AGOURON PHARMACEUTICALS INC, S-3/A, 1995-09-15

AGOURON PHARMACEUTICALS INC
S-3/A, 1995-09-15
PHARMACEUTICAL PREPARATIONS

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<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 15, 1995

REGISTRATION NO. 33-61573

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

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

PRE-EFFECTIVE

AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
AGOURON PHARMACEUTICALS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

CALIFORNIA 33-0061928
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)

_______________________

10350 NORTH TORREY PINES ROAD, LA JOLLA, CALIFORNIA 92037
(619) 622-8000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

PETER JOHNSON
PRESIDENT AND CHIEF EXECUTIVE OFFICER
AGOURON PHARMACEUTICALS, INC.
10350 NORTH TORREY PINES ROAD, LA JOLLA, CALIFORNIA 92037
(619) 622-8000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)

_______________________

COPIES TO:

HARRY J. PROCTOR, ESQ. JOHN P. MCENROE, ESQ.
FERRIS & BRITTON, A P.C. PAUL, WEISS, RIFKIND, WHARTON & GARRISON
401 WEST "A" STREET, SUITE 1600 1285 AVENUE OF THE AMERICAS
SAN DIEGO, CALIFORNIA 92101 NEW YORK, NEW YORK 10019-6064

_______________________

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

If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [_]

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, other than securities offered only in connection with dividend or interest
reinvestment plans, 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 REGISTRATION FEE
<TABLE>
<CAPTION>
====================================================================================================================================
TITLE OF EACH CLASS OF AMOUNT TO BE PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) OFFERING PRICE PER SHARE (2) AGGREGATE OFFERING PRICE (2) REGISTRATION FEE (3)
<S> <C> <C> <C> <C>
------------------------------------------------------------------------------------------------------------------------------------
Common Stock, no par value....... 3,450,000 $28.00 $96,600,000 $33,310.34
====================================================================================================================================
</TABLE>

(1) Includes 450,000 shares of Common Stock that the Underwriters have the
option to purchase to cover over-allotments, if any.

(2) Calculated in accordance with Rule 457(a) under the Securities Act of 1933.

(3) $22,653.02 has been previously paid.
_______________________

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 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SAID SECTION 8(a)
MAY DETERMINE.

<PAGE>

AGOURON PHARMACEUTICALS, INC.

________________________

CROSS REFERENCE SHEET

PURSUANT TO ITEM 501(b) OF REGULATION S-K SHOWING LOCATION IN
PROSPECTUS OF INFORMATION REQUIRED BY ITEMS OF FORM S-3

<TABLE>
<CAPTION>
ITEM NUMBER AND HEADING IN
FORM S-3 REGISTRATION STATEMENT LOCATION IN PROSPECTUS
------------------------------- ----------------------
<S> <C>
1. Forepart of the Registration
Statement and Outside Front
Cover Page of Prospectus........ Outside Front Cover Page of Prospectus

2. Inside Front and Outside Back
Cover Pages of Prospectus....... Inside Front and Outside Back Cover
Pages

3. Summary Information, Risk
Factors and Ratio of Earnings
to Fixed Charges................ Prospectus Summary; Risk Factors;
Incorporation of Certain Information
by Reference

4. Use of Proceeds.................. Use of Proceeds

5. Determination of Offering
Price........................... Inapplicable

6. Dilution......................... Dilution

7. Selling Security Holders......... Inapplicable

8. Plan of Distribution............. Outside Front Cover Page; Underwriting

9. Description of Securities
to be Registered................ Outside Front Cover Page; Description of
Securities

10. Interests of Named Experts
and Counsel..................... Inapplicable

11. Material Changes................. Management's Discussion and Analysis of
Financial Condition and Results of
Operations; Business

12. Incorporation of Certain
Information by Reference........ Incorporation of Certain Information by
Reference

13. Disclosure of Commission
Position on Indemnification
for Securities Act
Liabilities..................... Inapplicable
</TABLE>
<PAGE>

