(4) ...........................................    11,304,786   11,304,786   11,304,786       11,304,786  11,304,786 
</TABLE>

<TABLE>
<CAPTION>
                                                             DECEMBER 31, 1996 
                                                          ACTUAL     AS ADJUSTED(6) 
                                                       ----------- ---------------
                                                                (UNAUDITED) 
<S>                                                    <C>          <C>
BALANCE SHEET(5): 
Cash and cash equivalents ...........................    $    358       $ 36,973 
Working capital (deficit) ...........................      (8,816)        36,154 
Total assets ........................................       3,197         39,812 
Total debt ..........................................       8,355             --
Deficit accumulated during the development stage(7)       (64,782)       (64,782) 
Shareholders' equity (deficit) ......................      (6,210)        38,760 
</TABLE>

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(1) Excludes 3,675,000 shares of Common Stock reserved for issuance under the 
    Company's 1996 Stock Option Plan and 325,000 shares of Common Stock 
    reserved for issuance upon exercise of other outstanding options. Options 
    to acquire an aggregate of 2,330,500 shares of Common Stock at a weighted 
    average exercise price of $4.37 per share were issued and outstanding as 
    of February 7, 1997. Excludes 811,071 shares of Common Stock (assuming an 
    initial public offering price of $14.00 per share) issuable to Kos 
    Investments, at February 7, 1997, upon the conversion, if any, of a note 
    representing a loan made to the Company by Kos Investments (the 
    "Convertible Note"). See "Management--Stock Option Plan" and "Certain 
    Transactions." 

(2) Reflects a non-cash charge associated with an extension of the exercise 
    period for stock options granted during 1988 to 1990 to the Company's 
    Chief Executive Officer and two independent consultants; no other 
    material economic terms of these options were changed. 
    

(3) Represents the minority shareholder's interest in Aeropharm Technology, 
    Inc., the Company's aerosol subsidiary, which interest was acquired by 
    the Company in June 1996. 

   
(4) See Note 2 of Notes to Consolidated Financial Statements for information 
    concerning the computation of net loss per share. Assuming the issuance 
    only of sufficient shares to repay indebtedness outstanding as of 
    December 31, 1996, supplementary pro forma net loss per share of common 
    stock would be $(0.67) for the six month period ended December 31, 1996. 

(5) The Company has funded its operations since July 1, 1996 using the 
    proceeds of a loan from Kos Investments, Inc., a company that is 
    wholly-owned by, and serves as an investment vehicle for Michael Jaharis, 
    the Company's Chairman and one of its founders. As of February 7, 1997, 
    the Company had outstanding borrowings of $11,355,000 under such loan. 
    See "Use of Proceeds." 

(6) Adjusted to reflect the sale of 3,500,000 shares of Common Stock offered 
    hereby (at an assumed initial public offering price of $14.00 per share) 
    and receipt by the Company of the estimated net proceeds therefrom. See 
    "Use of Proceeds" and "Capitalization." 

(7) In connection with the transfer on June 30, 1996 of assets and 
    liabilities from Kos Holdings, Inc. to the Company, net operating loss 
    carry forwards amounting to approximately $51.0 million and related tax 
    benefits, were not transferred to the Company. See "The Company" and 
    "Management's Discussion and Analysis of Financial Condition and Results 
    of Operations." 
    

                                5           
<PAGE>
                                 RISK FACTORS 

   IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, PROSPECTIVE 
INVESTORS SHOULD CONSIDER THE FOLLOWING FACTORS IN EVALUATING THE COMPANY AND 
ITS BUSINESS BEFORE PURCHASING ANY OF THE COMMON STOCK OFFERED HEREBY. 
PROSPECTIVE INVESTORS ARE CAUTIONED THAT THE STATEMENTS IN THIS PROSPECTUS 
THAT ARE NOT DESCRIPTIONS OF HISTORICAL FACTS MAY BE FORWARD-LOOKING 
STATEMENTS THAT ARE SUBJECT TO RISKS AND UNCERTAINTIES. ACTUAL RESULTS COULD 
DIFFER MATERIALLY FROM THOSE CURRENTLY ANTICIPATED DUE TO A NUMBER OF 
FACTORS, INCLUDING THOSE IDENTIFIED UNDER "RISK FACTORS," "MANAGEMENT'S 
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS," 
"BUSINESS" AND ELSEWHERE IN THIS PROSPECTUS. 

   The Company's success depends to a significant extent on whether its lead 
product, NIASPAN, is successfully commercialized. There can be no assurance 
as to the successful commercialization of NIASPAN. The successful 
commercialization of NIASPAN may be affected by various factors, certain of 
which are set forth below. 

   
EARLY STAGE OF DEVELOPMENT; HISTORY OF OPERATING LOSSES; UNCERTAINTY OF 
FUTURE PROFITABILITY 

   The Company is a development stage company. It has generated no revenues 
from product sales and it does not expect to generate significant revenue 
from product sales for at least the next nine months. As of December 31, 
1996, the Company's accumulated deficit was $64.8 million. In connection with 
the transfer of operations from Kos Holdings, Inc. to the Company on June 30, 
1996, net operating loss carry forwards amounting to approximately $51.0 
million and related tax benefits remained with Kos Holdings, Inc. and were 
not transferred to the Company. Consequently, the Company had no tax assets 
or liabilities as of June 30, 1996. See "The Company." To date the Company 
has dedicated most of its financial resources to the development of NIASPAN, 
the development of other products and general and administrative expenses. 
The Company expects to incur significant operating losses for at least the 
next 12 months, primarily due to the expansion of its research and 
development programs and the establishment of a sales and marketing 
organization. The Company's ability to achieve profitability will depend, 
among other things, on its successfully completing development of its 
products, obtaining regulatory approvals, establishing manufacturing, sales 
and marketing capabilities, achieving market acceptance for its products and 
maintaining sufficient funds to finance its activities. There can be no 
assurance that the Company will be able to achieve profitability or that 
profitability, if achieved, can be sustained. See "Selected Consolidated 
Financial Data," "Management's Discussion and Analysis of Financial Condition 
and Results of Operations," and "Business." 
    

UNCERTAINTIES RELATED TO FDA APPROVAL OF NIASPAN 

   
   On May 6, 1996, the Company submitted a NDA to the FDA for NIASPAN. The 
NDA requests authorization for the Company to market NIASPAN for the 
treatment of multiple lipid disorders. The FDA generally requires that the 
safety and efficacy of a drug be supported by results from adequate and 
well-controlled clinical trials before approval for commercial sale. If the 
FDA believes that the results of the pivotal clinical trials for NIASPAN do 
not establish the safety and efficacy of NIASPAN in the treatment of any or 
all of the referenced indications, or if the FDA fails to accept that the 
long-term patient benefits from the treatment of such indications has been 
established, the Company will not receive the approvals necessary to market 
NIASPAN. Failure to obtain FDA approval to market NIASPAN would have a 
material adverse effect on the Company. Securing approval for less than all 
of the indications set forth in the NIASPAN NDA could have a material adverse 
effect on the Company. The Company may be required to conduct additional 
clinical trials in order to demonstrate the safety and efficacy of NIASPAN, 
which trials also may not be acceptable to the FDA. Even if acceptable to the 
FDA, such additional trials may delay the FDA approval process, which could 
have a material adverse effect on the Company. There can be no assurance that 
the results of any of the Company's pivotal clinical trials will be 
satisfactory or that NIASPAN will obtain regulatory approval for 
commercialization on a timely basis, or at all, with respect to all or any of 
the indications for which the Company intends to market NIASPAN. 
    

                                6           
<PAGE>
UNCERTAINTIES RELATED TO PRODUCT DEVELOPMENT 

   The Company has not yet completed the development of any products and, 
accordingly, has not begun to market or generate revenues from the 
commercialization of products. Although the Company recently submitted a NDA 
to the FDA for NIASPAN, each of its other products under development is at an 
earlier stage of development. There can be no assurance that the Company will 
be able to successfully formulate any of its products as planned, or that the 
Company will be successful in demonstrating the safety and efficacy of such 
products in human clinical trials. These trials may be costly and 
time-consuming. The administration of any product the Company develops may 
produce undesirable side effects that could result in the interruption, delay 
or suspension of clinical trials, or the failure to obtain FDA or other 
regulatory approval for any or all targeted indications. Even if regulatory 
approval is secured, the Company's products under development may later 
produce adverse effects that limit or prevent their widespread use or that 
necessitate their withdrawal from the market. 

UNCERTAINTIES RELATED TO MARKET ACCEPTANCE 

   If the Company receives the required regulatory approvals to market 
NIASPAN, the Company's ability to successfully commercialize NIASPAN will 
depend in part on the acceptance of NIASPAN by physicians and their patients. 
The Company believes that intolerable flushing is one of the principal 
reasons why physicians generally have been reluctant to prescribe or 
recommend currently available formulations of niacin. Flushing episodes are 
often characterized by facial redness, tingling or rash. Although most 
patients taking NIASPAN will sometimes flush, the formulation and dosing 
regimen for NIASPAN have been designed to maximize patient acceptance and 
minimize the occurrence of flushing. There can be no assurance, however, that 
patients using NIASPAN will not suffer episodes of flushing that they 
consider intolerable. The failure of physicians to prescribe NIASPAN or the 
failure of patients to continue taking NIASPAN due to intolerable flushing or 
other side effects would have a material adverse effect on the Company. The 
Company believes that physicians have also been reluctant to prescribe or 
recommend certain currently available formulations of niacin because of 
potential liver toxicity associated with these formulations. Although 
clinical trials conducted using NIASPAN demonstrated that fewer than 1% of 
patients experienced clinically significant elevations in liver enzyme 
levels, there can be no assurance that patients using NIASPAN will not 
experience any clinically significant elevations of liver enzymes or other 
side effects. 

   Unanticipated side effects or unfavorable publicity concerning any of the 
Company's products under development or any other product incorporating 
technology similar to that used in the Company's products under development 
could have an adverse effect on the Company's ability to obtain regulatory 
approvals; to achieve acceptance by prescribing physicians, managed care 
providers or patients; and to commercialize its products, any of which could 
have a material adverse effect on the Company. 

   
PATENTS AND TRADEMARKS; INTERFERENCE 
    

   The Company's ability to commercialize any of its products under 
development will depend, in part, on its or its licensors' ability to obtain 
patents, enforce those patents, preserve trade secrets, and operate without 
infringing on the proprietary rights of third parties. In addition, the 
patents for which the Company has applied relating to NIASPAN and certain 
other of the Company's products under development are based on, among other 
things, the timed administration of NIASPAN. If the indications treated by 
NIASPAN and such other products under development could be treated using 
drugs without such timed administration, the Company's patents, if issued, 
would not prevent the use of such drugs for the treatment of such 
indications, which would have a material adverse effect on the Company. There 
can be no assurance that the patent applications licensed to or owned by the 
Company will result in issued patents, that patent protection will be secured 
for any particular technology, that any patents that have been or may be 
issued to the Company or its licensors will be valid or enforceable or that 
any patents will provide meaningful protection to the Company. 

   In general, the U.S. patents and patent applications owned by or licensed 
to the Company are method-of-use patents that cover the timed use of certain 
compounds to treat specified conditions. 

                                7           
<PAGE>
Composition-of-matter protection is not available for the active ingredient 
in NIASPAN. The active ingredient in NIASPAN, niacin, is currently sold in 
the United States and other markets for LDL cholesterol lowering and for 
other uses. Even in jurisdictions where the use of the active ingredient in 
NIASPAN for lowering LDL cholesterol and other indications may be covered by 
the claims of a use patent licensed to the Company, off-label sales might 
occur, especially if another company markets the active ingredient at a price 
that is less than the price of NIASPAN, thereby potentially reducing the 
sales of NIASPAN. See "Business--Competition" and "Business--Government 
Regulation." 

   
   The Company has a patent application pending in the U.S. Patent and 
Trademark Office ("PTO") with claims covering NIASPAN's method of use 
consistent with its recommended once-a-day dosing regimen. Certain of these 
claims have recently been held allowable by the PTO, but have not yet been 
issued as a patent. The patent examiner has, however, suspended prosecution 
of the Kos application and referred such application to the PTO's Board of 
Appeals to determine whether an interference should be declared between such 
Kos application and a method-of-use patent issued to a generic manufacturer 
allegedly claiming the same dosing regimen invention. It may take up to a 
year or more for the PTO's Board of Appeals to determine whether to declare 
such an interference. On February 7, 1997, the Company and such generic 
manufacturer entered into a cross licensing agreement (the "License 
Agreement") pursuant to which the parties agreed to resolve, as between 
themselves, the effects of such potential interference by granting licenses 
under their respective patent application and patent. 
    

   The patent positions of pharmaceutical and biotechnology companies are 
highly uncertain and involve complex legal and factual questions. There can 
be no assurance that the patents owned and licensed by the Company, or any 
future patents, will prevent other companies from developing similar or 
therapeutically equivalent products or that others will not be issued patents 
that may prevent the sale of Company products or require licensing and the 
payment of significant fees or royalties by the Company. Furthermore, there 
can be no assurance that any of the Company's future products or methods will 
be patentable, that such products or methods will not infringe upon the 
patents of third parties, or that the Company's patents or future patents 
will give the Company an exclusive position in the subject matter claimed by 
those patents. The Company may be unable to avoid infringement of third party 
patents and may have to obtain a license, defend an infringement action, or 
challenge the validity of the patents in court. There can be no assurance 
that a license will be available to the Company, if at all, on terms and 
conditions acceptable to the Company, or that the Company will prevail in any 
patent litigation. Patent litigation is costly and time consuming, and there 
can be no assurance that the Company will have or will devote sufficient 
resources to pursue such litigation. If the Company does not obtain a license 
under such patents, is found liable for infringement or is not able to have 
such patents declared invalid, the Company may be liable for significant 
money damages, may encounter significant delays in bringing products to 
market, or may be precluded from participating in the manufacture, use, or 
sale of products or methods of treatment requiring such licenses. 

   The Company also relies on trade secrets and other unpatented proprietary 
information in its product development activities. To the extent that the 
Company relies on trade secrets and unpatented know-how to maintain its 
competitive technological position, there can be no assurance that others may 
not independently develop the same or similar technologies. The Company seeks 
to protect trade secrets and proprietary knowledge in part through 
confidentiality agreements with its employees, consultants, advisors and 
collaborators. Nevertheless, these agreements may not effectively prevent 
disclosure of the Company's confidential information and may not provide the 
Company with an adequate remedy in the event of unauthorized disclosure of 
such information. If the Company's employees, scientific consultants or 
collaborators develop inventions or processes independently that may be 
applicable to the Company's products under development, disputes may arise 
about ownership of proprietary rights to those inventions and processes. Such 
inventions and processes will not necessarily become the Company's property, 
but may remain the property of those persons or their employers. Protracted 
and costly litigation could be necessary to enforce and determine the scope 
of the Company's proprietary rights. Failure to obtain or maintain patent and 
trade secret protection, for any reason, would have a material adverse effect 
on the Company. See "Business--Patents and Proprietary Rights." 

                                8           
<PAGE>
   The Company engages in collaborations, sponsored research agreements, and 
other arrangements with academic researchers and institutions that have 
received and may receive funding from U.S. government agencies. As a result 
of these arrangements, the U.S. government or certain third parties may have 
rights in certain inventions developed during the course of the performance 
of such collaborations and agreements as required by law or such agreements. 
Several legislative bills affecting patent rights have been introduced in the 
United States Congress. These bills address various aspects of patent law, 
including publication, patent term, re-examination subject matter and 
enforceability. It is not certain whether any of these bills will be enacted 
into law or what form such new laws may take. Accordingly, the effect of such 
potential legislative changes on the Company's intellectual property estate 
is uncertain. 

LIMITED SALES AND MARKETING EXPERIENCE 

   The Company has not yet established a sales and marketing organization nor 
has it yet marketed, distributed or sold any product. The Company intends to 
market NIASPAN and the majority of its other products under development 
through its own specialty sales force. Substantial resources will be required 
for the Company to establish its own sales force and promote the sale of 
NIASPAN and its other products under development. There can be no assurance 
that the Company will be able to establish a sales and marketing organization 
prior to the Company's planned launch of NIASPAN in 1997 or at all, or that 
the Company will devote resources to NIASPAN or its other products under 
development sufficient to achieve market acceptance. The Company's failure or 
delay in establishing a marketing and sales force prior to the planned launch 
of NIASPAN in 1997 or its failure to expend the resources to adequately 
promote NIASPAN would have a material adverse effect on the Company. The 
Company's failure to establish a marketing and sales force or its failure to 
expend the resources to adequately promote any of its other products under 
development could have a material adverse effect on the Company. 

COMPETITION AND TECHNOLOGICAL CHANGE 

   The active ingredient in NIASPAN, niacin, is available in several other 
formulations, most of which do not require a prescription. Although the 
Company believes that there are no currently available niacin formulations 
that have been approved by the FDA specifically for once-a-day dosing, there 
can be no assurance that physicians will not prescribe or recommend some of 
these unapproved niacin formulations, using the NIASPAN dosing regimen, to 
try to achieve the same results as NIASPAN. Substitution of other niacin 
formulations for NIASPAN could have a material adverse effect on the Company. 
Moreover, manufacturers of other niacin formulations could promote their 
products using the NIASPAN dosing regimen and could promote the sale of their 
products to treat the indications for which the Company has sought approval 
to market NIASPAN. Although such promotion would be a violation of FDA 
regulations, the occurrence of such practices would have a material adverse 
effect on the Company. See "Business--Government Regulation" and 
"Business--Competition." Moreover, many products are commercially available 
for the treatment of elevated LDL cholesterol, and the manufacturers of such 
products have significantly greater financial resources and sales and 
manufacturing capabilities than the Company. There can be no assurance that 
any products developed by the Company will be able to compete successfully 
with any of those products. 

   Many established pharmaceutical and biotechnology companies, universities, 
and other research institutions with resources significantly greater than the 
Company's may develop products that directly compete with the Company's 
products. Even if the Company's products under development prove to be more 
effective than those developed by other entities, such other entities may be 
more successful in marketing their products than the Company because of 
greater financial resources, stronger sales and marketing efforts, and other 
factors. These entities may succeed in developing products that are safer, 
more effective or less costly than the products developed by the Company. 
There can be no assurance that any products developed by the Company will be 
able to compete successfully with any of those products. 

                                9           
<PAGE>
GOVERNMENT REGULATION; NO ASSURANCES OF REGULATORY APPROVAL 

   The Company's research and development activities, preclinical studies, 
clinical trials, and the manufacturing and marketing of its products are 
currently subject to extensive regulation by the FDA and may in the future be 
subject to foreign regulations. The drug approval process takes many years 
and requires the expenditure of substantial resources. Data obtained from 
preclinical and clinical activities are susceptible to varying 
interpretations that could delay, limit, or prevent regulatory approval. 
Although the Company may consult the FDA for guidance in developing protocols 
for clinical trials, that consultation provides no assurance that the FDA 
will accept the clinical trials as adequate or well-controlled or accept the 
results of those trials. In addition, delays or rejections of applications 
for regulatory approval may result from changes in or additions to FDA 
regulations concerning the drug approval process. Similar delays may also be 
encountered in foreign countries. There can be no assurance that any 
regulatory review will be conducted in a timely manner or that regulatory 
approvals will be obtained for any products developed by the Company, 
including NIASPAN. Even if regulatory approval of a product is obtained, the 
approval may be limited as to the indicated uses for which it may be promoted 
or marketed. In addition, a marketed drug, its bulk chemical supplier, its 
manufacturer and its manufacturing facilities are subject to continual 
regulatory review and periodic inspections, and later discovery of previously 
unknown problems with a product, supplier, manufacturer or facility may 
result in restrictions on such products or manufacturers, which may require a 
withdrawal of the product from the market. Failure to comply with the 
applicable regulatory requirements can, among other things, result in fines, 
suspensions of regulatory approvals, product recalls, operating restrictions 
and criminal prosecution, any of which could have a material adverse effect 
on the Company. 

   
   The Company's business is also subject to regulation under state, federal 
and local laws, rules, regulations and policies relating to the protection of 
the environment and health and safety, including those governing the use, 
generation, manufacture, storage, air emission, effluent discharge, handling 
and disposal of certain materials. The Company believes that it is in 
compliance in all material respects with all such laws, rules, regulations 
and policies applicable to the Company. There can be no assurance that the 
Company will not be required to incur significant costs to comply with such 
environmental and health and safety laws and regulations in the future. The 
Company's research and development involves the controlled use of hazardous 
materials. Although the Company believes that its safety procedures for 
handling and disposing of such materials comply with the standards prescribed 
by applicable state, federal and local regulations, the risk of contamination 
or injury from these materials cannot be completely eliminated. In the event 
of such contamination or injury, the Company could be held liable for any 
damages that result and any such liability could exceed the resources of the 
Company and materially adversely affect the Company's business, financial 
condition and results of operations. One of the Company's products under 
development involves the use of CFC propellants. The use of CFC propellants 
is subject to significant U.S. and foreign regulations. Moreover, it is 
possible that future international treaties or U.S. or foreign government 
regulations will prohibit the use of CFC propellants. See 
"Business--Government Regulation" and "Business--Respiratory Products." 
    

DEPENDENCE ON FUISZ TECHNOLOGIES LTD. AND OTHER COLLABORATORS 

   
   The Company may rely on third parties for certain aspects of the 
development of certain of its products under development. The Company has 
entered into agreements with Fuisz Technologies Ltd. ("Fuisz") pursuant to 
which the Company and Fuisz have agreed to collaborate in the development of 
captopril, isosorbide-5-mononitrate ("IS-5-MN"), and the lipid-altering 
combination product, as well as certain other products in the future. Under 
the terms of these agreements, Kos is responsible for conducting 
pharmacokinetic studies and clinical trials and Fuisz is responsible for the 
formulation of such products. The Company is not aware of any approved 
products that use Fuisz' microsphere technology, which will be used in the 
future in certain of the Company's products under development. The Company's 
ability to commercialize these products will depend to a significant extent 
on the efforts of Fuisz, over which the Company has no control. There can be 
no assurance that Fuisz will be successful in developing any of the Company's 
products under development. The failure of Fuisz to develop any of the 
Company's products may have a material adverse effect on the Company. The 
    

                               10           
<PAGE>
Company may also rely on other third parties for certain aspects of the 
development of the Company's presently planned or future products. There can 
be no assurance that the Company will be able to enter into future 
collaborative arrangements on favorable terms, or at all. Even if the Company 
is successful in entering into such collaborative agreements, there can be no 
assurance that any such arrangement will be successful. The success of any 
such arrangement is dependent on, among other things, the skills, experience 
and efforts of the third party's employees responsible for the project, the 
third party's commitment to the arrangement, and the financial condition of 
the third party, all of which are beyond the control of the Company. 

LIMITED MANUFACTURING EXPERIENCE; RISK OF SCALE-UP 

   
   Although the Company has manufactured sufficient quantities of certain of 
its products to facilitate the conduct of human clinical trials and extensive 
testing and research, the Company has no experience manufacturing products 
for commercial purposes. At present, the Company manufactures clinical 
materials in two manufacturing plants, both of which the Company believes 
operate in substantial compliance with current Good Manufacturing Practices 
("cGMP") regulations for the manufacture of pharmaceutical products. The 
Company may need to further scale-up certain of its current manufacturing 
processes to achieve production levels consistent with the commercial sale of 
its products. Further, modifications to the facilities, systems and 
procedures may be necessary to maintain compliance with cGMP regulations and 
other regulations prescribed by various regulatory agencies including the 
Occupational Safety and Health Administration and the Environmental 
Protection Agency, in connection with manufacture for commercial sale. 
Failure by the Company to successfully further scale-up or modify its 
manufacturing process or to comply with cGMP regulations and other 
regulations could delay the approval of the Company's products under 
development or limit the Company's ability to meet the demand for its 
products, either of which would have a material adverse effect on the 
Company. Such occurrences may require the Company to acquire alternative 
means of manufacturing its products, which may not be available to the 
Company on a timely basis, on commercially practicable terms, or at all. 
    

FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING 

   
   The Company has experienced negative cash flows from operations since its 
inception and has funded its activities to date by capital contributions and, 
since July 1, 1996, a loan from Kos Investments, Inc. represented by a 
promissory note convertible at the option of the holder into Common Stock at 
the initial public offering price (the "Convertible Note"). Assuming 
successful commercial launch of NIASPAN, the Company anticipates positive 
cash flows from operations in 1998. The Company estimates that it will need 
approximately $25.0 million to fund its operations through such date and 
anticipates that it will use a portion of the net proceeds of the offering in 
excess of such amount to repay all or a portion of the Convertible Note. See 
"Certain Transactions." The Company has expended and will continue to be 
required to expend substantial funds to continue research and development, 
including clinical trials of its products under development, and to commence 
sales and marketing efforts if regulatory approvals are obtained. Although 
the Company believes that the net proceeds of this offering (after repayment, 
if any, of the Convertible Note) will be sufficient to fund the operations of 
the Company for at least the next twelve months, the Company may need or 
elect to raise additional capital. The Company's capital requirements will 
depend on many factors, including the problems, delays, expenses and 
complications frequently encountered by development stage companies; the 
progress of the Company's research, development and clinical trial programs; 
the costs and timing of seeking regulatory approvals of the Company's 
products under development; the Company's ability to obtain such regulatory 
approvals; the success of the Company's sales and marketing programs; costs 
in filing, prosecuting, defending and enforcing any patent claims and other 
intellectual property rights; the extent and terms of any collaborative 
research, manufacturing, marketing or other arrangements; and changes in 
economic, regulatory or competitive conditions or the Company's planned 
business. Estimates about the adequacy of funding for the Company's 
activities are based on certain assumptions, including the assumption that 
testing and regulatory procedures relating to the Company's products 
    

                               11           
<PAGE>
under development can be conducted at projected costs and within projected 
time frames and that the Company's NIASPAN product receives regulatory 
approval on a timely basis and is successfully marketed. 

   To satisfy its capital requirements, the Company may seek to raise funds 
in the public or private capital markets. The Company's ability to raise 
additional funds in the public or private markets will be adversely affected 
if the results of the Company's ongoing or future clinical trials are not 
favorable or if regulatory approval for any of the Company's products under 
development is not obtained. The Company may seek additional funding through 
corporate collaborations and other financing vehicles. There can be no 
assurance that any such funding will be available to the Company, or if 
available, that it will be available on acceptable terms. If adequate funds 
are not available, the Company may be required to curtail significantly one 
or more of its research or development programs or it may be required to 
obtain funds through arrangements with future collaborative partners or 
others that may require the Company to relinquish rights to some or all of 
its technologies or products under development. If the Company is successful 
in obtaining additional financing, the terms of the financing may have the 
effect of diluting or adversely affecting the holdings or the rights of the 
holders of Common Stock. See "Management's Discussion and Analysis of 
Financial Condition and Results of Operations--Liquidity and Capital 
Resources." 

DEPENDENCE ON SINGLE SOURCES OF SUPPLY 

   
   Some materials used in the Company's products, including the active 
ingredient in NIASPAN, are currently sourced from a single qualified 
supplier. The Company does not have a contractual arrangement with the sole 
supplier of the active ingredient in NIASPAN pursuant to which the Company 
obtains such ingredient. Although the Company has not experienced difficulty 
in acquiring materials for product development to date, no assurance can be 
given that supply interruptions will not occur in the future or that the 
Company will not have to obtain substitute materials, which would require 
additional product validations and regulatory submissions. Any such 
interruption of supply could have a material adverse effect on the Company's 
ability to manufacture its products or to obtain or maintain regulatory 
approval of such products. 
    

NO ASSURANCE OF ADEQUATE THIRD-PARTY REIMBURSEMENT 

   The Company's ability to commercialize successfully its products under 
development is dependent in part on the extent to which appropriate levels of 
reimbursement for the Company's products and related treatments are obtained 
from government authorities, private health insurers and other organizations, 
such as health maintenance organizations ("HMOs"). Third-party payors are 
increasingly challenging the pricing of pharmaceutical products. The trend 
toward managed healthcare in the U.S., the growth of organizations such as 
HMOs and legislative proposals to reform healthcare and government insurance 
programs could significantly influence the purchase of pharmaceutical 
products, resulting in lower prices and reduced demand for the Company's 
products under development. Such cost containment measures and healthcare 
reform could affect the Company's ability to sell its products under 
development and may have a material adverse effect on the Company. 
Significant uncertainty exists about the reimbursement status of newly 
approved pharmaceutical products. There can be no assurance that 
reimbursement in the United States or foreign countries will be available for 
any of the Company's products under development, that any reimbursement 
granted will be maintained or that limits on reimbursement available from 
third-party payors will not reduce the demand for, or negatively affect the 
price of, the Company's products under development. The unavailability or 
inadequacy of third-party reimbursement for the Company's products under 
development would have a material adverse effect on the Company. 

RISK OF PRODUCT LIABILITY CLAIMS; NO ASSURANCE OF ADEQUATE INSURANCE 

   Testing, manufacturing, marketing, and selling the Company's products 
under development entails a risk of product liability. Although the Company 
carries clinical trial product liability insurance in the aggregate amount of 
$3,000,000, there can be no assurance that the existing coverage is adequate. 
Furthermore, this existing coverage may not be adequate as the Company 
further develops products. If 

                               12           
<PAGE>
   
the Company receives the required regulatory approvals and begins to sell 
NIASPAN or any of its other products under development, there can be no 
assurance that additional liability insurance coverage for a commercialized 
product will be available in the future on acceptable terms, if at all. The 
Company's business could be adversely affected by the assertion of a product 
liability claim, and the Company could be rendered insolvent if it does not 
have sufficient financial resources to satisfy any liability resulting from 
such a claim or to fund the legal defense of such a claim. 
    

DEPENDENCE ON KEY PERSONNEL 

   The success of the Company is dependent on its ability to attract and 
retain highly qualified scientific and management personnel. The Company 
faces intense competition for personnel from other companies, academic 
institutions, government entities and other organizations. There can be no 
assurance that the Company will be successful in attracting and retaining key 
personnel. The loss of key personnel, or the inability to attract and retain 
the additional, highly-skilled employees required for the expansion of the 
Company's activities, could adversely affect the Company's results of 
operations and its business. See "Management." 

SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS 

   
   The Company's sole shareholder, each current holder of options to acquire 
Common Stock and Kos Investments, Inc., which holds the Convertible Note, 
have agreed not to sell shares of Common Stock for a period of 180 days from 
the date of this Prospectus. The Company has granted certain registration 
rights to the Company's sole shareholder and to Kos Investments, Inc., the 
holder of the Convertible Note, which entitle such entities to cause the 
Company to effect three registrations under the Securities Act of sales of 
shares of the Company's Common Stock owned by such entities. By exercising 
these registration rights, these entities could cause a large number of 
shares to be registered and become freely tradeable without restrictions 
under the Securities Act (except for those purchased in the offering by 
affiliates of the Company) immediately upon the effectiveness of such 
registration. In addition, the Company intends to file, after the expiration 
of such 180 day period, registration statements under the Securities Act to 
register an aggregate of 4,000,000 shares of Common Stock issued or reserved 
for issuance under the Company's employee benefit plans. Such sales may have 
an adverse effect on the market price of the Common Stock and could impair 
the Company's ability to raise additional capital. See "Shares Eligible for 
Future Sale" and "Underwriting." 
    

NO PRIOR PUBLIC MARKET; POSSIBLE STOCK PRICE VOLATILITY 

   Prior to this offering, there has been no public market for shares of the 
Common Stock. Although the Company has submitted an application to have the 
Common Stock approved for quotation on the Nasdaq National Market system, 
there can be no assurance that a regular trading market will develop or be 
sustained after the offering. The initial public offering price for the 
Common Stock will be determined by negotiations between the Company and the 
representatives of the Underwriters. See "Underwriting." The stock market, 
including the Nasdaq National Market, on which the Company's shares are 
expected to be quoted, has from time to time experienced significant price 
and volume fluctuations that may be unrelated to the operating performance of 
particular companies. In addition, the market price of the Common Stock, like 
the stock prices of many publicly traded pharmaceutical and biotechnology 
companies, may prove to be highly volatile. Announcements of technological 
innovations or new commercial products by the Company or its competitors, 
developments or disputes concerning patent or proprietary rights, publicity 
regarding actual or potential medical results relating to products under 
development by the Company or its competitors, regulatory developments in 
either the United States or foreign countries, public concern as to the 
safety of pharmaceutical and biotechnology products and economic and other 
external factors, as well as period-to-period fluctuations in financial 
results, among other factors, may have a significant impact on the market 
price of the Common Stock. 

                               13           
<PAGE>
CONTROL BY EXISTING SHAREHOLDER 

   
   Upon completion of this offering, Michael Jaharis, the Chairman of the 
Board of Directors of the Company and one of its founders, will beneficially 
own approximately 74% of the outstanding Common Stock (approximately 71% if 
the Underwriters exercise their over-allotment option in full), excluding 
811,071 shares of Common Stock issuable to Kos Investments upon conversion, 
if any, of the Convertible Note. Accordingly, this shareholder will be able 
to control the outcome of shareholder votes, including votes concerning the 
election of directors, the adoption or amendment of provisions in the 
Company's Articles of Incorporation, and the approval of mergers and other 
significant corporate transactions. This level of concentrated ownership by 
one person, along with the factors described in "Risk Factors--Anti-Takeover 
Provisions," may have the effect of delaying or preventing a change in the 
management or voting control of the Company. See "Principal Shareholders." 
    

ANTI-TAKEOVER PROVISIONS 

   Certain provisions of the Company's Articles of Incorporation and Bylaws, 
as well as the Florida Business Corporation Act, could discourage a third 
party from attempting to acquire, or make it more difficult for a third party 
to acquire, control of the Company without approval of the Company's Board of 
Directors. Such provisions could also limit the price that certain investors 
might be willing to pay in the future for shares of the Common Stock. Certain 
of such provisions allow the Board of Directors to authorize the issuance of 
preferred stock with rights superior to those of the Common Stock. Moreover, 
certain provisions of the Company's Articles of Incorporation or Bylaws 
generally permit removal of directors only for cause by a 60% vote of the 
shareholders of the Company, require a 60% vote of the shareholders to amend 
the Company's Articles of Incorporation or Bylaws, require a demand of at 
least 50% of the Company's shareholders to call a special meeting of 
shareholders, and prohibit shareholder actions by written consent. See 
"Description of Capital Stock." 

DILUTION; ABSENCE OF DIVIDENDS 

   
   Purchasers of the Common Stock in the offering will experience an 
immediate dilution in net tangible book value of $11.13 (assuming an initial 
public offering price per share of $14.00) per share. These investors will 
also experience additional dilution upon the exercise of outstanding options. 
See "Dilution." The Company intends to retain earnings, if any, for use in 
its business and does not anticipate paying any cash dividends in the 
foreseeable future. See "Dividend Policy." 
    

                               14           
<PAGE>
                                 THE COMPANY 

   
   The Company's predecessor, Kos Holdings, Inc. ("Holdings"), which was 
previously named Kos Pharmaceuticals, Inc., was incorporated in Florida on 
July 1, 1988 to develop prescription pharmaceutical products principally for 
the cardiovascular and respiratory markets. On June 25, 1996, Kos (named 
after the Greek Island where Hippocrates founded the science of medicine) was 
incorporated in Florida as the successor to the business of Holdings. On June 
30, 1996, all of the assets and all of the liabilities of Holdings were 
transferred to the Company in exchange for shares of common stock of the 
Company (the "Reorganization"). The Reorganization was accomplished in order 
to transfer the assets and operations of Holdings to the Company while 
preserving Holdings' net operating loss carryforwards and related tax 
benefits for Holdings. As a result, the Company had no tax assets or 
liabilities as of June 30, 1996. Kos Investments, Inc. ("Kos Investments") is 
the sole shareholder of Holdings. Kos Investments is wholly-owned by, and 
serves as an investment vehicle for Michael Jaharis, one of the Company's 
founders and its Chairman, who has solely financed the Company's operations 
from inception. All references in this Prospectus to the Company include its 
wholly-owned subsidiary, Aeropharm Technology, Inc. ("Aeropharm"), and the 
business and operations of Holdings, its predecessor company, until June 30, 
1996. 
    

   The Company's principal executive offices are located at 1001 Brickell Bay 
Drive, Suite 2502, Miami, Florida 33131, and its telephone number is (305) 
577-3464. 

                               USE OF PROCEEDS 

   
   The net proceeds to the Company from the sale of Common Stock offered 
hereby are estimated to be $45.0 million ($51.8 million if the Underwriters' 
over-allotment option is exercised in full), at an assumed initial public 
offering price of $14.00 per share and after deducting underwriting discounts 
and commissions and estimated offering expenses payable by the Company. The 
Company intends to use approximately $13 million to fund the Company's 
research and development programs, approximately $6 million to establish a 
sales and marketing organization and to fund marketing expenses related to 
the commercial launch of NIASPAN, and the remaining amount for general 
corporate purposes and working capital. The Company may, in the discretion of 
its Board of Directors, use a portion of the proceeds to repay all or a 
portion of the Convertible Note and currently anticipates that it will use at 
least $8 million for such purpose. Kos Investments has the option to convert 
such note into shares of Common Stock at the initial public offering price. 
No assurance can be given as to whether Kos Investments will exercise such 
option. The Convertible Note bears interest at First Union National Bank of 
Florida's prime rate commencing July 1, 1996, escalating to a rate of 1% over 
such prime rate during calendar year 1997, 2% over such prime rate during 
calendar year 1998, and 3% over such prime rate during calendar year 1999, 
until the maturity date of June 30, 1999. As of February 7, 1997, the amount 
outstanding on the Convertible Note was $11,355,000. These borrowings were 
incurred to fund the Company's operations since July 1, 1996. See "Certain 
Transactions." The Company may also use a portion of the net proceeds to 
acquire businesses, technologies or products complementary to the Company's 
business, although the Company does not currently have any commitment or 
agreement for any such acquisitions. No material transactions of this nature 
are currently planned or being negotiated. Pending application of the 
proceeds as described above, the Company intends to invest the net proceeds 
of this offering in short-term, investment grade, interest-bearing 
securities. 
    

                               DIVIDEND POLICY 

   The Company intends to retain earnings, if any, for use in its business 
and, therefore, does not anticipate paying any cash dividends in the 
foreseeable future. Any future determination as to the payment of cash 
dividends will be made at the discretion of the Board of Directors and will 
depend upon the financial condition, capital requirements and earnings of the 
Company, as well as upon other factors that the Board of Directors may deem 
relevant. The Company has not paid any cash dividends since inception. 

                               15           
<PAGE>
                                CAPITALIZATION 

   
   The following table sets forth the capitalization of the Company (i) as of 
December 31, 1996 and (ii) on an adjusted basis to reflect receipt and 
application of the estimated net proceeds, after deducting underwriting 
discounts and commissions and estimated expenses payable by the Company, from 
the sale of 3,500,000 shares of Common Stock pursuant to this offering. As of 
December 31, 1996, the Company's outstanding principal balance under the 
Convertible Note was $8,355,000. See "Use of Proceeds" and "Certain 
Transactions." 
    

<TABLE>
<CAPTION>
                                                                         DECEMBER 31, 1996 
                                                                    ---------------------------
                                                                       ACTUAL      AS ADJUSTED 
                                                                    ----------- --------------
                                                                           (IN THOUSANDS) 
<S>                                                                 <C>          <C>
Short-term debt ..................................................    $  8,355      $     --
                                                                                 --------------
Shareholders' equity (deficit): 
 Common stock; $.01 par value; 50,000,000 shares authorized; 
   10,000,000 shares issued and outstanding, and 13,500,000 issued 
   and outstanding, as adjusted (1) ..............................    $    100           135 
 Additional paid-in capital ......................................      58,472       103,407 
Deficit accumulated during the development stage .................     (64,782)      (64,782) 
                                                                    ----------- --------------
Total shareholders' equity (deficit) .............................      (6,210)       38,760 
                                                                    ----------- --------------
Total capitalization .............................................    $  2,145      $ 38,760 
                                                                    ===========  ============== 
</TABLE>

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

   
(1) Excludes 3,675,000 shares of Common Stock reserved for issuance under the 
    Company's 1996 Stock Option Plan and 325,000 shares of Common Stock 
    reserved for issuance upon exercise of other outstanding options. Options 
    to acquire an aggregate of 2,330,500 shares of Common Stock at a weighted 
    average exercise price of $4.37 per share were issued and outstanding as 
    of December 31, 1996. Excludes 596,786 shares of Common Stock issuable at 
    December 31, 1996 to Kos Investments upon the conversion, if any, of the 
    Convertible Note. 
    

                               16           
<PAGE>
                                   DILUTION 

   
   The net tangible book value of the Company as of December 31, 1996 was 
approximately $(6,210,000), or $(0.62) per share. Net tangible book value per 
share represents the amount of the Company's shareholder's equity, less 
intangible assets, divided by 10,000,000, the number of shares of Common 
Stock outstanding as of December 31, 1996. 

   Net tangible book value dilution per share represents the difference 
between the amount per share paid by purchasers of shares of Common Stock in 
this offering and the net tangible book value per share of Common Stock 
immediately after completion of this offering. After giving effect to the 
sale of 3,500,000 shares of Common Stock in this offering at the assumed 
initial public offering price of $14.00 per share and after deducting 
underwriting discounts and commissions and estimated offering expenses 
payable by the Company, the net tangible book value of the Company as of 
December 31, 1996 would have been $38,760,000 or $2.87 per share. This 
represents an immediate increase in net tangible book value of $3.49 per 
share to the existing shareholder and an immediate dilution in net tangible 
book value of $11.13 per share to purchasers of Common Stock in this 
offering, as illustrated in the following table: 
    

<TABLE>
<CAPTION>
 ASSUMED INITIAL PUBLIC OFFERING PRICE PER SHARE ...............               $14.00 
<S>                                                              <C>         <C>
 Net tangible book value per share as of December 31, 1996  ...    $(0.62) 
 Increase per share attributable to new investors  ............      3.49 
                                                                 ----------
Pro forma net tangible book value per share after this 
offering ......................................................                $ 2.87 
                                                                             ---------
Dilution per share to new investors ...........................                $11.13 
                                                                             ========= 
</TABLE>

   Utilizing the foregoing assumptions, the following table summarizes the 
total consideration paid to the Company and the average price per share paid 
by the existing shareholder and by new investors purchasing shares of the 
Common Stock in this offering. 

<TABLE>
<CAPTION>
                                SHARES PURCHASED               TOTAL CONSIDERATION 
                        -------------------------------  ------------------------------
                                                                                            AVERAGE PRICE 
                             NUMBER         PERCENTAGE        AMOUNT        PERCENTAGE        PER SHARE 
                        ---------------- -------------  --------------- ------------- ----------------
<S>                     <C>               <C>             <C>              <C>            <C>
Existing Shareholder       10,000,000(1)        74%        $ 52,989,000          52%           $ 5.30 
New Investors ........      3,500,000           26           49,000,000          48             14.00 
                        ---------------- -------------  --------------- ------------- ----------------
  Total ..............     13,500,000          100%        $101,989,000         100% 
                        ================  =============   ===============  ============= 
</TABLE>

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

   
(1) If the Convertible Note is converted to shares of Common Stock, the 
    Shares Purchased by Existing Shareholders in the table will be 10,811,071 
    as of February 7, 1997 (assuming an initial public offering price of 
    $14.00 per share), for Total Consideration of $64,344,000, and for 
    Average Price Per Share of $5.95. 

   The foregoing table excludes 3,675,000 shares of Common Stock reserved for 
issuance under the Company's 1996 Stock Option Plan and 325,000 shares of 
Common Stock reserved for issuance upon exercise of other outstanding 
options. Options to acquire an aggregate of 2,330,500 shares of Common Stock 
at a weighted average exercise price of $4.37 per share were issued and 
outstanding as of December 31, 1996. See "Management--Stock Option Plan" and 
Note 6 of Notes to Consolidated Financial Statements. To the extent 
outstanding options are exercised, there will be future dilution to investors 
in this offering. See "Management--Employee Benefit Plans--Stock Option 
Plan.". 
    

                               17           
<PAGE>
                     SELECTED CONSOLIDATED FINANCIAL DATA 

   
   The following selected consolidated financial data should be read in 
conjunction with "Management's Discussion and Analysis of Financial Condition 
and Results of Operations" and the Company's consolidated financial 
statements and related notes included elsewhere in this Prospectus. The 
statement of operations data for the five years ended June 30, 1996 and the 
balance sheet data at June 30, 1992, 1993, 1994, 1995 and 1996 are derived 
from the financial statements and the notes thereto of the Company audited by 
Arthur Andersen LLP. The selected financial data, as of and for the six 
months ended December 31, 1995 and 1996, have been derived from unaudited 
financial statements of the Company that, in the opinion of management, 
include all adjustments, consisting of normal recurring adjustments, 
necessary for a fair presentation as of and for such periods. The results of 
operations for the six months ended December 31, 1996 are not necessarily 
indicative of the results of operations to be expected for the entire fiscal 
year. 
    