EXPLANATORY NOTE

This Registration Statement contains two forms of prospectus; one is to be
used in connection with an offering in the United States (the "U.S. Prospectus")
and one to be used in connection with a concurrent offering outside the United
States and Canada (the "International Prospectus"). The U.S. Prospectus and the
International Prospectus will be identical in all respects except for the
alternate and additional pages that follow the form of the U.S. Prospectus.
Each of the alternate and additional pages for the International Prospectus
included herein is labeled accordingly.
<PAGE>

DESCRIPTION OF PAGE TWO (COLORED PICTURE):

Color artistic rendering of three-dimensional chemical structures of THYMITAQ
and AG1343 transitioning into intravenous, capsule and tablet formulations,
together with the following descriptive text;

"THYMITAQ (AG337) An inhibitor of the enzyme thymidylate synthase, THYMITAQ is
being evaluated in phase II clinical trials as a drug for the treatment of
malignant solid tumors."

"AG1343 An inhibitor of the enzyme HIV protease, AG1343 is being evaluated in
phase II clinical trials as a drug for the treatment of HIV infection and AIDS."

Company Logo

Agouron Pharmaceuticals, Inc.

2
<PAGE>

3,000,000 SHARES

[LOGO OF AGOURON PHARMACEUTICALS, INC.]

COMMON STOCK

-----------

All of the shares of Common Stock offered hereby are being sold by Agouron
Pharmaceuticals, Inc. Of the 3,000,000 shares of Common Stock offered,
2,400,000 are being offered hereby in the United States (the "U.S. Shares")
and 600,000 shares are being offered in a concurrent international offering
outside the United States and Canada. The price to the public and aggregate
underwriting discounts and commissions per share will be identical for both
offerings. See "Underwriting."

The Common Stock is traded on The Nasdaq Stock Market under the symbol AGPH.
On September 14, 1995, the closing sale price of the Common Stock as reported
by Nasdaq was $28.50 per share. See "Price Range of Common Stock and Dividend
Policy."

THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS" AT PAGE 5.

----------------
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>
Underwriting
Price Discounts and Proceeds to
to Public Commissions(1) Company(2)
--------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share........................... $28.00 $1.68 $26.32
--------------------------------------------------------------------------------------------
Total............................... $84,000,000 $5,040,000 $78,960,000
--------------------------------------------------------------------------------------------
Total Assuming Full Exercise of Over-
Allotment Option(3)................ $96,600,000 $5,796,000 $90,804,000
</TABLE>

(3) Assuming exercise in full of the 45-day option granted by the Company to
the Underwriters to purchase up to 450,000 additional shares, on the same
terms, solely to cover over-allotments. See "Underwriting."

-----------

The U.S. Shares are offered by the U.S. Underwriters, subject to prior sale,
when, as and if delivered to and accepted by the U.S. Underwriters, and
subject to their right to reject orders in whole or in part. It is expected
that delivery of the Common Stock offered hereby will be made in New York City
on or about September 20, 1995.

-----------

PAINEWEBBER INCORPORATED ROBERTSON, STEPHENS & COMPANY

-----------

THE DATE OF THIS PROSPECTUS IS SEPTEMBER 15, 1995.
<PAGE>

IN CONNECTION WITH THE 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 STOCK MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS (AND SELLING GROUP
MEMBERS) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK
OF THE COMPANY ON THE NASDAQ STOCK MARKET IN ACCORDANCE WITH RULE 10B-6A UNDER
THE EXCHANGE ACT. SEE "UNDERWRITING."