<TABLE>
<CAPTION>
                                                         YEAR ENDED JUNE 30, 
                                    -----------------------------------------------------------
                                         1992            1993           1994           1995 
                                    -------------- -------------  ------------- -------------
                                                  (IN THOUSANDS, EXCEPT SHARE DATA) 
<S>                                 <C>             <C>             <C>            <C>
STATEMENT OF OPERATIONS: 
  Revenues .......................    $        --   $         --    $         22    $        14 
Operating expenses: 
 Research and development ........          2,476          4,930           6,663          8,387 
 General and administrative  .....            975          1,232           1,619          1,614 
 Compensation recognized on 
   modification of stock option 
   grants(1) .....................             --             --              --            --
                                    -------------- -------------  ------------- -------------
  Total operating expenses  ......          3,451          6,162           8,282         10,001 
Other income .....................             (1)            (1)             (2)            --
Interest (income) expense, net  ..            428            556           1,058          1,026 
Interest expense-related parties               15             29              50             26 
                                    -------------- -------------  ------------- -------------
Total other (income) expense  ....            442            584           1,106          1,052 
                                    -------------- -------------  ------------- -------------
Loss before minority interest  ...         (3,893)        (6,746)         (9,366)       (11,039) 
Minority interest(2) .............             --             --            (164)             1 
                                    -------------- -------------  ------------- -------------
Net loss .........................    $    (3,893)   $    (6,746)    $    (9,530)   $   (11,038) 
                                    ==============  =============   =============  ============= 
Net loss per share (3) ...........    $     (0.34)   $     (0.60)    $     (0.84)   $     (0.98) 
                                    ==============  =============   =============  ============= 
Weighted average common shares in 
  computing net loss per share(3)      11,304,786     11,304,786      11,304,786     11,304,786 
</TABLE>

                    (RESTUBBED TABLE CONTINUED FROM ABOVE) 

<TABLE>
<CAPTION>
                                                           SIX MONTHS             
                                                              ENDED               JULY 1, 1988
                                                           DECEMBER 31,          (INCEPTION) TO
                                    ------------- ----------------------------    DECEMBER 31, 
                                         1996           1995           1996           1996
                                    ------------- -------------  -------------  ----------------
                                                           (UNAUDITED)            (UNAUDITED) 
<S>                                 <C>            <C>             <C>            <C>
STATEMENT OF OPERATIONS: 
  Revenues .......................   $        --   $        --    $        --    $        37 
Operating expenses: 
 Research and development ........        13,816          6,426           6,057          44,762 
 General and administrative  .....         1,772            789           1,936          10,808 
 Compensation recognized on 
   modification of stock option 
   grants(1) .....................         5,436             --              --           5,436 
                                    ------------- -------------  ------------- ---------------
  Total operating expenses  ......        21,024          7,215           7,993          61,006 
Other income .....................            --             --              --             (10) 
Interest (income) expense, net  ..           (14)            (8)             (5)          3,409 
Interest expense-related parties              --             --             136             266 
                                    ------------- -------------  ------------- ---------------
Total other (income) expense  ....           (14)            (8)            131           3,665 
                                    ------------- -------------  ------------- ---------------
Loss before minority interest  ...       (21,010)        (7,207)         (8,124)        (64,634) 
Minority interest(2) .............            16              1              --            (148) 
                                    ------------- -------------  ------------- ---------------
Net loss .........................   $   (20,994)   $    (7,206)    $    (8,124)    $   (64,782) 
                                    =============  =============   =============  =============== 
Net loss per share (3) ...........   $     (1.86)   $     (0.64)    $     (0.72)    $     (5.73) 
                                    =============  =============   =============  =============== 
Weighted average common shares in 
  computing net loss per share(3)     11,304,786     11,304,786      11,304,786      11,304,786 
</TABLE>

<TABLE>
<CAPTION>
                                                                                JUNE 30,                                           
                                                    --------------------------------------------------------------    DECEMBER 31,
                                                       1992         1993         1994         1995          1996         1996
                                                    ---------- -----------  ----------- ----------- -----------    ---------------
                                                                             (IN THOUSANDS)                            
   (UNAUDITED) 
<S>                                                 <C>         <C>           <C>          <C>          <C>             <C>
BALANCE SHEET(4): 
Cash and cash equivalents ........................    $    27     $     13     $     18     $     41      $    193      $    358 
Working capital (deficit)(5) .....................     (8,407)     (15,235)     (25,394)      (1,129)           (8)       (8,816) 
   
Total assets .....................................        586          686        1,574        2,355         2,281         3,197 
Total debt .......................................      8,232       14,742       24,790           --            --         8,355 
Deficit accumulated during the development stage       (8,350)     (15,096)     (24,626)     (35,664)      (56,658)      (64,782) 
   
Shareholder's equity (deficit)(5) ................     (7,860)     (14,606)     (24,136)         943         1,914        (6,210) 
   
</TABLE>

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

   
(1) Reflects a non-cash charge associated with an extension of the exercise 
    period for stock options granted during 1988 to 1990 to the Company's 
    Chief Executive Officer and two independent consultants; no other 
    material economic terms of these options were changed. 
    

(2) Represents the minority shareholder's interest in Aeropharm, which 
    interest was acquired by the Company in June 1996. 

   
(3) See Note 2 of Notes to Consolidated Financial Statements for information 
    concerning the computation of net loss per share. Assuming the issuance 
    only of sufficient shares to repay the indebtedness outstanding as of 
    December 31, 1996, supplementary pro forma net loss per share of common 
    stock would be $(0.67) for the six month period ended December 31, 1996. 

(4) The Company has funded its operations since July 1, 1996 using the 
    proceeds of the Convertible Note. As of February 7, 1997, the Company had 
    outstanding borrowings of $11,355,000 under the Convertible Note. See 
    "Use of Proceeds." 

(5) In March 1995, Investments assumed repayment of a note payable to a bank 
    in the principal amount of $30,372,000. This assumption was accounted for 
    as a transfer to Investments and as an increase in additional paid-in 
    capital. See Note 4 of Notes to Consolidated Financial Statements. 
    

                               18           
<PAGE>
                   MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF 
                FINANCIAL CONDITION AND RESULTS OF OPERATIONS 

INTRODUCTION 

   A predecessor corporation to the Company was formed in July 1988 under the 
name of Kos Pharmaceuticals, Inc., principally to conduct research and 
development on new formulations of existing prescription pharmaceutical 
products. In June 1993, Aeropharm Technologies, Inc., a then majority-owned 
subsidiary of the Company, was formed to conduct research and development 
activities on aerosolized MDI products for the treatment of respiratory 
diseases. During June 1996, this predecessor corporation acquired the 
outstanding minority interest in Aeropharm; changed its name to Kos Holdings, 
Inc.; established the Company as a wholly-owned subsidiary under the name Kos 
Pharmaceuticals, Inc.; and, effective as of June 30, 1996, transferred all of 
its existing assets, liabilities and intellectual property, other than 
certain net operating loss carryforwards, to the Company. Accordingly, all 
references in this Prospectus to the Company's business include the business 
and operations of Holdings until June 30, 1996. 

   
   Since inception, the Company has been a development stage company engaged 
primarily in the development of cardiovascular and respiratory pharmaceutical 
products. The Company has not recorded any significant revenues since 
inception and has funded its operations exclusively through equity 
contributions from its sole shareholder. Through December 31, 1996, the 
Company had accumulated a deficit from operations of $64.8 million. In 
connection with the transfer of operations from Holdings to the Company on 
June 30, 1996, net operating loss carryforwards amounting to approximately 
$51.0 million and related tax benefits were retained by Holdings and not 
transferred to the Company. Consequently, the Company had no deferred tax 
assets or liabilities as of June 30, 1996. The Company expects to continue to 
incur significant operating losses for at least the next 12 months. In 
connection with its agreement with a privately owned generic drug 
manufacturer, see "Business--Patents and Proprietary Rights," the Company 
anticipates recognizing an expense of approximately $3.0 million during the 
three months ending March 31, 1997. 
    

RESULTS OF OPERATIONS 

   
  SIX MONTHS ENDED DECEMBER 31, 1995 AND 1996 

   The Company's research and development expenses decreased from $6.4 
million for the six months ended December 31, 1995 to $6.1 million for the 
six months ended December 31, 1996. The decrease was attributable primarily 
to the absence in the December 1996 quarter of the clinical trials that were 
completed in late calendar 1995 in support of the filing of a NDA during May 
1996 for the Company's first product, NIASPAN. The decrease in clinical trial 
costs was partially offset by an increase in personnel costs, principally in 
connection with the manufacturing scale-up and by an increase in development 
costs associated with various third party development agreements. The Company 
expects research and development activities to increase as personnel are 
added and development activities are expanded to support the development of 
additional products and conduct additional clinical trials. 

   General and administrative expenses increased from $789,000 for the six 
months ended December 31, 1995 to $1.9 million for the six months ended 
December 31, 1996. The increase was primarily attributable to the hiring of 
additional personnel to support the Company's marketing activities and 
administrative functions, and professional fees. The Company expects that its 
general and administrative expenses will continue to increase in support of 
its marketing efforts and research and development programs. 

   Since July 1, 1996, the Company has funded its operations from the 
proceeds of a loan from Kos Investments, the sole shareholder of Holdings. As 
of December 31, 1996, the Company had outstanding borrowings of approximately 
$8.4 million outstanding under the Convertible Note. As a result of this 
loan, the Company had $136,000 of interest expense for the six months ended 
December 31, 1996 
    

                               19           
<PAGE>
   
compared with no such expense for the six months ended December 31, 1995. The 
Company expects to increase the amount of such borrowings from Kos 
Investments, Inc. to finance its operating activities through the completion 
of this offering. 

   The Company incurred a net loss of $7.2 million for the six months ended 
December 31, 1995 compared with a net loss of $8.1 million for the six months 
ended December 31, 1996. The Company expects to report substantial losses for 
at least the next 12 months. 
    

  FISCAL YEARS ENDED JUNE 30, 1995 AND 1996 

   
   The Company's research and development expenses increased from $8.4 
million for the fiscal year ended June 30, 1995 to $13.8 million for the year 
ended June 30, 1996. This increase was attributable primarily to licensing 
and development programs, hiring of additional personnel and increased 
clinical trials costs. Of the total increase in research and development 
expenses for the fiscal year ended June 30, 1996, $1.0 million is 
attributable to a payment by the Company in connection with the execution of 
an agreement with Fuisz to form a joint venture for the development of a 
future product. This product is in the very early stages of development and 
the Company cannot estimate when or if a commercially viable product will be 
developed. The parties have generally agreed to share the expenses of 
developing the product. Hiring of additional personnel principally related to 
manufacturing scale-up of certain of the Company's products under development 
and to support the filing of a NDA for NIASPAN. 

   General and administrative expenses increased from $1.6 million for the 
fiscal year ended June 30, 1995 to $1.8 million for the fiscal year ended 
June 30, 1996. This increase was attributable principally to the hiring of 
additional personnel to support the Company's administrative functions, and 
to the acquisition of market research data. 

   In June 1996, the Company recorded a non-cash charge of $5.4 million for 
compensation expense associated with an adjustment of the exercise period on 
certain stock options granted during 1988 to 1990 to an officer and to two 
independent consultants of the Company. 
    

   During December 1994, the Company transferred its existing line of credit 
facility with a local bank and its accumulated borrowings to Kos Investments, 
Inc., the sole shareholder of Holdings. The effect of this transfer was to 
increase the Company's paid-in capital in the amount of its accumulated 
borrowings, of $30.4 million, outstanding on the date of transfer. As a 
result of this transfer, the Company had $1.1 million of interest expense for 
the fiscal year ended June 30, 1995 compared with no such expense for the 
fiscal year ended June 30, 1996. 

   The Company incurred a net loss of $11.0 million for the fiscal year ended 
June 30, 1995 compared with $21.0 million for the fiscal year ended June 30, 
1996. 

  FISCAL YEARS ENDED JUNE 30, 1994 AND 1995 

   Research and development expenses increased from $6.7 million for the 
fiscal year ended June 30, 1994 to $8.4 million for the fiscal year ended 
June 30, 1995. This increase was attributable principally to hiring of 
additional personnel in support of the Company's clinical trial activities on 
NIASPAN. Research and development expenses also were higher in 1995 because 
it was the first full year of operation of the Company's aerosol research and 
development facility, which was launched during 1994. 

   General and administrative expenses, at $1.6 million, were essentially 
unchanged from 1994. 

   As more fully explained above, during December 1994 the Company 
transferred its existing credit facility with a local bank to Kos 
Investments, Inc. As a result of the timing of this transfer, interest 
expense decreased approximately $50,000 from the fiscal year ended June 30, 
1994 to the fiscal year ended June 30, 1995. 

                               20           
<PAGE>
   Minority interest expense decreased approximately $160,000 during the 
fiscal year ended June 30, 1995 principally as a result of timing differences 
in equity contributions made by the Company to its then majority-owned 
aerosol subsidiary. 

   During 1995, revenue was recognized from consulting activities conducted 
by the Company's Vice President of Aerosol Research and Development. These 
consulting activities were of a non-recurring nature. 

   As a result of the foregoing, the Company incurred a net loss of $9.5 
million for the fiscal year ended June 30, 1994 compared with $11.0 million 
for the fiscal year ended June 30, 1995. 

LIQUIDITY AND CAPITAL RESOURCES 

   
   The Company financed its operations since inception until June 30, 1996 
through capital contributions from Kos Investments, which totaled an 
aggregate of approximately $53.0 million as of June 30, 1996. Since July 1, 
1996 the Company has financed its operations from the proceeds of the 
Convertible Note, which totaled approximately $8.4 million at December 31, 
1996. Borrowings under the Convertible Note will continue to be the Company's 
principal source of financing until completion of this offering. All or a 
portion of the Convertible Note may be repaid using a portion of the net 
proceeds from the sale of the Common Stock offered hereby in excess of 
approximately $25 million and currently anticipates that it will use at least 
$8.0 million for such purpose. At December 31, 1996, the Company's working 
capital deficit totaled approximately $8.8 million and cash totaled 
approximately $358,000. The Company expects to continue to incur significant 
costs in connection with its ongoing research and development activities and 
with the establishment of its marketing capabilities. 

   The Company's primary uses of cash to date have been in operating 
activities to fund research and development, including clinical trials, and 
general and administrative expenses. As of December 31, 1996, the Company's 
net investment in equipment and leasehold improvements was $2.6 million. The 
Company expects that additional equipment and facilities will be needed as it 
increases its research and development activities. The Company has no 
material commitments for capital expenditures as of December 31, 1996. The 
Company's obligations under its agreement with a privately owned generic drug 
manufacturer, see "Business--Patents and Proprietary Rights," are not 
expected to materially affect the Company's liquidity or capital resources. 

   Although the Company anticipates that the net proceeds from the sale of 
the Common Stock offered hereby, together with available cash, cash 
equivalents, short-term investments and expected interest income, will be 
sufficient to fund the Company's operations for the next 12 months, the 
Company's future cash requirements will be substantial and will depend on 
many factors, some of which are outside the control of the Company. Such 
factors include the problems, delays, expenses and complications frequently 
encountered by development stage companies; the progress of the Company's 
research, development and clinical trial programs; the costs and timing of 
seeking regulatory approvals of the Company's products under development; the 
Company's ability to obtain such regulatory approvals; the success of the 
Company's sales and marketing programs; costs in filing, prosecuting, 
defending and enforcing any patent claims and other intellectual property 
rights; the extent and terms of any collaborative research, manufacturing, 
marketing, joint venture or other arrangements; and changes in economic, 
regulatory or competitive conditions or the Company's planned business. As a 
result, the Company may need to raise substantial additional capital to fund 
its operations before achieving anticipated positive cash flows from 
operations in 1998, assuming the successful commercialization of NIASPAN. The 
Company expects that it would seek such additional funding through public or 
private equity or debt financings or through collaborations. To the extent 
the Company raises additional capital by issuing equity securities, ownership 
dilution to existing shareholders will result and future investors may be 
granted rights superior to those of existing shareholders. There can be no 
assurance, however, that additional funding will be available on acceptable 
terms, or at all. See "Risk Factors--Future Capital Needs; Uncertainty of 
Additional Funding." 
    

                               21           
<PAGE>
                                   BUSINESS 

OVERVIEW 

   Kos Pharmaceuticals, Inc. ("Kos", pronounced Kos, or the "Company") is 
engaged primarily in the development of proprietary prescription 
pharmaceutical products for the treatment of certain chronic cardiovascular 
and respiratory diseases. The Company intends to manufacture its products and 
to market such products directly through its own specialty sales force. The 
Company's cardiovascular products under development consist of 
controlled-release, once-a-day, oral dosage formulations. The Company's 
respiratory products under development consist of aerosolized inhalation 
formulations to be used primarily with the Company's proprietary inhalation 
devices. 

   
   The Company was founded in 1988 by the former Chief Executive Officer, 
Chief Operating Officer and Director of Product Development of Key 
Pharmaceuticals, Inc., which was acquired by Schering-Plough Corporation in 
June 1986. The Company believes that substantial market opportunities exist 
for developing drugs that are reformulations of existing approved 
prescription pharmaceutical products but which offer certain safety 
advantages, such as reduced harmful side effects, or patient compliance 
advantages, such as once-a-day rather than multiple daily dosing regimens, 
over such currently existing products. Kos believes that developing 
proprietary products based on currently approved drugs, rather than new 
chemical entities ("NCEs"), may reduce regulatory and development risks and, 
in addition, facilitate the marketing of such products because physicians are 
generally familiar with the safety and efficacy of such products. Seven of 
the Company's nine products under development require NDA filings with the 
FDA. Although more expensive and time consuming, developing products that 
require NDA approval offers several advantages compared with generic 
products, including potential for higher gross margins, limited competition 
resulting from significant clinical and formulation development challenges, 
and a three-year statutory barrier to generic competition. 
    

   On May 6, 1996, Kos submitted a NDA to the FDA for NIASPAN, its first 
product under development. NIASPAN is a controlled-release, once-a-day, oral 
formulation of niacin for the treatment of multiple lipid disorders, which 
are primary risk factors for coronary heart disease. 

STRATEGY 

   The Company's objective is to become a fully-integrated specialty 
pharmaceutical company that develops, manufactures, and markets proprietary 
products directly through its own specialty sales force. The Company's 
business strategy includes the following fundamental elements: 

   SELECT PRODUCTS WITH UNREALIZED COMMERCIAL POTENTIAL.--The Company 
   develops products that address unmet medical needs through formulation 
   improvements of existing drugs or distinctive marketing efforts. Kos 
   believes that the safety or patient compliance associated with certain 
   currently marketed drugs can be improved, thus providing substantial 
   market opportunities with the successful development of proprietary 
   formulations. In addition, Kos believes that substantial market 
   opportunities exist that can be addressed by marketing its products 
   through a direct sales force that can focus on specialist physicians and 
   provide those physicians with scientific information regarding the 
   therapeutic benefits of the Company's products. 

   
   FOCUS INITIALLY ON THE CARDIOVASCULAR AND RESPIRATORY MARKETS.--Kos has 
   initially concentrated its product development efforts on the 
   cardiovascular and respiratory markets because they are large and growing 
   rapidly and include many chronic diseases requiring long-term therapy. 
   Management believes that as a result of physician prescribing patterns in 
   these markets, a relatively small, direct sales force can effectively 
   market its products. The Company's management team has substantial 
   experience in identifying product opportunities and marketing products in 
   these two therapeutic categories. 
    

                               22           
<PAGE>
   DEVELOP PROPRIETARY FORMULATIONS OF CURRENTLY APPROVED PHARMACEUTICAL 
   COMPOUNDS.--Kos believes that by developing proprietary products based on 
   currently approved drugs, rather than NCEs, the Company can reduce 
   regulatory and development risks and shorten the product development 
   cycle. Further, developing products that require NDA approval offers 
   several advantages compared with generic products, including the potential 
   for higher gross margins, limited competition resulting from significant 
   clinical and formulation development challenges, and a three-year 
   statutory barrier to generic competition. The Company's management and 
   scientific personnel have significant experience in formulation technology 
   using controlled-release and aerosolized delivery methods. 

   MANAGE CLINICAL DEVELOPMENT.--The Company managed the extensive clinical 
   trials for NIASPAN, and Kos intends to continue to manage directly the 
   clinical development of future products. The Company believes that its 
   commitment to this process ensures the quality of clinical development, 
   allows the Company to better coordinate the regulatory objectives of 
   clinical trials and maximizes the marketing utility of such trials. 

   
   MANUFACTURE PRODUCTS INTERNALLY.--In order to maximize the quality of 
   developed products, assure compliance with regulatory requirements, and 
   minimize costs, the Company currently intends to manufacture internally 
   all of its solid-dose (i.e., tablet) and aerosol products. Moreover, the 
   Company believes that certain manufacturing challenges associated with 
   aerosol formulations present a barrier to entry in the aerosol 
   pharmaceutical market. The Company's management has substantial experience 
   in manufacturing solid dose and aerosol products. Kos estimates that it 
   has sufficient capacity, with limited additional capital expenditures, to 
   accommodate sales volume for such products through the year 2000. 
    

   MARKET DIRECTLY THROUGH A SPECIALTY SALES FORCE.--The Company intends to 
   market its products through a direct sales force focused on providing 
   education-oriented product information to selected specialist physicians. 
   Kos intends to market all but one of its planned products in North America 
   through its direct sales force. In areas outside of North America, Kos 
   intends initially to market certain of its products through licensing 
   arrangements with third parties, although it may establish direct sales 
   and marketing capabilities in selected areas. 

   
   LEVERAGE CORE COMPETENCIES THROUGH ALLIANCES WITH CORPORATE AND RESEARCH 
   PARTNERS.--The Company intends to expand its product portfolio by 
   in-licensing existing products or technologies or entering into other 
   development collaborations with third parties. Kos is currently developing 
   three once-a-day cardiovascular products with Fuisz, using its proprietary 
   microsphere formulation technology. Additionally, the Company is 
   sponsoring basic research at Boston University and Tufts University and 
   intends to enter into corporate alliances to develop products identified 
   through these research programs. The Company intends to enter into 
   additional research alliances in the future. To date, the Company has not 
   identified any additional licensing or development partners or any 
   additional research partners. 
    

                               23           
<PAGE>
PRODUCTS UNDER DEVELOPMENT 

   
   Seven of the Company's nine products under development require NDA 
filings. Although NDA approvals are generally associated with products 
consisting of NCEs, which require extensive preclinical studies and clinical 
trials, the Company's products under development consist of new formulations 
of existing drugs. For products currently under development, the Company 
typically will be required to perform Phase I clinical pharmacology and Phase 
III safety and efficacy pivotal trials; limited preclinical toxicology 
studies will also be required on some products. Compared with the development 
of NCEs, the Company believes that its product development strategy generally 
reduces regulatory risks and development costs and shortens overall 
development time. In order to take advantage of certain market opportunities, 
the Company is developing two products that require ANDA filings. The Company 
has retained worldwide marketing rights for all of the products set forth in 
the table below. 
    

                          PRODUCTS UNDER DEVELOPMENT 
<TABLE>
<CAPTION>

   
                    PRODUCT DESCRIPTION AND             REGULATORY             DEVELOPMENT 
  PRODUCT           THERAPEUTIC APPLICATION               FILING                  STATUS 
  -------           -----------------------             ----------             -----------
<S>                 <C>                                 <C>         <C>
  CARDIOVASCULAR 
   Niaspan/             Niacin for lipid altering           NDA           NDA submitted May 1996 
   registered 
   trademark/ 

   Combination         Combination of two currently         NDA           Formulation; clinical 
    Product((1))    approved drugs for lipid altering                    pharmacology expected to 
                                                                             commence in 1997 

   Isosorbide-5-           Nitrate for angina               ANDA        Clinical pharmacology commenced 
    Mononi-                                                                 in November 1996 
    trate((1)) 

   Captopril((1))     ACE inhibitor for hypertension        NDA           Formulation; clinical 
                                                                         pharmacology expected to 
                                                                             commence in 1997 
  RESPIRATORY (METERED-DOSE INHALERS) 

   Albuterol             Beta-agonist for asthma           ANDA         Clinical validation study 
     (CFC)                                                                 completed; clinical 
                                                                          pharmacology commenced 
                                                                             in January 1997 

   Triamcino-          Inhaled steroid for asthma          NDA           Formulation; clinical 
   lone((2))                                                             pharmacology expected to 
     (non-CFC)                                                               commence in 1997 

   Flunisolide((2))     Inhaled steroid for asthma          NDA           Formulation; clinical 
     (non-CFC)                                                           pharmacology expected to 
                                                                             commence in 1997 

   Albuterol((2))        Beta-agonist for asthma            NDA           Formulation; clinical 
     (non-CFC)                                                           pharmacology expected to 
                                                                             commence in 1998 

   Confidential        Unnamed compound with novel          NDA           Formulation; clinical 
    Product((3))      device for treating asthma for                      pharmacology expected 
      (non-CFC)        the pediatric and geriatric                         to commence in 1998 
                                 markets 
    
</TABLE>
   (1) Being developed in collaboration with Fuisz. See "--Collaboration with
       Fuisz Technologies Ltd." 
   (2) Utilizing the Company's proprietary breath coordinated inhaler,
       currently under development. 
   (3) Utilizing the Company's proprietary breath actuated inhaler, currently
       under development. 

                               24           
<PAGE>
CARDIOVASCULAR PRODUCTS 

   The Company is developing once-a-day, controlled-release prescription 
products for the treatment of lipid disorders, ischemic heart disease 
(including angina), and hypertension. In 1995, such disease segments of the 
cardiovascular market achieved aggregate sales in the United States of 
approximately $10.2 billion. 

NIASPAN 

   SUMMARY. NIASPAN is a once-a-day, oral, solid-dose, controlled-release 
formulation of niacin for the treatment of multiple lipid disorders, a 
condition typically associated with elevated cholesterol involving multiple 
lipids that are primary risk factors for coronary heart disease ("CHD"). On 
May 6, 1996, the Company submitted a NDA to the FDA for NIASPAN. If NIASPAN 
is approved, the Company believes it will be the only once-a-day, 
controlled-release niacin product approved by the FDA for the treatment of 
multiple lipid disorders. The Company has conducted three double-blinded, 
placebo-controlled clinical trials in which NIASPAN produced statistically 
and clinically significant changes in several lipid components without 
generating treatment-related serious adverse events. Moreover, in a two-year 
safety study, less than 1% of patients discontinued use of NIASPAN because of 
clinically significant elevations in liver enzyme levels. 

   
   LIPID-ALTERING MARKET.--Clinical research since the mid-1980's has 
determined that an elevated level of LDL cholesterol, a condition referred to 
as hyperlipidemia, is a critical atherogenic risk factor for CHD. 
Hyperlipidemia is a lipid metabolism disorder that results in excess lipids 
in the blood, which can block arteries and create adverse coronary events, 
such as CHD and myocardial infarction. In addition to elevated LDL 
cholesterol ("bad" cholesterol), low levels of HDL cholesterol ("good" 
cholesterol) and high levels of triglycerides are risk factors for CHD 
according to the National Institutes of Health ("NIH") and the American Heart 
Association ("AHA"). HDL cholesterol is considered to be protective against 
CHD because it removes harmful cholesterol from blood vessels and peripheral 
tissues. Moreover, recent research has indicated that an elevated level of 
lipoprotein (a) ("Lp(a)"), a component of LDL cholesterol, may be as 
important an independent risk factor for CHD as elevated total cholesterol. 
As a result of the increased awareness and the prevalence of multiple lipid 
disorders, lipid-altering drugs have emerged as one of the largest and 
fastest growing pharmaceutical product segments. In 1995, the market for 
cholesterol-reducing drugs exceeded $2 billion in the United States and $5 
billion worldwide. 
    

   While the risks of multiple lipid disorders are becoming well recognized, 
the condition remains significantly untreated worldwide. To address this 
large unmet medical need, the NIH convened a panel of cholesterol research 
experts, the National Cholesterol Education Program ("NCEP"), to establish 
recommended cholesterol levels, principally total and LDL cholesterol, and to 
establish other risk factors for CHD. Based on extensive research conducted 
during the last 20 years, the NCEP established guidelines consisting of 
recommended lipid goals and intervention criteria, such as diet and drug 
therapies, for reducing the risk of heart disease and heart attack. According 
to the guidelines, an estimated 52 million people in the United States have 
levels of LDL cholesterol that exceed the levels recommended by the NCEP and, 
approximately 13 million of these persons would require both diet and drug 
therapies to achieve adequate reduction in cholesterol levels. The Company 
estimates that approximately half of these 13 million people have one or more 
other lipid components that are outside the levels recommended by the NIH and 
the AHA. Additionally, it is estimated that as many as 30% of the 11 million 
patients in the United States with confirmed CHD do not have elevated LDL 
cholesterol but do have clinically deficient HDL cholesterol levels. Further, 
an elevated level of Lp(a) is estimated to be present in 20% of the U.S. 
adult population. The Company believes that the market for lipid-altering 
drugs should grow as awareness and diagnosis of lipids, particularly those 
other than LDL cholesterol, continue to increase. 

   When diet and exercise fail to adequately control cholesterol levels, 
physicians typically prescribe lipid-altering medications. Physicians can 
choose from the following four classes of medications when 

                               25           
<PAGE>
attempting to alter lipid levels: HMG CoA reductase inhibitors, or "statins" 
(e.g., lovastatin); fibric acid derivatives (e.g., gemfibrozil); bile-acid 
sequestrants (e.g., cholestyramine); and niacin. The statins are the most 
widely prescribed lipid-altering medication, accounting for nearly $2 billion 
in U.S sales in 1995 and 72% of the 35 million prescriptions for 
lipid-altering medication in the United States in 1995. Generally, the 
statins are highly effective in lowering total and LDL cholesterol but have 
limited impact in raising HDL cholesterol or in substantially reducing 
triglycerides. Gemfibrozil, the major fibric acid derivative in the U.S., 
accounted for approximately 20% of total lipid-altering prescriptions in 
1995. Gemfibrozil is most commonly prescribed to reduce triglycerides and has 
limited efficacy on total, LDL and HDL cholesterol. The remaining product 
categories, including bile-acid sequestrants and existing preparations of 
niacin, represented approximately 8% of U.S. lipid-altering prescriptions in 
1995. 

   OVERVIEW OF NIACIN. Niacin is a water-soluble vitamin that has long been 
recognized as an effective pharmacologic agent for the treatment of multiple 
lipid disorders, including elevated LDL and low HDL cholesterol. In numerous 
independent studies performed during the past 30 years, niacin has proven 
effective in reducing total cholesterol, LDL cholesterol and triglycerides, 
as well as in increasing HDL cholesterol. Additional clinical studies have 
indicated that long-term treatment with niacin reduces morbidity and 
mortality in patients with CHD. The NIH recommends niacin as first-line drug 
therapy because of its low cost and its efficacy in altering multiple lipid 
components. 

   Although niacin has demonstrated favorable efficacy on most major lipid 
components, adverse side effects associated with currently available 
preparations of niacin have prevented it from becoming widely used to treat 
hyperlipidemia. Immediate-release ("IR") preparations of niacin generally are 
administered three times daily and can cause multiple flushing episodes, 
characterized primarily by facial redness and tingling, often accompanied by 
rash. Because at least two IR niacin doses are usually taken during the 
daytime, frequent flushing episodes are often embarrassing as well as 
uncomfortable. Consequently, in many patients, these flushing episodes, 
particularly in the daytime, result in non-compliance with the recommended 
dosing regimen for the product or complete discontinuation of its use. In 
order to remedy the side effects associated with IR niacin, several 
manufacturers have developed sustained-release ("SR") preparations of niacin, 
typically administered twice a day. Such SR preparations have not been 
approved by the FDA for treatment of lipid disorders, and their 
administration frequently has been associated with a high incidence of liver 
toxicity. Consequently, despite its broad favorable effect on multiple lipids 
and its position as the NIH's recommended first-line drug therapy for 
treatment of hyperlipidemia, U.S. drug store sales of niacin were 
approximately $14 million in 1995. The Company believes that a significant 
opportunity exists to expand the market for niacin with an improved 
formulation that maintains the compound's favorable efficacy profile while 
reducing adverse events. 

   NIASPAN PRODUCT DEVELOPMENT.--Kos has developed a controlled-release 
hydrogel matrix formulation of niacin that reduces the intolerable side 
effects and frequent safety problems characteristic of currently available 
niacin formulations. Kos believes that it is the unique controlled-release 
nature of its NIASPAN formulation in conjunction with NIASPAN's specific 
dosing regimen that minimizes adverse events while maintaining niacin's 
positive effect on lipids. Kos also believes the recommended dosing regimen 
for NIASPAN contributes to the positive effects on lipid levels because of 
the chronobiology of lipid metabolism. 

                               26           
<PAGE>
   
   Although niacin's efficacy on multiple lipid components has been well 
documented for many years, relatively little has been published about 
niacin's mechanism of action, its complete metabolic profile, or other 
elements of its pharmacology. As a result, the Company's clinical development 
of NIASPAN has included extensive pharmacokinetics research, including 14 
studies involving 350 healthy volunteers, as well as two pilot studies, three 
pivotal trials, and a long-term open label safety study. The Company's 
clinical development program, which has studied the effects of NIASPAN in 
1,212 persons, is summarized in the table below. 
    

                     NIASPAN CLINICAL DEVELOPMENT PROGRAM 

   
<TABLE>
<CAPTION>
                                                 NIASPAN        DOSING         STATUS 
                                                SUBJECTS        PERIOD 
                                                --------     ------------    ---------
<S>                                                 <C>      <C>             <C>
  14 PHARMACOKINETIC STUDIES                        350      Up to 3 wks.    Completed 

  2 PILOT STUDIES                                    39         2 mos.       Completed 

  DOUBLE-BLINDED PLACEBO 
   CONTROLLED PIVOTAL TRIALS: 

    NIASPAN 1,500 mg                                 76         4 mos.       Completed 

    NIASPAN 1,000 mg and 2,000 mg                    82         4 mos.       Completed 

    NIASPAN dose escalation to 3,000 mg              87         6 mos.       Completed 

  LONG-TERM OPEN LABEL SAFETY STUDY                 728        22 mos.       Ongoing 

  Memo: 

   SUBJECTS INCLUDED IN NDA                         633 

   TOTAL NIASPAN SUBJECTS                         1,212 
</TABLE>
    

   In a total of six clinical trials conducted at 17 lipid research centers 
in the United States, NIASPAN has been evaluated in 633 patients with 
confirmed diagnoses of hyperlipidemia. Three of these clinical trials were 
double-blinded, placebo-controlled pivotal trials. In each of these studies 
involving males and females ages 21 to 75, subjects were evaluated for the 
percentage change from baseline in LDL cholesterol, HDL cholesterol, total 
cholesterol, triglycerides, apolipoprotein B, Lp(a) and apolipoprotein A-1. 
Safety endpoints included objective measurements such as liver enzyme levels 
and levels of fasting glucose and uric acid as well as subjective endpoints, 
such as flushing and symptoms of gastrointestinal distress. Additionally, the 
Company is conducting a 22-month, open label safety study, in approximately 
728 patients, of which 133 patients had completed the study before May 1996. 
The results from these 133 patients were included in the Company's NDA 
submission for NIASPAN. This trial included a subset of patients dosed 
concomitantly with NIASPAN and a statin or bile-acid sequestrant. 

   No clinically significant serious adverse safety trends arose during the 
clinical trials of NIASPAN. Of all patients treated with NIASPAN in the 
pivotal and long-term safety trials, only four patients with normal liver 
function tests at baseline showed clinically significant elevations in liver 
function tests (defined as elevations greater than three times the upper 
limit of normal) during treatment with NIASPAN and only two patients treated 
with NIASPAN discontinued the drug because of elevations in liver function 
tests. Treatment with NIASPAN revealed no significant differences compared 
with placebo in the incidence of subjective adverse events with the exception 
of flushing and rash. The Company believes that such flushing episodes will 
be acceptable to most patients when they do occur due to the combination of 
NIASPAN's formulation, its dosing regimen, and proper dose titration. See "--
Cardiovascular Products--NIASPAN--Marketing Strategy for NIASPAN." 

                               27           
<PAGE>
   The following table sets forth results with respect to principal efficacy 
endpoints of the Company's three double-blinded, placebo-controlled pivotal 
trials and the one open label long-term safety study of NIASPAN. In these 
studies, NIASPAN consistently showed clinically and statistically significant 
changes (p/less than/0.001 compared with baseline) in all of the major lipids 
measured, including those considered to be most important in the development 
of CHD. 

                     NIASPAN LIPID-ALTERING PROFILE((1)) 

                                                     PERCENTAGE CHANGE 
                                                       FROM BASELINE(2) 
                                                    --------------------
     Total Cholesterol                              Decreased 11% to 12% 
     LDL Cholesterol                                Decreased 14% to 19% 
     HDL Cholesterol                                Increased 22% to 29% 
     Triglycerides                                  Decreased 25% to 35% 
     Lp(a)                                          Decreased 24% to 29% 
- -------------------
    (1) Intent-to-Treat Population at 2,000 mg Once-a-Day. 
    (2) Statistically significant for all indicated lipids at
        p/less than/0.001. 
   
   Based on the results of the three double-blinded, placebo-controlled 
clinical trials and the long-term safety study, Kos has filed a NDA seeking 
approval for NIASPAN for the treatment of elevated total and LDL cholesterol 
and elevated serum triglycerides, consistent with the FDA's standard labeling 
for niacin when used as a lipid-altering agent (rather than as a nutritional 
supplement). Kos believes that its clinical trial data will support the 
approval of such standard labeling for NIASPAN. The Company also is seeking 
approval as concomitant therapy with statins and bile-acid sequestrants to 
decrease total and LDL cholesterol. 
    

   In the clinical trials performed by the Company, NIASPAN was shown to 
decrease total and LDL cholesterol levels less than reported by statin 
manufacturers in the 1996 Physician's Desk Reference (the "PDR"). These data 
also indicate, however, that the statins are less effective than NIASPAN in 
raising HDL cholesterol and lowering triglycerides. Numerous independent 
clinical studies evaluating the effects of statins on Lp(a) indicate that the 
statins have little or no effect on reducing Lp(a), whereas NIASPAN 
significantly reduces Lp(a). 

   
   MARKETING STRATEGY FOR NIASPAN. The Company intends to market NIASPAN 
directly to the specialist physicians within the cardiovascular market who 
are among the leading prescribers of lipid-altering medications. 
Specifically, the Company believes there are approximately 16,000 specialist 
physicians, consisting primarily of cardiologists and internists, who account 
for approximately 40% of the total prescriptions for lipid-altering 
medications in the United States in 1995. The Company's initial sales force 
is expected to consist of approximately 70 field representatives and managed 
care specialists to be trained in explaining the features and benefits of 
NIASPAN ("detailing") prior to its expected launch in 1997. Kos estimates 
that it will be able to detail each of these physicians up to six times a 
year with such a sales force. Kos believes that the significant prior 
experience of members of its management team in recruiting and managing 
specialty sales forces in this market, aided by favorable hiring conditions 
in the pharmaceutical industry, will allow the Company to have its sales 
force in place within the projected time frame. Within a year following 
NIASPAN's launch, Kos expects to expand its direct sales force and possibly 
to supplement it with a contract sales force that will detail selected 
additional specialist physicians not addressed by the Company's specialty 
sales force. Although the Company does not expect to hire its field sales 
force before it receives an indication of the approvability of NIASPAN from 
the FDA, it is possible that formal approval of NIASPAN could be delayed, 
thus requiring the Company to pay the salaries of such personnel during any 
such delay. Following the launch of NIASPAN in the United States, the Company 
plans to license marketing rights to an established marketing partner in 
major international markets. 
    

                               28           
<PAGE>
   If approved by the FDA, the marketing of NIASPAN will focus on the NIH and 
AHA recommendation that niacin be used as first-line drug therapy for the 
treatment of hyperlipidemia. Additionally, the Company intends to inform the 
specialist physicians as to the manner in which NIASPAN achieves its safety 
and efficacy profile. This marketing program will be implemented through 
direct visits with selected physicians, medical journal reprints, seminars, 
and clinical discussion groups. The Company also intends to educate patients 
on the benefits and proper use of NIASPAN through brochures and product 
sample "starter packs" to encourage proper dose titration. Information 
delivered by the Company to physicians and patients will include a discussion 
about the flushing side effects of NIASPAN, including the importance of 
proper dose titration and adherence to the prescribed dosing regimen to 
reduce this side effect. Although most patients taking NIASPAN will flush 
occasionally, the Company believes that the combination of NIASPAN's 
formulation, its dosing regimen, and proper dose titration should result in 
an incidence of flushing episodes that are tolerable for most patients. 
NIASPAN's dosing regimen provides for the drug to be taken once-a-day at 
night; therefore, any flushing episodes will normally occur while the patient 
is sleeping. The Company believes that flushing during the night will not 
cause the discomfort or embarrassment that often accompanies the multiple 
daytime flushing episodes that occur with IR niacin. 

   The Company expects that NIASPAN will be priced below the statins and 
competitively with gemfibrozil, while retaining the gross margins typically 
associated with NDA products. The Company believes that NIASPAN's relatively 
low anticipated selling price combined with its favorable effects on multiple 
lipid components also should make it attractive to the managed care market. 
The Company plans to include a number of managed care sales specialists 
within its sales force to address this market segment. 

LIPID-ALTERING COMBINATION PRODUCT 

   In addition to NIASPAN, Kos is developing a product that consists of a 
combination of two currently approved drugs for the treatment of multiple 
lipid disorders. The combination product will require a NDA. The Company 
believes that a once-a-day tablet combining the complementary properties of 
its combination product represents an effective modality for treating 
patients with multiple lipid disorders. The Company also believes that this 
once-a-day product should offer significant improvements in patient 
compliance compared with taking each product independently under their 
recommended dosing regimens. The potential market for the combination product 
consists of patients with multiple lipid disorders, including high total and 
LDL cholesterol, high triglycerides or low HDL cholesterol. 

   The product is currently in the formulation development stage, and the 
Company expects that clinical pharmacology trials will commence in 1997. By 
or near the time of completion of the development of the combination product, 
the patent for the one currently patented component compound will have 
expired, which will enable the Company to market its combination product 
following FDA approval. Although it is expected that generic versions of the 
individual components will be marketed following patent expiration, the 
Company believes that the positive effects of the combination product on 
multiple lipid components and the convenience associated with taking one 
tablet, once-a-day should support a price premium compared with any generic 
versions of the individual drugs. 

   The combination product will be marketed by the same Kos specialty sales 
force that will market NIASPAN and to essentially the same group of 
physicians. 

ISOSORBIDE-5-MONONITRATE 

   Kos is developing a once-a-day, controlled-release, oral, generic version 
of IS-5-MN for the prophylactic treatment of angina pectoris. This product, 
which will be a branded generic requiring an ANDA filing, is being developed 
in order to provide Kos with a near-term product for the angina market and to 
expand its cardiovascular product line. A formulation of IS-5-MN has been 
developed 

                               29           
<PAGE>
   
and the Company began a clinical pharmacology study during November 1996. The 
Company intends to leverage its specialty sales force by having its sales 
representatives market IS-5-MN during physician office visits while detailing 
NIASPAN. 

   Angina pectoris is a cardiovascular related disorder that is characterized 
by thoracic pain and a feeling of suffocation, most often due to anoxia (lack 
of oxygen supply) to the myocardium precipitated by physical exertion or 
excitement. The treatment of angina pectoris includes several classes of 
therapeutic compounds including nitrates, beta-blockers, and calcium channel 
blockers. The beta-blockers and calcium channel blockers, as well as certain 
forms of nitrates, are long-acting preparations most commonly prescribed for 
prophylaxis of chronic angina pectoris. In 1995, U.S. sales of nitrate 
products approximated $580 million. The only currently marketed once-a-day 
mononitrate is the fastest growing product within the nitrate segment; U.S. 
sales of this product grew by 260% in 1995 from 1994. Kos is aware of two 
other companies that are developing a once-a-day formulation of IS-5-MN. 
    

CAPTOPRIL 

   
   The Company is also developing a once-a-day, controlled-release captopril, 
an ACE inhibitor for the treatment of hypertension for which a NDA is 
required. At present, captopril is dosed as an IR tablet to be taken two or 
three times daily. The U.S. patent on the branded product expired in the 
first quarter of 1996 and there currently exist many generic forms of this 
immediate-release product. The Company believes that its controlled-release, 
once-a-day formulation of captopril will provide a competitive advantage 
compared with the generic versions of IR captopril and this advantage will 
support a modest price premium compared with generics. Captopril is currently 
in the formulation development stage and the Company expects that clinical 
pharmacology trials will commence in 1997. 

   Hypertension is a major health care problem in the United States that 
accounted for almost half of all cardiovascular related physician visits in 
1995. In 1995, U.S. sales of products addressing the antihypertensive disease 
segment were estimated to be in excess of $5.6 billion. ACE inhibitors 
constituted the second largest class of products of the antihypertensive 
market, after calcium channel blockers, generating approximately $2.7 billion 
in sales in the United States in 1995. In its existing two-to-three times a 
day dosage forms, sales of captopril in the United States were approximately 
$520 million in 1995, although 1996 sales have been trending lower because of 
generic competition. Captopril accounted for approximately 13% of the 65 
million prescriptions for ACE inhibitors in the United States in 1995. Kos is 
aware of one other company that is developing a once-a-day formulation of 
captopril. 
    

RESPIRATORY PRODUCTS 

   The Company is developing five aerosolized inhalation pharmaceutical 
products, dispensed in MDI devices, for the treatment of asthma. The 
Company's management has substantial experience in formulating, 
manufacturing, and marketing aerosolized products. 

MARKET OVERVIEW 

   The respiratory market consists of the asthma and allergy segments. In 
1995, the market for respiratory prescription drugs was $3.2 billion in the 
United States, of which the market for asthma products was $2.4 billion. 
Asthma is a complex respiratory disorder that results in troubled breathing 
due to inflammation and constriction of the bronchial airways, caused by 
factors including allergens, such as dust and pollen, or vigorous exercise. 
Asthma is principally treated by two classes of therapeutic compounds, 
bronchodilators and anti-inflammatory agents. Bronchodilators, which are used 
to open constricted airways during asthma, include beta-agonists (e.g., 
albuterol), xanthines (e.g., theophylline) and anti-cholinergics (e.g., 
ipratropium). Anti-inflammatories, which include cromolyns (e.g., cromolyn 
sodium) and corticosteroids (e.g., triamcinolone, beclomethasone, and 
flunisolide) are used to diminish inflammation causing the asthma. Each of 
these therapeutic compounds, except xanthines, is delivered primarily through 
MDI devices. Drug delivery through such MDI devices is believed to be the 
fastest 

                               30           
<PAGE>
   
growing form of drug delivery in the asthma market. Kos has focused on this 
mode of delivery for the asthma market because of its efficacy and because of 
management's experience with formulating and marketing aerosolized inhalation 
products. 
    