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

INCORPORATION OF CERTAIN INFORMATION BY REFERENCE

Agouron's Annual Report on Form 10-K for the fiscal year ended June 30, 1995
and the description of the Company's Common Stock contained in the Company's
Registration Statement on Form 8-A having an effective date of June 16, 1987
(file number 0-15609), are hereby incorporated by reference in this Prospectus,
except as superseded or modified herein. All documents filed with the Securi-
ties and Exchange Commission (the "Commission")pursuant to Section 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act")
after the date of this Prospectus and prior to the termination of the offering,
shall be deemed to be incorporated by reference into this Prospectus and to be
a part hereof from the date of filing of such documents. Any statement con-
tained in any document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this Pro-
spectus to the extent that a statement contained herein or in any other subse-
quently filed document which also is or is deemed to be incorporated by refer-
ence herein modifies or supersedes such statement. Any such statement so modi-
fied or superseded shall not be deemed, except as modified or superseded, to
constitute a part of this Prospectus. Agouron will provide without charge to
each person, including any beneficial owner, to whom this Prospectus is deliv-
ered, upon written or oral request of such person, a copy of any and all of the
documents that have been or may be incorporated by reference herein (other than
exhibits to such documents which are not specifically incorporated by reference
into such documents). Such requests should be directed to the Chief Financial
Officer at Agouron's executive offices at 10350 North Torrey Pines Road, La
Jolla, California 92037; (619) 622-8000.
<PAGE>

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in this Prospectus. Unless otherwise indicated,
the information in this Prospectus assumes that the Underwriters' over-
allotment option will not be exercised. The shares of Common Stock offered
hereby involve a high degree of risk. Investors should carefully consider the
information set forth under the heading "Risk Factors."

THE COMPANY

Agouron Pharmaceuticals, Inc. ("Agouron" or the "Company") is a pioneer and
leader in technologies for the atom by atom design of novel synthetic drugs
based upon the molecular structures of target proteins which play key roles in
human disease. The Company is conducting phase II clinical trials of two drugs
generated by these design technologies: VIRACEPT(TM) (formerly AG1343) for
treatment of HIV infection and THYMITAQ(TM) (formerly AG337) for treatment of
malignant solid tumors. In addition, ten preclinical programs are in progress
for discovery and development of other new drugs in the fields of cancer, viral
diseases and immuno-inflammatory disease.

VIRACEPT, an orally administered inhibitor of the enzyme HIV protease, has
been the subject of two four-week pilot phase II studies evaluating the acute
anti-HIV activity and safety of alternative doses of the drug. The first pilot
phase II study evaluated two daily dose levels of VIRACEPT administered in a
capsule formulation to 20 HIV-infected patients in England. The second pilot
phase II study evaluated three daily dose levels (two of which were higher than
those in the English study) of VIRACEPT administered in a tablet formulation to
30 patients at two centers in the United States. In nearly all patients in
these studies, VIRACEPT reduced the amount of HIV and/or increased the number
of CD4+ T cells (primary cells of the immune system) detectable in blood.
Additionally, VIRACEPT has been reported to be safe and well tolerated in the
pilot phase II studies. On the basis of these results and other factors,
Agouron and the pharmaceutical division of Japan Tobacco Inc. ("JT") have
recently announced their decision to proceed collaboratively with large-scale
clinical trials of VIRACEPT. In connection with this decision, JT has made a
milestone-related payment to Agouron of $24,000,000. Agouron intends to
initiate large-scale clinical trials in calendar 1995 which, if successful,
could lead to the submission of a New Drug Application ("NDA") to the U.S. Food
and Drug Administration ("FDA") for VIRACEPT in calendar 1997.

THYMITAQ, an inhibitor of the enzyme thymidylate synthase ("TS"), is being
tested clinically as a chemotherapeutic agent for treatment of malignant solid
tumors associated with cancer of the colon, lung, prostate, pancreas, liver and
head/neck. In a majority of more than 50 evaluable patients treated to date in
six ongoing phase II studies in the United States, an intravenous formulation
of THYMITAQ has stabilized previously progressive malignant disease and, in
some patients, caused significant reductions in the mass of solid tumors. An
oral formulation of THYMITAQ is also being developed. If satisfied with the
results of these phase II studies, Agouron intends to initiate pivotal trials
of THYMITAQ in one or more types of solid tumors in calendar 1995 which, if
successful, could lead to the submission of a NDA for THYMITAQ in calendar
1997.

Agouron's goal is to become profitable from the sale of differentiated drugs
generated principally from its own drug discovery and development efforts. To
augment its technical capabilities, to enhance the likelihood of successful
commercialization of its products and to offset some of its operating costs,
the Company has entered into certain collaborative research and development
arrangements with other companies. Agouron has generally retained significant
commercial rights in drugs developed in its collaborative research and
development programs. The Company anticipates that any successfully developed
products will be commercialized through its own direct sales and marketing
activities in certain markets or, where appropriate, through manufacturing and
marketing relationships with other pharmaceutical companies.

In collaboration with the pharmaceutical division of JT, Agouron is engaged
in the development of VIRACEPT for treatment of HIV infection, as well as in
the design of drugs for treatment of infections caused by hepatitis C, the
herpes family of viruses and rhinoviruses--the most frequent cause for the
common cold. Under agreements with JT, Agouron retains exclusive commercial
rights to these anti-viral products in the United States, Canada and Mexico,
generally subject to the payment either of royalties or a share of profits to
JT.

In collaboration with Syntex (U.S.A.) Inc. (now a subsidiary of Roche
Holdings, Inc.) ("Roche"), Agouron is pursuing the design and development of
inhibitors of matrix metalloproteases ("MMPs") intended to intervene in the
degradation of bone and connective tissue in arthritis, and in the invasion,
growth and metastasis of malignant solid tumors. Agouron retains exclusive
commercial rights to products from the collaboration in the field of cancer,
subject to the payment of royalties to Roche.

3
<PAGE>

THE OFFERING

<TABLE>
<S> <C>
Common Stock Offered by the Company.......... 3,000,000 shares of Common Stock, no par
value ("Common Stock")
Common Stock to be Outstanding after the
Offering..................................... 10,359,282 shares (1)
Use of Proceeds.............................. For research, preclinical and clinical
product development, to establish sales,
marketing and manufacturing capabilities
and for capital expenditures, working capi-
tal and other corporate purposes. See "Use
of Proceeds."
Nasdaq Stock Market Symbol................... AGPH
</TABLE>
--------
(1) Based on the shares outstanding at June 30, 1995. Excludes (i) 2,585,692
shares of Common Stock issuable upon the exercise of options outstanding at
June 30, 1995 under the Company's stock option plans, (ii) 340,672 shares
of Common Stock available for future grants under such plans and (iii)
45,000 shares of Common Stock issuable upon the exercise of warrants
outstanding at June 30, 1995.

SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
--------------------------------------------
1991 1992 1993 1994 1995
------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues......................... $ 4,795 $ 6,847 $ 9,970 $17,651 $ 27,961
Research and development costs
and expenses.................... 9,353 13,142 17,404 23,957 36,317
Net loss......................... (6,621) (9,132) (9,829) (9,462) (12,939)
Net loss per common share........ (1.42) (1.47) (1.40) (1.31) (1.77)
Shares used in computing per
share amount.................... 4,674 6,199 6,997 7,241 7,296
</TABLE>

<TABLE>
<CAPTION>
JUNE 30, 1995
--------------------
AS
ACTUAL ADJUSTED (1)
------- ------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments.......... $20,244 $ 98,844
Working capital............................................ 8,837 87,437
Total assets............................................... 27,097 105,697
Long-term liabilities...................................... 1,884 1,884
Stockholders' equity (2)................................... 12,591 91,191
</TABLE>
--------

(1) As adjusted to give effect to the sale of 3,000,000 shares of Common Stock
in this offering, assuming a public offering price of $28.00 per share and
net proceeds of approximately $78,600,000. See "Use of Proceeds."

(2)The Company has never declared or paid dividends on its Common Stock.

4
<PAGE>

RISK FACTORS

An investment in the shares being offered hereby involves a high degree of
risk. Prospective investors should carefully consider the following risk
factors, in addition to the other information contained in this Prospectus,
before purchasing the shares of Common Stock offered hereby.