   Currently, most MDI products use CFC propellants. Although, due to 
environmental concerns, the use of CFC propellants has been banned or 
severely restricted for most worldwide commercial uses, CFC's are still 
permitted in limited amounts for MDI pharmaceutical products under an 
"essential use" exemption available under the Montreal Protocol on Substances 
that Deplete the Ozone Layer. It is expected, however, that such "essential 
use" exemptions will grow more limited and will eventually expire. In 
anticipation of these future restrictions, all of the Company's proposed MDI 
products, with the exception of albuterol (CFC), are being developed with 
environmentally safe non-CFC propellants. See "Government Regulations." 

ALBUTEROL (CFC) 

   
   The Company is developing a generic version of albuterol (CFC) to be 
dispensed in a generic MDI. The Company has commenced scale-up and completed 
manufacture of clinical supplies of albuterol (CFC). It has recently 
completed a human clinical validation study and a pivotal clinical 
pharmacology trial commenced in January, 1997. The Company expects that it 
will submit an ANDA for its albuterol (CFC) in 1997. Kos intends to 
distribute albuterol (CFC) through a generic distributor. Although the 
Company's long-term strategy is to market its own branded proprietary aerosol 
products using non-CFC propellants, albuterol (CFC) will provide the Company 
with limited near-term revenue opportunities. Moreover, albuterol (CFC) will 
enable the Company to demonstrate its aerosol formulation and manufacturing 
capabilities earlier than would be possible with a non-CFC product. The 
Company believes that such demonstrated aerosol capabilities might provide it 
with opportunities to cross-license products or collaborate with other 
pharmaceutical companies, especially outside the United States, that lack MDI 
capabilities but that might desire such products. The Company has not had 
discussions with any third parties regarding any possible licensing 
arrangements. 
    

   Albuterol is the most widely used MDI product approved for the treatment 
of asthma, accounting for nearly $680 million in sales and 26 million 
prescriptions in the United States in 1995, although 1996 sales have been 
trending lower because of generic competition. Kos anticipates a relatively 
limited number of generic competitors for generic albuterol because of the 
manufacturing challenges and the high capital costs of entering the aerosol 
pharmaceutical business. 

TRIAMCINOLONE (NON-CFC) WITH BREATH COORDINATED INHALER ("BCI") 

   Kos is developing a proprietary non-CFC formulation of triamcinolone to be 
used with the Company's proprietary breath coordinated inhaler ("BCI"). This 
product will require the submission of a NDA. The Company believes that its 
BCI may improve the coordination of inhalation with actuation of medication, 
thereby offering possible benefits in patient compliance and uniform dose 
administration. Triamcinolone is a corticosteroid that is used to treat the 
underlying inflammation of asthma. Triamcinolone is currently in the 
formulation development stage and the Company expects clinical pharmacology 
trials to commence in 1997. 

   Inhaled steroids are being widely prescribed because their efficacy for 
prophylactic treatment is greater than that of other asthma products that can 
be delivered through MDIs. Triamcinolone, marketed by only one U.S. producer, 
is the largest selling of the metered-dose inhaled steroids. U.S. sales of 
inhaled steroids were approximately $450 million in 1995, of which 
triamcinolone accounted for $199 million. 

FLUNISOLIDE (NON-CFC) WITH BCI 

   Kos is developing a non-CFC proprietary formulation of flunisolide to be 
used with its BCI. Flunisolide is a long-acting inhaled steroid for the 
treatment of asthma. The Kos formulation of 

                               31           
<PAGE>
flunisolide, for which a NDA is required, is currently in development, and 
the Company expects clinical pharmacology trials to commence in 1997. 
Flunisolide, also marketed by only one U.S. producer, is the fastest growing 
inhaled steroid, with U.S. sales of approximately $120 million in 1995, 
representing an increase of 40% from 1994. 

OTHER MDI AND DEVICE PRODUCTS 

   Kos is developing a non-CFC albuterol to address environmental regulations 
ultimately that will require manufacturers to phase out the CFC-based MDIs, 
including the Company's generic albuterol (CFC) product. Kos is also 
developing a second proprietary MDI device, a breath actuated inhaler 
("BAI"). The Company's BAI operates automatically and is being developed 
principally to address the difficulties in taking inhaled medication often 
faced by children and the elderly. The Company intends to develop the BAI 
with one of its non-CFC formulations. Clinical pharmacology trials with the 
BAI are expected to commence in 1998. The Company also is developing a 
proprietary inhalation dose counter designed to indicate when sufficient 
doses no longer remain in the aerosol canister, thereby alerting the patient 
to obtain a "refill" prescription. At present, the Company intends to use the 
inhalation dose counter on all of its inhalation products with the exception 
of albuterol (CFC). 

COLLABORATION WITH FUISZ TECHNOLOGIES LTD. 

   The Company has entered into certain agreements with Fuisz, a company 
engaged in the development and commercialization of drug delivery and food 
applications. Pursuant to these agreements, the Company will collaborate with 
Fuisz in the development of up to six products principally using Fuisz' 
proprietary microsphere formulation technology. Captopril, the combination 
product and IS-5-MN are currently being developed pursuant to this 
collaboration with Fuisz. Fuisz also committed to collaborate on the 
development of up to three other products; one of these products may be 
subject to a joint venture arrangement. Kos believes that Fuisz' proprietary 
microsphere technology is uniquely well-suited to overcome the particular 
formulation challenges associated with the Company's combination product and 
with captopril. 

   Under the terms of such agreements, Fuisz is responsible for formulating 
each product and Kos is responsible for the remainder of the development 
program. The first milestone of Fuisz' formulation work will permit Kos to 
file Investigational New Drug ("IND") applications with the FDA for 
subsequent pharmacokinetics and clinical studies on the products. Except for 
the possible joint venture project, Kos has exclusive rights to manufacture 
the formulated products and Kos retains exclusive worldwide marketing rights 
upon exercising its existing option rights. On those products, Kos will pay 
the development costs and pay license and development fees based on milestone 
achievement. In addition, the Company will pay royalties to Fuisz based on 
product sales by Kos. 

SPONSORED RESEARCH 

BOSTON UNIVERSITY 

   
   Kos is sponsoring basic research at Boston University focused on the role 
of apolipoproteins in cardiovascular and Alzheimer's diseases. The objective 
of the research program is to identify molecular agents involved so that 
pharmaceutical products can be developed for the cardiovascular and 
Alzheimer's indications. Two patents have been filed related to this 
research, one of which is owned by Boston University and licensed to the 
Company and one of which is jointly owned by Boston University and Kos. 
Although no products have yet been identified for development as a result of 
this research, the Company would pay royalties upon the sale of such 
products. The research is being led by Vassilis Zannis, Ph.D., Professor and 
Director of the Section of Molecular Genetics of the Cardiovascular Institute 
at Boston University Medical Center. Dr. Zannis is recognized as a leading 
expert in the research of apolipoproteins. 
    

                               32           
<PAGE>
TUFTS UNIVERSITY 

   
   Since 1988, Kos has also been sponsoring research at Tufts University 
aimed at identifying and characterizing the pathophysiological significance 
of mast cell degranulation and mast cell-derived mediators in such diseases 
as migraine, irritable bowel syndrome, interstitial cystitis, and multiple 
sclerosis. This research has generated one issued U.S. patent, licensed to 
Kos, covering the use of inhibitors of mast cell degranulation for the 
treatment of migraines as well as five other patent applications claiming 
other therapeutic areas. Although no products have yet been identified for 
development as a result of this research, the Company would pay royalties 
upon the sale of such products. This research is being conducted at Tufts 
University School of Medicine and the New England Medical Center. 
    

   The Company's sponsorship of both research programs currently aggregates 
approximately $500,000 annually. Kos intends to seek additional industry 
development partners as research and development efforts increase. Kos has 
exclusive worldwide rights to all compounds related to the research conducted 
at both universities. 

LICENSING AND OTHER ACTIVITIES 

   
   The Company intends to pursue collaborative opportunities, including 
licensing the use of selected products and technologies from third parties 
("in-licensing"); acquisition of complementary technologies, products or 
companies; product co-marketing arrangements; joint ventures; and strategic 
alliances. The Company believes that attractive collaborative opportunities 
exist in which Kos may be able to leverage its competencies through such 
potential alliances in order to increase revenue potential for the Company. 
See "Use of Proceeds." 

   Many existing pharmaceutical products, or products currently under 
development, may be suitable candidates for specialty promotional or 
co-marketing campaigns. Kos intends to actively attempt to identify 
licensing, co-marketing and product acquisition opportunities that can 
complement the Company's future product portfolio. In addition, in situations 
where third-party drug delivery technologies are complementary to the 
Company's drug development formulation capabilities, the Company may pursue 
licensing rights for such technology. The Company may also consider licensing 
certain of its products and technologies to third parties ("out-licensing"). 
    

   Kos intends to explore strategic development and marketing alliances with 
one or more large pharmaceutical companies to pursue new chemical entities 
that may emerge from the Company's sponsored research programs. 

PATENTS AND PROPRIETARY RIGHTS 

   
   The Company actively seeks, when appropriate and available, protection for 
its products and proprietary information by means of United States and 
foreign patents, trademarks, trade secrets and contractual arrangements. 
Patent protection in the pharmaceutical field, however, can involve complex 
legal and factual issues. Moreover, broad patent protection for new 
formulations or new methods of use of existing chemical entities is sometimes 
difficult to obtain and often of limited usefulness, primarily because the 
active ingredient and many of the formulation techniques have been known for 
some time. Consequently, some patents claiming new formulations or new 
methods of use for old drugs may not provide meaningful protection against 
competition. Nevertheless, the Company intends to seek patent protection when 
appropriate and available and otherwise to rely on regulatory-related 
exclusivity and trade secrets to protect certain of its products, 
technologies and other scientific information. There can be no assurance, 
however, that any steps taken to protect such proprietary information will be 
effective. 

   The Company has a patent application pending in the PTO with claims 
covering NIASPAN'S method of use consistent with its recommended once-a-day 
dosing regimen. Certain of these claims have recently been held allowable but 
have not yet been issued as a patent by the PTO. The patent examiner 

                               33           
    
<PAGE>
   
has, however, suspended prosection of the Kos application and referred such 
application to the PTO's Board of Interference to determine whether an 
interference should be declared between such Kos application and a 
method-of-use patent issued to a privately owned generic manufacturer 
allegedly claiming the same dosing regimen invention. 

   On February 7, 1997, the Company and such generic manufacturer entered 
into an agreement pursuant to which the parties agreed to resolve, as between 
themselves, the effects of such potential interference by granting each other 
licenses under their respective patent application and patent, regardless of 
whether such licenses would be required. Accordingly, under the agreement, 
the generic manufacturer granted the Company a license to sell products under 
the generic manufacturer's above referenced patent, under a formulation 
patent owned by such generic manufacturer, and under corresponding foreign 
patents owned by such generic manufacturer, and the Company granted the 
generic manufacturer the right to sell such generic manufacturer's products 
that are covered by the claims in the Company's patent application and 
corresponding foreign applications owned by the Company. As consideration for 
entering into the agreement, the Company agreed to pay the generic 
manufacturer certain license fees and royalties on the net sales of NIASPAN 
subject to a cap on such royalty payments in the United States and a separate 
cap on such payments outside the United States. Neither the license fees nor 
the royalty payments are material to the financial condition of the Company. 
The Company may sublicense its rights under the agreement to third parties to 
make, use, or sell products developed by or for the Company. The generic 
manufacturer may not sublicense or transfer the license granted to it by Kos, 
although the generic manufacture may sublicense to third parties the right to 
supply to the generic manufacturer or market with or on behalf of the generic 
manufacturer, products that are covered by the generic manufacturer's patents 
but which are not covered by the Company's patent application. The Company 
may terminate the agreement after February 7, 2001. 

   Various inhalation devices, technologies, and methods of use licensed 
from, or assigned to Kos by, researchers and engineers engaged in development 
projects or sponsored research on behalf of Kos are the subject of four 
issued and one allowed U.S. patent, as well as various corresponding foreign 
patents. Similar patents applied for in other foreign countries are pending 
and being pursued by the Company. Six patent applications on certain of the 
Company's products under development and pertaining to certain of the 
sponsored research activities are pending at the PTO. The Company believes 
that most of the once-daily oral products in development under Kos' 
agreements with Fuisz are protected by various technology patents in the name 
of Fuisz. 
    

   There can be no assurance, however, that the patents owned and licensed by 
the Company, or any future patents, will prevent other companies from 
developing similar or therapeutically equivalent products or that others will 
not be issued patents that may prevent the sale of Company products or 
require licensing and the payment of significant fees or royalties by the 
Company. Furthermore, there can be no assurance that any of the Company's 
future products or methods will be patentable, that such products or methods 
will not infringe upon the patents of third parties, or that the Company's 
patents or future patents will give the Company an exclusive position in the 
subject matter claimed by those patents. 

   
   NIASPAN and Kos are the Company's principal registered trademarks, 
although eight other marks have been allowed and published by the PTO and 
will become registered trademarks upon their use by the Company. As the 
Company is not yet marketing any product, none of its planned trademarks are 
considered critical to the business of the Company. 
    

MARKETING 

   Kos intends to market its branded proprietary products through its own 
specialty sales force. A fundamental element of the Company's product 
selection strategy is to focus on products where a relatively concentrated 
group of specialist physicians account for a significant portion of the 
prescriptions for the therapeutic indication addressed by the Company's 
products. The Company believes that such specialist physicians will be the 
most receptive to the patient compliance, safety, or 

                               34           
<PAGE>
other therapeutic advantages that the Company's products will seek to offer. 
Accordingly, the Company believes that significant market gains can be 
achieved with such products through the use of a relatively small, well 
trained sales force concentrating its detailing efforts on informing such 
specialist physicians about the scientific basis for the therapeutic 
advantages of the Company's products. 

   
   The Company has not yet established a sales and marketing organization nor 
has it yet marketed, distributed or sold any product. Members of the 
Company's management, however, have substantial prior experience in 
establishing a sales force to market products to specialist physicians. The 
Company anticipates having an initial sales force of approximately 70 field 
sales representatives and managed care specialists in place prior to the 
expected launch of NIASPAN in 1997. Following the launch of NIASPAN and the 
approval of additional products for marketing, the Company plans to expand 
substantially its direct sales force to enable it to adequately detail such 
products to the specialists in both the cardiovascular and respiratory 
markets as appropriate. In particular, the Company intends to leverage its 
initial NIASPAN sales force by marketing future cardiovascular products, as 
they are approved, simultaneously with NIASPAN. 

   Following the introduction of NIASPAN, the Company expects to increase its 
detailing efforts to a larger group of cardiovascular specialists and other 
frequent prescribers of lipid-altering medications through the use of a 
contract detail force. The Company will also consider developing its own 
specialized flex-time (or part-time) sales representatives either to 
supplement or replace the contract detail force. It is expected that the use 
of contract and flex-time field forces will be used, in combination or alone, 
by the Company in the future as other products are added to assist with new 
product launches and to supplement the ongoing detail efforts of the 
specialized sales force. Although the Company has had no discussions with any 
such contract detail organization nor has it commenced the development of its 
own flex-time sales force, the Company's management has had substantial 
experience with the use of such field sales organizations to supplement 
internal sales forces. See "--Cardiovascular Products--Controlled-Release 
NIASPAN--Marketing Strategy for NIASPAN." 

   Following the launch of NIASPAN in the United States, the Company plans to 
license marketing rights to an established marketing partner in major 
international markets. Ultimately, the Company will consider establishing its 
own sales organization in selected foreign markets. To date, the Company has 
had no material discussions concerning such possible arrangements with other 
companies. 
    

MANUFACTURING 

   
   In order to maximize the quality of developed products, assure compliance 
with regulatory requirements, and minimize costs, the Company intends to 
manufacture all of its products internally. The Company currently has 
solid-dose production capability in both its Hollywood, Florida and Edison, 
New Jersey facilities.The Company's Edison facility is currently configured, 
and largely equipped, to manufacture aerosol inhalation products using both 
CFC and non-CFC propellants. Although the Company believes that both of these 
facilities currently operate using current good manufacturing practices as 
required by the FDA for the manufacture of product to be used in clinical 
trials, both facilities will require inspection and approval by the FDA 
before production for commercial sale can commence. The Company estimates 
that it has sufficient capacity, with limited additional capital outlays, to 
accommodate sales volume for both solid-dose and aerosol products through the 
year 2000. 

   The Company intends initially to contract the packaging of its solid-dose 
and aerosol products to third parties. The Company intends to begin in-house 
packaging operations once product sales volumes justify the capital 
expenditures required to establish such capabilities. Certain of the 
Company's raw materials, including the active ingredient in NIASPAN, are 
currently obtained from single sources of supply. The Company does not have a 
contractual arrangement with the sole supplier of the active ingredient in 
NIASPAN pursuant to which the Company obtains such incredient. The Company 
intends, to the extent possible, to identify multiple sources for all of its 
key raw materials, including the active ingredient in NIASPAN, although an 
alternate source for at least one such material will not be available because 
of the supplier's patent rights. 
    

                               35           
<PAGE>
COMPETITION 

   The Company's products will be competing with currently existing or future 
prescription pharmaceuticals and vitamins in the United States, Europe and 
elsewhere. Competition among these products will be based on, among other 
things, efficacy, safety, reliability, availability, price and patent 
position. In addition, academic institutions, government agencies and other 
public and private organizations conducting research may seek patent 
protection, discover new drugs or establish collaborative arrangements for 
drug research. Many of the Company's existing or potential competitors have 
substantially greater financial, technical and human resources than the 
Company and may be better equipped to develop, manufacture and market 
products. 

   
   The Company's cardiovascular and respiratory products, when developed and 
marketed, will compete in most cases with well established products 
containing the same active ingredient already being marketed by medium-sized 
and large pharmaceutical companies in the United States. For example, the 
Company's captopril formulation will compete with several other ACE 
inhibitors that are currently available, all of which have approval for 
treatment of certain indications using once-a-day administration. Kos is 
aware of one other company that is developing a once-a-day formulation of 
captropril. Further, the Company's triamcinolone and flunisolide formulations 
each will compete with another triamcinolone and flunisolide product, 
respectively, already being marketed in the United States. Although such 
competing products are sold only in a CFC version, the Company believes that 
the originators are developing non-CFC versions. 

   Moreover, there are numerous manufacturers of niacin preparations 
indicated for use as vitamin supplements or, in IR form, for treatment of 
hyperlipidemia. The Company is not aware that any such manufacturer is 
actively pursuing an NDA for the once-a-day use of niacin as a lipid-altering 
agent. The Company believes, however, that a generic manufacturer has 
performed an early-stage clinical study using niacin as a once-a-day 
treatment for lipid-altering. Further, the Company's NIASPAN product will 
compete with many existing lipid-altering medications, which currently 
account for a much larger portion of the lipid-altering market than do 
existing niacin products. 
    

GOVERNMENT REGULATION 

   The development, manufacture and potential sales of prescription 
pharmaceutical products is subject to extensive regulation by U.S. and 
foreign governmental authorities. In particular, pharmaceutical products are 
subject to rigorous preclinical and clinical testing and to other approval 
requirements by the FDA in the United States under the Federal Food, Drug and 
Cosmetic Act ("FFDCA") and the Public Health Service Act and by comparable 
agencies in most foreign countries. 

   Before testing of any agents with potential therapeutic value in healthy 
human test subjects or patients may begin, stringent government requirements 
for preclinical data must be satisfied. The data, obtained from studies in 
several animal species, as well as from laboratory studies, are submitted in 
an IND application, or its equivalent in countries outside the United States, 
where clinical studies are to be conducted. The preclinical data must provide 
an adequate basis for evaluating both the safety and the scientific rationale 
for the initiation of clinical trials. 

   Clinical trials are typically conducted in three sequential phases, 
although the phases may overlap. In Phase I, which frequently begins with the 
initial introduction of the compound into healthy human subjects prior to 
introduction into patients, the product is tested for safety, adverse 
affects, dosage, tolerance, absorption, metabolism, excretion and other 
elements of clinical pharmacology. Phase II typically involves studies in a 
small sample of the intended patient population to assess the efficacy of the 
compound for a specific indication, to determine dose tolerance and the 
optimal dose range as well as to gather additional information relating to 
safety and potential adverse effects. Phase III trials are undertaken to 
further evaluate clinical safety and efficacy in an expanded patient 
population at geographically dispersed study sites, in order to determine the 
overall risk-benefit ratio of the compound and to provide an adequate basis 
for product labeling. Each trial is conducted in accordance 

                               36           
<PAGE>
with certain standards under protocols that detail the objectives of the 
study, the parameters to be used to monitor safety and the efficacy criteria 
to be evaluated. Each protocol must be submitted to the FDA as part of the 
IND. 

   Data from preclinical and clinical trials are submitted to the FDA as a 
NDA for marketing approval and to other health authorities as a marketing 
authorization application. The process of completing clinical trials for a 
new drug is likely to take a number of years and require the expenditure of 
substantial resources. Preparing a NDA or marketing authorization application 
involves considerable data collection, verification, analysis and expense, 
and there can be no assurance that approval from the FDA or any other health 
authority will be granted on a timely basis, if at all. The approval process 
is affected by a number of factors, primarily the risks and benefits 
demonstrated in clinical trials as well as the severity of the disease and 
the availability of alternative treatments. The FDA or other health 
authorities may deny a NDA or marketing authorization application if the 
regulatory criteria are not satisfied, or such authorities may require 
additional testing or information. 

   Even after initial FDA or other health authority approval has been 
obtained, further studies, including Phase IV post-marketing studies, may be 
required to provide additional data on safety and will be required to gain 
approval for the use of a product as a treatment for clinical indications 
other than those for which the product was initially tested. Also, the FDA or 
other regulatory authorities require post-marketing reporting to monitor the 
adverse effects of the drug. Results of post-marketing programs may limit or 
expand the further marketing of the products. Further, if there are any 
modifications to the drug, including changes in indication, manufacturing 
process or labeling or a change in manufacturing facility, an application 
seeking approval of such changes must be submitted to the FDA or other 
regulatory authority. 

   The FFDCA also provides for NDA submissions that may rely in whole or in 
part on preclinical and clinical safety and efficacy data that are publicly 
available or are allowed to be referenced from another NDA. The Company may 
be able to utilize existing publicly available safety and efficacy data in 
filing NDAs for controlled-release products when such data exist for an 
approved immediate-release version of the same chemical entity. The Company 
intends to utilize all relevant available data for its products under 
development, where appropriate, in order to reduce preclinical and clinical 
testing and overall development time. There can be no assurance, however, 
that the FDA will accept such data in the Company's applications, or that 
such existing data will be available or useful. 

   Certain amendments to the FFDCA established abbreviated application 
procedures for obtaining FDA approval for generic versions of brand name 
prescription drugs that are off patent or whose marketing exclusivity has 
expired. Approval to manufacture and market generic drugs is obtained by 
filing ANDAs. As a substitute for clinical studies, the FDA requires, among 
other items, data demonstrating that the ANDA drug formulation is 
bioequivalent to the previously approved brand name formulation. The 
advantage of the ANDA approval is that an ANDA applicant is not required to 
conduct preclinical and clinical studies to demonstrate that the product is 
safe and effective for its intended use. 

   Whether or not FDA approval has been obtained, approval of a product by 
regulatory authorities in foreign countries must be obtained prior to the 
commencement of commercial sales of the product in such countries. The 
requirements governing the conduct of clinical trials and product approvals 
vary widely from country to country, and the time required for approval may 
be longer or shorter than that required for FDA approval. Although there are 
some procedures for unified filings for certain European countries, in 
general, each country at this time has its own procedures and requirements. 
Further, the FDA regulates the export of products produced in the United 
States and may prohibit the export even if such products are approved for 
sale in other countries. 

   The Company's research and development involves the controlled use of 
hazardous materials, chemicals, and various radioactive compounds. Although 
the Company believes that its procedures for handling and disposing of those 
materials comply with state and federal regulations, the risk of 
contamination or injury from these materials cannot be eliminated. In the 
event of such contamination 

                               37           
<PAGE>
or injury, the Company could be held liable for resulting damages, which 
could be material to the Company's business, financial condition and results 
of operations. The Company is also subject to numerous environmental, health 
and workplace safety laws and regulations, including those governing 
laboratory procedures, exposure to blood-borne pathogens, and the handling of 
biohazardous materials. Additional federal, state and local laws and 
regulations affecting the Company may be adopted in the future. Any violation 
of, and the cost of compliance with, these laws and regulations could 
materially and adversely affect the Company. 

   Completing the multitude of steps necessary prior to the commencement of 
marketing requires the expenditure of considerable resources and a lengthy 
period of time. Delay or failure in obtaining the required approvals, 
clearances, permits or inclusions by the Company or its future corporate 
partners or licensees, if any, would have a material adverse effect on the 
ability of the Company to generate sales or royalty revenue. Further, the 
passage and implementation of new or changed laws or regulations or the 
potential impact on the Company of such actions cannot be anticipated. 

   One of the Company's products under development, albuterol (CFC), uses CFC 
propellants. CFC propellants are ozone-depleting substances, the use of which 
is restricted under the Federal Clean Air Act and the Montreal Protocol on 
Substances that Deplete the Ozone Layer. The United Nations Technology and 
Economic Assessment Panel (TEAP) reviews requests for specific essential use 
allocations of CFCs under the Montreal Protocol and makes recommendations to 
the parties, who determine the yearly bulk allocations for each country. 
Recently, the Company's Essential Use Application for the use of CFCs during 
1997 and 1998 was approved by TEAP and the parties to the Montreal Protocol. 
Although the Company has received its requested allocation for 1997 and 1998 
there can be no assurance that it will receive all or any part of its 
allocation for 1999, or allocations for future years. 

EMPLOYEES 

   
   The Company has approximately 105 permanent employees, of which 68 are 
engaged in research and development and 19 in manufacturing. No employee is 
represented by a union. The Company regularly employs the services of outside 
consultants with respect to regulatory, scientific, and certain 
administrative and commercial matters. The Company expects to continue to 
require the services of such outside consultants. The Company believes its 
employee relations are good. 
    

FACILITIES 

   The Company leases approximately 3,400 square feet for its executive 
offices pursuant to a lease that expires in 1997. The Company leases 
approximately 14,500 square feet in adjacent buildings in Hollywood, Florida, 
which are used for the research and development and solid-dose manufacturing 
operations. These leases expire in November 2000, assuming the Company elects 
to exercise certain renewal options. An additional 5,200 square feet of 
office space at the same Hollywood site is leased through July 1997. The 
Company also occupies approximately 21,500 square feet of space in Edison, 
New Jersey under a lease that expires in October 2003, assuming the Company 
elects to exercise a five-year renewal option. The Edison, New Jersey 
facility is used for research and development, solid-dose manufacturing, and 
aerosol manufacturing. 

LEGAL PROCEEDINGS 

   There are no legal proceedings pending against the Company or its 
properties or to which the Company is a party. 

                               38           
<PAGE>
                                  MANAGEMENT 

   
   The following table provides information regarding directors, director 
nominees, executive officers and key personnel of the Company: 
    

DIRECTORS AND EXECUTIVE OFFICERS 

<TABLE>
<CAPTION>
           NAME             AGE                        POSITION 
- ----------------------------------------------------------------------------------
<S>                       <C>    <C>
Michael Jaharis ......... 68     Chairman of the Board of Directors 
Daniel M. Bell .......... 54     President, Chief Executive Officer and Director 
Robert E. Baldini ....... 66     Vice Chairman of the Board of Directors 
David J. Bova ........... 51     Senior Vice President, Product Development 
John Brademas, Ph.D.  ... 69     Director Nominee(1) 
Steven Jaharis, M.D.  ... 37     Director(1)(2) 
Louis C. Lasagna, M.D.  . 74     Director Nominee(1) 
Mark Novitch, M.D. ...... 64     Director Nominee(2) 
Frederick B. Whittemore   66     Director Nominee(2) 
</TABLE>

OTHER KEY EMPLOYEES 

<TABLE>
<CAPTION>
              NAME                AGE                         POSITION 
- ------------------------------------------------------------------------------------------
<S>                             <C>    <C>
Marvin F. Blanford, Pharm. D.   49     Vice President, Compliance 
Eugenio A. Cefali, Ph.D.  ..... 38     Vice President, Clinical Pharmacology 
Anthony J. Cutie, Ph.D.  ...... 53     Vice President, Aerosol Research & Development 
David L. Heatherman ........... 50     Vice President, Sales & Marketing 
Frederick A. Sexton ........... 37     Vice President, Technical Operations 
Arthur W. Brinkmann ........... 62     Director of Human Resources 
Christopher P. Kiritsy ........ 32     Director of Financial Analysis and Business Planning 
Mukesh P. Patel ............... 39     Director of Licensing 
Juan F. Rodriguez ............. 29     Controller 
</TABLE>

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

(1) Proposed member of the Audit Committee 

(2) Proposed member of the Compensation and Stock Option Committee 

   MICHAEL JAHARIS, a founder of the Company, has, since its inception, 
funded the operations of the Company and served as Chairman of the Board. In 
this position, Mr. Jaharis has been actively involved in the development of 
the Company's business strategy and in critical implementation decisions. 
From 1972 until its acquisition by Schering-Plough Corporation 
("Schering-Plough") in 1986, Mr. Jaharis served as the President and Chief 
Executive Officer of Key Pharmaceuticals, Inc. ("Key Pharmaceuticals"). Mr. 
Jaharis also serves as Chairman of Kos Investments and Kos Holdings, as 
Trustee of Tufts University, and as Chairman of the Board of Overseers of 
Tufts University School of Medicine. 

   DANIEL M. BELL, a founder of the Company, has served as a Director and as 
the President and Chief Executive Officer of the Company since its inception. 
Mr. Bell also serves as a director of Kos Investments and Kos Holdings and as 
a director of two private companies in which Kos Investments or Michael 
Jaharis is the largest shareholder. From 1983 to 1986, Mr. Bell was employed 
by Key Pharmaceuticals and was serving as its Executive Vice President and 
Chief Operating Officer at the time of its acquisition by Schering-Plough in 
June 1986. 

   ROBERT E. BALDINI has served as Vice Chairman of the Board since July 1996 
and as a senior marketing consultant to the Company since April 1996. In 
these positions, Mr. Baldini serves as an executive officer of the Company. 
In addition to performing services for the Company, Mr. Baldini serves as a 
consultant to, and director of, several private pharmaceutical and medical 
device companies. Mr. Baldini served Key Pharmaceuticals from 1982 to 1986 as 
Senior Vice President of Sales and Marketing. Following its acquisition by 
Schering-Plough, he continued with the Key Pharmaceuticals Division of 
Schering-Plough until 1995, last serving as its President. 

                               39           
<PAGE>
   DAVID J. BOVA, a founder of the Company, has directed the Company's 
product development efforts since inception and now serves as Senior Vice 
President, Product Development. Prior to the founding of Kos, Mr. Bova was at 
Key Pharmaceuticals from 1981 until its acquisition by Schering-Plough; he 
continued with Schering-Plough until the founding of Kos in 1988. At Key 
Pharmaceuticals, he last served as the Director of Product Development. Prior 
to 1981, Mr. Bova was employed by the USV pharmaceutical operation of Revlon 
Healthcare. 

   
   JOHN BRADEMAS, PH.D. has been nominated to become a Director of the 
Company immediately following the closing of this offering. Dr. Brademas has 
been President Emeritus of New York University since 1992. Prior to 1992, he 
was President of New York University for eleven years and was the U.S. 
Representative in Congress for Indiana's Third District for twenty-two years. 
Dr. Brademas serves as a director of Texaco, Inc., NYNEX Corporation, 
Scholastic, Inc., and Loews Corporation. He is a former Chairman of the 
Federal Reserve Bank of New York and a former director of the New York Stock 
Exchange. 
    

   STEVEN JAHARIS, M.D. has served as a Director of the Company since its 
inception. Dr. Jaharis has been a practicing physician since 1990 and 
currently serves as a family practitioner at Rush Prudential H.M.O. Dr. 
Jaharis is the son of Michael Jaharis. 

   LOUIS C. LASAGNA, M.D. has been nominated to become a Director of the 
Company immediately following the closing of this offering. Dr. Lasagna has 
served as the Dean of the Sackler School of Graduate Biomedical Sciences at 
Tufts University since 1984. Dr. Lasagna serves as a director of Astra U.S.A. 
Inc., a subsidiary of Astra AB. 

   MARK NOVITCH, M.D. has been nominated to become a Director of the Company 
immediately following the closing of this offering. Dr. Novitch has served as 
Professor of Health Care Sciences at George Washington University since 1994. 
Dr. Novitch was with The Upjohn Company from 1985 to 1993, last serving as 
its Vice Chairman. From 1971 to 1985, Dr. Novitch was with the FDA, serving 
as Deputy Commissioner from 1981 to 1985. Dr. Novitch serves as a director of 
Alteon, Inc., Guidant Corporation, Neurogen Corporation, and Calypte 
Biomedical, Inc. 

   FREDERICK B. WHITTEMORE has been nominated to become a Director of the 
Company immediately following the closing of this offering. Mr. Whittemore 
has been with Morgan Stanley Group since 1958 and presently serves as 
Advisory Director. Mr. Whittemore is a director of various mutual funds 
organized under Morgan Stanley Asset Management, Inc. Mr. Whittemore also 
serves as a director of Chesapeake Energy Corporation, PartnerRe Holdings, 
Ltd., and Integon, Inc. 

   MARVIN F. BLANFORD, PHARM. D. joined Kos in 1996 and serves as Vice 
President, Compliance. Dr. Blanford was the Director of Clinical Research for 
Noven Pharmaceuticals, Inc. from 1992 to 1995. Previously joining Noven, Dr. 
Blanford was vice president of a major independent clinical research 
organization. Dr. Blanford also worked for Key Pharmaceuticals as a research 
manager from 1981 through 1984. 

   EUGENIO A. CEFALI, PH.D. joined the Company in January 1994 and serves as 
Vice President, Clinical Pharmacology. Dr. Cefali was responsible for 
clinical pharmacology and Phase IV clinical research at Whitby 
Pharmaceuticals from 1991 to 1994. Prior to 1991, Dr. Cefali was at Key 
Pharmaceuticals and Schering-Plough where he was responsible for in-vivo 
evaluation of certain oral sustained release and transdermal dosage forms. 

   ANTHONY J. CUTIE, PH.D. serves as Vice President, Aerosol Research and 
Development; he has been the Chief Scientific Officer of the Company's 
aerosol subsidiary since its founding in 1993. For more than 25 years, Dr. 
Cutie has been an industry consultant in pharmaceutical aerosols and he has 
worked with over 50 pharmaceutical companies ranging from large 
multinationals to small generic companies. He has served as a consultant for 
the FDA, and he has been an active member of various United States 
Pharmacopia committees and two aerosol committees of the American Association 
of Pharmaceutical Scientists. Dr. Cutie also serves as Professor of 
Industrial Pharmacy at Long Island University. 

                               40           
<PAGE>
   DAVID L. HEATHERMAN has served as Vice President, Sales and Marketing 
since July 1996. Mr. Heatherman worked for Schering-Plough from 1972 to 1996 
in several capacities including Senior Product Promotion Director, Regional 
Sales Director, last serving as Managed Care Director. 

   FREDERICK A. SEXTON joined the Company in January 1996 and serves as Vice 
President, Technical Operations. Prior to joining the Company, Mr. Sexton was 
employed by Boehringer Ingelheim Pharmaceuticals from 1984 through 1995 in 
various production and quality assurance positions involving solid-dose and 
aerosol products. Prior to 1984, Mr. Sexton was employed by Ayerst 
Laboratories in research and production positions. 

   ARTHUR W. BRINKMANN has served as Director, Human Resources since 
September, 1991. Mr. Brinkmann was Director of Human Resources at Key 
Pharmaceuticals and Schering-Plough from 1984 to 1989. Prior to Key 
Pharmaceuticals, Mr. Brinkmann worked in human resources at Johnson & Johnson 
for twenty-one years. 

   
   CHRISTOPHER P. KIRITSY joined the Company in June 1995 and serves as 
Director, Financial Analysis and Business Planning. Prior to joining the 
Company, Mr. Kiritsy was with Institute of Molecular Biology, Inc., a 
development stage biotechnology concern, from 1988 to 1995, where he last 
served as Associate Director of Product Development. 
    

   MUKESH P. PATEL has served as Director, Licensing since July 1991. Mr. 
Patel was employed by Glaxo in London, England for eleven years prior to 
joining the Company, last serving as an International Licensing Executive for 
Glaxo Holdings. 

   JUAN F. RODRIGUEZ, a certified public accountant, joined the Company in 
November 1995 and serves as Controller. Prior to joining Kos, Mr. Rodriguez 
was employed by the accounting firms of Rosen and Co. from 1994 to 1995 and 
Arthur Andersen LLP from 1991 to 1994. 

ELECTION, COMMITTEES AND COMPENSATION OF DIRECTORS 

   Prior to the consummation of this offering, the Company intends to 
establish a Compensation and Stock Option Committee and an Audit Committee. 

   The Compensation and Stock Option Committee will administer the Company's 
1996 Stock Option Plan (the "Option Plan") including, among other things, 
determining the amount, exercise price and vesting schedule of stock options 
awarded under the Option Plan. The Compensation and Stock Option Committee 
will administer the Company's other compensation programs and perform such 
other duties as may from time to time be determined by the Board of 
Directors. The Compensation and Stock Option Committee is expected to be 
comprised of Dr. Jaharis, Dr. Novitch, and Mr. Whittemore. 

   The Audit Committee will review the scope and results of the annual audit 
of the Company's consolidated financial statements conducted by the Company's 
independent accountants, the scope of other services provided by the 
Company's independent accountants, proposed changes in the Company's 
financial and accounting standards and principles, and the Company's policies 
and procedures with respect to its internal accounting, auditing and 
financing controls. The Audit Committee will also examine and consider other 
matters relating to the financial affairs and accounting methods of the 
Company, including selection and retention of the Company's independent 
accountants. The Audit Committee is currently expected to be comprised of Dr. 
Brademas, Dr. Jaharis, and Dr. Lasagna. 

   Each non-employee and non-consultant director of the Company, is entitled 
to receive a fee of $1,000 for attendance at each meeting of the Board of 
Directors. In addition, each non-employee and non-consultant director is 
entitled to receive $500 for attendance at each meeting of a committee of the 
Board of Directors. All directors are reimbursed for travel expenses incurred 
in connection with the performance of their duties as directors. 

                               41           
<PAGE>
   Each non-employee and non-consultant director is entitled to receive an 
option to purchase 5,000 shares of Common Stock upon their appointment to the 
Board of Directors and is entitled to receive an option to purchase 3,000 
shares of Common Stock annually thereafter, so long as they continue to serve 
on the Board of Directors. See "Management--Stock Option Plan." 

   Michael Jaharis has elected not to receive fees or stock options in 
connection with his serving as Chairman of the Board. Although Mr. Jaharis 
has been actively involved in the development of the Company's business 
strategy and in critical implementation decisions, he has never been paid 
compensation by the Company for acting in such capacity. Since July 1, 1996, 
however, the Company has leased an automobile for Mr. Jaharis' use. 

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION 

   During the fiscal year ended June 30, 1996, Michael Jaharis, the Company's 
Chairman of the Board, and Daniel M. Bell, the Company's President and Chief 
Executive Officer, participated in deliberations of the Company's Board of 
Directors concerning executive officer compensation. Prior to this offering, 
the Company did not have a stock option or compensation committee. 

EXECUTIVE COMPENSATION 

   The following table summarizes the compensation during the fiscal years 
ended June 30, 1996, 1995 and 1994, paid to or earned by the Company's Chief 
Executive Officer and to the other executive officers of the Company whose 
annual salary and bonuses exceeded $100,000 during the fiscal year ended June 
30, 1996 (collectively, the "Named Executive Officers"). 

                          SUMMARY COMPENSATION TABLE 

<TABLE>
<CAPTION>
                                                                                        LONG-TERM COMPENSATION 
                                                                              ------------------------------------------
                                               ANNUAL COMPENSATION                        AWARDS                PAYOUTS 
                                     --------------------------------------  ------------------------------  ----------
                                                                                RESTRICTED      SECURITIES 
                                                              OTHER ANNUAL        STOCK         UNDERLYING       LTIP   ALL OTHER 
NAME AND                               SALARY       BONUS     COMPENSATION       AWARD(S)      OPTIONS/SARS    PAYOUTS COMPENSATION 
PRINCIPAL POSITION            YEAR       ($)         ($)           ($)             ($)             (#)            ($)     ($)(1) 
- ------------------            ----     ------     - -----     ------------      ----------     ------------     ------- ------------
<S>                           <C>      <C>         <C>        <C>               <C>            <C>              <C>     <C>
Daniel M. Bell                1996     246,000         --          --              --          750,000(2)        --       4,928 
 President and                1995     246,000     10,000          --              --               --           --       1,814 
  Chief Executive Officer     1994     246,000         --          --              --               --           --         890 

David J. Bova                 1996     185,000     25,000          --              --               --           --       1,091 
 Senior Vice President,       1995     185,000         --          --              --               --           --         726 
  Product Development         1994     164,167         --          --              --               --           --         605 
</TABLE>
- -----------------------------------------------------------------------------
(1) CONSISTS OF LIFE INSURANCE PREMIUMS PAID BY THE COMPANY. 

(2) The options originally were granted to Mr. Bell in August 1988. The 
    option terms were amended on June 20, 1996, to extend the expiration date 
    of the options from December 1996 to June 20, 2006. Other material terms 
    of the options, including the exercise price, were not changed. The 
    options are currently exercisable. 

                               42           
<PAGE>
   The following table contains information about stock option grants to 
Named Executive Officers during the fiscal year ended June 30, 1996. 

                      OPTION GRANTS IN LAST FISCAL YEAR 
<TABLE>
<CAPTION>
                                                                                                       POTENTIAL REALIZABLE 
                                          INDIVIDUAL GRANTS                                              VALUE AT ASSUMED 
                ----------------------------------------------------------------------------              ANNUAL RATE OF 
                   NUMBER OF SECURITIES    % OF TOTAL OPTIONS  EXERCISE OR                          STOCK PRICE APPRECIATION 
                    UNDERLYING OPTIONS    GRANTED TO EMPLOYEES  BASE PRICE  EXPIRATION               FOR OPTION TERM(1) 
NAME                   GRANTED (#)           IN FISCAL YEAR     ($/SHARE)      DATE       0%($)          5%($)       10%($) 
- ---------------- --------------------- ---------------------   ----------   ----------  -------------   ----------  -------
<S>               <C>                    <C>                    <C>         <C>         <C>            <C>         <C>
DANIEL M. BELL           750,000(2)              41%            $0.60       6/20/06     $4,800,000     $7,818,694  $12,449,964 
DAVID J. BOVA  .              --                 --                --            --             --             --           --
</TABLE>
- -----------------------------------------------------------------------------
(1) Amounts reflect hypothetical gains that could be achieved for the options 
    if they are exercised at the end of the option term. Those gains are 
    based on assumed rates of stock appreciation of 0%, 5% and 10% compounded 
    annually from the date the option was modified through the expiration 
    date. The Board of Directors estimated the fair market value of Common 
    Stock to be $7.00 per share on the date of such modification. 

(2) The options originally were granted to Mr. Bell in August 1988. The 
    option terms were amended on June 20, 1996, to extend the expiration date 
    of the options from December 1996 to June 20, 2006. Other material terms 
    of the options, including the exercise price, were not changed. The 
    options are currently exercisable. 

   The following table provides information about the number and value of 
options held by the Named Executive Officers at June 30, 1996: 

                        FISCAL YEAR-END OPTION VALUES 
<TABLE>
<CAPTION>
                        NUMBER OF SECURITIES               VALUE OF UNEXERCISED 
                   UNDERLYING UNEXERCISED OPTIONS          IN-THE-MONEY OPTIONS 
                            AT FY-END(#)                     AT FY-END($)(1) 
                  --------------------------------  --------------------------------
NAME                EXERCISABLE     UNEXERCISABLE     EXERCISABLE     UNEXERCISABLE 
- ---------------- -------------- ----------------  -------------- ----------------
<S>               <C>             <C>                <C>             <C>
Daniel M. Bell        750,000            --           $4,800,000           --
David J. Bova  .      275,000            --           $1,718,750           --
</TABLE>
- -----------------------------------------------------------------------------

(1) For purposes of determining the values of the options held by Named 
    Executive Officers, the Company has assumed that Common Stock had a value 
    of $7.00 per share on June 30, 1996, which is the estimated fair market 
    value the Board of Directors had attributed to the Common Stock on June 
    20, 1996, in connection with certain grants of options under the 
    Company's stock option plan. The option value is based on the difference 
    between the fair market value of the shares on June 30, 1996 and the 
    option exercise price per share, multiplied by the number of shares of 
    Common Stock subject to the option. 

CONFIDENTIALITY AND INTELLECTUAL PROPERTY AGREEMENTS 

   Each employee of the Company has entered into a Confidentiality Agreement 
that (i) prohibits the employee from disclosing confidential information 
relating to the Company and (ii) provides that intellectual property 
conceived by the employee during the term of employment and relating to the 
business of the Company remains the exclusive property of the Company. 

EMPLOYMENT AGREEMENTS 

   The Company entered into an employment agreement with Daniel M. Bell dated 
as of July 1, 1996. Under the agreement, Mr. Bell serves as President and 
Chief Executive Officer of the Company for a term expiring on June 30, 2002, 
unless earlier terminated for cause, upon the death or disability of Mr. 
Bell, or, at the election of Mr. Bell, upon a change in control of the 
Company. In the event that Mr. Bell is terminated without cause or upon a 
change in control of the Company, Mr. Bell is entitled to receive as 
severance compensation his base salary, bonus compensation and annual stock 
options until the later to occur of the date thirty-six months after such 
termination and June 30, 2002. The agreement provides that Mr. Bell receive 
base annual compensation of $250,000 for each year during the term of the 
agreement, subject to an annual increase in an amount to be determined by the 
Board of Directors. Under the agreement, Mr. Bell also receives an annual 
bonus and an annual stock option grant in amounts to be determined by the 
Board of Directors based upon Mr. Bell's and the Company's 

                               43           
<PAGE>
   
performance. Mr. Bell was paid a bonus of $150,000 in December 1996. The 
agreement also provides that the Company will provide Mr. Bell with the use 
of an automobile. Mr. Bell is prohibited from competing with the Company 
during the term of the agreement and for two years after termination thereof. 