EARLY STAGE OF PRODUCT DEVELOPMENT; UNCERTAINTY OF PRODUCT DEVELOPMENT;
TECHNOLOGICAL UNCERTAINTY

The Company has not yet completed the development of any products and does
not expect to have any products commercially available for several years, if at
all. While the Company has received regulatory approval to begin human clinical
testing for three of its compounds, these and other compounds currently being
developed by the Company will require further research and development,
including extensive additional preclinical and human clinical testing, prior to
submission of any regulatory application for commercial sale of such compounds.
There can be no assurance that further research and development will be
successful or will result in drugs that will qualify for approval by regulatory
authorities for commercial sale. In addition, clinical testing of a
pharmaceutical product is itself subject to approvals by various governmental
regulatory authorities. No assurance can be given that the Company will be
permitted by regulatory authorities to conduct planned additional clinical
testing of the Company's compounds in any particular country of the world,
including the United States, or that, if permitted, such additional clinical
testing will prove that such drugs are safe and efficacious to the extent
necessary to permit the Company to obtain marketing approvals for them from
regulatory authorities. The Company may encounter problems or delays relating
to research and development, regulatory approval and manufacturing and the
failure to address such problems or delays could have a material adverse effect
on the Company's business and prospects. Even if FDA and foreign regulatory
approvals for the marketing of any products being developed by the Company are
obtained, there can be no assurance that such products will be accepted and
successful in the marketplace.

While the Company believes it has demonstrated the utility of certain of its
potential products in initial preclinical testing and in initial phase I and
phase II human clinical trials, extensive further preclinical and clinical
testing of these potential products is required before the Company can obtain
marketing approval from regulatory authorities. Furthermore, results obtained
in initial preclinical studies or in initial phase I and phase II human
clinical trials are not necessarily indicative of results that will be obtained
in subsequent or more extensive preclinical or clinical testing. Additionally,
no drug discovered by use of structure-based drug design has yet been
successfully developed, approved by FDA or marketed. Furthermore, one of the
Company's potential products, VIRACEPT, is an HIV protease inhibitor which has
not been extensively tested in large-scale clinical trials. Technological
uncertainty exists regarding the development of resistance to HIV protease
inhibitors by human subjects. There can be no assurance that disease resistance
will not limit the efficacy of the Company's HIV protease inhibitor. Within the
pharmaceutical industry, treatment of the disease indications being pursued by
the Company, especially HIV infection, AIDS and cancer, has proven difficult.
There can be no assurance that drugs resulting from the approach of protein
structure-based drug design employed by the Company will overcome the
difficulties of drug discovery and development in these or other fields or
result in commercially successful products.

UNCERTAINTY ASSOCIATED WITH PRECLINICAL AND CLINICAL TESTING

Before obtaining regulatory approvals for the commercial sale of any of its
products, Agouron must undertake extensive preclinical and clinical testing to
demonstrate their safety and efficacy in humans. To date, the Company has
conducted initial preclinical testing of certain of its drugs and has tested
VIRACEPT and THYMITAQ only in limited numbers of patients in phase I and phase
II clinical studies in Europe and the United States. The results of initial
preclinical and clinical testing of these and other products under development
by the Company are not necessarily predictive of results that will be obtained
from subsequent or more extensive preclinical and clinical testing.
Additionally, the Company has made and may in the future make changes to the
formulation of its drugs and/or to the processes for manufacturing its drugs.
Any such

5
<PAGE>

future changes in formulation or manufacturing processes could result in delays
in conducting further preclinical and clinical testing, in unexpected adverse
results in further preclinical and clinical testing, and/or in additional
development expenses. Furthermore, there can be no assurance that clinical
studies of products under development will demonstrate the safety and efficacy
of such products at all or to the extent necessary to obtain regulatory
approvals of such products. Companies in the industry have suffered significant
setbacks in advanced clinical trials, even after promising results in earlier
trials. The failure to adequately demonstrate the safety and efficacy of a
therapeutic product under development could delay or prevent regulatory
approval of the product, and would have a material adverse effect on the
Company.