   The Company entered into an employment agreement with David Bova dated as 
of June 15, 1996, pursuant to which Mr. Bova serves as Senior Vice President 
of the Company. This agreement constitutes an amendment and restatement of a 
previous employment agreement with Mr. Bova, dated December 18, 1992. Under 
the agreement, the term of Mr. Bova's employment terminates on December 31, 
1997 unless earlier terminated for cause, upon the death or disability of Mr. 
Bova, or, at the election of Mr. Bova, upon a change in control of the 
Company. Notwithstanding the foregoing, the Company may exercise an option to 
extend the term of the agreement for up to twenty-four additional months. The 
agreement provides that Mr. Bova receive a base salary of $195,000 per year, 
which amount may be increased by the Company. In December 1996, the Company's 
Board of Directors determined to award a $25,000 bonus to Mr. Bova, payable 
to Mr. Bova in 1997. In the event that Mr. Bova is terminated without cause 
or upon a change in control of the Company, Mr. Bova is entitled to receive 
as severance compensation his base salary until December 31, 1997. In 
addition, the agreement provides that Mr. Bova receive royalties in an amount 
equal to one percent of the net sales of the Company's NIASPAN product and 
its combination product through December 31, 2003, up to a cap of $4,000,000. 
The agreement provides that, under certain enumerated circumstances, the 
royalty amount may be reduced to 0.5% of net sales. The agreement also 
provides that under certain specific circumstances, the Company's obligation 
to pay royalties may cease upon Mr. Bova's termination with the Company. The 
agreement prohibits Mr. Bova from competing with the Company during the term 
of the agreement and for a period of two years after the termination thereof. 

   The Company entered into a consulting agreement with Robert Baldini 
effective as of April 1, 1996, pursuant to which Mr. Baldini serves as Vice 
Chairman of the Board and as senior marketing consultant to the Company, 
advising the Company with respect to its establishment of a sales force and 
its marketing efforts. Mr. Baldini will receive $75,000 per year under the 
agreement and is obligated to devote fifty days per year to Company matters. 
The term of the agreement continues for five years. The agreement is 
automatically renewable for successive two year periods unless either party 
provides thirty days prior written notice of its desire not to renew. The 
agreement is terminable by either party upon 120 days prior written notice. 
The agreement prohibits Mr. Baldini from competing with the Company during 
the term of the Agreement. 
    

EMPLOYEE BENEFIT PLANS 

STOCK OPTION PLAN 

   
   The Option Plan provides for the grant of both nonstatutory stock options 
and stock options intended to be treated as incentive stock options within 
the meaning of Section 422 of the Internal Revenue Code. The Option Plan is 
intended to provide incentives to, and rewards for, certain eligible 
employees, consultants and outside directors of the Company who have 
contributed and will continue to contribute to the success of the Company. 
The Option Plan was adopted by the Board of Directors and the shareholder of 
the Company in June 1996. An aggregate of 3,675,000 shares of Common Stock 
have been reserved for issuance under the Option Plan. The Company has 
granted options to purchase an aggregate of 2,005,500 shares of Common Stock 
under the Option Plan to employees and consultants at exercise prices ranging 
from $0.60 to the initial public offering price per share, including stock 
options covering an aggregate of 750,000 shares of Common Stock granted to 
one of the Company's Named Executive Officers. The Company has also granted 
options to purchase an aggregate of 325,000 shares of Common Stock outside of 
the Option Plan to an employee and a consultant, including stock options 
covering an aggregate of 275,000 shares of Common Stock granted to one of the 
Company's Named Executive Officers. 
    

   Under the Option Plan, the Compensation and Stock Option Committee of the 
Board of Directors of the Company (the "Stock Option Committee") is 
authorized to administer the Option Plan, 

                               44           
<PAGE>
including the selection of employees and consultants of the Company to whom 
options may be granted. The Stock Option Committee also determines the number 
of shares, the exercise price, the term, any conditions on exercise and other 
terms of each option granted to an employee or consultant. Options granted to 
employees or consultants under the Option Plan become vested over a period of 
four years or such shorter or longer period as may be determined by the Stock 
Option Committee at the time of grant. The duration of an option granted to 
an employee or consultant under the Option Plan is ten years from the date of 
grant, or such shorter or longer period as may be determined by the Stock 
Option Committee at the time of grant or as may result from the death, 
disability, or termination of the employment of the employee or consultant to 
whom the option is granted. 

   The Option Plan prescribes a formula for determining the amount, price and 
timing of awards of stock options to the eligible outside directors. Upon his 
or her election to the Board of Directors of the Company, an eligible outside 
director will receive an option to purchase 5,000 shares of the Company's 
common stock. On each anniversary of his or her appointment to the Board of 
Directors of the Company, an eligible outside director will receive an option 
to purchase 3,000 shares of the Company's common stock. The exercise price of 
each share subject to an option granted to an outside director will be the 
fair market value of the Company's common stock on the later of (a) the 
earlier of the date of an initial public offering of the Company's common 
stock or December 31, 1996, or (b) the date the option is granted. Each 
option granted to an outside director under the Option Plan becomes vested on 
the first anniversary of its date of grant. The duration of an option granted 
to an outside director under the Option Plan is the lesser of ten years from 
the date of grant or one year from the date of the outside director's death. 

   The options are non-transferable other than by will or by the laws of 
descent and distribution. The Option Plan may be amended at any time by the 
Board of Directors, although certain amendments require shareholder approval. 
The Option Plan terminates in June 2006. 

401(K) PLAN 

   The Company's Internal Revenue Code Section 401(k) Plan, known as the Kos 
Savings Plan, became effective on January 1, 1994. Each employee who has 
completed at least one year of service with the Company and has attained age 
21 is eligible to make pre-tax elective deferral contributions each year not 
exceeding the greater of a specified statutory amount or 15 percent of the 
employee's compensation for the year. An employee is always 100 percent 
vested in the employee's elective deferral contributions. The Company makes 
no contributions under this plan. 

                               45           
<PAGE>
                             CERTAIN TRANSACTIONS 

   During 1995 the Company acquired certain property including used 
computers, laboratory equipment and supplies and certain other office 
equipment and furnishings from the Institute of Molecular Biology, Inc. 
("IMB"), a company controlled by Kos Investments. In the aggregate, such 
purchases totaled approximately $83,500. Until June 1996, Daniel M. Bell, the 
Company's President and Chief Executive Officer, also served as the Chairman 
of the Board of Directors and Chief Executive Officer of IMB. 

   
   Michael Jaharis, the sole shareholder of Kos Investments, has personally 
guaranteed the repayment of a loan to Kos Investments from certain financial 
institutions. Prior to March 21, 1995, the Company was the primary borrower 
under this loan, and therefore received the benefit of the personal guaranty 
extended by Mr. Jaharis. As consideration for Mr. Jaharis's personal 
guaranty, the Company agreed to pay Mr. Jaharis an annual fee of 0.25% of the 
average amount outstanding under the loan during the Company's fiscal year. 
The Company paid Mr. Jaharis $28,700 and $92,333 during the fiscal years 
ended June 30, 1994 and 1995, respectively. In March 1995, the Company was 
released as a borrower under the loan. 

   The Company executed the Convertible Note, dated as of July 1, 1996, the 
proceeds of which will be used to fund the Company's operations until the 
consummation of this offering, in connection with a loan to the Company from 
Kos Investments in the aggregate principal amount of up to $15.0 million. 
Under the terms of this note, interest accrues on the outstanding principal 
amount at First Union National Bank of Florida's prime rate commencing July 
1, 1996, escalating to a rate of 1% over such prime rate during calendar year 
1997, 2% over such prime rate during calendar year 1998, and 3% over such 
prime rate during calendar year 1999 until maturity. Principal and interest 
under this note are due on June 30, 1999. From time to time, at Kos 
Investments' option, principal and interest outstanding under this note may 
be converted, in whole or in part, into Common Stock at a conversion price 
per share equal to the initial public offering price per share. As of 
February 7, 1997, the Company had borrowed $11,355,000 under this note. 
    

                               46           
<PAGE>
                            PRINCIPAL SHAREHOLDERS 

   
   The following table sets forth, as of February 7, 1997 and as adjusted at 
that date to reflect the sale of Common Stock offered by the Company hereby, 
information with respect to the beneficial ownership of the Company's Common 
Stock by: (i) each person known by the Company to beneficially own more than 
five percent (5%) of the outstanding shares of the Company's Common Stock; 
(ii) each director and director nominee of the Company; (iii) the Company's 
Named Executive Officers; and (iv) all directors and executive officers as a 
group. Unless otherwise indicated, each of the shareholders named in this 
table: (a) has sole voting and investment power with respect to all shares of 
Common Stock beneficially owned; and (b) has the same address as the Company. 
    

<TABLE>
<CAPTION>
                                                                          PERCENTAGE 
                                                                     BENEFICIALLY OWNED(1) 
                                                          -----------------------------------------
                                 SHARES BENEFICIALLY 
BENEFICIAL OWNER                       OWNED(1)            BEFORE THE OFFERING   AFTER THE OFFERING 
- --------------------------- --------------------------- --------------------  -------------------
<S>                          <C>                          <C>                    <C>
Michael Jaharis(2) ........           10,000,000                  100.0%                74.0% 
Daniel M. Bell(3) .........              750,000                    7.0%                 5.5% 
David J. Bova(4) ..........              275,000                    2.7%                 2.0% 
Robert E. Baldini .........                   --                    --                  --
John Brademas, Ph.D.  .....                   --                    --                  --
Steven Jaharis, M.D.  .....                   --                    --                  --
Louis C. Lasagna, M.D.  ...                   --                    --                  --
Mark Novitch, M.D. ........                   --                    --                  --
Frederick B. Whittemore  ..                   --                    --                  --
All Officers and Directors 
  as a group (9 persons)(5)           11,025,000                  100.0%                81.7% 
</TABLE>

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

   
(1) Shares beneficially owned and percentage of ownership are based on 
    10,000,000 shares of Common Stock outstanding before this offering and 
    13,500,000 shares of Common Stock outstanding after the closing. 
    Beneficial ownership is determined in accordance with the rules of the 
    SEC and generally includes voting and disposition power with respect to 
    securities. 

(2) All shares are held by Kos Holdings, Inc., which is wholly owned by Kos 
    Investments, Inc., of which Mr. Jaharis is the sole shareholder, and with 
    respect to such shares Mr. Jaharis has sole voting and investment power. 
    Excludes 811,071 shares of Common Stock (assuming a public offering price 
    of $14.00 per share) issuable to Kos Investments upon the conversion, if 
    any, of the Convertible Note. 
    

(3) Consists of 750,000 shares of Common Stock that may be purchased by Mr. 
    Bell pursuant to an option, which is currently exercisable. 

(4) Consists of 275,000 shares of Common Stock that may be purchased by Mr. 
    Bova pursuant to an option, which is currently exercisable. 

(5) Includes an aggregate of 1,025,000 shares underlying currently 
    exercisable options to purchase Common Stock. 

                               47           
<PAGE>
                         DESCRIPTION OF CAPITAL STOCK 

   
   The authorized capital stock of the Company consists of 50,000,000 shares 
of Common Stock having a par value of $.01 per share and 10,000,000 shares of 
Preferred Stock having a par value of $.01 per share ("Preferred Stock"). As 
of February 7, 1997, 10,000,000 shares of Common Stock and no shares of 
Preferred Stock were outstanding. An additional 2,330,500 shares of Common 
Stock may be issued upon the exercise of outstanding stock options and an 
additional 811,071 shares of Common Stock (assuming a public offering price 
of $14.00 per share) issuable upon conversion, if any, of the Convertible 
Note. 
    

COMMON STOCK 

   Each holder of Common Stock is entitled to one vote for each share held. 
Shareholders do not have the right to cumulate their votes in elections of 
directors. Accordingly, holders of a majority of the issued and outstanding 
Common Stock will have the right to elect all the Company's directors and 
otherwise control the affairs of the Company. 

   Holders of Common Stock are entitled to dividends on a pro rata basis upon 
declaration of dividends by the Board of Directors. Dividends are payable 
only out of funds legally available for the payment of dividends. The Board 
of Directors is not required to declare dividends, and it currently expects 
to retain earnings to finance the development of the Company's business. See 
"Dividend Policy." 

   Upon a liquidation of the Company, holders of the Common Stock will be 
entitled to a pro rata distribution of the assets of the Company, after 
payment of all amounts owed to the Company's creditors, and subject to any 
preferential amount payable to holders of Preferred Stock of the Company, if 
any. Holders of Common Stock have no preemptive, subscription, conversion, 
redemption or sinking fund rights. 

PREFERRED STOCK 

   The Articles permit the Company's Board of Directors to issue shares of 
Preferred Stock in one or more series and to fix the relative rights, 
preferences and limitations of each series. Among such rights, preferences 
and limitations are dividend rates, provisions of redemption, rights upon 
liquidation, conversion privileges and voting powers. Should the Board of 
Directors elect to exercise this authority, the rights and privileges of 
holders of Common Stock could be made subject to the rights and privileges of 
any such series of Preferred Stock. The Board of Directors of the Company 
currently has no plans to issue any shares of Preferred Stock. The issuance 
of Preferred Stock could have the effect of making it more difficult for a 
third party to acquire, or discouraging a third party from acquiring, a 
majority of the outstanding voting stock of the Company. 

CERTAIN ANTI-TAKEOVER PROVISIONS INCLUDED IN THE COMPANY'S ARTICLES OF 
INCORPORATION AND BYLAWS 

   The Articles permit removal of directors only for cause by the 
shareholders of the Company at a meeting by the affirmative vote of at least 
60% of the outstanding shares entitled to vote for the election of directors 
(the "Voting Stock"). The Articles provide that any vacancy on the Board of 
Directors may be filled only by the remaining directors then in office. 

   The Articles also contain provisions which require: (i) the affirmative 
vote of 60% of the Voting Stock to amend the Articles of Incorporation or 
Bylaws of the Company; and (ii) the demand of not less than 50% of all votes 
entitled to be cast on any issue to be considered at a proposed special 
meeting to call a special meeting of shareholders. In addition, the Articles 
require that all shareholder action, including the election of directors, be 
taken by means of a vote at a duly convened shareholders meeting and not by 
use of written consents. 

   The Company's Bylaws establish an advance notice procedure for the 
nomination of candidates for election as directors by shareholders as well as 
for shareholder proposals to be considered at shareholders' meetings. 

                               48           
<PAGE>
   The above-described provisions may have certain anti-takeover effects. 
Such provisions, in addition to the provisions described below, may make it 
more difficult for persons, without the approval of the Company's Board of 
Directors, to make a tender offer or acquire substantial amounts of the 
Common Stock or launch other takeover attempts that a shareholder might 
consider in such shareholder's best interests, including attempts that might 
result in the payment of a premium over the market price for the Common Stock 
held by such shareholder. 

CERTAIN PROVISIONS OF FLORIDA LAW 

   The Company is subject to several anti-takeover provisions under Florida 
law that apply to a public corporation organized under Florida law, unless 
the corporation has elected to opt out of those provisions in its articles of 
incorporation or bylaws. The Company has not elected to opt out of certain of 
those provisions. The Florida Business Corporation Act (the "FBCA") prohibits 
the voting of shares in a publicly-held Florida corporation that are acquired 
in a "control share acquisition" unless the holders of a majority of the 
corporation's voting shares (exclusive of shares held by officers of the 
corporation, inside directors or the acquiring party) approve the granting of 
voting rights as to the shares acquired in the control share acquisition or 
unless the acquisition is approved by the corporation's board of directors. A 
"control share acquisition" is defined as an acquisition that immediately 
thereafter entitles the acquiring party to vote in the election of directors 
within each of the following ranges of voting power: (i) one-fifth or more 
but less than one-third of such voting power (ii) one-third or more but less 
than a majority of such voting power; and (iii) more than a majority of such 
voting power. 

   The FBCA also contains an "affiliated transaction" provision that 
prohibits a publicly-held Florida corporation from engaging in a broad range 
of business combinations or other extraordinary corporate transactions with 
an "interested shareholder" unless (i) the transaction is approved by a 
majority of disinterested directors before the person becomes an interested 
shareholder, (ii) the interested shareholder has owned at least 80% of the 
corporation's outstanding voting shares for at least five years or (iii) the 
transaction is approved by the holders of two-thirds of the corporation's 
voting shares other than those owned by the interested shareholder. An 
interested shareholder is defined as a person who together with affiliates 
and associates beneficially owns more than 10% of the corporation's 
outstanding voting shares. The Company's Articles provide that the FBCA's 
affiliated transaction voting requirements will not apply to the Company. 

TRANSFER AGENT AND REGISTRAR 

   
   American Stock Transfer & Trust Company has been appointed the transfer 
agent and registrar for the Common Stock. Its address is 40 Wall Street, 46th 
Floor, New York, New York 10005. 
    

                               49           
<PAGE>
                       SHARES ELIGIBLE FOR FUTURE SALE 

   
   Upon completion of this offering, the Company will have 13,500,000 shares 
of Common Stock outstanding. Of these shares, the 3,500,000 shares offered 
hereby will be freely tradeable without restriction or further registration 
under the Securities Act, except for any shares purchased by an "affiliate" 
of the Company (in general, a person who has a control relationship with the 
Company), which shares will be subject to the resale limitations, described 
below, of Rule 144 promulgated under the Securities Act. The remaining 
10,000,000 shares are deemed to be "restricted securities," as that term is 
defined under Rule 144, in that such shares were issued and sold by the 
Company in private transactions not involving a public offering and, as such, 
may only be sold pursuant to an effective registration under the Securities 
Act, in compliance with the exemption provisions of Rule 144 or pursuant to 
another exemption under the Securities Act (the "Restricted Shares"). The 
Restricted Shares are eligible for sale under Rule 144 (subject to certain 
recurring three-month volume limitations prescribed therein). The Company has 
granted certain registration rights to its sole shareholder and to Kos 
Investments, the holder of the note representing the Investments Loan. These 
entities have "piggyback" registration rights to request that the Company 
register any of their shares in the event that the Company proposes to 
register any of its securities under the Securities Act. Additionally, these 
entities have "demand" registration rights to have the Company prepare and 
file, on three occassions, a registration statement so as to permit a public 
offering and sale of their shares of Common Stock. 

   The existing shareholder of the Company, which will beneficially hold an 
aggregate of 10,000,000 shares of Common Stock upon consummation of this 
offering, holders of options to purchase an aggregate of 2,330,500 shares of 
Common Stock, and Kos Investments, Inc., the holder of the Convertible Note, 
which may be converted into 811,071 shares of Common Stock (assuming a public 
offering price of $14.00 per share), have agreed with the Underwriters not to 
sell or otherwise dispose of any of those shares of Common Stock for a period 
of 180 days after the date of this Prospectus without the written consent of 
Cowen & Company, a Representative of the Underwriters. Cowen & Company may, 
in its sole discretion and at any time without notice, release all or any 
portion of the securities subject to these lock-up restrictions. 
    

   In general, under Rule 144 as currently in effect, subject to the 
satisfaction of certain other conditions, a person, including an affiliate of 
the Company (or persons whose shares are aggregated with an affiliate), who 
has owned restricted shares of Common Stock beneficially for at least two 
years is entitled to sell, within any three-month period, a number of shares 
that does not exceed the greater of 1% of the total number of outstanding 
shares of the same class or, if the common stock is quoted on Nasdaq National 
Market, the average weekly trading volume during the four calendar weeks 
preceding the sale. A person who has not been an affiliate of the Company for 
at least three months immediately preceding the sale and who has beneficially 
owned shares of Common Stock for at least three years is entitled to sell 
such shares under Rule 144 without regard to any of the limitations described 
above. The Securities and Exchange Commission is currently considering a 
proposal to reduce the Rule 144 holding period for restricted securities to 
one year. 

   
   The Company intends to file a registration statement under the Securities 
Act to register shares of Common Stock reserved for issuance under the Option 
Plan, thereby permitting the resale of such shares by non-affiliates in the 
public market without restriction under the Securities Act. As of December 
31, 1996, options to purchase 2,005,500 shares of Common Stock were 
outstanding under the Option Plan. 
    

   Prior to this offering, there has been no public market for the securities 
of the Company. No prediction can be made as to the effect, if any, that 
public sales of shares of Common Stock or the availability of such shares for 
sale will have on the market prices of the Common Stock prevailing from time 
to time. Nevertheless, sales of a substantial number of shares by the 
existing shareholder or by shareholders purchasing Common Stock in this 
offering could have a negative effect on the market price of Common Stock and 
could impair the Company's ability in the future to raise additional capital 
through the sale of its equity securities. 

                               50           
<PAGE>
                                 UNDERWRITING 

   Subject to the terms and conditions of the Underwriting Agreement, the 
Underwriters named below (the "Underwriters"), through their Representatives, 
Cowen & Company, Dillon, Read & Co. Inc. and Salomon Brothers Inc have 
severally agreed to purchase from the Company the following respective number 
of shares of Common Stock at the initial public offering price less the 
underwriting discounts and commissions set forth on the cover page of this 
Prospectus: 

<TABLE>
<CAPTION>
                                  NUMBER OF SHARES 
UNDERWRITER                       OF COMMON STOCK 
- ----------------------------- ---------------------
<S>                            <C>
Cowen & Company ............. 
Dillon, Read & Co. Inc.  .... 
Salomon Brothers Inc ........ 

                               ---------------------
  Total .....................        3,500,000 
                               ===================== 
</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 and 
its counsel and independent auditors. The nature of the Underwriter's 
obligation is such that they are committed to purchase all shares of Common 
Stock offered hereby if any of such shares are purchased. 

   The Underwriters propose to offer the shares of Common Stock directly to 
the public at the initial public offering price set forth on the cover page 
of this Prospectus and to certain dealers at such price less a concession not 
is excess of $     per share. The Underwriters may allow and such dealers may 
re-allow a concession not in excess of $      per share to certain other 
dealers. The Underwriters have informed the Company that they do not intend 
to confirm sales to any accounts over which they exercise discretionary 
authority. After the initial public offering of the shares, the offering 
price and other selling terms may from time to time be varied 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 
525,000 additional shares of Common Stock at the initial public offering 
price, less the underwriting discount, set forth on the cover page of this 
Prospectus, to cover over-allotments, if any. If the Underwriters exercise 
their over-allotment option, the Underwriters have severally agreed, subject 
to certain conditions, to purchase approximately the same percentage thereof 
that the number of shares of Common Stock to be purchased by each of them 
shown in the foregoing table bears to the total number of shares of Common 
Stock offered hereby. The Underwriters may exercise such option only to cover 
over-allotments made in connection with the sale of share of Common Stock 
offered hereby. 

   Each of the Company, its sole shareholder and the Company's directors, 
officers and key personnel who hold options to purchase shares of Common 
Stock, holding in the aggregate 12,330,500 shares or options to purchase 
shares of Common Stock, and the holder of the Convertible Note have agreed 
that they will not during the period commenced on the date hereof and ending 
180 days after the date of this Prospectus, without the prior written consent 
of Cowen & Company, (i) directly or indirectly, offer, sell, assign, 
transfer, encumber, pledge, contract to sell, grant an option to purchase or 
otherwise dispose of, other than by operation of law, any shares of Common 
Stock (other than the shares offered hereby and, in the case of the Company, 
in certain limited circumstances), options, rights or warrants to acquire 
shares of Common Stock, or securities convertible into or exercisable or 
exchangeable for shares of Common Stock (whether such shares or any such 
securities are now owned or hereafter acquired) or (ii) enter into any swap 
or other arrangement that transfers to another, any of the economic 
consequences of ownership of the Common Stock, whether any such transaction 
described in clause (i) 
    

                               51           
<PAGE>
or (ii) above is to be settled by delivery of Common Stock or such other 
securities, in cash or otherwise. The foregoing lockup would prohibit, 
without the prior written consent of Cowen & Company, the sale by Mr. Jaharis 
of any direct or indirect interest in Kos Investments, or by Kos Investments 
of any direct or indirect interest in Kos Holdings. 

   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. 

   Prior to this offering, there has been no public market for the Common 
Stock. The initial public offering price for the Common Stock will be 
determined by negotiation among the Company and the Representatives. The 
factors to be considered in determining the initial public offering price 
will be prevailing market and economic conditions, the revenues and earnings 
of the Company, market valuations of other companies engaged in activities 
similar to the Company, estimates of the business potential and prospects of 
the Company, the present state of the Company's business operations and the 
Company's management. 

                                LEGAL MATTERS 

   
   The validity of the shares of Common Stock offered hereby and certain 
intellectual property matters are being passed upon for the Company by 
Holland & Knight, One East Broward Boulevard, Suite 1300, Fort Lauderdale, 
Florida 33301. Certain matters are being passed upon for the Underwriters by 
Davis Polk & Wardwell, 450 Lexington Avenue, New York, New York 10017. 
    

                                   EXPERTS 

   
   The consolidated financial statements included in this prospectus and this 
registration statement have been audited by Arthur Andersen LLP, independent 
certified public accountants, as indicated in their report with respect 
thereto, and are included herein in reliance upon the authority of said firm, 
as experts in giving said report. 
    

                               52           
<PAGE>
                   KOS PHARMACEUTICALS, INC. AND SUBSIDIARY 

                  INDEX TO CONSOLIDATED FINANCIAL STATEMENTS 

<TABLE>
<CAPTION>
                                                                                                   PAGE 
                                                                                                ---------
<S>                                                                                             <C>
Report of Independent Certified Public Accountants ...........................................     F-2 

Financial Statements: 

Consolidated Balance Sheets at June 30, 1995 and 1996 and December 31, 1996 (unaudited)  .....     F-3 

Consolidated Statements of Operations for the year ended June 30, 1994, 1995 and 1996 and the 
  period July 1, 1988 (inception) to June 30, 1996 and for the six months ended December 31, 
  1995 and 1996 (unaudited) and for the period from July 1, 1988 (inception) to December 31, 
  1996 (unaudited) ...........................................................................     F-4 

Consolidated Statements of Shareholder's Equity (Deficit) for the period July 1, 1988 (incep-
  tion) to June 30, 1996 and for the six months ended December 31, 1996 (unaudited) ..........     F-5 

Consolidated Statements of Cash Flows for the year ended June 30, 1994, 1995 and 1996 and for 
  the period ended July 1, 1988 (inception) to June 30, 1996 and for the six months ended De-
  cember 31, 1995 and 1996 (unaudited) and for the period from July 1, 1988 (inception) to De-
  cember 31, 1996 (unaudited) ................................................................     F-6 

Notes to Consolidated Financial Statements ...................................................     F-7 
</TABLE>

                                       F-1
<PAGE>
              REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 

To the Board of Directors of 
 Kos Pharmaceuticals, Inc.: 

   
   We have audited the accompanying consolidated balance sheets of Kos 
Pharmaceuticals, Inc. (a development stage corporation and wholly-owned 
subsidiary of Kos Holdings, Inc.) and subsidiary as of June 30, 1995 and 
1996, and the related consolidated statements of operations, shareholder's 
equity (deficit) and cash flows for each of the three years in the period 
ended June 30, 1996 and for the cumulative period from inception (July 1, 
1988) to June 30, 1996. These consolidated financial statements are the 
responsibility of the Company's management. Our responsibility is to express 
an opinion on these consolidated financial statements based on our audits. 
    

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

   In our opinion, the consolidated financial statements referred to above 
present fairly, in all material respects, the consolidated financial position 
of Kos Pharmaceuticals, Inc. and subsidiary as of June 30, 1995 and 1996, and 
the results of their operations and their cash flows for each of the three 
years in the period ended June 30, 1996, and for the cumulative period from 
inception (July 1, 1988) to June 30, 1996, in conformity with generally 
accepted accounting principles. 

ARTHUR ANDERSEN LLP 

   
Miami, Florida, 
 July 15, 1996, (except with respect to the 
 matters discussed in Note 7, as to which 
 the date is February 7, 1997). 
    

                                       F-2
<PAGE>
<TABLE>
<CAPTION>

                   KOS PHARMACEUTICALS, INC. AND SUBSIDIARY 
(A DEVELOPMENT STAGE CORPORATION AND WHOLLY-OWNED SUBSIDIARY OF KOS HOLDINGS, INC.) 
                         CONSOLIDATED BALANCE SHEETS 

                                                            JUNE 30,                DECEMBER 31, 
                                                --------------------------------  ---------------
                                                      1995             1996             1996 
                                                --------------- ---------------  ---------------
                                                                                     (UNAUDITED) 
<S>                                             <C>              <C>               <C>
ASSETS 
Current Assets: 
 Cash and cash equivalents ...................    $     40,973     $    193,484     $    357,520 
 Prepaid expenses and other current assets  ..          78,205          165,392          233,841 
                                                --------------- ---------------  ---------------
  Total current assets .......................         119,178          358,876          591,361 
Fixed Assets, net ............................       2,235,456        1,921,943        2,605,404 
                                                --------------- ---------------  ---------------
  Total assets ...............................    $  2,354,634     $  2,280,819     $  3,196,765 
                                                ===============  ===============   =============== 
LIABILITIES AND SHAREHOLDER'S EQUITY 
  (DEFICIT) 
  Current Liabilities: 
   Accounts payable ..........................    $    751,352     $    195,299     $    515,595 
 Accrued expenses ............................         496,790          171,371          536,409 
 Loan from Kos Investments, Inc. .............              --               --        8,355,000 
                                                --------------- ---------------  ---------------
  Total current liabilities ..................       1,248,142          366,670        9,407,004 
                                                --------------- ---------------  ---------------
Minority Interest ............................         163,869               --               --
                                                --------------- ---------------  ---------------
Commitments and Contingencies (Note 5) 
Shareholder's Equity (Deficit): 
 Common stock, $.01 par value, 50,000,000 
   shares authorized, 10,000,000 shares issued 
   and outstanding ...........................         100,000          100,000          100,000 
 Preferred stock, $.01 par value, 10,000,000 
   shares authorized, none issued and 
   outstanding ...............................              --               --               --
 Additional paid-in capital ..................      36,507,000       58,472,323       58,472,323 
 Deficit accumulated in the development stage      (35,664,377)     (56,658,174)     (64,782,562) 
                                                --------------- ---------------  ---------------
  Total shareholder's equity (deficit)  ......         942,623        1,914,149       (6,210,239) 
                                                --------------- ---------------  ---------------
  Total liabilities and shareholder's 
    equity (deficit) .........................    $  2,354,634     $   2,280,819    $  3,196,765 
                                                ===============  ===============   =============== 
</TABLE>

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

                                       F-3
<PAGE>
<TABLE>
<CAPTION>
                   KOS PHARMACEUTICALS, INC. AND SUBSIDIARY 
(A DEVELOPMENT STAGE CORPORATION AND WHOLLY-OWNED SUBSIDIARY OF KOS HOLDINGS, INC.) 
                    CONSOLIDATED STATEMENTS OF OPERATIONS 

                                                  FOR THE YEAR ENDED JUNE 30, 
                                      ---------------------------------------------------
                                            1994             1995               1996 
                                      --------------- ----------------  ----------------

<S>                                   <C>              <C>                <C>
Revenues ...........................    $    22,461      $     14,300       $         --
                                      --------------- ----------------  ----------------
Expenses: 
 Research and development ..........      6,662,626         8,386,872         13,815,776 
 General and administrative  .......      1,619,038         1,613,832          1,772,060 
 Compensation recognized on 
   modification of stock option 
   grants (Note 6) .................             --                --          5,436,000 
                                      --------------- ----------------  ----------------
                                          8,281,664        10,000,704         21,023,836 
                                      --------------- ----------------  ----------------
Other (Income) Expense: 
 Other income ......................         (1,687)               --                --
 Interest (income) expense, net  ...      1,058,029         1,025,559            (13,860) 
 Interest expense-related parties  .         50,010            26,898                 --
                                      --------------- ----------------  ----------------
  Total other (income) expense  ....      1,106,352         1,052,457            (13,860) 
                                      --------------- ----------------  ----------------
  Loss before minority interest  ...     (9,365,555)      (11,038,861)       (21,009,976) 
Minority Interest ..................       (164,401)              532             16,179 
                                      --------------- ----------------  ----------------
  Net loss .........................    $(9,529,956)     $(11,038,329)      $(20,993,797) 
                                      ===============  ================   ================ 
Net loss per Share .................    $     (0.84)     $      (0.98)      $      (1.86) 
                                      ===============  ================   ================ 
Weighted Average Shares of Common 
  Stock Outstanding ................     11,304,786        11,304,786         11,304,786 
                                      ===============  ================   ================ 
</TABLE>

                    (RESTUBBED TABLE CONTINUED FROM ABOVE) 

<TABLE>
<CAPTION>
                                         CUMULATIVE 
                                           PERIOD                  SIX MONTHS 
                                       FROM INCEPTION                ENDED                  JULY 1, 1988 
                                       (JULY 1, 1988)             DECEMBER 31,             (INCEPTION) TO 
                                        TO JUNE 30,   --------------------------------       DECEMBER 31, 
                                            1996            1995             1996              1996        
                                      --------------- -------------------------------- ----------------
                                                                  (UNAUDITED)               (UNAUDITED) 
<S>                                   <C>              <C>               <C>              <C>
Revenues ...........................    $     36,761     $        --      $         --     $      36,761 
                                      --------------- ---------------  --------------- ----------------
Expenses: 
 Research and development ..........      38,705,510       6,426,071         6,056,677        44,762,187 
 General and administrative  .......       8,871,358         788,842         1,936,611        10,807,969 
 Compensation recognized on 
   modification of stock option 
   grants (Note 6) .................       5,436,000              --                --         5,436,000 
                                      --------------- ---------------  --------------- ----------------
                                          53,012,868       7,214,913         7,993,288        61,006,156 
                                      --------------- ---------------  --------------- ----------------
Other (Income) Expense: 
 Other income ......................         (10,103)             --                --           (10,103) 
 Interest (income) expense, net  ...       3,413,997          (7,718)           (5,182)        3,408,815 
 Interest expense-related parties  .         130,483              --           136,282           266,765 
                                      --------------- ---------------  --------------- ----------------
  Total other (income) expense  ....       3,534,377          (7,718)          131,100         3,665,477 
                                      --------------- ---------------  --------------- ----------------
  Loss before minority interest  ...     (56,510,484)     (7,207,195)       (8,124,388)      (64,634,872) 
Minority Interest ..................        (147,690)            837                --          (147,690) 
                                      --------------- ---------------  --------------- ----------------
  Net loss .........................    $ (56,658,174)   $(7,206,358)      $(8,124,388)     $(64,782,562) 
                                      ===============  ===============   ===============  ================ 
Net loss per Share .................    $      (5.01)    $     (0.64)      $     (0.72)     $      (5.73) 
                                      ===============  ===============   ===============  ================ 
Weighted Average Shares of Common 
  Stock Outstanding ................      11,304,786      11,304,786        11,304,786        11,304,786 
                                      ===============  ===============   ===============  ================ 
</TABLE>

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

                                       F-4
<PAGE>
   
<TABLE>
<CAPTION>

                   KOS PHARMACEUTICALS, INC. AND SUBSIDIARY 
(A DEVELOPMENT STAGE CORPORATION AND WHOLLY-OWNED SUBSIDIARY OF KOS HOLDINGS, INC.) 
          CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY (DEFICIT) 
    
                                                                           DEFICIT 
                                                                         ACCUMULATED 
                                                        ADDITIONAL          IN THE 
                                            COMMON        PAID-IN        DEVELOPMENT 
                                            STOCK         CAPITAL           STAGE             TOTAL 
                                         ----------- --------------  ---------------- ---------------
<S>                                      <C>          <C>              <C>               <C>
Issuance of common stock ..............    $100,000     $        --     $         --    $    100,000 
Capital contributions from Parent  ....          --        390,000                --         390,000 
Net loss ..............................          --             --         (621,814)        (621,814) 
                                         ----------- --------------  ---------------- ---------------
Balance at June 30, 1989 ..............     100,000         390,000        (621,814)        (131,814) 
Net loss ..............................          --             --       (1,389,932)      (1,389,932) 
                                         ----------- --------------  ---------------- ---------------
Balance at June 30, 1990 ..............     100,000         390,000      (2,011,746)      (1,521,746) 
Net loss ..............................          --             --       (2,445,506)      (2,445,506) 
                                         ----------- --------------  ---------------- ---------------
Balance at June 30, 1991 ..............     100,000         390,000      (4,457,252)      (3,967,252) 
Net loss ..............................          --             --       (3,893,185)      (3,893,185) 
                                         ----------- --------------  ---------------- ---------------
Balance at June 30, 1992 ..............     100,000         390,000      (8,350,437)      (7,860,437) 
Net loss ..............................          --             --       (6,745,655)      (6,745,655) 
                                         ----------- --------------  ---------------- ---------------
Balance at June 30, 1993 ..............     100,000         390,000     (15,096,092)     (14,606,092) 
Net loss ..............................          --             --       (9,529,956)      (9,529,956) 
                                         ----------- --------------  ---------------- ---------------
Balance at June 30, 1994 ..............     100,000         390,000     (24,626,048)     (24,136,048) 
Capital contributions from Parent  ....          --       5,745,000              --        5,745,000 
Assumption of note payable by Parent  .          --      30,372,000              --       30,372,000 
Net loss ..............................          --             --      (11,038,329)     (11,038,329) 
                                         ----------- --------------  ---------------- ---------------
Balance at June 30, 1995 ..............     100,000      36,507,000     (35,664,377)         942,623 
Capital contributions from Parent  ....          --      16,381,633              --       16,381,633 
Modification of options (Note 6)  .....          --       5,436,000              --        5,436,000 
Contribution of minority interest  ....          --         147,690              --          147,690 
Net loss ..............................          --              --     (20,993,797)     (20,993,797) 
                                         ----------- --------------  ---------------- ---------------
Balance at June 30, 1996 ..............     100,000      58,472,323     (56,658,174)       1,914,149 
Net loss (unaudited) ..................          --             --       (8,124,388)      (8,124,388) 
                                         ----------- --------------  ---------------- ---------------
Balance at December 31, 1996 
(unaudited) ...........................    $100,000     $58,472,323    $(64,782,562)    $ (6,210,239) 
                                         ===========  ==============   ================  =============== 
</TABLE>

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

                                       F-5
<PAGE>
<TABLE>
<CAPTION>

                   KOS PHARMACEUTICALS, INC. AND SUBSIDIARY 
(A DEVELOPMENT STAGE CORPORATION AND WHOLLY-OWNED SUBSIDIARY OF KOS HOLDINGS, INC.) 
                    CONSOLIDATED STATEMENTS OF CASH FLOWS 

                                                 FOR THE YEAR ENDED JUNE 30, 
                                        ---------------------------------------------
                                             1994           1995             1996 
                                        ------------- --------------  --------------

<S>                                     <C>            <C>              <C>
Cash Flows from 
  Operating Activities: 
   Net loss ..........................   $(9,529,956)   $(11,038,329)    $(20,993,797) 
 Adjustments to reconcile net loss to 
   net cash used in operating 
   activities--
     Depreciation and amortization ...       260,053         409,528          522,288 
  Minority interest ..................       164,401            (532)         (16,179) 
  Compensation recognized on 
    modification of stock option 
    grants ...........................            --              --        5,436,000 
  Changes in operating assets and 
    liabilities: 
   Prepaid expenses and other 
     current assets ..................       (92,203)         55,729          (87,187) 
   Accounts payable ..................      (310,472)        130,011         (556,053) 
   Accrued expenses ..................       514,469         362,359         (325,419) 
                                        ------------- --------------  --------------
    Net cash used in operating 
      activities .....................    (8,993,708)    (10,081,234)     (16,020,347) 
                                        ------------- --------------  --------------
Cash Flows from 
  Investing Activities: 
   Capital expenditures ..............    (1,051,152)     (1,223,221)        (208,775) 
                                        ------------- --------------  --------------
Cash Flows from 
  Financing Activities: 
   Proceeds from issuance of common 
    stock  ...........................            --              --               --
 Capital contributions received from 
   Parent ............................            --       5,745,000       16,381,633 
 Borrowings under note payable  ......    10,050,000       5,582,000               --
 Borrowings under loan from Kos 
   Investments, Inc. .................            --              --               --
                                        ------------- --------------  --------------
    Net cash provided by financing 
      activities .....................    10,050,000      11,327,000       16,381,633 
                                        ------------- --------------  --------------
    Net increase (decrease) in cash  .         5,140          22,545          152,511 
Cash and Cash Equivalents, beginning 
  of period ..........................        13,288          18,428           40,973 
                                        ------------- --------------  --------------
Cash and Cash Equivalents, 
  end of period ......................   $    18,428    $      40,973    $    193,484 
                                        =============  ==============   ============== 
Supplemental Disclosure of 
  Cash Flow Information: 
   Interest paid .....................   $   728,537    $  1,387,377     $         --
                                        =============  ==============   ============== 
Supplemental Disclosure of Noncash 
  Information: 
   Transfer of note payable to Parent    $        --   $  30,372,000    $          --
                                        =============  ==============   ============== 
 Contribution of minority interest 
   to paid-in capital ................   $        --   $          --    $     147,690 
                                        =============  ==============   ============== 
</TABLE>
<PAGE>
                    (RESTUBBED TABLE CONTINUED FROM ABOVE) 

<TABLE>
<CAPTION>
                                           CUMULATIVE 
                                             PERIOD                SIX MONTHS            JULY 1, 1988 
                                         FROM INCEPTION              ENDED               (INCEPTION) TO
                                         (JULY 1, 1988)           DECEMBER 31,            DECEMBER 31, 
                                          TO JUNE 30,    -----------------------------   ---------------
                                              1996            1995            1996            1996 
                                        --------------- -------------    -------------   ---------------
                                                                  (UNAUDITED)            (UNAUDITED) 
<S>                                     <C>              <C>             <C>            <C>
Cash Flows from 
  Operating Activities: 
   Net loss ..........................    $(56,658,174)   $(7,206,358)    $(8,124,388)   $(64,782,562) 
 Adjustments to reconcile net loss to 
   net cash used in operating 
   activities--
     Depreciation and amortization ...       1,589,747        261,907         279,280       1,869,027 
  Minority interest ..................         147,690           (838)             --         147,690 
  Compensation recognized on 
    modification of stock option 
    grants ...........................       5,436,000             --              --       5,436,000 
  Changes in operating assets and 
    liabilities: 
       Prepaid expenses and other 
        current assets  ..............        (165,392)       (75,201)        (68,449)       (233,841) 
   Accounts payable ..................         195,299       (385,996)        320,296         515,595 
   Accrued expenses ..................         171,371       (381,703)        365,038         536,409 
                                        --------------- -------------  ------------- --------------
    Net cash used in operating 
      activities .....................     (49,264,229)    (7,788,189)     (7,228,223)    (56,511,682) 
                                        --------------- -------------  ------------- --------------
Cash Flows from 
  Investing Activities: 
   Capital expenditures ..............      (3,511,690)       (23,353)       (962,741)     (4,474,431) 
                                        --------------- -------------  ------------- --------------
Cash Flows from 
  Financing Activities: 
   Proceeds from issuance of common 
    stock  ...........................         490,000             --              --         490,000 
 Capital contributions received from 
   Parent ............................      22,126,633      8,000,000              --      22,126,633 
 Borrowings under note payable  ......      30,372,000             --              --      30,372,000 
 Borrowings under loan from Kos 
   Investments, Inc. .................              --             --       8,355,000       8,355,000 
                                        --------------- -------------  ------------- --------------
    Net cash provided by financing 
      activities .....................      52,988,633      8,000,000       8,355,000      61,343,633 
                                        --------------- -------------  ------------- --------------
    Net increase (decrease) in cash  .         193,484        188,458         164,036         357,520 
Cash and Cash Equivalents, beginning 
  of period ..........................              --         40,973         193,484              --
                                        --------------- -------------  ------------- --------------
Cash and Cash Equivalents, 
  end of period ......................    $    193,484    $   229,431     $   357,520    $    357,520 
                                        ===============  =============   =============  ============== 
Supplemental Disclosure of 
  Cash Flow Information: 
   Interest paid .....................    $  3,476,267    $        --    $         --    $  3,476,267 
                                        ===============  =============   =============  ============== 
Supplemental Disclosure of Noncash 
  Information: 
   Transfer of note payable to Parent     $ 30,372,000    $        --    $         --    $ 30,372,000 
                                        ===============  =============   =============  ============== 
 Contribution of minority interest 
   to paid-in capital ................    $     147,690   $        --    $         --    $    147,690 
                                        ===============  =============   =============  ============== 
</TABLE>

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

                                       F-6
<PAGE>

                   KOS PHARMACEUTICALS, INC. AND SUBSIDIARY 
          (A DEVELOPMENT STAGE CORPORATION AND WHOLLY-OWNED SUBSIDIARY
                             OF KOS HOLDINGS, INC.)
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 

1. GENERAL 

   The predecessor to Kos Pharmaceutical's, Inc. (the "Company"), Kos 
Holdings, Inc. ("Holdings") was incorporated in Florida on July 1, 1988 to 
develop prescription pharmaceutical products principally for the 
cardiovascular and respiratory markets. On June 25, 1996, the Company was 
incorporated in Florida as the successor to the business of Holdings. On June 
30, 1996, all of the assets and all of the liabilities of Holdings, other 
than its net operating loss carryforwards, were transferred to the Company in 
exchange for shares of common stock of the Company (the "Reorganization"). 
The Reorganization was accomplished in order to transfer the assets and 
operations of Holdings to the Company while preserving Holdings' net 
operating losses and related federal tax benefits for Holdings and its sole 
shareholder and one of its founders. Kos Investments, Inc. ("Investments") is 
the sole shareholder of Holdings. As this transaction was between entities 
under common control, the transaction was accounted for on a historical cost 
basis, in a manner similar to a pooling of interests. 

   
   On June 22, 1993, Holdings and Aeropharm Technology, Inc. ("Aeropharm") 
entered into a letter of intent for the purchase of a controlling interest in 
Aeropharm. On February 14, 1995, the transaction was completed through a 
stock purchase agreement that gave control (80% ownership) of Aeropharm to 
Holdings. Holdings accounted for its investment in Aeropharm as a 
consolidated subsidiary from June 22, 1993. On June 20, 1996, Holdings 
acquired the minority interest in Aeropharm, held by an employee of 
Aeropharm, in exchange for options to purchase 50,000 shares of common stock, 
at $7.00 per share, the estimated fair value of the underlying shares at the 
date of grant. The minority interest at the date of the exchange in the 
amount of $147,690, was credited to additional paid-in capital. 
    

   On May 6, 1996, the Company submitted a New Drug Application ("NDA") to 
the U.S. Food and Drug Administration ("FDA") for, NIASPAN, its first 
cardiovascular product. NIASPAN is a once-a-day, oral, solid dose 
controlled-release formulation of niacin for the treatment of hyperlipidemia, 
a multiple lipid disorder that is a primary risk factor for coronary heart 
disease. Niacin is a water soluble vitamin that has long been recognized as 
an effective pharmacological agent for the treatment of multiple lipid 
disorders including elevated LDL and low HDL. The Company has conducted 
extensive pharmacokinetic studies and three double-blinded, placebo 
controlled pivotal trials in support of the NDA filing. 

   The Company expects to incur substantial additional losses in the near 
term primarily due to research and development activities and the 
commencement of sales and marketing efforts associated with NIASPAN. To date, 
the Company has not marketed any products. Future revenues, if any, are 
expected to be generated from sales of products. No assurance can be given 
that the Company's product development efforts will be successfully 
completed, that required regulatory approvals will be obtained, that products 
under development can be manufactured at acceptable cost and with appropriate 
quality or that any products can be successfully marketed. The Company is 
subject to a number of other risks including, but not limited to, 
uncertainties related to FDA approval of NIASPAN, uncertainties related to 
market acceptance, uncertainties related to patents and trademarks, 
interference and risk of infringement, uncertainties related to limited sales 
and marketing experience, uncertainties related to competition and 
technological changes, government regulation and no assurances of regulatory 
approval, dependence on Fuisz Technologies Ltd. and other collaborations, 
limited manufacturing experience and risk of scale-up, future capital needs 
and uncertainty of additional funding, dependence on single sources of 
supply, and no assurances of adequate third party reimbursement. 

   Management is actively pursuing an initial public offering of its common 
stock to finance operations of the Company. In addition, the Company 
continuously evaluates licensing agreements, joint development agreements and 
other transactions that may result in fees or revenues to the 

                                F-7           
<PAGE>


                   KOS PHARMACEUTICALS, INC. AND SUBSIDIARY 
          (A DEVELOPMENT STAGE CORPORATION AND WHOLLY-OWNED SUBSIDIARY
                             OF KOS HOLDINGS, INC.)
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

1. GENERAL--(CONTINUED)

Company. The likelihood of the success of the Company must be considered in 
light of the uncertainty caused by problems, expenses, complications and 
delays frequently encountered in connection with the development of new 
business ventures. 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 

 BASIS OF PRESENTATION: 

   The consolidated financial statements include the results of Holdings 
(prior to July 1, 1996), the Company and its subsidiary, Aeropharm. All 
significant intercompany accounts and transactions have been eliminated in 
consolidation. 

 CASH AND CASH EQUIVALENTS: 

   
   For the purpose of the consolidated statements of cash flows, the Company 
considers all highly liquid investments with an original maturity of three 
months or less at the time of purchase to be cash and cash equivalents. As of 
June 30, 1995 and 1996, and December 31, 1996, the Company had no cash 
equivalents. 
    

 MINORITY INTEREST: 

   Minority interest represents the minority shareholder's interest in the 
shareholders' equity and net loss of Aeropharm. As of June 30, 1996, the 
Company owned 100% of Aeropharm, therefore, no minority interest is 
reflected. 

 FAIR VALUE OF FINANCIAL INSTRUMENTS: 

   
   As of June 30, 1995 and 1996, and December 31, 1996, the carrying amount 
of cash and cash equivalents, prepaid expenses and other current assets, 
accounts payable and accrued expenses approximates fair value due to the 
short term nature of these accounts. 
    

 CONCENTRATION OF CREDIT RISK: 

   The Company has no significant off balance sheet concentrations of credit 
risk. 

 DEPRECIATION AND AMORTIZATION: 

   Fixed assets are stated at cost, less accumulated depreciation and 
amortization. Depreciation and amortization are provided using the 
straight-line method over the estimated useful lives of the assets or lease 
term, if shorter, as follows: 

<TABLE>
<CAPTION>
                                                     YEARS 
                                              -------------------
<S>                                           <C>
Furniture and equipment ....................          3-7 
Computer software and hardware .............          3-5 
Laboratory and manufacturing equipment  ....          3-5 
Leasehold improvements .....................      Life of lease 
</TABLE>

 RESEARCH AND DEVELOPMENT EXPENSES: 

   All research and development expenses are reflected in the Company's 
consolidated statements of operations as incurred. 

 LOSS PER SHARE: 

   Loss per share is determined by dividing the net loss attributable to 
holders of the Company's common stock by the weighted average number of 
shares of common stock and dilutive common stock 

                                       F-8
<PAGE>

                   KOS PHARMACEUTICALS, INC. AND SUBSIDIARY 
          (A DEVELOPMENT STAGE CORPORATION AND WHOLLY-OWNED SUBSIDIARY
                             OF KOS HOLDINGS, INC.)
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)


2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)

equivalents outstanding after applying the treasury stock method. Common 
stock equivalents include the impact of the issuance of options (see Note 6) 
issued within one year prior to the date of the Company's initial public 
offering (see Note 7) at exercise prices less than the assumed initial 
offering price, whether or not the effects are antidilutive. 

 INTERIM FINANCIAL DATA: 

   
   In the opinion of the management of the Company, the accompanying 
unaudited consolidated financial statements contain all adjustments 
(consisting of only normal recurring adjustments) necessary to present fairly 
the financial position of the Company as of December 31, 1996, and the 
results of operations for the six month periods ended December 31, 1995 and 
1996. The results of operations and cash flows for the six month period ended 
December 31, 1996 are not necessarily indicative of the results of operations 
or cash flows which may be reported for the remainder of fiscal 1997. 
    

 INCOME TAXES: 

   The Company follows the Statement of Financial Accounting Standards No. 
109, "Accounting for Income Taxes," which requires, among other things, 
recognition of future tax benefits measured at enacted rates attributable to 
deductible temporary differences between financial statement and income tax 
bases of assets and liabilities and to tax net operating loss carryforwards 
to the extent that realization of said benefits is more likely than not. As 
the net operating loss carryforwards, amounting to approximately $51,000,000, 
as of the Reorganization were not transferred to the Company, the Company has 
no deferred tax assets or liabilities as of June 30, 1996. Any operating 
losses generated by the Company after June 30, 1996 will be available to 
offset future net income, if any. 

 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. 

   
 NEW ACCOUNTING PRONOUNCEMENTS: 

   In March 1995, the Financial Accounting Standards Board issued Statement 
of Financial Accounting Standards No. 121, "Accounting for the Impairment of 
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" ("SFAS No. 
121"). SFAS No. 121 will apply to the Company for the fiscal year ending June 
30, 1997. The Company does not believe that SFAS No. 121 would have had a 
material effect on its financial position or the results of its operations 
had it been applied in the fiscal year ended June 30, 1996. 

   In October 1995, the Financial Accounting Standards Board issued SFAS No. 
123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"). SFAS No. 123 
applies to transactions with non-employees after December 15, 1995. The 
compensation expense recognized for stock option modifications for options 
held by consultants in fiscal 1996, as more fully described in Note 6, was 
reflected under the provisions of SFAS 123. SFAS No. 123 will apply to 
transactions with employees in fiscal 1997. As the Company intends to 
continue applying the provision of APB 25 for transactions with employees, as 
permitted by SFAS No. 123, the Company does not believe that SFAS No. 123 
will have a material effect on its financial position or the results of its 
operations. 
    

                                       F-9
<PAGE>

                   KOS PHARMACEUTICALS, INC. AND SUBSIDIARY 
          (A DEVELOPMENT STAGE CORPORATION AND WHOLLY-OWNED SUBSIDIARY
                             OF KOS HOLDINGS, INC.)
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

3. FIXED ASSETS 

   Fixed assets consist of the following: 

<TABLE>
<CAPTION>
                                                            JUNE 30,               DECEMBER 31, 
                                                 ------------------------------  --------------
                                                      1995            1996             1996 
                                                 -------------- --------------  --------------
                                                                                   (UNAUDITED) 
<S>                                              <C>             <C>              <C>
Furniture and equipment .......................    $    246,510    $    297,131    $   310,284 
Computer software and hardware ................        323,094         399,847         469,105 
Laboratory and manufacturing equipment  .......      1,979,922       2,055,423       2,376,250 
Leasehold improvements ........................        753,389         759,289       1,318,792 
                                                 -------------- --------------  --------------
                                                     3,302,915       3,511,690       4,474,431 
Less-Accumulated depreciation and amortization      (1,067,459)     (1,589,747)     (1,869,027) 
                                                 -------------- --------------  --------------
  Fixed assets, net ...........................    $ 2,235,456     $ 1,921,943     $ 2,605,404 
                                                 ==============  ==============   ============== 
</TABLE>

4. NOTE PAYABLE 

   
   Michael Jaharis, the sole shareholder of Investments, has personally 
guaranteed the repayment of a loan to Investments from certain financial 
institutions. Prior to March 21, 1995, the Company was the primary borrower 
under this loan, and therefore received the benefit of the personal guaranty 
extended by Mr. Jaharis. As consideration for Mr. Jaharis' personal guaranty, 
the Company agreed to pay Mr. Jaharis an annual fee of 0.25% of the average 
amount outstanding under the loan during the Company's fiscal year. The 
Company paid Mr. Jaharis $28,700 and $92,333 during the fiscal years ended 
June 30, 1994 and 1995, respectively. In March 1995, the Company was released 
as a borrower under the loan. The assumption of the note payable to bank has 
been accounted for as a transfer to Investments and is reflected as an 
increase in "Additional paid-in capital" in the accompanying 1995 
consolidated balance sheet. As more fully discussed in Note 7, Investments 
will continue to fund the operations of the Company through a promissory 
note. 
    

5. COMMITMENTS AND CONTINGENCIES 

 EMPLOYMENT AGREEMENTS 

   The Company has entered into three employment agreements that require 
future minimum payments as follows: 

<TABLE>
<CAPTION>
 YEAR ENDING JUNE 30,      AMOUNT 
- --------------------- -------------
<S>                    <C>
1997 ................    $  595,000 
1998 ................       430,000 
1999 ................       250,000 
2000 ................       250,000 
2001 ................       250,000 
Thereafter ..........       250,000 
                       -------------
                         $ 2,025,000 
                       ============= 
</TABLE>

   Salary expense recorded under two of the agreements totaled approximately 
$244,000, $302,000 and $355,000 during the years ended June 30, 1994, 1995 
and 1996, respectively. In addition to the minimum salaries described above, 
certain of the employment agreements entitle certain officers to royalties on 
future sales, the aggregate amounts of which may not exceed $5,500,000. The 
third employment agreement, which is for the President and Chief Executive 
Officer, was not entered into 

                                      F-10
<PAGE>
   

                   KOS PHARMACEUTICALS, INC. AND SUBSIDIARY 
          (A DEVELOPMENT STAGE CORPORATION AND WHOLLY-OWNED SUBSIDIARY
                             OF KOS HOLDINGS, INC.)
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

5. COMMITMENTS AND CONTINGENCIES--(CONTINUED)

until July 1, 1996. Salary expense recorded under these agreements totaled 
approximately $297,500 (unaudited) for the six months ended December 31, 
1996. 
    

 LEASE COMMITMENTS 

   The Company has entered into various operating leases for the rental of 
office space and laboratory facilities which expire through fiscal 1999. 
Future minimum commitments under these agreements as of June 30, 1996 are as 
follows: 

<TABLE>
<CAPTION>
 YEAR ENDING JUNE 30,     AMOUNT 
- --------------------- ------------
<S>                    <C>
1997 ................    $ 322,304 
1998 ................     267,133 
1999 ................      71,557 
                       ------------
                         $ 660,994 
                       ============ 
</TABLE>

   As of June 30, 1995 and 1996, standby letters of credit of $157,050 and 
$65,050, respectively, were issued by a bank on the Company's behalf in favor 
of the lessors as collateral for the leases which the lessors have agreed to 
provide to the Company. 

   
   Rent expense under operating leases during the years ended June 30, 1994, 
1995 and 1996 and for the six months ended December 31, 1996 was $388,687, 
$450,890, $578,122 and $272,127 (unaudited), respectively. 
    

 CONSULTING AGREEMENT 

   On April 1, 1996, the Company entered into a consulting agreement with the 
Vice Chairman of the Board of Directors for the formulation and evaluation of 
product development strategies, negotiations for product licenses and other 
responsibilities. The consulting agreement provides for an initial five-year 
term and will automatically renew for each successive two-year period unless 
notification by either party is given. The consultant receives $75,000 as 
annual compensation and is also eligible to receive stock options. 

 LICENSING AND JOINT VENTURE AGREEMENTS 

   
   The Company has entered into several license agreements (the "License 
Agreements") with third parties (the "Licensees") for the development of 
future products. Under the License Agreements, the Company is required to 
make payments to the Licensees upon completion of various milestones of each 
project in order to secure exclusive rights to develop, manufacture, sell 
and/or sublicense future products developed through the License Agreements. 
In connection with the License Agreements, the Company recorded licensing 
fees expense of approximately $470,000, $449,000, $700,000 and $75,000 
(unaudited) for the years ended June 30, 1994, 1995, 1996 and for the six 
months ended December 31, 1996, respectively, which are reflected in 
"Research and development" in the accompanying consolidated statements of 
operations. In order to maintain their rights under the License Agreements, 
the Company is required to pay future milestone payments as follows: 
    

                               F-11           
<PAGE>

                   KOS PHARMACEUTICALS, INC. AND SUBSIDIARY 
          (A DEVELOPMENT STAGE CORPORATION AND WHOLLY-OWNED SUBSIDIARY
                             OF KOS HOLDINGS, INC.)
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

5. COMMITMENTS AND CONTINGENCIES--(CONTINUED)

<TABLE>
<CAPTION>
 YEAR ENDING JUNE 30,      AMOUNT 
- --------------------- --------------
<S>                    <C>
1997 ................    $ 1,009,000 
1998 ................       711,000 
1999 ................       125,000 
                       --------------
                         $ 1,845,000 
                       ============== 
</TABLE>

   
   Additionally, upon FDA approval of certain products, the Company is 
obligated to pay up to $4,500,000 to a licensee. 

   The Company has also entered into a letter of intent to form a joint 
venture agreement (the "Joint Venture") with a company related to the sale of 
a certain product using technology provided by that company. The Company paid 
$1,000,000 for the exclusive right to use the technology. Because of the 
uncertainties surrounding the use of the technology, as well as the lack of 
an existing technologically feasible product with commercial viability, such 
amount has been expensed and is included in "Research and development" in the 
accompanying 1996 consolidated statement of operations. Within 30 days 
following the filing of a NDA to the FDA for a certain product developed by 
the Joint Venture, or in the event management determines such NDA filing to 
be infeasible, any party to the Joint Venture investing in excess of the 
other party shall be entitled to consideration and a transfer to it from the 
Joint Venture of an amount not to exceed $1,250,000. 
    

 SPONSORED RESEARCH 

   
   The Company has research agreements with two universities and a research 
center. The Company is primarily responsible for funding the projects, and 
the university or research center is responsible for providing personnel, 
equipment and facilities to conduct the research activities. The aggregate 
commitment at June 30, 1996 for future payments under these agreements is 
approximately $200,000 for fiscal year 1997. Expenses recorded under these 
agreements totaled approximately $249,000, $379,000, $373,000 and $162,000 
(unaudited) during the years ended June 30, 1994, 1995 and 1996, and for the 
six months ended December 31, 1996, respectively, and are reflected in 
"Research and development" in the accompanying consolidated statements of 
operations. 
    

 DEVELOPMENT AGREEMENTS 

   
   The Company entered into development agreements with various third parties 
during 1996. As dictated by these development agreements, the Company is 
responsible for funding all required development activities. The aggregate 
commitment at June 30, 1996 for future payments under these agreements is 
approximately $724,000 and $200,000 for fiscal years 1997 and 1998, 
respectively. Expense recorded under these agreements totaled approximately 
$665,000 and $496,000 (unaudited) during the year ended June 30, 1996, and 
for the six months ended December 31, 1996, respectively, and are reflected 
in "Research and development" in the accompanying consolidated statements of 
operations. 
    

 401(K) PLAN 

   The Company's Internal Revenue Code Section 401(k) Plan, known as the Kos 
Savings Plan, became effective on January 1, 1994. Each employee who has 
completed at least one year of service with the Company and has attained age 
21 is eligible to make pre-tax elective deferral contributions each year not 
exceeding the greater of a specified statutory amount or 15 percent of the 
employee's compensation for the year. An employee is always 100 percent 
vested in the employee's elective deferral contributions. The Company makes 
no contributions under this plan. 

                               F-12           
<PAGE>


                   KOS PHARMACEUTICALS, INC. AND SUBSIDIARY 
          (A DEVELOPMENT STAGE CORPORATION AND WHOLLY-OWNED SUBSIDIARY
                             OF KOS HOLDINGS, INC.)
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

6. STOCK OPTION PLAN 

   During 1996, the Board of Directors of the Company adopted the Kos 
Pharmaceuticals, Inc. 1996 Stock Option Plan (the "Plan"). As of June 30, 
1996, a maximum aggregate total of 4,000,000 shares of Common Stock may be 
subject to stock options granted or to be granted under the Plan. All 
directors, officers, employees and certain related parties of the Company 
designated by the Board are eligible to receive options under the Plan. The 
Plan is administered by a Committee appointed by the Board of Directors of 
the Company. 

   Each outside director of the Company will be granted an option to purchase 
5,000 shares of common stock and automatically will receive an option to 
purchase an additional 3,000 shares effective on each director's anniversary 
date. The exercise price of such options will be the fair market value on the 
later of (a) the date of an initial public offering or December 31, 1996, or 
(b) the date the option is granted. As of June 30, 1996, one director had 
been granted an option to purchase 5,000 shares at an established exercise 
price of $7.00 per share, which is the estimated fair market value the Board 
of Directors had attributed to the common stock, as determined by an 
appraiser. 

   The maximum term of any option is ten years from the date of grant. All 
options expire within 30 days of termination of employment. 

   The Company has granted options to purchase an aggregate of 2,158,000 
shares to employees, consultants, management and directors, including options 
granted prior to the issuance of the Plan, as follows: 

<TABLE>
<CAPTION>
 OPTIONS GRANTED    DATE OF GRANT     DATE OF EXPIRATION   EXERCISE PRICE 
- ---------------- ----------------- -------------------  ---------------
<S>               <C>                <C>                   <C>
     750,000      August 1988(a)     June 2006                  $0.60 
     35,000       January 1989(a)    July 2001                   1.90 
     75,000       February 1990(a)   June 2006                   0.90 
     275,000      December 1992      December 2002               0.75 
     50,000       July 1994          July 2003                   3.33 
     973,000      June 1996          June 2006                   7.00 
</TABLE>

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

   
(a) During June 1996, the Company modified the terms of the original options 
    granted to an officer and two outside consultants. Included in the 
    accompanying consolidated statements of operations is $5,436,000 recorded 
    as compensation recognized as a result of this modification to the 
    existing option grants. For purposes of determining the values of the 
    options, the Company believes that the Common Stock had a value of $7.00 
    per share on June 30, 1996, which is the estimated fair market value the 
    Board of Directors had attributed to the Common Stock on June 20, 1996, 
    as determined by an appraiser. For the 110,000 options issued to the two 
    outside consultants, the Company further considered the provisions of 
    SFAS No. 123 using the Black Shoales method and an expected volitility 
    rate of 57.6%, a risk-free interest rate of 6.11%, expected dividends of 
    $0 and an expected term of 4 years to approximate the charge to 
    compensation expense. 
    

   Exercise prices of options granted were at their estimated fair market 
value as of the date of grant. No options outstanding under the Plan had been 
exercised as of June 30, 1996. 

7. SUBSEQUENT EVENTS 

   
   The Company has filed a Registration Statement with the Securities and 
Exchange Commission relating to an initial public offering of its common 
stock. The Company will utilize the net proceeds of the offering to primarily 
fund research and development programs, the initial recruitment of sales 
force for the anticipated commercial launch of NIASPAN, repayment of the 
short-term bridge loan, and other general corporate purposes. 

   On July 1, 1996, the Company executed a promissory note (the "Note") in 
favor of Investments in the aggregate principal amount of up to $15.0 
million, the proceeds of which will be used to fund the 
    

                                      F-13
<PAGE>

                   KOS PHARMACEUTICALS, INC. AND SUBSIDIARY 
          (A DEVELOPMENT STAGE CORPORATION AND WHOLLY-OWNED SUBSIDIARY
                             OF KOS HOLDINGS, INC.)
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

7. SUBSEQUENT EVENTS--(CONTINUED)

   
Company's operations until the consummation of this offering. Under the terms 
of the Note, interest accrues on the outstanding principal amount at First 
Union National Bank of Florida's prime rate commencing July 1, 1996, 
escalating to a rate of 1% over such prime rate during calendar year 1997, 2% 
over such prime rate during calendar year 1998, and 3% over such prime rate 
during calendar year 1999 until maturity. Principal and interest under the 
Note is due on June 30, 1999, however, the Company may repay the Note in 
whole or in part prior to such date. From time to time, at Investments' 
option, principal and interest outstanding under the Note may be converted 
into Common Stock at a conversion price per share equal to the initial public 
offering price per share. As of February 7, 1997, the Company had borrowed 
$11,355,000 under this Note. Assuming the issuance only of sufficient shares 
to repay the indebtedness outstanding as of December 31, 1996, supplementary 
pro forma net loss per share of Common Stock would be $(0.67) for the six 
month period ended December 31, 1996. 
    

8. RELATED PARTY TRANSACTION 

   During 1995 the Company acquired certain property including used 
computers, laboratory equipment, laboratory supplies and certain other office 
equipment and furnishings from the Institute of Molecular Biology, Inc. 
("IMB"), a company controlled by Investments. In the aggregate, such 
purchases totaled approximately $83,500. Until June 1996, Daniel M. Bell, the 
Company's President and Chief Executive Officer, also served as the Chairman 
of the Board of Directors and Chief Executive Officer of IMB. 

                               F-14           
<PAGE>
   No dealer, salesperson or other person has been authorized to give any 
information or to make any representation not contained in this Prospectus 
and, if give or made, such information or representations must not be relied 
upon as having been authorized by the Company or any of the Underwriters or 
by any other person. This Prospectus does not constitute an offer to sell or 
a solicitation of any offer to buy a security other than the shares of Common 
Stock offered hereby, nor does it constitute an offer to sell or a 
solicitation of an offer to buy any of the securities offered hereby to any 
person in any jurisdiction in which it is unlawful to make such offer or 
solicitation to such person. Neither the delivery of this Prospectus nor any 
sale made hereunder shall under any circumstances create any implication that 
the information contained herein is correct as of any date subsequent to the 
date hereof. 
- -----------------------------------------------------------------------------

                              TABLE OF CONTENTS 

<TABLE>
<CAPTION>
                                                 PAGE 
                                              ---------
<S>                                           <C>
Prospectus Summary .........................       3 
Risk Factors ...............................       6 
The Company ................................      15 
Use of Proceeds ............................      15 
Dividend Policy ............................      15 
Capitalization .............................      16 
Dilution ...................................      17 
Selected Consolidated Financial Data  ......      18 
Management's Discussion and Analysis of 
  Financial Condition and Results of 
  Operations ...............................      19 
Business ...................................      22 
Management .................................      39 
Certain Transactions .......................      46 
Principal Shareholders .....................      47 
Description of Capital Stock ...............      48 
Shares Eligible for Future Sale ............      50 
Underwriting ...............................      51 
Legal Matters ..............................      52 
Experts ....................................      52 
Index to Financial Statements ..............     F-1 
</TABLE>

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

   Until      , 1997 (25 days after the date of this Prospectus), all dealers 
effecting transactions in the shares of Common Stock, whether or not 
participating in this distribution, may be required to deliver a Prospectus. 
This is in addition to the obligations of dealers to deliver a Prospectus 
when acting as Underwriters and with respect to their unsold allotments or 
subscriptions. 

   
                               3,500,000 Shares 
    

                          KOS PHARMACEUTICALS, INC. 

                                 Common Stock 
- -----------------------------------------------------------------------------

                                  PROSPECTUS 
- -----------------------------------------------------------------------------
                               COWEN & COMPANY 
                           DILLON, READ & CO. INC. 
                             SALOMON BROTHERS INC 

                                        , 1997 
<PAGE>

                                   PART II 
                    INFORMATION NOT REQUIRED IN PROSPECTUS 

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION 

   The following sets forth expenses and costs (other than underwriting 
discounts and commissions) expected to be incurred in connection with the 
issuance and distribution of the securities being registered and payable by 
the Company. All amounts are estimated except for the SEC registration fee 
and the NASD filing fee. 

<TABLE>
<CAPTION>
 SEC REGISTRATION FEE ..............  $ 18,296 
<S>                                  <C>
NASD filing fee ...................      6,538 
Nasdaq fees .......................     51,250 
Transfer agent and registrar fees       10,000 
Legal fees and expenses ...........    200,000 
Accounting fees and expenses  .....    100,000 
Blue Sky fees and expenses ........      5,000 
Printing and engraving expenses  ..    100,000 
Miscellaneous .....................    108,916 
  Total ...........................   $600,000 
                                     ========== 
</TABLE>

   
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS 

   The Florida Business Corporation Act ("FBCA") and the Company's Articles 
of Incorporation provide that in certain cases, each officer and director of 
the Company shall be indemnified by the Company against certain costs, 
expenses and liabilities which he or she may incur in his or her capacity as 
such. The Company also intends to purchase directors' and officers' liability 
insurance consistent with the provisions of the Florida Business Corporation 
Act to protect directors and officers from liabilities against various laws, 
including the Securities Act of 1933. 
    

   The Company's Articles of Incorporation provide: 

      To the fullest extent permitted by the Florida Business Corporation Act, 
    the Corporation shall indemnify, or advance expenses to, any person made, 
    or threatened to be made, a party to any action, suit or proceeding by 
    reason of the fact that such person (a) is or was a director of the 
    Corporation; (b) is or was serving at the request of the Corporation as a 
    director of another corporation, partnership, joint venture, trust or 
    other enterprise (collectively, a "Business Entity"); (c) is or was an 
    officer of the Corporation, provided that such person is or was at the 
    time a director of the Corporation; or (d) is or was serving at the 
    request of the Corporation as an officer of another Business Entity, 
    provided that such person is or was at the time a director of the 
    Corporation or a director of such other Business Entity, serving at the 
    request of the Corporation. Unless otherwise expressly prohibited by the 
    Florida Business Corporation Act, and except as otherwise provided in the 
    previous sentence, the Board of Directors shall have the sole and 
    exclusive discretion, on such terms and conditions as it shall determine, 
    to indemnify, or advance expenses to, any person made, or threatened to be 
    made, a party to any action, suit or proceeding by reason of the fact that 
    such person is or was an officer, employee or agent of the Corporation, or 
    is or was serving at the request of the Corporation as an officer, 
    employee or agent of another Business Entity. No person falling within the 
    purview of this paragraph may apply for indemnification or advancement of 
    expenses to any court of competent jurisdiction. 

   
Section 607.0850 of the FBCA, "Indemnification of officers, directors, 
employees and agents," provides: 

   (1) A corporation shall have power to indemnify any person who was or is a 
party to any proceeding (other than an action by, or in the right of, the 
corporation), by reason of the fact that he is or was a director, officer, 
employee, or agent of the corporation or is or was serving at the request of 
the 
    

                                      II-1
<PAGE>
corporation as a director, officer, employee, or agent of another 
corporation, partnership, joint venture, trust, or other enterprise against 
liability incurred in connection with such proceeding, including any appeal 
thereof, if he acted in good faith and in a manner he reasonably believed to 
be in, or not opposed to, the best interests of the corporation and, with 
respect to any criminal action or proceeding, had no reasonable cause to 
believe his conduct was unlawful. The termination of any proceeding by 
judgment, order, settlement, or conviction or upon a plea of nolo contendere 
or its equivalent shall not, of itself, create a presumption that the person 
did not act in good faith and in a manner which he reasonably believed to be 
in, or not opposed to, the best interests of the corporation or, with respect 
to any criminal action or proceeding, had reasonable cause to believe that 
his conduct was unlawful. 

   (2) A corporation shall have power to indemnify any person, who was or is 
a party to any proceeding by or in the right of the corporation to procure a 
judgment in its favor by reason of the fact that he is or was a director, 
officer, employee, or agent of the corporation or is or was serving at the 
request of the corporation as a director, officer, employee, or agent of 
another corporation, partnership, joint venture, trust, or other enterprise, 
against expenses and amounts paid in settlement not exceeding, in the 
judgment of the board of directors, the estimated expense of litigating the 
proceeding to conclusion, actually and reasonably incurred in connection with 
the defense or settlement of such proceeding, including any appeal thereof. 
Such indemnification shall be authorized if such person acted in good faith 
and in a manner he reasonably believed to be in, or not opposed to, the best 
interests of the corporation, except that no indemnification shall be made 
under this subsection in respect of any claim, issue, or matter as to which 
such person shall have been adjudged to be liable unless, and only to the 
extent that, the court in which such proceeding was brought, or any other 
court of competent jurisdiction, shall determine upon application that, 
despite the adjudication of liability but in view of all circumstances of the 
case, such person is fairly and reasonably entitled to indemnity for such 
expenses which such court shall deem proper. 

   (3) To the extent that a director, officer, employee, or agent of a 
corporation has been successful on the merits or otherwise in defense of any 
proceeding referred to in subsection (1) or subsection (2), or in defense of 
any claim, issue, or matter therein, he shall be indemnified against expenses 
actually and reasonably incurred by him in connection therewith. 

   (4) Any indemnification under subsection (1) or subsection (2), unless 
pursuant to a determination by a court, shall be made by the corporation only 
as authorized in the specific case upon a determination that indemnification 
of the director, officer, employee, or agent is proper in the circumstances 
because he has met the applicable standard of conduct set forth in subsection 
(1) or subsection (2). Such determination shall be made: 

     (a) By the board of directors by a majority vote of a quorum consisting 
of directors who were not parties to such proceeding; 

     (b) If such a quorum is not obtainable or, even if obtainable, by 
majority vote of a committee duly designated by the board of directors (in 
which directors who are parties may participate) consisting solely of two or 
more directors not at the time parties to the proceeding; 

     (c) By independent legal counsel; 

       1. Selected by the board of directors prescribed in paragraph (a) or 
the committee prescribed in paragraph (b); or 

       2. If a quorum of the directors cannot be obtained for paragraph (1) 
and the committee cannot be designated under paragraph (b), selected by 
majority vote of the full board of directors (in which directors who are 
parties may participate); or 

     (d) By the shareholders by a majority vote of a quorum consisting of 
shareholders who were not parties to such proceeding or, if no such quorum is 
obtainable, by a majority vote of shareholders who were not parties to such 
proceeding. 

                                      II-2
<PAGE>
   (5) Evaluation of the reasonableness of expenses and authorization of 
indemnification shall be made in the same manner as the determination that 
indemnification is permissible. However, if the determination of 
permissibility is made by independent legal counsel, persons specified by 
paragraph (4)(c) shall evaluate the reasonableness of expenses and may 
authorize indemnification. 

   (6) Expenses incurred by an officer or director in defending a civil or 
criminal proceeding may be paid by the corporation in advance of the final 
disposition of such proceeding upon receipt of an undertaking by or on behalf 
of such director or officer to repay such amount if he is ultimately found 
not to be entitled to indemnification by the corporation pursuant to this 
section. Expenses incurred by other employees and agents may be paid in 
advance upon such terms or conditions that the board of directors deems 
appropriate. 

   (7) The indemnification and advancement of expenses provided pursuant to 
this section are not exclusive, and a corporation may make any other or 
further indemnification or advancement of expenses of any of its directors, 
officers, employees, or agents, under any bylaw, agreement, vote of 
shareholders or disinterested directors, or otherwise, both as to action in 
his official capacity and as to action in another capacity while holding such 
office. However, indemnification or advancement of expenses shall not be made 
to or on behalf of any director, officer, employee, or agent if a judgment or 
other final adjudication establishes that his actions, or omissions to act, 
were material to the cause of action so adjudicated and constitute: 

     (a) A violation of the criminal law, unless the director, officer, 
employee, or agent had reasonable cause to believe his conduct was lawful or 
had no reasonable cause to believe his conduct was unlawful; 

     (b) A transaction from which the director, officer, employee, or agent 
derived an improper personal benefit; 

     (c) In the case of a director, a circumstance under which the liability 
provisions of s. 607.0834 are applicable; or 

     (d) Willful misconduct or a conscious disregard for the best interests 
of the corporation in a proceeding by or in the right of the corporation to 
procure a judgment in its favor or in a proceeding by or in the right of a 
shareholder. 

   (8) Indemnification and advancement of expenses as provided in this 
section shall continue as, unless otherwise provided when authorized or 
ratified, to a person who has ceased to be a director, officer, employee, or 
agent and shall inure to the benefit of the heirs, executors, and 
administrators of such a person, unless otherwise provided when authorized or 
ratified. 

   (9) Unless the corporation's articles of incorporation provide otherwise, 
notwithstanding the failure of a corporation to provide indemnification, and 
despite any contrary determination of the board or of the shareholders in the 
specific case, a director, officer, employee, or agent of the corporation who 
is or was a party to a proceeding may apply for indemnification or 
advancement of expenses, or both, to the court conducting the proceeding, to 
the circuit court, or to another court of competent jurisdiction. On receipt 
of an application, the court, after giving any notice that it considers 
necessary, may order indemnification and advancement of expenses, including 
expenses incurred in seeking court-ordered indemnification or advancement of 
expenses, if it determines that: 

     (a) The director, officer, employee, or agent is entitled to mandatory 
indemnification under subsection (3), in which case the court shall also 
order the corporation to pay the director reasonable expenses incurred in 
obtaining court-ordered indemnification or advancement of expenses; 

     (b) The director, officer, employee, or agent is entitled to 
indemnification or advancement of expenses, or both, by virtue of the 
exercise by the corporation of its power pursuant to subsection (7); or 

                                      II-3
<PAGE>
     (c) The director, officer, employee, or agent is fairly and reasonably 
entitled to indemnification or advancement of expenses, or both, in view of 
all the relevant circumstances, regardless of whether such person met the 
standard of conduct set forth in subsection (1), subsection (2), or 
subsection (7). 

   (10) For purposes of this section, the term "corporation" includes, in 
addition to the resulting corporation, any constituent corporation (including 
any constituent of a constituent) absorbed in a consolidation or merger, so 
that any person who is or was a director, officer, employee, or agent of a 
constituent corporation, or is or was serving at the request of a constituent 
corporation as a director, officer, employee, or agent of another 
corporation, partnership, joint venture, trust, or other enterprise, is in 
the same position under this section with respect to the resulting or 
surviving corporation as he would have with respect to such constituent 
corporation if its separate existence had continued. 

   (11) For purposes of this section; 

     (a) The term "other enterprises" includes employee benefit plans; 

     (b) The term "expenses" includes counsel fees, including those for 
appeal; 

     (c) The term "liability" includes obligations to pay a judgment, 
settlement, penalty, fine (including an excise tax assessed with respect to 
any employee benefit plan), and expenses actually and reasonably incurred 
with respect to a proceeding; 

     (d) The term "proceeding" includes any threatened, pending, or completed 
action, suit, or other type of proceeding, whether civil, criminal, 
administrative, or investigative and whether formal or informal; 

     (e) The term "agent" includes a volunteer; 

     (f) The term "serving at the request of the corporation" includes any 
service as a director, officer, employee, or agent of the corporation that 
imposes duties on such persons, including duties relating to an employee 
benefit plan and its participants or beneficiaries; and 

     (g) The term "not opposed to the best interest of the corporation" 
describes the actions of a person who acts in good faith and in a manner he 
reasonably believes to be in the best interests of the participants and 
beneficiaries of an employee benefit plan. 

   (12) A corporation shall have power to purchase and maintain insurance on 
behalf of any person who is or was a director, officer, employee, or agent of 
the corporation or is or was serving at the request of the corporation as a 
director, officer, employee, or agent of another corporation, partnership, 
joint venture, trust or other enterprise against any liability asserted 
against him and incurred by him in any such capacity or arising out of his 
status as such, whether or not the corporation would have the power to 
indemnify him against such liability under the provisions of this section. 

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES 

   Within the last three years, the Company issued the following securities 
without registration under the Securities Act: 

   
   On June 30, 1996, the Company issued 10,000,000 shares of Common Stock, 
par value $.01 per share ("Common Stock"), to Kos Holdings, Inc. ("Holdings") 
in exchange for all of the assets and all of the liabilities of Holdings. 
Such assets had a book value of $2,280,819 and such liabilities amounted to 
$366,670 on such date. In June 1996, the Company granted options to purchase 
an aggregate of 1,833,000 shares of Common Stock under the Company's 1996 
Stock Option Plan. Effective July 1, 1996, the Company issued the Convertible 
Note to Kos Investments. The shares of Common Stock issued to Holdings, such 
options and the Convertible Note were issued in reliance on the exemption 
from registration provided in Section 4(2) of the Securities Act of 1933, as 
amended. 

                                      II-4
    
<PAGE>
   
   No underwriter was engaged in connection with the foregoing sales of 
securities. The sale of Common Stock, the issuances of options to employees 
and consultants and the Convertible Note have been made in reliance upon the 
exemption from the registration requirements afforded by Section 4(2) of the 
Securities Act of 1933, as amended, as transactions not involving any public 
offering. The Company has reason to believe that all of the foregoing 
purchasers were familiar with or had access to information concerning the 
operations and financial condition of the Company, and all of those 
individuals acquired the securities for investment and not with a view to the 
distribution thereof. 

ITEM 16. EXHIBITS 
<TABLE>
<CAPTION>
EXHIBIT NUMBER                                                DESCRIPTION 
- ---------------------------------------------------------------------------------------------------------------
<S>               <C>
 1.1              Form of Underwriting Agreement among the Company, Cowen & Company, Dillon, Read & Co. Inc., and 
                  Salomon Brothers Inc, as Representatives of the several Underwriters. 

 3.1*             Articles of Incorporation of the Company 

 3.2*             Bylaws of the Company 

 4.1*             See Exhibits 3.1 and 3.2 for provisions of the Articles of Incorporation and Bylaws of the Company 
                  defining the rights of holders of Common Stock of the Company 

 4.2**            Form of Common Stock certificate of the Company 

5**               Opinion of Holland & Knight LLP 

10.1*             Employment Agreement dated as of July 1, 1996, between Daniel M. Bell and the Company 

10.2*             Nonqualified Stock Option Agreement by and between the Company and Daniel M. Bell dated as of June 
                  20, 1996 

10.3*             Employment Agreement dated as of June 15, 1996, between David Bova and the Company 

10.4*             Kos Pharmaceuticals, Inc. 1996 Stock Option Plan 

10.5*/plus/       Development Agreement by and between the Company and Fuisz Technologies Ltd. 

10.6              Promissory Note in favor of Kos Investments 

10.7              Registration Rights Agreement dated as of June 30, 1996 by and between the Company, Kos Holdings, 
                  Inc. and Kos Investments, Inc.

10.8*             Oakwood Business Center Lease, dated May 2, 1991, between STS Buildings Associates, L.P. and the 
                  Company. 

10.9*             Oakwood Business Center Lease, dated May 15, 1990, between STS Buildings Associates, L.P. and the 
                  Company. 

10.10*            Oakwood Business Center Lease, dated January 7, 1993, between STS Buildings Associates, L.P. and 
                  the Company. 

10.11*            Modification and Extension Agreement, dated June 6, 1996, between STS Buildings Associates, L.P. 
                  and the Company. 

10.12*            Assignment and Second Modification of Lease Agreement, dated June 30, 1996, by and between Oakwood 
                  Business Center Limited Partnership and the Company. 

10.13*            Assignment and Second Modification of Loan Agreement, dated June 30, 1996, by and between Oakwood 
                  Business Center Limited Partnership and the Company. 

10.14*            Assignment and Second Modification of Lease Agreement, dated June 30, 1996, by and between Oakwood 
                  Business Center Limited Partnership and the Company. 

10.15*            Lease between Center Realty, L.P. and the Company, dated May 1993. 

10.16*            Third Modification of Lease Agreement, dated November 21, 1996, by and between Oakwood Business 
                  Center Limited Partnership and the Company. 

10.17*/plus/      Option/Licensing Agreement by and between the Company and Fuisz Technologies Ltd. 

10.18*/plus/      Development Agreement by and between the Company and Fuisz Technologies Ltd. 

10.19*/plus/      Option/Licensing Agreement by and between the Company and Fuisz Technologies Ltd. 

10.20/plus/       License Agreement by and between the Company and Upsher-Smith Laboratories, Inc., dated February 7, 1997 

21*               Subsidiaries of the Company 

23.1**            Consent of Holland & Knight LLP (included in Exhibit 5 above) 

                                      II-5
<PAGE>
EXHIBIT NUMBER                                                DESCRIPTION 
- ---------------------------------------------------------------------------------------------------------------

23.2              Consent of Arthur Andersen LLP 

24*               Power of Attorney 

27                Financial Data Schedule 

99.1*             Consent of John Brademas 

99.2*             Consent of Louis C. Lasagna 

99.3*             Consent of Mark Novitch 

99.4*             Consent of Frederick B. Whittemore 
</TABLE>

- -----------------------------------------------------------------------------
*  Previously filed. 

** To be filed by amendment. 

/plus/ Certain confidential material contained in the document has been 
       omitted and filed separately with the Securities and Exchange 
       Commission pursuant to Rule 406 of the Securities Act of 1933, as 
       amended. 
    

ITEM 17. UNDERTAKINGS 

   (a) 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. 

   (b) The undersigned registrant hereby undertakes that: (1) for purposes of 
determining any liability under the Securities Act, the information omitted 
from the form of prospectus filed as part of a 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 a part of this Registration Statement as of the 
time it was declared effective. 

   (2) for the purpose of determining any liability under the Securities Act, 
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. 

   The undersigned registrant hereby undertakes to provide to the underwriter 
at the closing specified in the underwriting agreement certificates in such 
denominations and registered in such names as required by the underwriter to 
permit prompt delivery to each purchaser. 

                                      II-6
<PAGE>
                                  SIGNATURES 

   
   Pursuant to the requirements of the Securities Act of 1933, as amended, 
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 Miami, Florida on February 10, 1997. 

                                          KOS PHARMACEUTICALS, INC.
   
                                          By: /s/ DANIEL M. BELL
                                              --------------------------------- 
                                                  Daniel M. Bell 
                                                  President and Chief 
                                                  Executive Officer 
    

   Pursuant to the requirements of the Securities Act of 1993, as amended, 
this Registration Statement has been signed by the following persons in the 
capacities and on the dates indicated. 

<TABLE>
<CAPTION>
       SIGNATURE                         TITLE                          DATE 
- ----------------------------------------------------------------------------------
<S>                     <C>                                     <C>
/s/ DANIEL M. BELL      President, Chief Executive Officer      February 10, 1997 
- ------------------        and Director
 Daniel M. Bell           (Principal Executive Officer) 

*                       Chairman of the                         February 10, 1997 
- ------------------        Board of Directors
 Michael Jaharis

*                       Controller                              February 10, 1997 
- ------------------        (Principal Accounting Officer
 Juan F. Rodriguez        and Principal Financial Officer) 

*                       Vice Chairman of the                    February 10, 1997 
- ------------------        Board of Directors
 Robert E. Baldini

*                       Director                                February 10, 1997 
- ------------------
 Steven Jaharis 

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

 *BY: /S/ DANIEL M. BELL           FEBRUARY 10, 1997 
- ------------------------
     Daniel M. Bell 
     Attorney-in-fact 
</TABLE>

                                      II-7
<PAGE>
   
                              INDEX TO EXHIBITS 


<TABLE>
<CAPTION>
     EXHIBIT 
      NUMBER                                                DESCRIPTION 
- ---------------------------------------------------------------------------------------------------------------

<S>               <C>
 1.1              Form of Underwriting Agreement among the Company, Cowen & Company, Dillon, Read & Co. Inc., and 
                  Salomon Brothers Inc, as Representatives of the several Underwriters. 

 3.1*             Articles of Incorporation of the Company 

 3.2*             Bylaws of the Company 

 4.1*             See Exhibits 3.1 and 3.2 for provisions of the Articles of Incorporation and Bylaws of the Company 
                  defining the rights of holders of Common Stock of the Company 

 4.2**            Form of Common Stock certificate of the Company 

5**               Opinion of Holland & Knight LLP 

10.1*             Employment Agreement dated as of July 1, 1996, between Daniel M. Bell and the Company 

10.2*             Nonqualified Stock Option Agreement by and between the Company and Daniel M. Bell dated as of June 
                  20, 1996 

10.3*             Employment Agreement dated as of June 15, 1996, between David Bova and the Company 

10.4*             Kos Pharmaceuticals, Inc. 1996 Stock Option Plan 

10.5*/plus/       Development Agreement by and between the Company and Fuisz Technologies Ltd. 

10.6              Promissory Note in favor of Kos Investments 

10.7              Registration Rights Agreement dated as of June 30, 1996 by and between the Company, Kos Holdings, 
                  Inc. and Kos Investments, Inc.

10.8*             Oakwood Business Center Lease, dated May 2, 1991, between STS Buildings Associates, L.P. and the 
                  Company. 

10.9*             Oakwood Business Center Lease, dated May 15, 1990, between STS Buildings Associates, L.P. and the 
                  Company. 

10.10*            Oakwood Business Center Lease, dated January 7, 1993, between STS Buildings Associates, L.P. and 
                  the Company. 

10.11*            Modification and Extension Agreement, dated June 6, 1996, between STS Buildings Associates, L.P. 
                  and the Company. 

10.12*            Assignment and Second Modification of Lease Agreement, dated June 30, 1996, by and between Oakwood 
                  Business Center Limited Partnership and the Company. 

10.13*            Assignment and Second Modification of Loan Agreement, dated June 30, 1996, by and between Oakwood 
                  Business Center Limited Partnership and the Company. 

10.14*            Assignment and Second Modification of Lease Agreement, dated June 30, 1996, by and between Oakwood 
                  Business Center Limited Partnership and the Company. 

10.15*            Lease between Center Realty, L.P. and the Company, dated May 1993. 

10.16*            Third Modification of Lease Agreement, dated November 21, 1996, by and between Oakwood Business 
                  Center Limited Partnership and the Company. 

10.17*/plus/      Option/Licensing Agreement by and between the Company and Fuisz Technologies Ltd. 

10.18*/plus/      Development Agreement by and between the Company and Fuisz Technologies Ltd. 

<PAGE>
     EXHIBIT 
      NUMBER                                                DESCRIPTION 
- ---------------------------------------------------------------------------------------------------------------

10.19*/plus/      Option/Licensing Agreement by and between the Company and Fuisz Technologies Ltd. 

10.20/plus/       License Agreement by and between the Company and Upsher-Smith Laboratories, Inc., dated February 7, 1997 

21*               Subsidiaries of the Company 

23.1**            Consent of Holland & Knight LLP (included in Exhibit 5 above) 

23.2              Consent of Arthur Andersen LLP 

24*               Power of Attorney 

27                Financial Data Schedule 

99.1*             Consent of John Brademas 

99.2*             Consent of Louis C. Lasagna 

99.3*             Consent of Mark Novitch 

99.4*             Consent of Frederick B. Whittemore 
</TABLE>

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

*  Previously filed. 

** To be filed by amendment. 

/plus/ Certain confidential material contained in the document has been 
       omitted and filed separately with the Securities and Exchange 
       Commission pursuant to Rule 406 of the Securities Act of 1933, as 
       amended. 
    



                                                                    EXHIBIT 1.1

                                3,500,000 Shares

                            KOS PHARMACEUTICALS, INC.

                                  Common Stock

                             UNDERWRITING AGREEMENT


                                                                 March __, 1997
COWEN & COMPANY
DILLON, READ & CO. INC.
SALOMON BROTHERS INC
         As Representatives of the several Underwriters

c/o Cowen & Company
    Financial Square
    New York, New York 10005

Dear Sirs:

         1. INTRODUCTORY. Kos Pharmaceuticals, Inc., a Florida corporation (the
"Company") proposes to sell, pursuant to the terms of this Agreement, to the
several underwriters named in Schedule A hereto (the "Underwriters," or, each,
an "Underwriter"), an aggregate of 3,500,000 shares of Common Stock, $.01 par
value (the "Common Stock") of the Company. The aggregate of 3,500,000 shares so
proposed to be sold is hereinafter referred to as the "Firm Stock". The Company
also proposes to sell to the Underwriters, upon the terms and conditions set
forth in Section 3 hereof, up to an additional 525,000 shares of Common Stock
(the "Optional Stock"). The Firm Stock and the Optional Stock are hereinafter
collectively referred to as the "Stock". Cowen & Company ("Cowen"), Dillon, Read
& Co. Inc. and Salomon Brothers Inc are acting as representatives of the several
Underwriters and in such capacity are hereinafter referred to as the
"Representatives".

         2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to, and agrees with, the several Underwriters that:

                (i) A registration statement on Form S-1 (File No. 333-17991) in
         the form in which it became or becomes effective and also in such form
         as it may be when any post-effective amendment thereto shall become
         effective with respect to the Stock, including any preeffective
         prospectuses

<PAGE>

         included as part of the registration statement as originally filed or
         as part of any amendment or supplement thereto, or filed pursuant to
         Rule 424 under the Securities Act of 1933, as amended (the "Securities
         Act"), and the rules and regulations (the "Rules and Regulations") of
         the Securities and Exchange Commission (the "Commission") thereunder,
         copies of which have heretofore been delivered to you, has been
         prepared by the Company in conformity in all material respects with the
         requirements of the Securities Act and has been filed with the
         Commission under the Securities Act. The term Registration Statement as
         used in this Agreement means the registration statement in the form in
         which it is declared effective by the Commission. If it is
         contemplated, at the time this Agreement is executed, that a
         post-effective amendment to the registration statement will be filed
         and must be declared effective before the offering of the Stock may
         commence, the term "Registration Statement" as used in this Agreement
         means the registration statement as amended by said post-effective
         amendment. The term "Registration Statement" as used in this Agreement
         shall also include any registration statement relating to the Stock
         that is filed and declared effective pursuant to Rule 462(b) under the
         Securities Act. The term "Prospectus" as used in this Agreement means
         the prospectus in the form included in the Registration Statement, or,
         (A) if the prospectus included in the Registration Statement omits
         information in reliance on Rule 430A under the Securities Act and such
         information is included in a prospectus filed with the Commission
         pursuant to Rule 424(b) under the Securities Act, the term "Prospectus"
         as used in this Agreement means the prospectus in the form included in
         the Registration Statement as supplemented by the addition of the Rule
         430A information contained in the prospectus filed with the Commission
         pursuant to Rule 424(b) and (B) if prospectuses that meet the
         requirements of Section 10(a) of the Securities Act are delivered
         pursuant to Rule 434 under the Securities Act, then (i) the term
         "Prospectus" as used in this Agreement means the "prospectus subject to
         completion" (as such term is defined in Rule 434(g) under the
         Securities Act) as supplemented by (a) the addition of Rule 430A
         information or other information contained in the form of prospectus
         delivered pursuant to Rule 434(b)(2) under the

                                       2
<PAGE>

         Securities Act or (b) the information contained in the term sheets
         described in Rule 434(b)(3) under the Securities Act, and (ii) the date
         of such prospectuses shall be deemed to be the date of the term sheets.
         The term "Preeffective Prospectus" as used in this Agreement means the
         prospectus subject to completion in the form included in the
         Registration Statement at the time of the initial filing of the
         Registration Statement with the Commission, and as such prospectus
         shall have been amended from time to time prior to the date of the
         Prospectus.

                (ii) The Commission has not issued or threatened to issue any
         order preventing or suspending the use of any Preeffective Prospectus,
         and, at its date of issue, each Preeffective Prospectus conformed in
         all material respects with the requirements of the Securities Act and
         did not include any untrue statement of a material fact or omit to
         state a material fact required to be stated therein or necessary to
         make the statements therein, in the light of the circumstances under
         which they were made, not misleading; and, when the Registration
         Statement becomes effective and at all times subsequent thereto up to
         and including the Closing Date (as hereinafter defined), the
         Registration Statement and the Prospectus and any amendments or
         supplements thereto conformed and will conform in all material respects
         to the requirements of the Securities Act and neither the Registration
         Statement nor the Prospectus, nor any amendment or supplement thereto,
         included or will include any untrue statement of a material fact or
         omit to state any material fact required to be stated therein or
         necessary to make the statements therein, in the light of the
         circumstances under which they were made, not misleading; provided,
         however, that the foregoing representations, warranties and agreements
         shall not apply to information contained in or omitted from any
         Preeffective Prospectus or the Registration Statement or the Prospectus
         or any such amendment or supplement thereto in reliance upon, and in
         conformity with, written information relating to any Underwriter (or
         relating to the distribution) furnished to the Company by or on behalf
         of any Underwriter, directly or through you, specifically for use in
         the preparation thereof; there is no franchise, lease, contract,
         agreement or document required to

                                       3
<PAGE>

         be described in the Registration Statement or Prospectus or to be filed
         as an exhibit to the Registration Statement which is not described or
         filed therein as required; and all descriptions of any such franchises,
         leases, contracts, agreements or documents contained in the
         Registration Statement are accurate and complete descriptions of such
         documents in all material respects.

                (iii) Subsequent to the respective dates as of which information
         is given in the Registration Statement and Prospectus, and except as
         set forth or contemplated in the Prospectus, neither the Company nor
         any of its subsidiaries has incurred any liabilities or obligations,
         direct or contingent, nor entered into any transactions not in the
         ordinary course of business, and there has not been any material
         adverse change in the condition (financial or otherwise), properties,
         business, management, prospects, net worth or results of operations of
         the Company and its subsidiaries considered as a whole, or any change
         in the capital stock (except pursuant to the Company's stock option
         plans), or a material change in the short-term or long-term debt of the
         Company and its subsidiaries considered as a whole.

                (iv) The financial statements, together with the related notes
         and schedules, set forth in the Prospectus and elsewhere in the
         Registration Statement fairly present, on the basis stated in the
         Registration Statement, the financial position and the results of
         operations and changes in financial position of the Company and its
         consolidated subsidiaries at the respective dates or for the respective
         periods therein specified. Such statements and related notes and
         schedules have been prepared in accordance with generally accepted
         accounting principles applied on a consistent basis except as may be
         set forth in the Prospectus. The other financial accounting information
         and data of the Company set forth in the Prospectus and elsewhere in
         the Registration Statement is accurately presented and has been
         prepared on a basis consistent with such financial statements and the
         books and records of the Company. All financial and statistical
         information and data set forth in the Prospectus and elsewhere in the
         Registration Statement that was obtained from third party source
         materials is,

                                       4
<PAGE>

         in all material respects, an accurate presentation of the information
         or data as presented in the source from which it was derived.

                (v) Arthur Andersen LLP, who have expressed their opinions on
         the audited financial statements included in the Registration Statement
         and the Prospectus, are independent public accountants as required by
         the Securities Act and the Rules and Regulations.

                (vi) The Company has and each of its subsidiaries has been duly
         organized and is validly existing and in good standing as a corporation
         under the laws of its jurisdiction of organization; and the Company is
         and each of its subsidiaries is duly qualified to do business and in
         good standing as a foreign corporation in all other jurisdictions where
         its ownership or leasing of properties or the conduct of its business
         requires such qualification. The Company has and each of its
         subsidiaries has all requisite corporate power and authority, and all
         necessary consents, approvals, authorizations, orders, registrations,
         qualifications, licenses and permits of and from all public regulatory
         or governmental agencies and bodies to own, lease and operate its
         properties and conduct its business as now being conducted and as
         described in the Registration Statement and the Prospectus, and no such
         consent, approval, authorization, order, registration, qualification,
         license or permit contains a materially burdensome restriction not
         adequately disclosed in the Registration Statement and the Prospectus.
         Aeropharm Technology, Inc., a Florida corporation, is owned and
         controlled by the Company. The Company does not, directly or
         indirectly, own or control any other corporation, association or
         entity.

                (vii) The Company's authorized and outstanding capital stock is
         on the date hereof, and will be on the Closing Date, as set forth under
         the heading "Capitalization" in the Prospectus; the outstanding shares
         of Common Stock of the Company conform to the description thereof in
         the Prospectus, have been duly authorized and validly issued and are
         fully paid and nonassessable and have been issued in compliance with
         all federal and state securities laws and were not issued in violation
         of or subject to any

                                       5
<PAGE>

         preemptive rights or similar rights to subscribe for or purchase
         securities and conform to the description thereof contained in the
         Prospectus. Except as disclosed in and or contemplated by the
         Prospectus and the financial statements of the Company and related
         notes thereto included in the Prospectus, the Company does not have
         outstanding any options or warrants to purchase, or any preemptive
         rights or other rights to subscribe for or to purchase any securities
         or obligations convertible into, or any contracts or commitments to
         issue or sell, shares of its capital stock or any such options, rights,
         convertible securities or obligations, except for options granted
         subsequent to the date of information provided in the Prospectus
         pursuant to the Company's employee and stock option plans as disclosed
         in the Prospectus. The description of the Company's stock option and
         other stock plans or arrangements, and the options or other rights
         granted or exercised thereunder, as set forth in the Prospectus,
         accurately and fairly presents in all material respects the information
         required by the Rules and Regulations to be shown with respect to such
         plans, arrangements, options and rights. All outstanding shares of
         capital stock of each of the subsidiaries of the Company have been duly
         authorized and validly issued, and are fully paid and nonassessable and
         are owned directly by the Company free and clear of any liens,
         encumbrances, equities or claims.

                (viii) The Stock to be issued and sold by the Company to the
         Underwriters hereunder has been duly and validly authorized and, when
         issued and delivered against payment therefor as provided herein, will
         be duly and validly issued, fully paid and nonassessable and free of
         any preemptive or similar rights and will conform to the description
         thereof in the Prospectus.

                (ix) Except as set forth in the Prospectus, there are no legal
         or governmental proceedings pending to which the Company or any of its
         subsidiaries is a party or of which any property of the Company or any
         subsidiary is subject, which, if determined adversely to the Company or
         any such subsidiary, might individually or in the aggregate (i) prevent
         or adversely affect the transactions contemplated by this Agreement,
         (ii) suspend the effectiveness of the

                                       6
<PAGE>

         Registration Statement, (iii) prevent or suspend the use of the
         Preeffective Prospectus in any jurisdiction or (iv) result in a
         material adverse change in the condition (financial or otherwise),
         properties, business, management, prospects, net worth or results of
         operations of the Company and, to the Company's knowledge, there is no
         valid basis for any such legal or governmental proceeding; and to the
         best of the Company's knowledge no such proceedings are threatened or
         contemplated against the Company or any subsidiary by governmental
         authorities or others. The Company is not a party or subject to the
         provisions of any material injunction, judgment, decree or order of any
         court, regulatory body or other governmental agency or body. The
         description of the Company's litigation under the heading
         "Business--Legal Proceedings" in the Prospectus is true and correct and
         complies with the Rules and Regulations.

                (x) Neither the Company nor any subsidiary of the Company is in
         violation of its respective articles of incorporation or by-laws or in
         default in the performance of any obligation, agreement or condition
         contained in any bond, debenture, note or any other evidence of
         indebtedness or in any other agreement, indenture or instrument
         material to the conduct of the business of the Company and its
         subsidiaries considered as a whole, to which the Company or any of its
         subsidiaries or their respective property is bound.

                (xi) The execution, delivery and performance of this Agreement
         and the consummation of the transactions herein contemplated will not
         result in a breach or violation of any of the terms or provisions of or
         constitute a default under any indenture, mortgage, deed of trust, note
         agreement or other agreement or instrument to which the Company or any
         of the subsidiaries is a party or by which it or any of its properties
         is or may be bound, the articles of incorporation, by-laws or other
         organizational documents of the Company or any of its subsidiaries, or
         any law, order, rule or regulation of any court or governmental agency
         or body having jurisdiction over the Company or any of its subsidiaries
         or any of their properties or result in the creation of a

                                       7
<PAGE>

         lien on any of the assets of the Company or its subsidiaries.

                (xii) No consent, approval, authorization or order of any court
         or governmental agency or body is required for the consummation by the
         Company of the transactions contemplated by this Agreement, except such
         as may be required by the National Association of Securities Dealers,
         Inc. (the "NASD") or under the Securities Act or the securities or
         "Blue Sky" laws of any jurisdiction in connection with the purchase and
         distribution of the Stock by the Underwriters.

                (xiii) The Company has the full corporate power and authority to
         enter into this Agreement and to perform its obligations hereunder
         (including to issue, sell and deliver the Stock to be sold by it
         hereunder), and this Agreement has been duly and validly authorized,
         executed and delivered by the Company and is a valid and binding
         obligation of the Company, enforceable against the Company in
         accordance with its terms, except to the extent that rights to
         indemnity and contribution hereunder may be limited by federal or state
         securities laws or the public policy underlying such laws.

                (xiv) The Company and its subsidiaries are in all material
         respects in compliance with, and conduct their businesses in conformity
         with, all applicable federal, state, local and foreign laws, rules and
         regulations of any court or governmental agency or body; to the
         knowledge of the Company, otherwise than as set forth in the
         Registration Statement and the Prospectus, no prospective change in any
         of such federal or state laws, rules or regulations has been adopted
         which, when made effective, would have a material adverse effect on the
         operations of the Company and its subsidiaries.

                (xv) The Company and each of its subsidiaries (A) are in
         compliance with any and all applicable foreign, federal, state and
         local laws and regulations relating to the protection of human health
         and safety, the environment or hazardous or toxic substances or wastes,
         pollutants or contaminants ("Environmental Laws"), (B) have received
         all permits, licenses or other

                                       8

<PAGE>

         approvals required of them under applicable Environmental Laws to
         conduct their respective businesses and (C) are in compliance with all
         terms and conditions of any such permit, license or approval, except
         where such noncompliance with Environmental Laws, failure to receive
         required permits, licenses or other approvals or failure to comply with
         the terms and conditions of such permits, licenses or approvals would
         not, singly or in the aggregate, have a material adverse effect on the
         Company and its subsidiaries considered as a whole.

                (xvi) The Company and each of its subsidiaries have such
         permits, licenses, franchises and authorizations of governmental or
         regulatory authorities ("permits"), including, without limitation,
         under any applicable Environmental Laws, as are necessary to own, lease
         and operate their respective properties and to conduct their businesses
         except where such failure to receive required permits would not, singly
         or in the aggregate, have a material adverse effect on the Company and
         its subsidiaries considered as a whole; the Company and each of its
         subsidiaries have fulfilled and performed all of their material
         obligations with respect to such permits and no event has occurred
         which allows, or after notice or lapse of time would allow, revocation
         or termination thereof or results in any other material impairment of
         the rights of the holder of any such permit; and, except as described
         in the Prospectus, such permits contain no restrictions that are
         materially burdensome to the Company or any of its subsidiaries.

                (xvii) The clinical trials and the animal studies conducted by
         or on behalf of the Company or in which the Company has participated
         that are described in the Prospectus were and, if still pending, are
         being conducted in all material respects in accordance with standard
         medical and scientific research procedures, and the Company has
         operated and currently is in compliance in all material respects with
         all applicable FDA rules, regulations and policies.

                (xviii) The Company and its subsidiaries have filed all federal,
         state, local and foreign income, payroll, franchise and other tax
         returns which are required to be filed through

                                       9
<PAGE>

         the date hereof, or has received extensions thereof, and have paid all
         taxes shown as due thereon or with respect to any of their properties
         to the extent the same are material and have become due, and there is
         no tax deficiency that has been, or to the knowledge of the Company is
         likely to be, asserted against the Company or any of its subsidiaries
         or any of their respective properties or assets that would adversely
         affect the financial position, business or operations of the Company
         and its subsidiaries.

                (xix) Except as described in the Registration Statement, no
         person or entity has the right to require registration of shares of
         Common Stock or other securities of the Company because of the filing
         or effectiveness of the Registration Statement or otherwise, except for
         persons and entities who have expressly waived such right or who have
         been given proper notice and have failed to exercise such right within
         the time or times required under the terms and conditions of such
         right.

                (xx) Neither the Company nor any of its officers, directors or
         affiliates (as that term is defined in Rule 144, promulgated under the
         Securities Act) has taken or will take, directly or indirectly, any
         action designed or intended to stabilize or manipulate the price of any
         security of the Company, or which caused or resulted in, or which might
         in the future reasonably be expected to cause or result in,
         stabilization or manipulation of the price of any security of the
         Company.

                (xxi) The Company has provided you with all annual, audited
         financial statements since June 30, 1992 to the date hereof that are
         available to the officers of the Company, and the unaudited financial
         statements for the six months ended December 31, 1995 and 1996.

                (xxii) Except as otherwise described in the Prospectus, the
         Company and its subsidiaries own or possess the right to use (i) all
         patents, trademarks, trademark registrations, service marks, service
         mark registrations, trade names, copyrights, licenses, inventions,
         trade secrets and rights described in the Prospectus as being owned by
         them and (ii) all other material patents,

                                       10
<PAGE>

         trademarks, trademark registrations, trade names, copyrights, licenses,
         inventions and trade secrets employed by them in the operation of their
         respective businesses, and, except as described in the Prospectus, the
         Company is not aware of any claim to the contrary or any challenge by
         any other person to the rights of the Company and its subsidiaries with
         respect to the foregoing. To the Company's knowledge, except as
         described in the Prospectus, its business as now conducted and as
         proposed to be conducted does not and will not infringe or conflict
         with in any material respect patents, trademarks, service marks, trade
         names, copyrights, trade secrets, licenses or other intellectual
         property or franchise right of any person. Except as described in the
         Prospectus, no claim has been made against the Company alleging the
         infringement by the Company of any patent trademark, service mark,
         trade name, copyright, trade secret, license in or other intellectual
         property right or franchise right of any person.

                (xxiii) The License Agreement dated February 7, 1997 by and
         between Upsher-Smith Laboratories, Inc. and the Company has been duly
         and validly authorized, executed and delivered by the Company and is a
         valid and existing contract of the Company.

                (xxiv) The Company and its subsidiaries have performed all
         material obligations required to be performed by them under all
         contracts required by Item 601 (b)(10) of Regulation S-K under the
         Securities Act to be filed as exhibits to the Registration Statement,
         and neither the Company nor any of its subsidiaries nor, to the
         Company's knowledge, any other party to such contract is in default
         under or in breach of any such obligations. Neither the Company nor any
         of its subsidiaries has received any notice of such default or breach.

                (xxv) The Company is not involved in any labor dispute nor, to
         the Company's knowledge, is any such dispute threatened. The Company is
         not aware that (A) any executive, key employee or significant group of
         employees of the Company or any subsidiary plans to terminate
         employment with the Company or any such subsidiary or (B) any such
         executive or key employee is subject to any noncompete, nondisclosure,
         confidentiality,

                                       11
<PAGE>

         employment, consulting or similar agreement that would be violated by
         the present or proposed business activities of the Company and its
         subsidiaries. Neither the Company nor any subsidiary has or expects to
         have any liability for any prohibited transaction or funding deficiency
         or any complete or partial withdrawal liability with respect to any
         pension, profit sharing or other plan which is subject to the Employee
         Retirement Income Security Act of 1974, as amended ("ERISA_), to which
         the Company or any subsidiary makes or ever has made a contribution and
         in which any employee of the Company or any subsidiary is or has ever
         been a participant. With respect to such plans, the Company and each
         subsidiary is in compliance in all material respects with all
         applicable provisions of ERISA.

                (xxvi) The Company has obtained the written agreement described
         in Section 3 of this Agreement from each of its officers and directors
         and each stockholder listed in Schedule B hereto.

                (xxvii) The Company and its subsidiaries have, and the Company
         and its subsidiaries as of the Closing Date will have, good and
         marketable title in fee simple to all real property and good and
         marketable title to all personal property owned by them which is
         material to the business of the Company or of its subsidiaries, in each
         case free and clear of all liens, encumbrances and defects except such
         as are described in the Prospectus or such as would not have a material
         adverse effect on the Company and its subsidiaries considered as a
         whole; and any real property and buildings held under lease by the
         Company and its subsidiaries or proposed to be held after giving effect
         to the transactions described in the Prospectus are, or will be as of
         the Closing Date, held by them under valid, subsisting and enforceable
         leases with such exceptions as would not have a material adverse effect
         on the Company and its subsidiaries considered as a whole in each case
         except as described in or contemplated by the Prospectus.

                (xxviii) The Company and its subsidiaries are insured by
         insurers of recognized financial responsibility against such losses and
         risks and in such amounts as are customary in the businesses in which
         they are engaged or propose to

                                       12
<PAGE>

         engage after giving effect to the transactions described in the
         Prospectus; and neither the Company nor any subsidiary of the Company
         has any reason to believe that it will not be able to renew its
         existing insurance coverage as and when such coverage expires or to
         obtain similar coverage from similar insurers as may be necessary to
         continue their business at a cost that would not materially and
         adversely affect the condition, financial or otherwise, or the
         earnings, business or operations of the Company and its subsidiaries
         considered as a whole, except as described in or contemplated by the
         Prospectus.

                (xxix) Other than as contemplated by this Agreement, there is no
         broker, finder or other party that is entitled to receive from the
         Company any brokerage or finder's fee or other fee or commission as a
         result of any of the transactions contemplated by this Agreement.

                (xxx) The Company has complied with all provisions of Section
         517.075 Florida Statutes (Chapter 92-198; Laws of Florida).

                (xxxi) The Company and each of its subsidiaries maintain a
         system of internal accounting controls sufficient to provide reasonable
         assurances that (A) transactions are executed in accordance with
         management's general or specific authorization; (B) transactions are
         recorded as necessary to permit preparation of financial statements in
         conformity with generally accepted accounting principles and to
         maintain accountability for assets; (C) access to assets is permitted
         only in accordance with management's general or specific authorization;
         and (D) the recorded accountability for assets is compared with
         existing assets at reasonable intervals and appropriate action is taken
         with respect to any differences.

                (xxxii) To the Company's knowledge, neither the Company nor any
         of its subsidiaries nor any employee or agent of the Company or any of
         its subsidiaries has made any payment of funds of the Company or any of
         its subsidiaries or received or retained any funds in violation of any
         law, rule or regulation, which payment, receipt or retention of funds
         is of a character required to be disclosed in the Prospectus.

                                       13
<PAGE>

                (xxxiii) Neither the Company nor any of its subsidiaries is or,
         after application of the net proceeds of this offering as described
         under the caption "Use of Proceeds" in the Prospectus, will become an
         "investment company" or an entity "controlled" by an " investment
         company" as such terms are defined in the Investment Company Act of
         1940, as amended.

                (xxxiv) Each certificate signed by any officer of the Company
         and delivered to the Underwriters or counsel for the Underwriters
         pursuant to this Agreement shall be deemed to be a representation and
         warranty by the Company as to the matters covered thereby.

                (xxxv) No executive officer of the Company has received or is
         aware of any communication (written or oral) relating to the
         termination or modification of any of the agreements described or
         referred to in the Prospectus under the caption "Business", the
         termination or modification of which would have a material adverse
         effect on the Company.

                (xxxvi) Except as disclosed in the Prospectus, there are no
         business relationships or related party transactions required to be
         disclosed therein by Item 404 of Regulation S-K of the Commission.

         3. PURCHASE BY, AND SALE AND DELIVERY TO, UNDERWRITERS--CLOSING DATES.
On the basis of the representations, warranties, covenants and agreements herein
contained, but subject to the terms and conditions herein set forth, the Company
agrees to sell to the Underwriters the Firm Stock; and the Underwriters agree,
severally and not jointly, to purchase the Firm Stock from the Company, the
number of shares of Firm Stock to be purchased by each Underwriter being set
opposite its name in Schedule A, subject to adjustment in accordance with
Section 12 hereof.

         The purchase price per share to be paid by the Underwriters to the
Company will be $ _____ per share (the "Purchase Price").

         The Company will deliver the Firm Stock to the Representatives for the
respective accounts of the several Underwriters in the form of definitive
certificates, issued in such names and in such denominations as the
Representatives may direct by notice in writing to the 

                                       14
<PAGE>

Company given at or prior to 12:00 Noon, New York Time, on the second full
business day preceding the First Closing Date (as defined below) or, if no such
direction is received, in the names of the respective Underwriters or in such
other names as Cowen may designate (solely for the purpose of administrative
convenience) and in such denominations as Cowen may determine, against payment
of the aggregate Purchase Price therefor by wire of federal or other immediately
available funds, payable to the order of the Company, all at the offices of
Davis Polk & Wardwell, 450 Lexington Avenue, New York, New York 10017. The time
and date of the delivery and closing shall be at _______ A.M., New York Time, on
________, 1996, in accordance with Rule 15c6-1 of the Securities Exchange Act of
1934, as amended (the "Exchange Act"). The time and date of such payment and
delivery are herein referred to as the "First Closing Date". The Closing Date
and the location of delivery of, and the form of payment for, the Firm Stock may
be varied by agreement among the Company and Cowen. The Closing Date may be
postponed pursuant to the provisions of Section 12.

         The Company shall make the certificates for the Stock available to the
Representatives for examination on behalf of the Underwriters not later than
10:00 A.M., New York Time, on the business day preceding the First Closing Date
at the offices of Cowen & Company, Financial Square, New York, New York 10005.

         It is understood that Cowen, individually and not as Representative of
the several Underwriters, may (but shall not be obligated to) make payment to
the Company on behalf of any Underwriter or Underwriters for the Stock to be
purchased by such Underwriter or Underwriters. Any such payment by Cowen shall
not relieve such Underwriter or Underwriters from any of its or their other
obligations hereunder.

         The several Underwriters agree to make an initial public offering of
the Firm Stock at the initial public offering price as soon after the
effectiveness of the Registration Statement as in their judgment is advisable.
The Representatives shall promptly advise the Company of the making of the
initial public offering.

         For the purpose of covering any over-allotments in connection with the
distribution and sale of the Firm Stock as contemplated by the Prospectus, the
Company hereby grants to the Underwriters an option to purchase, severally and
not jointly, up to the aggregate number of 525,000 shares of Optional Stock. The
price per share to be paid for the

                                       15
<PAGE>

Optional Stock shall be the Purchase Price. The option granted hereby may be
exercised as to all or any part of the Optional Stock at any time, and from time
to time, not more than thirty (30) days subsequent to the effective date of this
Agreement. No Optional Stock shall be sold and delivered unless the Firm Stock
previously has been, or simultaneously is, sold and delivered. The right to
purchase the Optional Stock or any portion thereof may be surrendered and
terminated at any time upon notice by the Underwriters to the Company.

         The option granted hereby may be exercised by the Underwriters by
giving written notice from Cowen to the Company setting forth the number of
shares of the Optional Stock to be purchased by them and the date and time for
delivery of and payment for the Optional Stock. Each date and time for delivery
of and payment for the Optional Stock (which may be the First Closing Date, but
not earlier) is herein called the "Option Closing Date" and shall in no event be
earlier than two (2) business days nor later than ten (10) business days after
written notice is given. (The Option Closing Date and the First Closing Date are
herein called the "Closing Dates".) Optional Stock shall be purchased for the
account of each Underwriter in the same proportion as the number of shares of
Firm Stock set forth opposite such Underwriter's name in Schedule A hereto bears
to the total number of shares of Firm Stock (subject to adjustment by the
Underwriters to eliminate odd lots). Upon exercise of the option by the
Underwriters and subject to the terms and conditions herein set forth, the
Company agrees to sell to the Underwriters the number of shares of Optional
Stock set forth in the written notice of exercise and the Underwriters agree,
severally and not jointly, to purchase the number of such shares determined as
aforesaid.

         The Company will deliver the Optional Stock to the Underwriters in the
form of definitive certificates, issued in such names and in such denominations
as the Representatives may direct by notice given at or prior to 12:00 Noon, New
York Time, on the second full business day preceding the Option Closing Date or,
if no such direction is received, in the names of the respective Underwriters or
in such other names as Cowen may designate (solely for the purpose of
administrative convenience) and in such denominations as Cowen may determine,
against payment of the aggregate Purchase Price therefor by wire of federal or
other immediately available funds, payable to the order of the Company, all at
the offices of Davis Polk & Wardwell, 450 Lexington Avenue, New York, New York
10017. The Option Closing Date and the location of delivery of, and the form of
payment for, the Optional Stock may be varied by 

                                       16
<PAGE>

agreement between the Company and Cowen. The Option Closing Date may be
postponed pursuant to the provisions of Section 12.

         The Company hereby agrees, and the Company shall, concurrently with the
execution of this Agreement, deliver an agreement executed by (i) each of the
directors and officers of the Company and (ii) each of the directors and
officers of the Company and (ii) each stockholder listed in Schedule B hereto,
pursuant to which each such person agrees not (A) directly or indirectly, to
offer, sell, assign, transfer, encumber, pledge, contract to sell, grant an
option to purchase or otherwise dispose of, other than by operation of law, any
Common Stock of the Company or (B) to enter into any swap or other arrangement
that transfers to another, in whole or in part, any of the economic consequences
of ownership of Common Stock, whether any such transaction described in clauses
(A) or (B) above is to be settled by delivery of Common Stock or such other
securities, in cash or otherwise for a period of 180 days after the date of the
Prospectus without the prior written consent of Cowen. The foregoing sentence
shall not apply to (a) the Stock to be sold hereunder or (b) the issuance by the
Company of shares of Common Stock upon the exercise of an option or warrant or
the conversion of a security outstanding on the date hereof of which the
Underwriters have been advised in writing or (c) the issuance by the Company of
any option to purchase any shares of Common Stock pursuant to its Stock Option
Plan described in the Prospectus.

         4. COVENANTS AND AGREEMENTS OF THE COMPANY. The Company covenants and
agrees with the several Underwriters that:

                (a) The Company will (i) if the Company and the Representatives
         have determined not to proceed pursuant to Rule 430A, use its best
         efforts to cause the Registration Statement to become effective, (ii)
         if the Company and the Representatives have determined to proceed
         pursuant to Rule 430A, use its best efforts to comply with the
         provisions of and make all requisite filings with the Commission
         pursuant to Rule 430A and Rule 424 of the Rules and Regulations and
         (iii) if the Company and the Representatives have determined to deliver
         Prospectuses pursuant to Rule 434 of the Rules and Regulations, to use
         its best efforts to comply with all the applicable provisions thereof.
         The Company will advise the Representatives promptly as to the time at
         which the Registration Statement becomes effective, will advise the
         Representatives

                                       17
<PAGE>

         promptly of the issuance by the Commission of any stop order suspending
         the effectiveness of the Registration Statement or of the institution
         of any proceedings for that purpose, and will use its best efforts to
         prevent the issuance of any such stop order and to obtain as soon as
         possible the lifting thereof, if issued. The Company will advise the
         Representatives promptly of the receipt of any comments of the
         Commission or any request by the Commission for any amendment of or
         supplement to the Registration Statement or the Prospectus or for
         additional information and will not at any time file any amendment to
         the Registration Statement or supplement to the Prospectus which shall
         not previously have been submitted to the Representatives a reasonable
         time prior to the proposed filing thereof or to which the
         Representatives shall reasonably object in writing or which is not in
         compliance with the Securities Act and the Rules and Regulations.

                (b) The Company will prepare and file with the Commission,
         promptly upon the request of the Representatives, any amendments or
         supplements to the Registration Statement or the Prospectus which in
         the opinion of the Representatives may be necessary to enable the
         several Underwriters to continue the distribution of the Stock as
         contemplated herein and will use its best efforts to cause the same to
         become effective as promptly as possible.

                (c) If at any time after the effective date of the Registration
         Statement when a prospectus relating to the Stock is required to be
         delivered under the Securities Act any event relating to or affecting
         the Company or any of its subsidiaries occurs as a result of which the
         Prospectus or any other prospectus as then in effect would include an
         untrue statement of a material fact, or omit to state any material fact
         necessary to make the statements therein, in the light of the
         circumstances under which they were made, not misleading, or if it is
         necessary at any time to amend the Prospectus to comply with the
         Securities Act, the Company will promptly notify the Representatives
         thereof and will prepare an amended or supplemented prospectus which
         will correct such statement or omission; and in case any Underwriter is
         required to deliver a prospectus relating to the Stock nine (9) months

                                       18
<PAGE>

         or more after the effective date of the Registration Statement, the
         Company upon the request of the Representatives and at the expense of
         such Underwriter will prepare promptly such prospectus or prospectuses
         as may be necessary to permit compliance with the requirements of
         Section 10(a)(3) of the Securities Act.

                (d) The Company will deliver to the Representatives, at or
         before the Closing Date, three (3) signed copies of the Registration
         Statement, as originally filed with the Commission, and all amendments
         thereto including all financial statements and exhibits thereto, and
         will deliver to the Representatives such number of copies of the
         Registration Statement, including such financial statements but without
         exhibits, and all amendments thereto, as the Representatives may
         reasonably request. The Company will deliver or mail to or upon the
         order of the Representatives, from time to time until the effective
         date of the Registration Statement, as many copies of the Preeffective
         Prospectus as the Representatives may reasonably request. The Company
         will deliver or mail to or upon the order of the Representatives on the
         date of the initial public offering, and thereafter from time to time
         during the period when delivery of a prospectus relating to the Stock
         is required under the Securities Act, as many copies of the Prospectus,
         in final form or as thereafter amended or supplemented as the
         Representatives may reasonably request; provided, however, that the
         expense of the preparation and delivery of any prospectus required for
         use nine (9) months or more after the effective date of the
         Registration Statement shall be borne by the Underwriters required to
         deliver such prospectus.

                (e) The Company will make generally available to its
         stockholders as soon as practicable, but not later than fifteen (15)
         months after the effective date of the Registration Statement, an
         earnings statement which will be in reasonable detail (but which need
         not be audited) and which will comply with Section 11(a) of the
         Securities Act, covering a period of at least twelve (12) months
         beginning after the "effective date" (as defined in Rule 158 under the
         Securities Act) of the Registration Statement.

                                       19
<PAGE>

                (f) The Company will cooperate with the Representatives to
         enable the Stock to be registered or qualified for offering and sale by
         the Underwriters and by dealers under the securities laws of such
         jurisdictions as the Representatives may designate and at the request
         of the Representatives will make such applications and furnish such
         consents to service of process or other documents as may be required of
         it as the issuer of the Stock for that purpose; provided, however, that
         the Company shall not be required to qualify to do business or to file
         a general consent (other than that arising out of the offering or sale
         of the Stock) to service of process in any such jurisdiction where it
         is not now so subject. The Company will, from time to time, prepare and
         file such statements and reports as are or may be required of it as the
         issuer of the Stock to continue such qualifications in effect for so
         long a period as the Representatives may reasonably request for the
         distribution of the Stock. The Company will advise the Representatives
         promptly after the Company becomes aware of the suspension of the
         qualifications or registration of (or any such exception relating to)
         the Common Stock of the Company for offering, sale or trading in any
         jurisdiction or of any initiation or threat of any proceeding for any
         such purpose, and in the event of the issuance of any orders suspending
         such qualifications, registration or exception, the Company will, with
         the cooperation of the Representatives, use its best efforts to obtain
         the withdrawal thereof.

                (g) As and when required by the Rules and Regulations, the
         Company will furnish to its stockholders annual reports containing
         financial statements certified by independent public accountants.
         During the period of five (5) years from the date hereof, the Company
         will deliver to the Representatives and, upon request, to each of the
         other Underwriters, as soon as they are available, copies of each
         annual report of the Company and each other report furnished by the
         Company to its stockholders and will deliver to the Representatives,
         (i) as soon as they are available, copies of any other reports
         (financial or other) which the Company shall publish or otherwise make
         available to any of its stockholders as such and (ii) as soon as they
         are available, copies of any reports and financial

                                       20
<PAGE>

         statements furnished to or filed with the Commission or any national
         securities exchange or the NASD. So long as the Company has active
         subsidiaries, such financial statements will be on a consolidated basis
         to the extent the accounts of the Company and its subsidiaries are
         consolidated in reports furnished to its stockholders generally.
         Separate financial statements shall be furnished for all subsidiaries
         whose accounts are not consolidated but which at the time are
         significant subsidiaries as defined in the Rules and Regulations.

                (h) The Company will use its best efforts to maintain the
         inclusion of the Stock on the Nasdaq National Market (or on a national
         securities exchange) for a period of five (5) years after the effective
         date of the Registration Statement.

                (i) The Company will maintain a transfer agent and registrar for
         its Common Stock.

                (j) The Company will not (i) directly or indirectly, offer,
         sell, assign, transfer, encumber, pledge, contract to sell, grant an
         option to purchase or otherwise dispose of, other than by operation of
         law, any shares of Common Stock or (ii) enter into any swap or other
         arrangement that transfers to another, in whole or in part, any of the
         economic consequences of ownership of the Common Stock, whether any
         such transaction described in clauses (i) or (ii) above is to be
         settled by delivery of Common Stock or such other securities, in cash
         or otherwise during the 180 days following the date on which the price
         of the Common Stock to be purchased by the Underwriters is set, other
         than (A) the Company's sale of Common Stock hereunder, (B) the issuance
         by the Company of shares of Common Stock upon the exercise of an option
         or warrant or the conversion of a security outstanding on the date
         hereof of which the Underwriters have been advised in writing and (C)
         the issuance by the Company of any option to purchase any shares of
         Common Stock pursuant to its Stock Option Plan described in the
         Prospectus.

                (k) Prior to filing with the Commission any reports on Form SR
         pursuant to Rule 463 of Rules and Regulations, the Company will furnish
         a

                                       21
<PAGE>

         copy thereof to the counsel for the Underwriters and receive and
         consider its comments thereon, and will deliver promptly to the
         Representatives a signed copy of each report on Form SR filed by it
         with the Commission.

                (l) The Company will apply the net proceeds from the sale of the
         Stock as set forth in the description under "Use of Proceeds" in the
         Prospectus, which description complies in all respects with the
         requirements of Item 504 of Regulation S-K.

                (m) The Company will supply you with copies of all
         correspondence to and from, and all documents issued to and by, the
         Commission in connection with the registration of the Stock under the
         Securities Act.

                (n) Prior to the Closing Date the Company will issue no press
         release or other communications directly or indirectly and hold no
         press conference with respect to the Company or any of its
         subsidiaries, the financial condition, results of operation, business,
         prospects, assets or liabilities of any of them, or the offering of the
         Stock, without your prior written consent. (o) ________ During the
         period of five (5) years hereafter, the Company will furnish to the
         Representatives and, upon request of the Representatives to each of the
         Underwriters, as soon as available, copies of any report or
         communication of the Company mailed generally to holders of its Common
         Stock.

                (p) The Company will use its best efforts to do and perform all
         things required or necessary to be done and performed under this
         Agreement by the Company prior to the Closing Date and to satisfy all
         conditions precedent to the delivery of the Firm Stock.

         5. PAYMENT OF EXPENSES. (a) The Company will pay (directly or by
reimbursement) the following costs, fees and expenses and all other costs, fees
and expenses incident to the performance of the obligations of the Company under
this Agreement: (i) all expenses and taxes incident to the issuance and delivery
of the Stock to the Representatives; (ii) all expenses incident to the
registration of the Stock under the Securities Act; (iii) the costs of preparing
stock

                                       22
<PAGE>

certificates (including printing and engraving costs); (iv) all fees and
expenses of the registrar and transfer agent of the Stock; (v) all necessary
issue, transfer and other stamp taxes in connection with the issuance and sale
of the Stock to the Underwriters; (vi) fees and expenses of the Company's
counsel and the Company's independent accountants; (vii) all costs and expenses
incurred in connection with the preparation, printing, filing, shipping and
distribution of the Registration Statement, each Preeffective Prospectus and the
Prospectus (including all exhibits and financial statements) and all amendments
and supplements provided for herein and the Blue Sky memoranda and this
Agreement; (viii) all filing fees, attorneys' fees and expenses incurred by the
Company or the Underwriters in connection with exemptions from the qualifying or
registering (or obtaining qualification or registration of) all or any part of
the Stock for offer and sale under the Blue Sky or other securities laws of such
jurisdictions as the Representatives may designate; (ix) all fees and expenses
paid or incurred in connection with filings made with the NASD; and (x) all
other costs and expenses incident to the performance of the Company's
obligations hereunder which are not otherwise specifically provided for in this
Section.

         6. INDEMNIFICATION AND CONTRIBUTION. (a) The Company agrees to
indemnify and hold harmless each Underwriter and each person, if any, who
controls such Underwriter within the meaning of the Securities Act and the
respective officers, directors, partners, employees, representatives and agents
of each of such Underwriter (collectively, the "Underwriter Indemnified Parties"
and, each, an "Underwriter Indemnified Party"), against any losses, claims,
damages, liabilities or expenses (including (i) the reasonable cost of
investigating and (ii) defending against any claims therefor and counsel fees
incurred in connection therewith, unless the Company is entitled and elects to
assume the defense as contemplated in this subsection (a) and the Company has
not authorized the Underwriter Indemnified Party to retain additional counsel as
contemplated in this subsection (a)), joint or several, which may be based upon
the Securities Act, or any other statute or at common law, on the ground or
alleged ground that any Preeffective Prospectus, the Registration Statement or
the Prospectus (or any Preeffective Prospectus, the Registration Statement or
the Prospectus as from time to time amended or supplemented) includes or
allegedly includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, unless such statement or omission was made in reliance
upon,

                                       23
<PAGE>

and in conformity with, written information furnished to the Company by any
Underwriter, directly or through the Representatives, specifically for use in
the preparation thereof; provided, however, that in no case is the Company to be
liable with respect to any claims made against any Underwriter Indemnified Party
against whom the action is brought unless such Underwriter Indemnified Party
shall have notified the Company in writing within a reasonable time after the
summons or other first legal process giving information of the nature of the
claim shall have been served upon the Underwriter Indemnified Party, but failure
to notify the Company of such claim shall not relieve it from any liability
which it may have to any Underwriter Indemnified Party otherwise than on account
of its indemnity agreement contained in this paragraph. The Company will be
entitled to participate at its own expense in the defense or, if it so elects,
to assume the defense of any suit brought to enforce any such liability, but if
the Company elects to assume the defense, such defense shall be conducted by
counsel chosen by it. In the event the Company elects to assume the defense of
any such suit and retain such counsel, any Underwriter Indemnified Parties,
defendant or defendants in the suit, may retain additional counsel but shall
bear the fees and expenses of such counsel unless (i) the Company shall have
specifically authorized the retaining of such counsel or (ii) the parties to
such suit include any such Underwriter Indemnified Parties, and the Company and
such Underwriter Indemnified Parties at law or in equity have been advised by
counsel to the Underwriters that one or more legal defenses may be available to
it or them which may not be available to the Company, in which case the Company
shall not be entitled to assume the defense of such suit notwithstanding its
obligation to bear the fees and expenses of such counsel. This indemnity
agreement is not exclusive and will be in addition to any liability which the
Company might otherwise have and shall not limit any rights or remedies which
may otherwise be available at law or in equity to each Underwriter Indemnified
Party.

                (b) Each Underwriter severally and not jointly agrees to
         indemnify and hold harmless the Company, each of its directors, each of
         its officers who have signed the Registration Statement and each
         person, if any, who controls the Company within the meaning of the
         Securities Act (collectively, the "Company Indemnified Parties")
         against any losses, claims, damages, liabilities or expenses
         (including, unless the Underwriter or Underwriters elect to assume the
         defense, the reasonable cost of investigating and defending against any
         claims therefor and counsel fees incurred in connection therewith),
         joint or several, which arise out of or are based in whole or in part
         upon the

                                       24

<PAGE>

         Securities Act, the Exchange Act or any other federal, state, local or
         foreign statute or regulation, or at common law, on the ground or
         alleged ground that any Preeffective Prospectus, the Registration
         Statement or the Prospectus (or any Preeffective Prospectus, the
         Registration Statement or the Prospectus, as from time to time amended
         and supplemented) includes an untrue statement of a material fact or
         omits to state a material fact required to be stated therein or
         necessary in order to make the statements therein, in light of the
         circumstances in which they were made, not misleading, but only insofar
         as any such statement or omission was made in reliance upon, and in
         conformity with, written information furnished to the Company by such
         Underwriter, directly or through the Representatives, specifically for
         use in the preparation thereof; provided, however, that in no case is
         such Underwriter to be liable with respect to any claims made against
         any Company Indemnified Party against whom the action is brought unless
         such Company Indemnified Party shall have notified such Underwriter in
         writing within a reasonable time after the summons or other first legal
         process giving information of the nature of the claim shall have been
         served upon the Company Indemnified Party, but failure to notify such
         Underwriter of such claim shall not relieve it from any liability which
         it may have to any Company Indemnified Party otherwise than on account
         of its indemnity agreement contained in this paragraph. Such
         Underwriter shall be entitled to participate at its own expense in the
         defense, or, if it so elects, to assume the defense of any suit brought
         to enforce any such liability, but, if such Underwriter elects to
         assume the defense, such defense shall be conducted by counsel chosen
         by it. In the event that any Underwriter elects to assume the defense
         of any such suit and retain such counsel, the Company Indemnified
         Parties and any other Underwriter or Underwriters or controlling person
         or persons, defendant or defendants in the suit, shall bear the fees
         and expenses of any additional counsel retained by them, respectively.
         The Underwriter against whom indemnity may be sought shall not be
         liable to indemnify any person for any settlement of any such claim
         effected without such Underwriter's consent. This indemnity agreement
         is not exclusive and will be in addition to any liability which such
         Underwriter might otherwise have and shall not limit any rights or
         remedies which may otherwise be available at law or in equity to any
         Company Indemnified Party.

                (c) If the indemnification provided for in this Section 6 is
         unavailable or insufficient to hold harmless an indemnified party under
         subsection (a) or (b) above in respect of any losses, claims, damages,
         liabilities or expenses (or actions in respect thereof) referred to
         herein,

                                       25

<PAGE>

         then each indemnifying party shall contribute to the amount paid or
         payable by such indemnified party as a result of such losses, claims,
         damages, liabilities or expenses (or actions in respect thereof) in
         such proportion as is appropriate to reflect the relative benefits
         received by the Company on the one hand and the Underwriters on the
         other from the offering of the Stock. If, however, the allocation
         provided by the immediately preceding sentence is not permitted by
         applicable law, then each indemnifying party shall contribute to such
         amount paid or payable by such indemnified party in such proportion as
         is appropriate to reflect not only such relative benefits but also the
         relative fault of the Company on the one hand and the Underwriters on
         the other in connection with the statements or omissions which resulted
         in such losses, claims, damages, liabilities or expenses (or actions in
         respect thereof), as well as any other relevant equitable
         considerations. The relative benefits received by the Company on the
         one hand and the Underwriters on the other shall be deemed to be in the
         same proportion as the total net proceeds from the offering (before
         deducting expenses) received by the Company bear to the total
         underwriting discounts and commissions received by the Underwriters, in
         each case as set forth in the table on the cover page of the
         Prospectus. The relative fault shall be determined by reference to,
         among other things, whether the untrue or alleged untrue statement of a
         material fact or the omission or alleged omission to state a material
         fact relates to information supplied by the Company or the Underwriters
         and the parties' relative intent, knowledge, access to information and
         opportunity to correct or prevent such statement or omission. The
         Company and the Underwriters agree that it would not be just and
         equitable if contribution were determined by pro rata allocation (even
         if the Underwriters were treated as one entity for such purpose) or by
         any other method of allocation which does not take account of the
         equitable considerations referred to above. The amount paid or payable
         by an indemnified party as a result of the losses, claims, damages,
         liabilities or expenses (or actions in respect thereof) referred to
         above shall be deemed to include any legal or other expenses reasonably
         incurred by such indemnified party in connection with investigating,
         defending, settling or compromising any such claim. Notwithstanding the
         provisions of this subsection (c), no Underwriter shall be required to
         contribute any amount in excess of the amount by which the total price
         at which the shares of the Stock underwritten by it and distributed to
         the public were offered to the public exceeds the amount of any damages
         which such Underwriter has otherwise been required to pay by reason of
         such untrue or alleged untrue statement or omission or alleged
         omission. The Underwriters' obligations to contribute are several in

                                       26
<PAGE>

         proportion to their respective underwriting obligations and not joint.
         No person guilty of fraudulent misrepresentation (within the meaning of
         Section 11(f) of the Securities Act) shall be entitled to contribution
         from any person who was not guilty of such fraudulent
         misrepresentation.

         7. SURVIVAL OF INDEMNITIES, REPRESENTATIONS, WARRANTIES ETC. The
respective indemnities, covenants, agreements, representations, warranties and
other statements of the Company and the several Underwriters, as set forth in
this Agreement or made by them respectively, pursuant to this Agreement, shall
remain in full force and effect, regardless of any investigation made by or on
behalf of any Underwriter, the Company or any of its officers or directors or
any controlling person, and shall survive delivery of and payment for the Stock.

         8. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The respective obligations
of the several Underwriters hereunder shall be subject to the satisfaction of
each of the following conditions:

                (a) All the representations and warranties of the Company shall
         be true and correct on the Closing Date with the same force and effect
         as if made on and as of the Closing Date.

                (b) The Registration Statement shall have become effective and
         no stop order suspending the effectiveness thereof shall have been
         issued and no proceedings for that purpose shall have been initiated
         or, to the knowledge of the Company or the Representatives, shall be
         threatened by the Commission, and any request for additional
         information on the part of the Commission (to be included in the
         Registration Statement or the Prospectus or otherwise) shall have been
         complied with to the reasonable satisfaction of the Representatives.
         Any filings of the Prospectus, or any supplement thereto, required
         pursuant to Rule 424(b) or Rule 434 of the Rules and Regulations, shall
         have been made in the manner and within the time period required by
         Rule 424(b) and Rule 434 of the Rules and Regulations, as the case may
         be.

                (c) The Representatives shall have been satisfied that there
         shall not have occurred any change, or any development involving a
         prospective change, on a consolidated basis, prior to the

                                       27
<PAGE>

         Closing Date in the condition (financial or otherwise), properties,
         business, management, net worth or results of operations of the Company
         and its subsidiaries considered as a whole, or any change in the
         capital stock, short-term or long-term debt of the Company and its
         subsidiaries considered as a whole, such that (i) the Registration
         Statement or the Prospectus, or any amendment or supplement thereto,
         contains an untrue statement of fact which, in the opinion of the
         Representatives, is material, or omits to state a fact which, in the
         opinion of the Representatives, is required to be stated therein or is
         necessary to make the statements therein not misleading, or (ii) it is
         unpracticable in the reasonable judgment of the Representatives to
         proceed with the public offering or purchase the Stock as contemplated
         hereby.

                (d) The Representatives shall be satisfied that no legal or
         governmental action, suit or proceeding affecting the Company which is
         material and adverse to the Company or which affects or may affect the
         Company's ability to perform its respective obligations under this
         Agreement shall have been instituted or threatened and there shall have
         occurred no material adverse development in any existing such action,
         suit or proceeding.

                (e) At the time of execution of this Agreement, the
         Representatives shall have received from Arthur Andersen LLP,
         independent certified public accountants, a letter, dated the date
         hereof, in form and substance satisfactory to the Underwriters.

                (f) The Representatives shall have received from Arthur Andersen
         LLP, independent certified public accountants, a letter, dated the
         Closing Date, to the effect that such accountants reaffirm, as of the
         Closing Date, and as though made on the Closing Date, the statements
         made in the letter furnished by such accountants pursuant to paragraph
         (e) of this Section 8.

                (g) The Representatives shall have received from Holland &
         Knight, counsel for the Company, an opinion, dated the Closing Date, to
         the effect that:

                                       28

<PAGE>

                    (i) the Company has and each of its subsidiaries has been
                duly incorporated and is validly existing and in active status
                under Florida law, with power and authority (corporate and
                other) to own or lease its properties and conduct its business
                as described in the Prospectus;

                    (ii) the Company is and each of its subsidiaries is duly
                qualified to do business and in good standing as a foreign
                corporation in all other jurisdictions where its ownership or
                leasing of properties or the conduct of its business requires
                such qualification, except where the failure to so register
                would not singly or in the aggregate, have a material adverse
                effect on the Company's operations;

                    (iii) all of the outstanding shares of capital stock of, or
                other ownership interests in each subsidiary of the Company have
                been duly and validly authorized and issued and are fully paid
                and nonassessable, and are owned by the Company, free and clear
                of any security interest, claim, lien, encumbrance or adverse
                interest of any nature;

                    (iv) the Company has authorized and outstanding capital
                stock as set forth under the heading "Capitalization" in the
                Prospectus; the outstanding shares of Common Stock of the
                Company conform to the description thereof in the Prospectus;
                and all of the outstanding shares of capital stock of the
                Company have been duly authorized and validly issued and fully
                paid and nonassessable and not subject to any preemptive or
                similar rights;

                    (v) the shares of Common Stock to be issued and sold
                hereunder have been duly authorized, and when issued and
                delivered to the Underwriters against payment therefor as
                provided by this Agreement, will have been validly issued and
                will be fully paid and nonassessable, and the issuance of such
                Common Stock is not subject to any preemptive or similar rights;

                                       29
<PAGE>

                    (vi) this Agreement has been duly authorized, executed and
                delivered by the Company and is a valid and binding agreement of
                the Company;

                    (vii) Based solely on telephonic, verbal confirmation
                provided to such counsel by the staff of the Commission, the
                Registration Statement has become effective under the Securities
                Act, and, to such counsel's knowledge, no stop order suspending
                its effectiveness has been issued and no proceedings for the
                purpose are pending before or contemplated by the Commission;

                    (viii) the statements under the captions "Risk Factors",
                "Business Collaboration with Fuisz Technologies Ltd.", "Business
                - Sponsored Research", "Business Government Regulation",
                "Management - Executive Compensation - Confidentiality and
                Intellectual Property Agreements", "Management - Executive
                Compensation - Employee Agreements", "Management - Employee
                Benefit Plans", "Certain Transactions", "Description of Capital
                Stock", "Shares Eligible for Future Sale" in the Prospectus and
                Items 14 and 15 in the Registration Statement in each case
                insofar as such statements constitute summaries of the legal
                matters or documents referred to therein, fairly present in all
                material respects the information called for with respect to
                such legal matters;

                    (ix) the execution, delivery and performance of this
                Agreement by the Company, compliance by the Company with all the
                provisions hereof and the consummation of the transactions
                contemplated hereby will not require any consent, approval,
                authorization or other order of any court, regulatory body,
                administrative agency or other governmental body (except such as
                may be required by the NASD or under the Securities Act or other
                securities or Blue Sky laws) and will not conflict with or
                constitute a breach of any of the terms or provisions of, or a
                default under, the articles of incorporation or by-laws of the
                Company or any of its subsidiaries or any agreement, indenture
                or

                                       30
<PAGE>

                other instrument to which the Company or any of its subsidiaries
                or their respective properties are bound, or violate or conflict
                with any laws, administrative regulations or rulings or court
                decrees applicable to the Company or any of its subsidiaries or
                their respective properties;

                    (x) such counsel does not know of any legal or governmental
                proceeding pending or threatened to which the Company or any of
                its subsidiaries is a party or to which any of their respective
                property is subject which is required to be described in the
                Registration Statement or the Prospectus and is not so
                described, or of any contract or other document which is
                required to be described in the Registration Statement or the
                Prospectus or is required to be filed as an exhibit to the
                Registration Statement which is not described or filed as
                required;

                    (xi) neither the Company nor any of its subsidiaries is, nor
                will be immediately after receiving the proceeds from the sale
                of the Stock, an "investment company" or an entity "controlled"
                by an "investment company" as such terms are defined in the
                Investment Company Act of 1940, as amended;

                    (xii) such counsel does not know of any holder of any
                security of the Company that has any right to require
                registration of shares of Common Stock or any other security of
                the Company except as described in the Registration Statement;

                    (xiii) the Registration Statement and the Prospectus and any
                amendments or supplements (except for financial statements and
                schedules and other financial and statistical data included
                therein as to which such counsel does not express any opinion)
                thereto comply as to form in all material respects with the
                requirements of the Securities Act and the Rules and
                Regulations;

                                       31
<PAGE>

                    (xiv) the Company has complied with all provisions of
                Section 517.075 of the Florida Statutes (Chapter 92-198; Laws of
                Florida);

         In addition to the matters set forth above, such opinion shall also
         include a statement to the effect that nothing has come to the
         attention of such counsel which leads it to believe that the
         Registration Statement, as of the time it becomes effective under the
         Securities Act, contained an untrue statement of a material fact or
         omitted to state a material fact required to be stated therein or
         necessary to make the statements therein not misleading, or that the
         Prospectus or any amendment or supplement thereto, on the date it was
         filed pursuant to Rule 424(b) and the Registration Statement and the
         Prospectus, or any amendment or supplement thereto, as of the First
         Closing Date, or any Option Closing Date, as the case may be, contains
         an untrue statement of material fact or omits to state a material fact
         required to be stated therein or necessary to make the statements
         therein, in the light of the circumstances under which they are made,
         not misleading. With respect to such statement, counsel may state that
         their belief is based upon procedures set forth therein, but is without
         independent check and verification.

                In rendering such opinion such counsel may assume that the laws
         of the State of New York governing this Agreement are the same as the
         laws of the State of Florida.

                (h) The Representatives shall have received from Davis Polk &
         Wardwell, counsel for the Underwriters, their opinion dated the Closing
         Date with respect to the incorporation of the Company, the validity of
         the Stock, the Registration Statement and the Prospectus and such other
         related matters as it may reasonably request, and the Company shall
         have furnished to such counsel such documents as they may request for
         the purpose of enabling them to pass upon such matters.

         (i) The Representatives shall have received on the Closing Date an
         opinion of Holland

                                       32
<PAGE>

         & Knight, patent counsel for the Company, dated the Closing Date, to
         the effect that:

                    (i) the statements in the Prospectus under the headings
                "Risk Factors- Patents and Trademarks; Interference" and in the
                first, second, third and fifth paragraphs under "Business-
                Patents and Proprietary Rights" constitute an accurate summary
                of the matters referred to therein and fairly present the
                information called for with respect to such matters;

                    (ii) other than as disclosed in the Prospectus, to the best
                of such counsel's knowledge, there are no legal or governmental
                proceedings pending relating to patents or proprietary
                information rights to which the Company is a party or to which
                any patents or proprietary information rights of the Company is
                subject, and no such proceedings are threatened or contemplated
                by governmental authorities or others;

                    (iii) based on the information brought to such counsel's
                attention by the Company with respect to the Company's
                investigation, if any, of the published literature and patent
                references relating to the inventions claimed in its patent
                application, Serial No. 08-368,378 (the "Application"), such
                counsel disclosed all references known to it to the Patent and
                Trademark Office in accordance with 37 C.F.R. Section 1.56; to
                the best of such counsel's knowledge, all information submitted
                to the U.S. Patent and Trademark Office in the Application, and
                in connection with the prosecution of the Application, was
                accurate; neither such counsel nor to the best of its knowledge,
                the Company, made any misrepresentation or concealed any
                material information from the Patent and Trademark Office in the
                Application, or in connection with the prosecution of such
                applications in violation of 37 C.F.R. Section 1.56;

                    (iv) other than as disclosed in the Prospectus, such counsel
                is unaware of any basis for a finding that the Company does not

                                       33
<PAGE>

                have clear title or valid license rights to the patents or
                patent applications referenced in the Prospectus, and such
                counsel has not identified any basis for a finding of
                unenforceability or invalidity of any patents or proprietary
                information rights of the Company; and

                    (v) other than as disclosed in the Prospectus and based upon
                a review of the third party rights made known to such counsel
                and discussions with Company scientific personnel, such counsel
                is not aware of any valid United States or foreign patent that
                is or would be infringed by the activities of the Company in the
                manufacture, use or sale of Niaspan, as described in the
                Prospectus.

                (j) The Representatives shall have received an opinion of Cooper
         & Dunham, patent counsel for the Underwriters, dated the Closing Date,
         to the effect that the Underwriters will reasonably rely on the opinion
         delivered to the Underwriters pursuant to paragraph (i) above.

                (k) The Representatives shall have received a certificate, dated
         the Closing Date, signed by Daniel M. Bell, in his capacity as the
         President and Chief Executive Officer, to the effect that:

                    (i) No stop order suspending the effectiveness of the
                Registration Statement has been issued, and, to the best of the
                knowledge of the signers, no proceedings for that purpose have
                been instituted or are pending or contemplated under the
                Securities Act;

                    (ii) Neither any Preeffective Prospectus, as of its date,
                nor the Registration Statement nor the Prospectus, nor any
                amendment or supplement thereto, as of the time when the
                Registration Statement became effective and at all times
                subsequent thereto up to the delivery of such certificate,
                included any untrue statement of a material fact or omitted to
                state any material fact required to be stated therein or
                necessary to make the statements therein,

                                       34
<PAGE>

                in light of the circumstances under which they were made, not
                misleading;

                    (iii) Subsequent to the respective dates as of which
                information is given in the Registration Statement and the
                Prospectus, and except as set forth or contemplated in the
                Prospectus, neither the Company nor any of its subsidiaries has
                incurred any material liabilities or obligations, direct or
                contingent, nor entered into any material transactions not in
                the ordinary course of business and there has not been any
                material adverse change in the condition (financial or
                otherwise), properties, business, management, prospects, net
                worth or results of operations of the Company and its
                subsidiaries considered as a whole, or any change in the capital
                stock, short-term or long-term debt of the Company and its
                subsidiaries considered as a whole;

                    (iv) The representations and warranties of the Company in
                this Agreement are true and correct at and as of the Closing
                Date, and the Company has complied with all the agreements and
                performed or satisfied all the conditions on its part to be
                performed or satisfied at or prior to the Closing Date; and

                    (v) Since the respective dates as of which information is
                given in the Registration Statement and the Prospectus, and
                except as disclosed in or contemplated by the Prospectus, (i)
                there has not been any material adverse change or a development
                involving a material adverse change in the condition (financial
                or otherwise), properties, business, management, prospects, net
                worth or results of operations of the Company and its
                subsidiaries considered as a whole; (ii) the business and
                operations conducted by the Company and its subsidiaries have
                not sustained a loss by strike, fire, flood, accident or other
                calamity (whether or not insured) of such a character as to
                interfere materially with the conduct of the business and
                operations of the Company and its subsidiaries considered as a
                whole; (iii) no legal or governmental action, suit or

                                       35
<PAGE>

                proceeding is pending or threatened against the Company which is
                material to the Company, whether or not arising from
                transactions in the ordinary course of business, or which may
                materially and adversely affect the transactions contemplated by
                this Agreement; (iv) since such dates and except as so
                disclosed, the Company has not incurred any material liability
                or obligation, direct, contingent or indirect, made any change
                in its capital stock (except pursuant to its stock plans), made
                any material change in its short-term or funded debt or
                repurchased or otherwise acquired any of the Company's capital
                stock; and (v) the Company has not declared or paid any
                dividend, or made any other distribution, upon its outstanding
                capital stock payable to stockholders of record on a date prior
                to the Closing Date.

                (l) The Company shall have furnished to the Representatives such
         additional certificates as the Representatives may have reasonably
         requested as to the accuracy, at and as of the Closing Date, of the
         representations and warranties made herein by it and as to compliance
         at and as of the Closing Date by it with its covenants and agreements
         herein contained and other provisions hereof to be satisfied at or
         prior to the Closing Date, and as to satisfaction of the other
         conditions to the obligations of the Underwriters hereunder.

                (m) The Company shall have delivered to the Representatives the
         agreements specified in Section 3 hereof.

         The several obligations of the Underwriters to purchase any Optional
Stock hereunder are subject to delivery to the Representatives on the Option
Closing Date of such documents as the Representatives may reasonably request
with respect to the good standing of the Company, the due authorization and
issuance of such Optional Stock and other matters related to the issuance of
such Optional Stock.

         All opinions, certificates, letters and other documents will be in
compliance with the provisions hereunder only if they are satisfactory in form
and substance to the Representatives. The Company will furnish to the
Representatives conformed copies of such opinions, 

                                       36
<PAGE>

certificates, letters and other documents as the Representatives shall
reasonably request. If any of the conditions hereinabove provided for in this
Section shall not have been satisfied when and as required by this Agreement,
this Agreement may be terminated by the Representatives by notifying the Company
of such termination in writing or by telegram at or prior to the Closing Date,
but Cowen shall be entitled to waive any of such conditions.

         9. EFFECTIVE DATE. This Agreement shall become effective immediately as
to Sections 5, 6, 7, 9, 10, 11, 13, 14, 15, 16, 17 and 18 and, as to all other
provisions, at 11:00 a.m. New York City time on the first full business day
following the effectiveness of the Registration Statement or at such earlier
time after the Registration Statement becomes effective as the Representatives
may determine on and by notice to the Company or by release of any of the Stock
for sale to the public. For the purposes of this Section 9, the Stock shall be
deemed to have been so released upon the release for publication of any
newspaper advertisement relating to the Stock or upon the release by you of
telegrams (i) advising Underwriters that the shares of Stock are released for
public offering or (ii) offering the Stock for sale to securities dealers,
whichever may occur first.

         10. TERMINATION. This Agreement (except for the provisions of Section
5) may be terminated by the Company at any time before it becomes effective in
accordance with Section 9 by notice to the Representatives and may be terminated
by the Representatives at any time before it becomes effective in accordance
with Section 9 by notice to the Company. In the event of any termination of this
Agreement under this or any other provision of this Agreement, there shall be no
liability of any party to this Agreement to any other party, other than as
provided in Sections 5, 6 and 11 and other than as provided in Section 12 as to
the liability of defaulting Underwriters.

         This Agreement may be terminated after it becomes effective by the
Representatives by notice to the Company (i) if at or prior to the Closing Date
trading in securities on any of the New York Stock Exchange, American Stock
Exchange or the Nasdaq National Market shall have been suspended or minimum or
maximum prices shall have been established on any such exchange or market, or a
banking moratorium shall have been declared by New York or United States
authorities; (ii) trading of any securities of the Company shall have been
suspended on any exchange or in any over-the-counter market; (iii) if at or
prior to the Closing Date there shall have been (A) an outbreak or escalation of

                                       37
<PAGE>

hostilities between the United States and any foreign power or of any other
insurrection or armed conflict involving the United States or (B) any change in
financial markets or any calamity or crisis which, in the judgment of the
Representatives, makes it impractical or inadvisable to offer or sell the Stock
on the terms contemplated by the Prospectus; (iv) if there shall have been any
development or prospective development involving particularly the business or
properties or securities of the Company or any of its subsidiaries or the
transactions contemplated by this Agreement, which, in the judgment of the
Representatives, makes it impracticable or inadvisable to offer or deliver the
Stock on the terms contemplated by the Prospectus; (v) if there shall be any
litigation or proceeding, pending or threatened, which, in the judgment of the
Representatives, makes it impracticable or inadvisable to offer or deliver the
Stock on the terms contemplated by the Prospectus; or (vi) if there shall have
occurred any of the events specified in the immediately preceding clauses
(i)-(v) together with any other such event that makes it, in the judgment of the
Representatives, impractical or inadvisable to offer or deliver the Stock on the
terms contemplated by the Prospectus.

         11. REIMBURSEMENT OF UNDERWRITERS. Notwithstanding any other provisions
hereof, if this Agreement shall not become effective by reason of any election
of the Company pursuant to the first paragraph of Section 10 or shall be
terminated by the Representatives by reason of any failure or refusal on the
part of the Company to comply with the terms or to fulfill any of the conditions
of this Agreement, the Company will bear and pay the expenses specified in
Section 5 hereof and, in addition to the obligations of the Company pursuant to
Section 6 hereof, the Company will reimburse the reasonable out-of-pocket
expenses of the several Underwriters (including reasonable fees and
disbursements of counsel for the Underwriters) incurred in connection with this
Agreement and the proposed purchase of the Stock, and promptly upon demand the
Company will pay such amounts to you as Representatives.

         12. SUBSTITUTION OF UNDERWRITERS. If any Underwriter or Underwriters
shall default in its or their obligations to purchase shares of Stock hereunder
and the aggregate number of shares which such defaulting Underwriter or
Underwriters agreed but failed to purchase does not exceed ten percent (10%) of
the total number of shares underwritten, the other Underwriters shall be
obligated severally, in proportion to their respective commitments hereunder, to
purchase the shares which such defaulting Underwriter or Underwriters agreed but
failed to purchase.

                                       38
<PAGE>

If any Underwriter or Underwriters shall so default and the aggregate number of
shares with respect to which such default or defaults occur is more than ten
percent (10%) of the total number of shares underwritten and arrangements
satisfactory to the Representatives and the Company for the purchase of such
shares by other persons are not made within forty-eight (48) hours after such
default, this Agreement shall terminate.

         If the remaining Underwriters or substituted Underwriters are required
hereby or agree to take up all or part of the shares of Stock of a defaulting
Underwriter or Underwriters as provided in this Section 12, (i) the Company
shall have the right to postpone the Closing Date for a period of not more than
five (5) full business days in order that the Company may effect whatever
changes may thereby be made necessary in the Registration Statement or the
Prospectus, or in any other documents or arrangements, and the Company agrees
promptly to file any amendments to the Registration Statement or supplements to
the Prospectus which may thereby be made necessary, and (ii) the respective
numbers of shares to be purchased by the remaining Underwriters or substituted
Underwriters shall be taken as the basis of their underwriting obligation for
all purposes of this Agreement. Nothing herein contained shall relieve any
defaulting Underwriter of its liability to the Company or the other Underwriters
for damages occasioned by its default hereunder. Any termination of this
Agreement pursuant to this Section 12 shall be without liability on the part of
any non-defaulting Underwriter or the Company, except for expenses to be paid or
reimbursed pursuant to Section 5 and except for the provisions of Section 6.

         13. [THIS SECTION INTENTIONALLY LEFT BLANK]

         14. NOTICES. All communications hereunder shall be in writing and, if
sent to the Underwriters shall be mailed, delivered or telegraphed and confirmed
to you, as their Representatives, c/o Cowen & Company at Financial Square, New
York, New York 10005 except that notices given to an Underwriter pursuant to
Section 6 hereof shall be sent to such Underwriter at the address furnished by
the Representatives or, if sent to the Company, shall be mailed, delivered or
telegraphed and confirmed to Kos Pharmaceuticals, 1001 South Bayshore Drive,
Suite 2502, Miami, Florida 33131, copy to: Holland & Knight, One East Broward
Boulevard, Suite 1300, Fort Lauderdale, Florida 33301, Attn: Steven Sonberg,
Esq.

         15. SUCCESSORS. This Agreement shall inure to the benefit of and be
binding upon the several Underwriters,

                                       39
<PAGE>

the Company and their respective successors and legal representatives. Nothing
expressed or mentioned in this Agreement is intended or shall be construed to
give any person other than the persons mentioned in the preceding sentence any
legal or equitable right, remedy or claim under or in respect of this Agreement,
or any provisions herein contained, this Agreement and all conditions and
provisions hereof being intended to be and being for the sole and exclusive
benefit of such persons and for the benefit of no other person; except that the
representations, warranties, covenants, agreements and indemnities of the
Company contained in this Agreement shall also be for the benefit of the person
or persons, if any, who control any Underwriter or Underwriters within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act,
and the indemnities of the several Underwriters shall also be for the benefit of
each director of the Company, each of its officers who has signed the
Registration Statement and the person or persons, if any, who control the
Company within the meaning of Section 15 of the Securities Act or Section 20 of
the Exchange Act.

         16. APPLICABLE LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York.

         17. AUTHORITY OF THE REPRESENTATIVES. In connection with this
Agreement, you will act for and on behalf of the several Underwriters.

         18. PARTIAL UNENFORCEABILITY. The invalidity or unenforceability of any
Section, paragraph or provision of this Agreement shall not affect the validity
or enforceability of any other Section, paragraph or provision hereof. If any
Section, paragraph or provision of this Agreement is for any reason determined
to be invalid or unenforceable, there shall be deemed to be made such minor
changes (and only such minor changes) as are necessary to make it valid and
enforceable.

         19. GENERAL. This Agreement constitutes the entire agreement of the
parties to this Agreement and supersedes all prior written or oral and all
contemporaneous oral agreements, understandings and negotiations with respect to
the subject matter hereof.

         In this Agreement, the masculine, feminine and neuter genders and the
singular and the plural include one another. The section headings in this
Agreement are for the convenience of the parties only and will not affect the
construction or interpretation of this Agreement. This

                                       40
<PAGE>

Agreement may be amended or modified, and the observance of any term of this
Agreement may be waived, only by a writing signed by the Company.

         20. COUNTERPARTS. This Agreement may be signed in two (2) or more
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.

         If the foregoing correctly sets forth our understanding, please
indicate your acceptance thereof in the space provided below for that purpose,
whereupon this letter and your acceptance shall constitute a binding agreement
between us.

                                            Very truly yours,

                                            KOS PHARMACEUTICALS, INC.



                                            By:_______________________
                                               Name:
                                               Title:




Accepted and delivered in
               as of the
date first above written.

COWEN & COMPANY
DILLON, READ & CO. INC.
SALOMON BROTHERS INC
  Acting on their own behalf and as Representatives of the several Underwriters
  referred to in the foregoing Agreement.

By: Cowen Incorporated,
    its general partner


         By:_____________________
            Title:

                                       41
<PAGE>

                                   SCHEDULE A


                           NAME                      NUMBER           NUMBER OF
                                                     OF FIRM          OPTIONAL
                                                     SHARES            SHARES
                                                      TO BE             TO BE
                                                    PURCHASED        PURCHASED 
                                                    ---------        ---------
Cowen & Company............................
Dillon, Read & Co. Inc.....................
Salomon Brothers Inc.......................

















                                                    ----------       ---------
Total...............................................                          
                                                    ==========       =========


<PAGE>

                                   SCHEDULE B


                          REQUIRED STOCKHOLDER LOCK-UPS

Michael Jaharis


                                 PROMISSORY NOTE

$15,000,000                                                         July 1, 1996

         FOR VALUE RECEIVED, the undersigned KOS PHARMACEUTICALS, INC., a
Florida corporation ("Borrower"), does hereby promise to pay to the order of KOS
INVESTMENTS, INC., a Florida corporation ("Lender"), on the Maturity Date (as
defined below) the principal sum of Fifteen Million Dollars ($15,000,000) or so
much thereof as may then have been advanced and be outstanding (the "Principal
Amount") together with all accrued interest, as follows:

         1. ADVANCES: The aggregate Principal Amount shall consist of any amount
advanced from Lender to Borrower on the date of this Note plus any amounts later
advanced from Lender to Borrower (any such advance of principal hereunder, an
"Advance"). The Lender shall have the authority to list Advances on SCHEDULE A
attached hereto, and this listing will be presumptive evidence of the
outstanding indebtedness of Borrower to Lender; provided, however, any failure
to list any Advance on SCHEDULE A will not negate or otherwise impair the right
of the Lender to repayment of any portion of the Principal Amount together with
all interest accrued as set forth below. Nothing herein shall prevent Lender
from making an Advance to Borrower subsequent to Borrower prepaying a portion of
the outstanding Principal Amount; provided that the aggregate outstanding
Principal Amount does not exceed $15,000,000.

         2. INTEREST: Prior to the Maturity Date, interest shall accrue on the
Principal Amount at a rate per annum (the "Interest Rate"), which shall be First
Union National Bank of Florida's prime rate (the "Prime Rate") commencing July
1, 1996, escalating to a rate of the Prime Rate plus 1% during the 1997 calendar
year, the Prime Rate plus 2% during the 1998 calendar year, and the Prime Rate
plus 3% during the 1999 calendar year until the Maturity Date. Interest shall be
computed on the basis of a 360 day year for the actual number of days in the
interest period.

         3. DEFAULT RATE: In the event of a default in the repayment of this
Note, the Principal Amount shall accrue interest at a rate of fifteen percent
(15%) per annum.

         4. MATURITY: The unpaid Principal Amount and all accrued interest
thereon shall be due and payable on June 30, 1999 (the "Maturity Date").

         5. EARLY PAYMENT: The Principal Amount of this Note may be paid by
Borrower at any time or from time to time, in whole or in part, prior to the
Maturity Date without premium or penalty. In the event of any prepayment of the
Note, in whole or in part, Borrower shall provide Lender with seven days prior
written notice of Borrower's intent to make such prepayment so as to permit
Lender to convert the outstanding principal amount of this Note and unpaid
interest accrued thereon in accordance with paragraph 6 of this Note. The
acceptance of Lender of any payment that is less than the payment in full of all
amounts due and owing at such time shall not constitute a waiver of Lender's
right to receive payment in full at such or at any prior or subsequent time.

         6. CONVERSION: Lender has the right, at its option, at any time and
from time to time prior to the Maturity Date to convert all or a portion of the
outstanding principal amount under this Note and all unpaid interest accrued
thereon into shares (the "Conversion Shares") of Borrower's Common Stock, par
value $.01 per share ("Common Stock"), at a conversion price equal to the
initial public offering price of Borrower's Common Stock. Lender shall provide
Borrower with two days prior written notice of any such conversion. No
fractional shares or scrip representing fractional shares will be issued upon
any conversion, but an adjustment in cash will be made in respect of any
fraction of a share of Common Stock that would otherwise be issuable upon such
conversion. Upon Lender's conversion of a portion of the


<PAGE>



Principal Amount into the Conversion Shares, Lender shall not advance to
Borrower any amounts that would cause the aggregate outstanding Principal Amount
to exceed $15,000,000 less the portion of the Principal Amount so converted.

         7. REGISTRATION RIGHTS: Lender shall have registration rights relating
to the Conversion Shares as set forth in a Registration Rights Agreement dated
as of June 30, 1996 among Borrower, Lender and Kos Holdings, Inc., a Florida
corporation.

         8. DEFAULT: In the event that any of the monied due hereunder shall
remain in arrears and unpaid for a period of ten (10) days after same shall
become due and payable, and if any such payment or other default shall not be
cured within ten (10) days after receipt by the Borrower of a written notice
from Lender of such default, then the entire outstanding principal amount of
this Note and all unpaid interest accrued thereon shall immediately become due
and payable without the necessity of further demand or notice. Should this Note
be placed in the hands of an attorney for collection upon default of payments
provided for herein, Borrower agrees to pay all costs of foreclosure, collection
or otherwise, including reasonable attorney's fees. In the event that Borrower
makes an assignment for the benefit of creditors or if a petition under any of
the chapters of the federal bankruptcy act or for a receiver be filed by or
against the Borrower, then the Borrower shall be in default hereunder.

         9. NO WAIVER OR MODIFICATION EXCEPT IN WRITING: No failure on the part
of the Lender to exercise, and no delay in exercising, any right, remedy, or
power under this Note or under any other document or agreement executed in
connection with this Note shall operate as a waiver thereof. This Note may not
be changed or modified orally, nor may any right or provision hereof be waived
orally, but only by an instrument in writing signed by the party against which
enforcement of such change, modification or waiver is sought.

         10. WAIVER OF PRESENTMENT, ETC.: Borrower hereby waives presentment for
payment, notice of dishonor, protest and notice of protest.

         11. GOVERNING LAW: This Note shall be governed by and construed in
accordance with the laws of the State of Florida.

         IN WITNESS WHEREOF, Borrower has executed this Note on this 1st day of
July, 1996.
                                                   KOS PHARMACEUTICALS, INC.,
                                                   a Florida corporation


                                                   By: /s/ DANIEL M. BELL
                                                       ------------------------
                                                       Daniel M. Bell, President


                                        2

                          REGISTRATION RIGHTS AGREEMENT

         This Registration Rights Agreement (this "Agreement") is made and
entered into effective as of June 30, 1996, by and between Kos Pharmaceuticals,
Inc., a Florida corporation (the "Company"), Kos Holdings, Inc., a Florida
corporation ("Holdings"), and Kos Investments, Inc., a Florida corporation
("Investments").

                                                     RECITALS

         A.       Holdings has acquired 10,000,000 shares (the "Holdings
                  Shares") of the Company's common stock, par value $.01 per
                  share (the "Common Stock"), under the terms of an Assignment
                  and Assumption Agreement dated as of June 30, 1996 between the
                  Company and Holdings (the "Assignment Agreement"). Pursuant to
                  the Assignment Agreement, the Company has agreed to grant
                  Holdings certain registration rights in accordance with the
                  terms of this Agreement.

         B.       The Company has proposed to issue a Promissory Note, dated
                  July 1, 1996 (the "Note"), to Investments for an aggregate
                  principal amount of $15,000,000, which is convertible to
                  shares of Common Stock (the "Investments Shares", and together
                  with the Holdings Shares, the "Shares") at the option of
                  Investments. Under the terms of the Note, the Company will
                  grant Investments certain registration rights in accordance
                  with the terms of this Agreement.

         NOW, THEREFORE, in consideration of the mutual promises and covenants
set forth herein, the parties hereto agree as follows:

         1.       DEFINITIONS. The following terms shall have the meanings set
forth below:

                  a. "COMMISSION" means the Securities and Exchange Commission,
or any other Federal agency at the time administering the Federal securities
laws.

                  b. "CUTBACK REGISTRATION" means any registration in connection
with an underwritten public offering in which the managing underwriter advises
the Company that marketing factors require a limitation of the number of the
Company's securities to be underwritten in such public offering (including a
limitation to zero).

                  c. "1933 ACT" means the Securities Act of 1933, as amended, or
any similar Federal statute, and the rules and regulations of the Commission
issued under such Act, as they each may, from time to time, be in effect.

                  d. "1934 ACT" means the Securities Exchange Act of 1934 or any
similar Federal statute, and the rules and regulations of the Commission issued
under such Act, as they each may, from time to time, be in effect.


<PAGE>

                  e. "REGISTRATION STATEMENT" means a registration statement
filed by the Company with the Commission for a public offering and sale of
securities of the Company (other than any registration statement that effects
the Company's initial public offering, any registration statement on Form S-4 or
Form S-8, or their successors, or any other form for a limited purpose, or any
registration statement covering only securities proposed to be issued in
exchange for securities or assets of another corporation or entity).

                  f. "REGISTRATION EXPENSES" means the expenses described in
Section 4.

                  g. "REGISTRABLE SHARES" means all of the Shares, and any other
shares of Common Stock or other securities of the Company or any other issuer
issued or issuable in respect of such Shares (because of stock splits, stock
dividends, reclassifications, recapitalizations, mergers, combinations or
similar events, if applicable); PROVIDED, HOWEVER, that the Shares which are
Registrable Shares shall cease to be Registrable Shares upon any sale or
transfer of such shares pursuant to a Registration Statement, Section 4(1) of
the 1933 Act, Rule 144 under the 1933 Act or otherwise, except that the Shares
which are Registrable Shares shall remain Registrable Shares notwithstanding any
transfer of the Shares by Holdings or Investments to Michael Jaharis (the
"Shareholder") or any of his affiliates or by the Shareholder or such affiliates
to any member of the Shareholder's immediate family or to a trust established
for the benefit of the Shareholder or any family member of the Shareholder or to
any corporation or other entity which is wholly owned by the Shareholder, such
affiliates, such family members, or such trusts (Shareholder, such affiliates,
such family members such trusts and such entities referred to herein
collectively as "Permitted Transferees"). As a condition to effecting any
registration pursuant to this Agreement, the Company may require that Holdings,
Investments, or any Permitted Transferees, on whose behalf a registration
hereunder is being effected, execute an agreement further acknowledging their
obligations under Section 7 of this Agreement. All references in this Agreement
to the term "Holdings" or "Investments" shall be read to include any Permitted
Transferee that owns or holds any Registrable Shares.

         2.       REGISTRATION RIGHTS.

                  a.       REQUESTED REGISTRATION.

                           i. Subject to the other provisions of this Agreement,
Holdings and Investments shall have the right (a "Request Right") to require the
Company to effect an aggregate of three registrations with respect to the
Registrable Shares (each such registration being a "Requested Registration").
(The Company is required to effect a total of only three Requested Registrations
pursuant to this Section 2(a) notwithstanding that Registrable Shares may have
been transferred to one or more Permitted Transferees.) To effect a Requested
Registration, Holdings or Investments shall make a written request (a "Request
Notice") to the Company which shall describe in detail the contemplated sale of
Registerable Securities, including the number of Registerable Securities to be
registered. The Company shall be entitled to include in any Requested
Registration shares of Common Stock to be sold by holders of either Common Stock
or rights to acquire Common Stock to whom the Company has previously granted or
in the future

                                        2


<PAGE>

does grant any registration rights and shares of Common Stock to be sold by the
Company for its own account, provided that such inclusion shall not limit the
number of Registrable Shares included in such Registration Statement.

                           ii. Holdings or Investments may revoke its Request
Notice in the event of a Cutback Registration that would limit the total number
of Registrable Shares that can be sold pursuant to such Requested Registration
to a number that is less than 90% of the number of the Registrable Shares
specified to be sold in the Request Notice.

                           iii. The Company shall, as soon as practicable, but
in no event more than 120 days after receipt of a Request Notice, file a
Registration Statement covering the Registrable Shares to be included in the
registration requested by such Request Notice and cause such Registration
Statement to become effective as soon as practicable thereafter.

                  b.       PIGGYBACK REGISTRATION.

                           i. At any time and from time to time after the date
of this Agreement, whenever the Company proposes to file a Registration
Statement, the Company will prior to such filing give written notice to Holdings
and Investments of its intention to do so and, upon the written request of
Holdings or Investments or both given within fifteen (15) days after the Company
provides such notice, the Company shall use its good faith efforts to cause all
Registrable Shares which the Company has been requested by Holdings or
Investments to register to be registered under the 1933 Act to the extent
necessary to permit their sale or other disposition in accordance with the
intended methods of distribution specified in the request of Holdings or
Investments; provided that the Company shall have the right to postpone or
withdraw any registration effected pursuant to this Section 2.b. without
obligation to Holdings or Investments.

                           ii. In connection with any registration under Section
2.b. involving an underwritten offering of the Company's securities, the Company
shall not be required to include any Registrable Shares in such underwriting
unless Holdings or Investments or both accept the terms of the underwriting as
agreed upon between the Company and the underwriters selected by it, and then
only in such quantity as will not, in the sole discretion of the underwriters,
jeopardize the success of the offering by the Company. If in the sole discretion
of the managing underwriter or underwriters the registration of all, or part of,
the Registrable Shares which Holdings or Investments or both has requested to be
included would adversely affect such public offering, then the Company shall be
required to include in the underwriting only that number of Registrable Shares,
if any, which the managing underwriter or underwriters believe may be sold
without causing such adverse effect. If the number of Registrable Shares to be
included in the underwriting in accordance with the foregoing is less than the
total number of shares which Holdings and Investments have requested to be
included, then Holdings or Investments or both shall participate in the
underwriting pro rata based upon their total ownership of Registrable Shares
compared to the total number of shares held by affiliates of the Company for
which

                                        3


<PAGE>

registration has been requested whether or not such shares are the subject of
separate agreements with the Company concerning registration rights.

         3.       REGISTRATION PROCEDURES. When the Company is required by the
provisions of this Agreement to effect the registration of any of the
Registrable Shares under the 1933 Act, the Company shall:

                  a. file with the Commission a Registration Statement with
respect to such Registrable Shares and use its best efforts to cause that
Registration Statement to become and remain effective;

                  b. prepare and file with the Commission any amendments and
supplements to the Registration Statement and the prospectus included in the
Registration Statement as may be necessary to keep the Registration Statement
effective until the earlier to occur of (i) such time as all Registrable Shares
included therein have been sold or (ii) the expiration of two years;

                  c. furnish to Holdings or Investments or both such reasonable
numbers of copies of the prospectus, including a preliminary prospectus and any
amended or supplemental prospectus, in conformity with the requirements of the
1933 Act, and such other documents as Holdings or Investments or both may
reasonably request in order to facilitate the public sale or other disposition
of the Registrable Shares; and

                  d. use its best efforts to register or qualify the Registrable
Shares covered by the Registration Statement under the securities or Blue Sky
laws of such states as Holdings or Investments shall reasonably request, and do
any and all other acts and things that may be necessary or desirable to enable
Holdings or Investments or both to consummate the public sale or other
disposition of the Registrable Shares owned by Holdings or Investments or both
in such jurisdiction; PROVIDED, HOWEVER, that the Company shall not be required
in connection with this Section 3 to qualify as a foreign corporation in any
jurisdiction nor register or qualify the securities in any state which as a
condition to such registration or qualification would impose material
restrictions or other material conditions on the Company or any of its officers,
directors or shareholders (including with respect to any shares held by such
persons or entities) unless such restrictions or other conditions are approved
by the party adversely affected.

                  If the Company advises Holdings or Investments or both that
any preliminary or final prospectus is no longer in compliance with the
requirements of the 1933 Act, or that at such time it is otherwise a violation
of any applicable securities laws to offer or sell securities pursuant to a
preliminary or final prospectus, Holdings or Investments or both shall
immediately cease offering or selling the Registrable Securities and, if
requested, return all old prospectus to the Company. Holdings or Investments or
both may recommence offers and sales of Registrable Securities upon receipt from
the Company of an amended prospectus, if applicable, or receipt of ratification
from the Company that the offer and sale of Registrable Securities may resume.

                                        4


<PAGE>

         4. ALLOCATION OF EXPENSES. The Company will pay all Registration
Expenses of all registrations under this Agreement. The term "Registration
Expenses" shall mean all expenses incurred by the Company in complying with this
Agreement, including, without limitation, all registration and filing fees,
exchange listing fees, printing expenses, fees and disbursements of counsel for
the Company, state Blue Sky fees and expenses, and the expense of any special
audits incident to or required by any such registration, but excluding
underwriting discounts and selling commissions attributable to the Registrable
Shares and the fees and expenses of Holdings' and Investments' own counsel and
accountants, which shall be borne by such party.

         5. INFORMATION BY HOLDINGS AND INVESTMENTS. Holdings and Investments
shall promptly furnish to the Company such information regarding Holdings and
Investments and the distribution proposed by Holdings or Investments as the
Company may request in writing and as shall be required in connection with any
registration, qualification or compliance referred to in this Agreement.

         6. "LOCK-UP" AGREEMENT. If requested by the Company or an underwriter
or both in connection with an underwritten offering of Common Stock or other
securities of the Company, Holdings and Investments shall agree not to sell or
otherwise transfer or dispose of any Registrable Shares or other securities of
the Company held by Holdings or Investments for a specified period of time
before and/or after the effective date of a Registration Statement, provided
that the same request shall have been made of other holders of the Company's
Common Stock or other securities (including affiliates of the Company) and such
other holders have complied with such request. Such agreement shall be in
writing in a form satisfactory to the Company and any such underwriter. The
Company may impose stop transfer instructions with respect to the Registrable
Shares or other securities subject to the foregoing restriction until the end of
the lock-up period.

         7.       INDEMNIFICATION.

                  a. BY THE COMPANY. In the event of any registration of any of
the Registrable Shares under the 1933 Act pursuant to this Agreement, the
Company will indemnify and hold harmless the sellers of such Registrable Shares
against any losses, claims, damages or liabilities, joint or several, to which
such sellers may become subject under the 1933 Act, 1934 Act, state securities
laws or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue statement
of any material fact contained in any Registration Statement under which such
Registrable Shares were registered under the 1933 Act, any preliminary
prospectus or final prospectus contained in the Registration Statement, or any
amendment or supplement to such Registration Statement, or arise out of or are
based upon the omission to state a material fact required to be stated therein
or necessary to make the statements therein not misleading; and the Company will
reimburse such sellers for any legal or any other expenses reasonably incurred
by such sellers in connection with investigating and defending any such loss,
claim, damage, liability or action; PROVIDED, HOWEVER, that the Company will not
be liable in any such case to the extent that any such loss, claim, damage,
liability or expense arises out of or is based upon any untrue statement or
omission made in such

                                        5

<PAGE>

Registration Statement, preliminary prospectus or prospectus, or any such
amendment or supplement, in reliance upon and in conformity with information
furnished to the Company by or on behalf of such sellers, specifically for use
in the preparation thereof, or as a result of the failure of such sellers, or
any agent of such sellers, to deliver any amendments and supplements to any
Registration Statement and the prospectus included in any such Registration
Statement (provided such amended or supplemental prospectus has been delivered
to sellers or their agent).

                  b. BY SELLERS OF REGISTRABLE SHARES. In the event of any
registration of any of the Registrable Shares under the 1933 Act pursuant to
this Agreement, each seller of Registrable Shares, severally and not jointly,
will indemnify and hold harmless the Company, each of its directors and officers
and each underwriter (if any) and each person, if any, who controls the Company
or any such underwriter within the meaning of the 1933 Act or the 1934 Act,
against any losses, claims, damages or liabilities, joint or several, to which
the Company, such directors and officers, underwriter or controlling person may
become subject under the 1933 Act, 1934 Act, state securities laws or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement of a material fact
contained in any Registration Statement under which such Registrable Shares were
registered under the 1933 Act, any preliminary prospectus or final prospectus
contained in the Registration Statement, or any amendment or supplement to the
Registration Statement, or arise out of or are based upon any omission or
alleged omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, and each seller of
Registrable Shares will reimburse the Company, each of its directors and
officers, each underwriter and each controlling person, severally and not
jointly, for any legal or other expenses reasonably incurred by the Company,
each director and officer, each underwriter and each controlling person in
connection with investigating and defending any such loss, claim, damage,
liability or action, if the statement or omission was made in reliance upon and
in conformity with information furnished to the Company by or on behalf of such
seller, specifically for use in connection with the preparation of such
Registration Statement, prospectus, amendment or supplement.

                  c. CLAIMS. Each party entitled to indemnification under this
Section 7 (the "Indemnified Party") shall give notice to the party required to
provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity may be
sought, and shall permit the Indemnifying Party to assume the defense of any
such claim or any litigation resulting therefrom; PROVIDED, that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or litigation,
shall be approved by the Indemnified Party (whose approval shall not be
unreasonably withheld); and, provided, further, that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Section 7. The Indemnified
Party may participate in such defense at such party's expense. No Indemnifying
Party, in the defense of any such claim or litigation, except with the consent
of the Indemnified Party, shall consent to entry of any judgment or enter into
any settlement, which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such Indemnified Party of a release from
all liability in respect of such claim or litigation.

                                        6

<PAGE>

         8.       MISCELLANEOUS.

                  a.       GOVERNING LAW. This Agreement shall be governed in
all respects by the laws of the state of Florida.

                  b.       SUCCESSORS AND ASSIGNS. Except as otherwise expressly
provided herein, the provisions hereof shall inure to the benefit of, and be
binding upon, the successors, assigns, heirs, executors and administrators of
the parties hereto.

                  c.       ENTIRE AGREEMENT; AMENDMENT; WAIVER. This Agreement
constitutes the full and entire understanding and agreement between the parties
with regard to the subjects hereof. Neither this Agreement nor any term hereof
may be amended, waived, discharged or terminated, except by a written instrument
signed by the Company and Holdings.

                  d.       NOTICES, ETC. All notices and other communications
required or permitted hereunder shall be in writing and shall be mailed by
United States first-class mail, postage prepaid, or delivered personally by hand
or nationally recognized courier addressed as follows:

         If to Holdings:


                           Attention:

         If to Investments:



                           Attention:

         If to the Company:

                           Kos Pharmaceuticals, Inc.
                           1001 Brickell Bay Drive
                           Suite 2502
                           Miami, Florida 33131
                           Facsimile No.  (305) 577-4596
                           Attention:  Daniel M. Bell, President

                                        7

<PAGE>

or at such other address as a party shall have furnished to the other party in
writing. All such notices and other written communications shall be effective on
the earlier of the date of mailing or delivery.

                  e.       SEPARABILITY. In case any provision of this Agreement
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.

                  f.       TITLES AND SUBTITLES. The titles of the paragraphs
and subparagraphs of this Agreement are for convenience of reference only and
are not to be considered in construing this Agreement.

                  g.       COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall be an original, and all of which
together shall constitute one instrument.

                                        8


<PAGE>


         IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the day and year first above written.

                                            KOS PHARMACEUTICALS, INC, a Florida
                                            corporation.

                                            By:  /s/ DANIEL M. BELL
                                                 -----------------------------
                                                  Daniel M. Bell, President

                                            KOS HOLDINGS, INC., a Florida
                                            corporation.

                                            By:

                                            KOS INVESTMENTS, INC., a Florida
                                            corporation.

                                            By:

                                       9


                                                                 EXHIBIT 10.20

THE COMPANY HAS OMITTED CERTAIN CONFIDENTIAL INFORMATION FROM THIS DOCUMENT.
ASTERISKS DENOTE SUCH OMISSIONS.

                                LICENSE AGREEMENT

         This License Agreement (this "Agreement") is made effective February 7,
1997, by and between Upsher-Smith Laboratories, Inc., a Minnesota corporation
("USL"), having its principal offices at 14905 23rd Avenue North, Minneapolis,
Minnesota 55447, and Kos Pharmaceuticals, Inc., a Florida corporation ("Kos"),
having its principal offices at 1001 Brickell Bay Drive, Suite 2502, Miami,
Florida 33131.

                                    RECITALS

         A.       USL is the sole and exclusive owner, by way of
                  assignment, of the entire right, title and interest in
                  and to U.S. Patent No. 5,126,145 issued to Evenstad, et.
                  al. on June 30, 1992 and entitled "Controlled Release
                  Tablet Containing Water Soluble Medicament" and to U.S.
                  Patent No. 5,268,181 issued to O'Neill, et. al. on
                  December 7, 1993 and entitled "Method of Using Niacin to
                  Control Nocturnal Cholesterol Synthesis."

         B.       Kos is the sole and exclusive owner, by way of
                  assignment, of the entire right, title and interest in
                  and to U.S. patent application entitled ***************
                  ****************************************************
                  ***************** which was assigned Serial No.
                  ********** and filed on ****************.

         C.       The United States Patent and Trademark Office (the "PTO")
                  has referred certain claims contained in the Kos U.S.
                  patent application, Serial No. **********, to the PTO's
                  Board of Patent Interference for determination of whether
                  to declare an interference proceeding between such claims
                  and certain claims contained in the USL U.S. Patent No.
                  5,268,181, as set forth in Exhibit A attached hereto
                  (hereinafter the "Potential Interference").

         D.       In order to avoid the cost and delays of various
                  conflicts, including the Potential Interference, between
                  the parties, and regardless of whether the ultimate
                  resolution of such conflicts would require such licenses,
                  (i) Kos desires to acquire a license under the two above
                  listed patents owned by USL for the purpose of
                  developing, manufacturing, using and selling products and
                  methods covered by one or more claims in such USL patents
                  and USL desires to grant to Kos such a license, and (ii)
                  USL desires to acquire a license under the above
                  referenced U.S. patent application owned by Kos for the
                  purpose of developing, manufacturing, using and selling
                  products and methods covered by the claims of a patent
                  maturing from such U.S. patent application and Kos
                  desires to grant to USL such a license.


<PAGE>
THE COMPANY HAS OMITTED CERTAIN CONFIDENTIAL INFORMATION FROM THIS DOCUMENT.
ASTERISKS DENOTE SUCH OMISSIONS.



                                    AGREEMENT

ARTICLE 1.  DEFINITIONS

         The following capitalized terms shall have the meanings assigned to
them below.

         1.1 "Evenstad Patent" shall mean U.S. Patent No. 5,126,145 of
Evenstad, et. al. entitled Controlled Release Tablet Containing
Water Soluble Medicament, any and all continuation, continuation-
in-part, divisional, provisional, reissue, re-examination,
extension, and renewal applications for U.S. patent and U.S.
patents maturing therefrom, and any and all corresponding foreign
patent applications, PCT and EPC applications and foreign patents
issued therefrom, as listed on Exhibit B attached hereto.

         1.2 "O'Neill Patent" shall mean U.S. Patent No. 5,268,181 of
O'Neill, et. al. entitled Method of Using Niacin to Control
Nocturnal Cholesterol Synthesis, any and all continuation,
continuation-in-part, divisional, provisional, reissue, re-
examination, extension, renewal applications for U.S. patent and
U.S. patents maturing therefrom, and any and all corresponding
foreign patent applications, PCT and EPC applications and foreign
patents issued therefrom, as listed on Exhibit C attached hereto.

         1.3 "Kos Patent Appln" shall mean U.S. patent application entitled
***************************************************************************
******** which was assigned Serial No. ********** and filed ****************,
which is a continuation-in- part of U.S. patent application entitled *********
*************************************************************************, which
was assigned Serial No. ********** and filed on ******************, which is now
abandoned, and any and all continuation, continuation-in-part, divisional,
reissue, reexamination, extension, provisional, renewal applications for U.S.
patent and U.S. patents maturing therefrom, and any and all corresponding
foreign patent applications, PCT and EPC applications and foreign patents issued
therefrom, as listed on Exhibit D attached hereto. The parties agree that Kos
Patent Appln shall not include any new inventions claimed in a patent
application with an effective filing date after the effective date of this
Agreement, regardless of whether such new invention relates to niacin or methods
of use of niacin.

         1.4 "License Agreement Year" shall mean each calendar year commencing
on January 1 and ending on December 31 during the term of this Agreement.

         1.5 "Licensed Patent(s)" shall mean the Evenstad Patent and the O'Neill
Patent. The parties agree that Licensed Patents shall not include any new
inventions claimed in a patent application with an effective filing date after
the effective date of this

                                       -2-


<PAGE>
THE COMPANY HAS OMITTED CERTAIN CONFIDENTIAL INFORMATION FROM THIS DOCUMENT.
ASTERISKS DENOTE SUCH OMISSIONS.



Agreement, regardless of whether such new invention relates to niacin or methods
of use of niacin.

         1.6 "Licensed Product" shall mean any product or part thereof the
manufacture, sale, offer for sale, use, importation, or distribution of which is
covered by a valid and enforceable claim of a Licensed Patent; provided that
such product contains, or relates to the administration of, niacin.

         1.7 "License Quarter" shall mean the periods consisting of three
consecutive calendar months commencing on the first day of January, April, July
and October during each License Agreement Year.

         1.8 "Net Sales" of Licensed Products shall mean the gross revenues
generated by the sales by Kos to the final customer of Kos of Licensed Products
less (i) all shipping, freight, duties, taxes, and trade discounts actually
allowed in the ordinary course of Kos' business, and (ii) the aggregate sales
price of products reasonably credited or refunded to the purchaser or customer
for returned, spoiled, damaged, outdated, or defective goods.

         1.9 "Niaspan(R) Product" shall mean any oral sustained release product
which contains niacin as the principal active medicament and which is
administered once-a-day at night.

         1.10 "Sublicensee" shall mean, with respect to USL, any person or
entity to which USL has granted a sublicense in accordance with the provisions
of Section 6.2 and, with respect to Kos, any person or entity to which Kos has
granted a sublicense in accordance with the provisions of Section 2.2.

         1.11 "Territory" shall mean worldwide.

         1.12 "USL Product" shall mean any product formulated, designed or
otherwise developed by or for USL in which its manufacture, use or sale is
covered by a Licensed Patent.

ARTICLE 2.  GRANT OF LICENSE TO KOS

         2.1 LICENSE. USL hereby grants and Kos hereby accepts an exclusive,
except for USL's rights pursuant to Section 2.3, license (the "License") to (i)
develop, have developed, make, have made, use, modify, enhance, export, import,
distribute, transfer, offer for sale and sell Licensed Products, and (ii) grant
sublicenses as provided in Section 2.2 hereof, in the Territory.

         2.2 SUBLICENSES. The License shall be non-transferable, except as
permitted under Section 11.1; provided, however, that Kos shall have the right
to grant sublicenses of its rights under this License Agreement to allow third
parties to manufacture, sell, use

                                       -3-


<PAGE>
THE COMPANY HAS OMITTED CERTAIN CONFIDENTIAL INFORMATION FROM THIS DOCUMENT.
ASTERISKS DENOTE SUCH OMISSIONS.

or distribute Licensed Products designed, formulated, or otherwise developed by
or for Kos.

         2.3 USL RIGHTS. USL expressly reserves to itself the following rights,
and no others: (i) the right to make, use and sell any USL Product; (ii) the
right to have any USL Product manufactured by an agent or designee of USL for
re-sale by USL; (iii) the right to have any USL Product in which its
manufacture, use or sale is not covered by a claim in the Kos Patent Appln sold,
distributed, or marketed on behalf of USL in the Unites States by a third party
either alone or in conjunction with USL; and (iv) the right to license to third
parties the right to make, use, or sell USL Products outside the United States.

ARTICLE 3.  CONSIDERATION FOR LICENSE

         3.1      LICENSE FEE.  As consideration for entering into this
Agreement, Kos shall pay USL the aggregate amount of *************
*************************, which amount shall be payable as
follows:  (i) ************************************* shall be paid
upon the execution of this Agreement, (ii) ************************
************ shall be due and payable on December 31, 1997, and
(iii) ************************************* shall be due and
payable on the first anniversary of the date of this Agreement.
The foregoing amount is non-refundable, and shall not be credited
against any payments otherwise due under this Agreement.

         3.2      ROYALTY PAYMENTS.

                  3.2.1 As additional consideration for entering into this
Agreement, Kos shall pay USL a royalty of ***************** of Net Sales by Kos
of Licensed Products sold in the Territory. USL agrees that Kos' obligation to
pay the ** royalty on Net Sales of Licensed Products shall be limited to only
those countries in which USL maintains a valid and enforceable Licensed Patent.

                  3.2.2 As additional consideration for entering into this
Agreement, during the period commencing on the effective date of this Agreement
and ending on the fourth anniversary of such date, Net Sales by Kos of a
Niaspan(R) Product in the United States shall be included in the Net Sales of
Licensed Products in the United States irrespective of whether the Niaspan(R)
Product is covered by a claim in a Licensed Patent; provided that Kos' payment
or agreement to pay a royalty on Net Sales of any Niaspan(R) Product shall not
be deemed or construed to be an admission by Kos, and shall not serve as the
basis for an inference, that the manufacture, distribution, use, importation, or
sale by Kos of any Niaspan(R) Product infringes any claim contained in a
Licensed Patent. In the event USL exercises its rights under a Licensed Patent
pursuant to clause (iii) of Section 2.3, Kos shall not be obligated to pay any
royalty on such sales of any Niaspan(R) Product

                                       -4-


<PAGE>
THE COMPANY HAS OMITTED CERTAIN CONFIDENTIAL INFORMATION FROM THIS DOCUMENT.
ASTERISKS DENOTE SUCH OMISSIONS.

unless such product otherwise constitutes a Licensed Product and Kos is
obligated under Section 3.2.1 to pay a royalty on such sales of such product.

                  3.2.3 The four year royalty payments on "Niaspan(R) Products"
(Section 3.2.2) and, during the four year period commencing on the effective
date of this Agreement and ending on the earlier to occur of the fourth
anniversary of such date or the date on which USL exercises its rights under a
Licensed Patent pursuant to clause (iii) of Section 2.3, the "Minimum Royalty
Payments" (Section 3.3) shall be due and payable regardless of the status or the
continued existence of the Licensed Patents, and the right to receive such
payments is a material inducement to cause USL to enter into this Agreement.

         3.3 MINIMUM ROYALTY PAYMENTS. Commencing with the 1998 License
Agreement Year and extending for the remainder of the term of this Agreement, in
order to maintain this Agreement in full force and effect Kos shall pay USL an
annual minimum royalty (the "Minimum Royalty") in the aggregate amount of ***
**********************************************. In the event that during any
such year the aggregate amount of royalty payments payable by Kos under Section
3.2 are less than the Minimum Royalty, Kos shall pay USL the difference between
such royalty payments and the Minimum Royalty at the same time Kos pays the
royalties payable by Kos for the License Quarter ending on December 31 of such
year.

         3.4 CAP ON ROYALTY PAYMENTS. Notwithstanding Section 3.2, (i) in no
event shall Kos be obligated to pay royalty payments in excess of an aggregate
of *********************************************************** during any
License Agreement Year on the Net Sales of Licensed Products sold in the United
States, and (ii) in no event shall Kos be obligated to pay royalty payments in
excess of an aggregate of **********************************************
************ during any License Agreement Year on the Net Sales of Licensed
Products sold in all countries in the Territory other than the United States.

         3.5 SALES BY SUBLICENSEE. With respect to sales of a Licensed Product
by a Sublicensee, Kos shall pay USL the royalty payment calculated in accordance
with Section 3.2 based upon the Net Sales of such product by such Sublicensee.

         3.6 INVOICES, TAXES & TIMING OF ROYALTY PAYMENTS. All sales of a
Licensed Product shall be deemed to have been made when invoiced. All royalties
shall be paid in United States dollars and shall be reduced by the aggregate
amount of taxes that Kos is required to deduct therefrom by a governmental
agency (e.g. sales or use taxes, or mandatory withholding taxes on royalties),
and Kos shall, if so required by USL, furnish to USL such evidence as may be
necessary to claim double taxation relief. Any tax credits resulting from any
such required deduction of taxes shall belong to

                                       -5-


<PAGE>
THE COMPANY HAS OMITTED CERTAIN CONFIDENTIAL INFORMATION FROM THIS DOCUMENT.
ASTERISKS DENOTE SUCH OMISSIONS.

USL. Royalties shall be paid quarterly within 60 days following the end of each
License Quarter and on termination of this Agreement within 60 days of the date
on which such termination took effect.

         3.7      CURRENCY EXCHANGE.  If any Licensed Product sold by Kos
is invoiced in a currency other than U.S. dollars, then for the
purpose of calculating royalties payable hereunder such currency
shall be converted to U.S. dollars at the middle market spot rate
therefor published in THE WALL STREET JOURNAL (U.S. Edition) on the
last day of the License Quarter for which such payment is due.

         3.8 INTEREST. USL shall provide Kos with prompt written notice of any
overdue payments owed by Kos. Payments required under this Agreement shall, if
overdue and not paid within ten (10) days of the due date, bear interest from
such due date until payment at an annual rate equal two (2) percentage points
above the prime lending rate charged by Chase Manhattan Bank, N.A. The payment
of such interest shall not foreclose USL from exercising any other rights it may
have because any payment is late.

ARTICLE 4.  REPORTS, RECORDS & ACCOUNTING

         4.1 REPORTS. Kos will deliver to USL on or before sixty (60) days
following the end of each License Quarter a written report stating (i) the
amount of gross and Net Sales of Licensed Products in the United States,
including in reasonable detail the permitted deductions from such gross sales,
(ii) the aggregate amount of gross and Net Sales of Licensed Products in
countries other than the United States on a country by country basis, including
in reasonable detail the permitted deductions from such gross sales, and (iii)
the amount of royalties payable by Kos. Each such report shall be accompanied by
the royalty payment due for such License Quarter, as provided in Article 3.
Notwithstanding any other provision in this Section 4.1, Kos shall not be
obligated to provide all or a portion of such a report following a License
Quarter, other than following the final License Quarter of each License
Agreement Year, in the event that Kos is not obligated to pay a royalty under
this Agreement following such License Quarter on account of the operation of
Section 3.4. All payments and reports due under this Agreement shall be made in
person or via the United States mail or private carrier to the following
address:

                          Upsher-Smith Laboratories, Inc.
                          14905 23rd Avenue North
                          Minneapolis, Minnesota  55447
                          Facsimile No. (612) 476-4026
                          Attention: President

                                       -6-


<PAGE>
THE COMPANY HAS OMITTED CERTAIN CONFIDENTIAL INFORMATION FROM THIS DOCUMENT.
ASTERISKS DENOTE SUCH OMISSIONS.

         4.2 RECORDS. For a period of three (3) years, Kos shall keep at its
principal place of business true and accurate records of all sales of Licensed
Products in accordance with generally accepted accounting principles and in such
a form and manner that all royalties owed to USL may be accurately determined;
provided that Kos shall not destroy any such records if there is then pending
any audit or if the parties are engaged in litigation with each other. Kos shall
furnish USL copies of such records upon USL's request, which shall not be made
more often than once per License Agreement Year. USL shall keep all such records
confidential.

         4.3 AUDIT OF RECORDS. USL shall have the right, from time to time at
reasonable times during normal business hours through an independent certified
public accountant reasonably acceptable to Kos (it being agreed by the parties
that the independent accounting firm performing the audit of Kos for such year
shall be reasonably acceptable to Kos), to examine the records of Kos in order
to verify the calculation of any royalties payable under this Agreement. Such
examination and verification shall not occur more than once each License
Agreement Year and once during the calendar year immediately following
termination of this Agreement. Unless otherwise agreed to in writing by Kos, the
fees and expenses of performing such examination and verification shall be borne
by USL. If such examination reveals an underpayment by Kos of more than five
percent (5%) for any License Quarter examined, Kos shall pay USL the amount of
such underpayment plus interest and shall reimburse USL for all reasonable
expenses of the accountant performing the examination. Any accountant entitled
hereunder to examine the books and other records of Kos shall not disclose any
information relating to the business of Kos, except such as should properly be
contained in any statement of account to USL required hereunder.

ARTICLE 5.  POTENTIAL INTERFERENCE

         5.1 EXCHANGE OF EVIDENCE. Kos and USL, promptly following the
declaration of an interference by the Board of Interference of the PTO, shall
diligently and in good faith exchange in confidence evidence of invention as to
the claims that are subject to the interference, and their respective attorneys
shall attempt to determine priority of invention in accordance with the laws of
the United States and the Rules of Practice of the PTO. Such evidence shall
include, without limitation, testimony by sworn and notarized affidavit.
Photographic copies of notebook pages or other records and an uncertified copy
of any application involved in this exchange and of other documents, or
photographs of exhibits may be introduced into evidence in lieu of originals and
have the same force and effect as though the originals themselves had been
introduced; provided, however, that during the course of this exchange, the
originals will be available for inspection by opposing counsel during business
hours at the offices of the

                                       -7-


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ASTERISKS DENOTE SUCH OMISSIONS.

respective attorneys of the parties. The attorneys for the parties may agree to
an informal exchange of proofs; provided, however, that any evidence shall be
submitted in affidavit form to the PTO in the event that a determination of
priority cannot be agreed upon by the parties hereto.

         5.2 CONCESSION OF PRIORITY. The party that owns an application or
patent, the applicant or patentee of which is determined by the attorneys for
the respective parties not to be the first inventor under the laws of the United
States and the Rules of Practice of the PTO as to the claims which are subject
to such interference shall cause to be executed an agreement that concedes
priority, and shall file such agreement with the PTO, with a copy delivered to
the other party, along with any and all papers necessary to concede priority as
to such claims and invention and to abandon any contest as to such claims and
invention. Such agreement and papers shall set forth the facts upon which the
concession of priority is based.

         5.3 DETERMINATION OF PRIORITY. In the event that a determination of
priority is not agreed upon by the attorneys for the parties, the question of
priority, including evidence exchanged by the parties pursuant to Section 5.1,
which shall be stipulated to the extent possible, shall, upon declaration, if
any, of an interference by the Board of Patent Interference of the PTO, be
submitted to the PTO for determination as to priority in accordance with the PTO
rules of practice governing interferences, i.e., 37 CFR Sections 1.601 ET SEQ.
The determination of the Board of Patent Interference of the PTO on priority
shall be final and unappealable.

ARTICLE 6.  USL LICENSE

         6.1 GRANT OF LICENSE TO USL. Kos hereby grants to USL and only USL a
perpetual, worldwide, royalty-free, non-exclusive license to make, use and sell
any USL Product covered by a claim in a Kos Patent Appln or a patent that issues
from a Kos Patent Appln.

         6.2 SUBLICENSES OF USL LICENSE. The license granted to USL under
Section 6.1 shall be non-assignable and non-transferable; provided, however,
that USL shall have the right to grant sublicenses of such license to a supplier
for the sole purpose of supplying USL Products to USL for re-sale by USL through
its normal channels of distribution.

                                       -8-


<PAGE>
THE COMPANY HAS OMITTED CERTAIN CONFIDENTIAL INFORMATION FROM THIS DOCUMENT.
ASTERISKS DENOTE SUCH OMISSIONS.

         6.3 SURVIVAL OF USL LICENSE. The rights granted USL under this Article
6 shall survive any termination of this Agreement pursuant to Sections 10.1,
10.2, or, in connection with a material breach of this Agreement by Kos, 10.3.

ARTICLE 7.  PATENTS & PATENT LITIGATION

         7.1 MAINTENANCE OF PATENTS. USL shall use its best efforts to prosecute
and maintain each of the Licensed Patents in all countries where such
application or patent has been filed or issued. USL shall keep Kos informed, on
a timely basis, of changes to the status of the Licensed Patents. USL shall be
solely responsible for all expenses incurred in connection with the prosecution
and maintenance of such applications and patents.

         7.2 INFRINGEMENT BY THIRD PARTIES. In the event that any of the
Licensed Patents is infringed by a third party, the parties shall promptly meet
and discuss the infringement and decide how they wish to proceed to abate the
infringement. If the parties reach an agreement with regard to the enforcement
of such Licensed Patent, USL shall proceed with enforcement of the Licensed
Patent (alone or jointly with Kos) and the recovery shall be shared in the same
manner as the parties have agreed to share the costs of litigation. If USL fails
to diligently prosecute such action or if USL is unwilling to proceed with the
enforcement of the Licensed Patent for more than ninety (90) days, or such
shorter period of time as may be necessary to ensure there is no waiver of
rights, following notice of infringement, Kos shall have the right to initiate
such litigation in its own name and at its expense. In such event, Kos shall be
entitled to all recovery. In all cases, USL shall have the right to fully
participate in the litigation at its expense. Kos shall not have any right to
offset the costs of litigation against royalties (whether earned or not) unless
otherwise agreed in writing between the parties. When either party litigates
under this paragraph, the other party shall be kept informed of such activities
in writing at least every License Quarter, and it shall not settle or otherwise
compromise any claim or proceedings without providing prior written notice to
the other party hereto. Each party shall immediately inform the other party of
any acts that do or could constitute infringement of a Licensed Patent.

         7.3 CHALLENGE. In the event that (i) the validity of both Licensed
Patents is challenged in any country other than the United States by a third
party, and (ii) the royalty payments made by Kos during the immediately
preceding License Agreement Year on Net Sales of Licensed Products outside the
United States did not exceed the cap on such royalty payments pursuant to
Section 3.4, Kos shall have the right to escrow all royalties owed under
Sections 3.2 and 3.3 on the Net Sales of Licensed Products in such country
during the pendency of such challenge. In the event that one or both

                                       -9-


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THE COMPANY HAS OMITTED CERTAIN CONFIDENTIAL INFORMATION FROM THIS DOCUMENT.
ASTERISKS DENOTE SUCH OMISSIONS.

Licensed Patents survive such challenge and there is at least one surviving
claim that covers the Licensed Products in accordance with Section 1.6, Kos
shall immediately pay all such escrowed royalties to USL plus accrued interest
thereon. In the event that one or both Licensed Patents survive any such
challenge, but no surviving claims cover the Licensed Product pursuant to
Section 1.6, or in the event that neither Licensed Patent survives any such
challenge, then USL agrees that Kos shall be entitled to keep all such escrowed
royalties plus accrued interest thereon.

         7.4  ACTIONS BY THIRD PARTIES.

                  7.4.1 Subject to Section 7.4.2, Kos shall have the exclusive
right to defend, settle or compromise all litigation (including actions, suits
and proceedings before judicial or administrative tribunals, and arbitration
proceedings) in which Kos, its officers, directors or shareholders,
Sublicensees, or its vendees are charged by virtue of the manufacture, use or
sale of a Licensed Product under this Agreement with infringement of any
intellectual property rights of third parties.

                  7.4.2 If any third party shall bring an action against Kos,
its officers, directors or shareholders, Sublicensees or its vendees for
infringement of any patent or rights thereunder of such third party, by reason
of the manufacture, use or sale of a Licensed Product by Kos, Sublicensees, or
their customers (ultimate or in privity or otherwise), Kos shall promptly give
written notice to USL of the institution of such action. Kos shall be solely
responsible for the costs and expenses of defending such infringement actions.
Kos shall be entitled, in its sole discretion, but after consultation with USL,
to settle or compromise any infringement action against Kos or Sublicensees
relating to a Licensed Product.

ARTICLE 8.  CONFIDENTIALITY

         8.1 CONFIDENTIALITY. Except as specifically provided in this Agreement,
and except as may be required by law or by a governmental agency, each of Kos
and USL agrees that it will not, directly or indirectly, disseminate, disclose,
or otherwise make available, to any third party other than by Kos or USL to a
Sublicensee: (i) the terms of this Agreement; or (ii) any information contained
in the Kos Patent Appln or the Licensed Patents, or any other information
pertaining to the Kos Patent Appln, the Licensed Patents or a Licensed Product.
Each of Kos and USL further agrees that it will take all steps reasonably
necessary to carry out this obligation, until such information is, or becomes,
available or generally known to the public other than due to disclosure by such
party and without any restrictions as to disclosure from a third party which has
the right to make such disclosure. The provisions hereof shall survive the
termination of

                                      -10-


<PAGE>

THE COMPANY HAS OMITTED CERTAIN CONFIDENTIAL INFORMATION FROM THIS DOCUMENT.
ASTERISKS DENOTE SUCH OMISSIONS.

this Agreement. Each of the parties shall have the right to disclose relevant
provisions of this Agreement to investors, potential investors, lenders,
regulatory authorities, and other appropriate business contacts that reasonably
require disclosure of such provisions so long as the disclosure of such
provisions is covered by a confidentiality agreement that is consistent with the
confidentiality provisions contained in this Article 8.

         8.2 PRESS RELEASES. Except as permitted under this Section 8.2, neither
party shall issue a press release or public statement regarding the existence of
this Agreement or the terms thereof. Notwithstanding Section 8.1, Kos may issue
a press release or otherwise publicize this Agreement; provided that Kos
provides USL with five (5) days prior written notice of such press release or
publication. Nothing herein shall prohibit any disclosures by either party
required by law, such as those required under the securities laws of the United
States, but in such event the disclosing party shall seek confidential treatment
to the extent feasible.

ARTICLE 9.  REPRESENTATIONS, WARRANTIES & COVENANTS.

         9.1 REPRESENTATIONS, WARRANTIES & COVENANTS OF USL. USL represents and
warrants that: (i) it has full right, power and authority to enter into this
License Agreement and to grant the licenses granted to Kos under Article 2; (ii)
it has not assigned, transferred, conveyed, licensed, pledged or otherwise
encumbered any of its right, title and interest, in whole or in part, in the
Licensed Patents to any third party; (iii) it is the sole and exclusive owner of
the Licensed Patents, which ownership is free and clear of any liens, charges
and encumbrances; (iv) to the best of USL's knowledge, no aspect of this License
Agreement or any USL Product infringes upon any rights owned or possessed by any
third party; (v) to the best of USL's knowledge, the Licensed Patents are valid
and enforceable; (vi) there are no claims, judgments or settlements to be paid
by USL or any pending claims or litigation against or threatened by or against
USL relating to the Licensed Patents; (vii) it has no agreement with any third
party which conflicts in any way with its obligations to Kos under this
Agreement; and (viii) USL agrees not to assert against Kos any niacin patent
having an effective filing date prior to the effective date of this Agreement,
the use of which is required for the ordinary practice of the rights herein
licensed, but only to the extent of such requirement.

         9.2 REPRESENTATIONS, WARRANTIES & COVENANTS OF KOS. Kos represents and
warrants that: (i) it has full right, power and authority to enter into this
Agreement and to grant the license granted to USL under Article 6; (ii) it has
not assigned, transferred, conveyed, licensed, pledged or otherwise encumbered
any of its right, title and interest, in whole or in part, in the

                                      -11-


<PAGE>
THE COMPANY HAS OMITTED CERTAIN CONFIDENTIAL INFORMATION FROM THIS DOCUMENT.
ASTERISKS DENOTE SUCH OMISSIONS.

Kos Patent Appln to any third party; (iii) it is the sole and exclusive owner of
the Kos Patent Appln, which ownership is free and clear of any liens, charges
and encumbrances; (iv) to the best of Kos's knowledge, no aspect of this License
Agreement or the Niaspan(R) Product infringes upon any rights owned or possessed
by any third party; (v) there are no claims, judgments or settlements to be paid
by Kos or any pending claims or litigation against or threatened by or against
Kos relating to the Kos Patent Appln; (vi) it has no agreement with any third
party which conflicts in any way with its obligations to USL under this
Agreement; and (vii) Kos agrees not to assert against USL any niacin patent
having an effective filing date prior to the effective date of this Agreement,
the use of which is required for the ordinary practice of the rights herein
licensed, but only to the extent of such requirement.

ARTICLE 10.  TERM & TERMINATION

         10.1 TERM. The term of this Agreement, unless terminated as provided
herein, shall remain in effect in each country in the Territory for so long as
at least one of the Licensed Patents is valid and enforceable in such country.

         10.2 TERMINATION BY KOS. Kos may terminate this Agreement at any time
following the fourth anniversary of the date of this Agreement upon thirty (30)
days prior written notice.

         10.3 TERMINATION UPON BREACH. Either party may provide the other with
written notice of a material breach of this Agreement by the other party and the
breaching party shall have sixty (60) days from the date on which it receives
such notice in which to cure such breach. In the event that such breach is not
cured on a timely basis, the non-breaching party shall have the right to
terminate this Agreement upon ten (10) days prior written notice.

ARTICLE 11.  MISCELLANEOUS.

         11.1     ASSIGNMENT.  This Agreement shall not be assignable by
either party hereto without the prior written consent of the other
party hereto; provided that (i) Kos may assign without USL's
consent all of Kos' rights under this Agreement in connection with
a merger in which Kos is not the surviving entity or in connection
with a sale or transfer of substantially all of the assets of Kos,
(ii) USL may assign without Kos' consent all of USL's rights under
this Agreement, except for the license granted to USL under Article
6, in connection with a merger in which USL is not the surviving
entity or in connection with a sale or transfer of substantially
all of the assets of USL, and (iii) either party may assign,
without the consent of the other party, its rights under this
Agreement to a wholly-owned subsidiary of such party.  Any

                                      -12-


<PAGE>
THE COMPANY HAS OMITTED CERTAIN CONFIDENTIAL INFORMATION FROM THIS DOCUMENT.
ASTERISKS DENOTE SUCH OMISSIONS.

attempted assignment not in accordance with and permitted by this Section 11.1
shall be void.

         11.2 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the internal laws of the State of Florida.

         11.3 FAILURE TO ENFORCE. The failure of either party at any time, or
for any period of time, to enforce any of the provisions of this Agreement shall
not be construed as a waiver of such provisions or as a waiver of the right of
such party thereafter to enforce each and every such provision.

         11.4 NOTICES. Any notice required to be given under this Agreement is
properly provided if in writing and either hand delivered, transmitted via
facsimile with a confirming copy sent by first class mail, or sent by express or
certified mail, postage prepaid, to the parties at the following addresses,
unless another address is provided in accordance with the provisions of this
Section 11.5:

         If to Kos:                         1001 Brickell Bay Drive
                                            Suite 2502
                                            Miami, Florida 33131
                                            Facsimile No. (305) 577-4596
                                            Attention: President

         with a copy to:                    Holland & Knight LLP
                                            One East Broward Boulevard
                                            Fort Lauderdale, Florida 33301
                                            Facsimile No. (954) 463-2030
                                            Attention: Steven Sonberg, Esq.

         If to USL:                         14905 23rd Avenue North
                                            Minneapolis, Minnesota  55447
                                            Facsimile No. (612) 476-4026
                                            Attention: President

         with a copy to:                    Merchant & Gould
                                            3100 Norwest Center
                                            Minneapolis, Minnesota 55402
                                            Facsimile No. (612) 332-9081
                                            Attention: Cecil Schmidt, Esq.

         11.5 SEVERABILITY. All rights and restrictions contained herein may be
exercised and shall be applicable and binding only to the extent that they do
not violate any applicable laws and are intended to be limited to the extent
necessary so that they will not render this Agreement illegal, invalid or
unenforceable. If any provision or portion of any provision of this Agreement
not essential to the commercial purpose of this Agreement shall be held to be
illegal, invalid or unenforceable by a court of competent

                                      -13-


<PAGE>
THE COMPANY HAS OMITTED CERTAIN CONFIDENTIAL INFORMATION FROM THIS DOCUMENT.
ASTERISKS DENOTE SUCH OMISSIONS.

jurisdiction, it is the intention of the parties that the remaining provisions
or portions thereof shall constitute their agreement with respect to the subject
matter hereof, and all such remaining provisions or portions thereof shall
remain in full force and effect. To the extent legally permissible, any illegal,
invalid or unenforceable provision of this Agreement shall be replaced by a
valid provision which will implement the commercial purpose of the illegal,
invalid or unenforceable provision. In the event that any provision essential to
the commercial purpose of this Agreement for either is held to be illegal,
invalid or unenforceable and cannot be replaced by a valid provision which will
implement the commercial purpose of this Agreement, such party may terminate
this Agreement by giving written notice to the other party.

         11.6 HEADINGS. The headings as to contents of particular paragraphs of
this Agreement are inserted for convenience only and shall not be construed as a
part of this Agreement or as a limitation on the scope of any terms or
provisions of this Agreement.

         11.7 INTEGRATION. This Agreement constitutes the entire agreement
between the parties hereto as of the Effective Date hereof, and there are no
understandings, representations or warranties of any kind with respect thereto
except as expressly set forth herein. No modification of this Agreement shall be
effective unless in writing and duly executed on behalf of each of the parties
hereto.

         11.8 ACCEPTANCE BY FAX & COUNTERPARTS. This Agreement shall be
accepted, effective and binding, for all purposes, when the parties shall have
signed and transmitted to each other, which may be by telecopier, copies of the
signature pages thereto. This Agreement may be executed in multiple
counterparts, each of which shall together constitute one and the same
instrument.

                                      -14-


<PAGE>
THE COMPANY HAS OMITTED CERTAIN CONFIDENTIAL INFORMATION FROM THIS DOCUMENT.
ASTERISKS DENOTE SUCH OMISSIONS.


         The parties hereto have caused this Agreement to be executed in
duplicate by their duly authorized representatives as of the date first written
above.

                                    KOS PHARMACEUTICALS, INC.,
                                    a Florida corporation.

                                    /s/ Daniel M. Bell
                                    ----------------------------------
                                    Daniel M. Bell, President

                                    UPSHER-SMITH LABORATORIES,
                                    INC., a Minnesota
                                    corporation.

                                    /s/ Ian Troup
                                    ----------------------------------
                                    Ian Troup, President


                                      -15-


<PAGE>
THE COMPANY HAS OMITTED CERTAIN CONFIDENTIAL INFORMATION FROM THIS DOCUMENT.
ASTERISKS DENOTE SUCH OMISSIONS.

                                    EXHIBIT A

                       Possible Interference Notification


<PAGE>
THE COMPANY HAS OMITTED CERTAIN CONFIDENTIAL INFORMATION FROM THIS DOCUMENT.
ASTERISKS DENOTE SUCH OMISSIONS.


                                    EXHIBIT B

                                 Evenstad Patent


<PAGE>
THE COMPANY HAS OMITTED CERTAIN CONFIDENTIAL INFORMATION FROM THIS DOCUMENT.
ASTERISKS DENOTE SUCH OMISSIONS.




                                    EXHIBIT C

                                 O'Neill Patent


<PAGE>
THE COMPANY HAS OMITTED CERTAIN CONFIDENTIAL INFORMATION FROM THIS DOCUMENT.
ASTERISKS DENOTE SUCH OMISSIONS.



                                    EXHIBIT D

                                Kos Patent Appln




                                                                  EXHIBIT 23.2 

               CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 

   As independent certified public accountants, we hereby consent to the use 
of our report (and to all references to our Firm) included in or made a part 
of this registration statement. 

ARTHUR ANDERSEN LLP 

   
Miami, Florida, 
 February 10, 1997. 
    

<TABLE> <S> <C>


<ARTICLE>                     5
       
<S>                                        <C>                     <C>                     <C>
<PERIOD-TYPE>                              YEAR                    3-MOS                   6-MOS
<FISCAL-YEAR-END>                          JUN-30-1996             JUN-30-1997             JUN-30-1997
<PERIOD-START>                             JUL-01-1995             JUL-01-1996             JUL-01-1996
<PERIOD-END>                               JUN-30-1996             SEP-30-1996             DEC-31-1996
<CASH>                                         193,484                 205,456                 357,520
<SECURITIES>                                         0                       0                       0
<RECEIVABLES>                                  165,392                 114,532                 233,841
<ALLOWANCES>                                         0                       0                       0
<INVENTORY>                                          0                       0                       0
<CURRENT-ASSETS>                               358,876                 319,988                 591,361
<PP&E>                                       3,511,690               3,764,286               4,474,431
<DEPRECIATION>                             (1,589,747)             (1,724,146)             (1,869,027)
<TOTAL-ASSETS>                               2,280,819               2,360,128               3,196,765
<CURRENT-LIABILITIES>                          366,670                 605,503               9,407,004
<BONDS>                                              0                       0                       0
                                0                       0                       0
                                          0                       0                       0
<COMMON>                                       100,000                 100,000                 100,000
<OTHER-SE>                                   1,814,149             (1,750,375)             (6,310,239)
<TOTAL-LIABILITY-AND-EQUITY>                 2,280,819               2,360,128               3,196,765
<SALES>                                              0                       0                       0
<TOTAL-REVENUES>                                     0                       0                       0
<CGS>                                                0                       0                       0
<TOTAL-COSTS>                                        0                       0                       0
<OTHER-EXPENSES>                            21,040,015               3,543,458               7,993,288
<LOSS-PROVISION>                                     0                       0                       0
<INTEREST-EXPENSE>                            (13,860)                  21,066                 131,100
<INCOME-PRETAX>                             20,993,797               3,564,524               8,124,388
<INCOME-TAX>                                         0                       0                       0
<INCOME-CONTINUING>                         20,993,797               3,564,524               8,124,388
<DISCONTINUED>                                       0                       0                       0
<EXTRAORDINARY>                                      0                       0                       0
<CHANGES>                                            0                       0                       0
<NET-INCOME>                                20,993,797               3,564,524               8,124,388
<EPS-PRIMARY>                                     1.87                    0.32                    0.72
<EPS-DILUTED>                                     1.87                    0.32                    0.72
        

</TABLE>


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