Any drug is likely to produce some toxicities or undesirable side effects in
animals and in humans when administered at sufficiently high doses and/or for
sufficiently long periods of time. In an attempt to evaluate the potential
toxicities or side effects of VIRACEPT, THYMITAQ and AG331 (a second TS
inhibitor), the Company has conducted initial toxicology studies of these
compounds in animals. On the basis of results to date from such toxicological
studies, the Company has selected for human clinical testing dose levels of its
drugs and periods of exposure to its drugs which, in the Company's judgment,
are unlikely to produce unacceptable toxicities or side effects in humans.
However, there can be no assurance that unacceptable toxicities or side effects
will not occur at any dose level at any time in the course of toxicological
studies or of human clinical trials of the Company's drugs. The appearance of
any such unacceptable toxicities or side effects in toxicology studies or in
human clinical trials could cause the Company or regulatory authorities to
interrupt, limit, delay or abort the development of any of the Company's drugs
and could ultimately prevent their being approved by FDA or foreign regulatory
authorities for any or all targeted indications. Even after being approved by
FDA or foreign regulatory authorities, products may later exhibit adverse
effects that prevent their widespread use or necessitate their withdrawal from
the market. There can be no assurance that any products under development by
the Company will be safe when administered to patients.

The rate of completion of clinical trials is dependent upon, among other
factors, the rate of enrollment of patients. Patient accrual is a function of
many factors, including the size of the patient population, the proximity of
patients to clinical sites, the eligibility criteria for the study and the
existence of competitive clinical trials. Delays in planned patient enrollment
in the Company's current trials or future clinical trials may result in
increased costs, program delays or both, which could have a material adverse
effect on the Company. There can be no assurance that if clinical trials are
completed the Company will be able to submit a NDA as scheduled or that any
such application will be reviewed and approved by FDA in a timely manner, or at
all.

HISTORY OF OPERATING LOSSES

To date, most of the Company's revenues have consisted of funds received
pursuant to collaborative research and development arrangements, grants from
the National Institutes of Health ("NIH") and interest income. The Company has
not generated revenues from the commercialization of any products. The Company
has had net operating losses since its inception and, as of June 30, 1995, had
an accumulated deficit of approximately $63,500,000. The Company expects to
incur substantial net operating losses for at least the next several years.
Such losses may fluctuate from quarter to quarter depending on several factors
including the status of the Company's research, development and clinical trial
programs and on the timing and receipt of fees from collaborative
relationships. Such losses will continue unless and until such time as product
approvals are obtained and product sales generate sufficient revenue to offset
expenses and generate sufficient cash flow to fund continuing operations. The
Company's ability to achieve a profitable level of operations is dependent on
successfully completing the development of certain of its products. There can
be no assurance that any or all of these events will occur or that the Company
will ever achieve product revenues or profitable operations.

6
<PAGE>

ADDITIONAL FINANCING REQUIREMENTS AND ACCESS TO CAPITAL

The Company has expended more than $120,000,000 on research and development
activities and intends in the future to expend substantial additional funds to
continue research and development activities, conduct preclinical studies and
tests, conduct human clinical trials, establish manufacturing, sales and
marketing capabilities and market any approved products. Additional funds may
be required in connection with collaborative arrangements with others and for
working capital and other general corporate needs.

The Company believes that its current capital resources, existing contractual
commitments, a JT milestone payment of $24,000,000 which was received on August
24, 1995 and the proceeds of this offering, will enable it to maintain its
current and planned operations through at least fiscal 1997. However, no
assurance can be given that there will be no change in the Company's operations
that would consume available resources more rapidly than anticipated.
Additional funding may be required before the commercialization of any
products. The Company's future capital requirements will depend on many
factors, including the progress of research and development, the scope and
results of preclinical studies and clinical trials, the cost, timing and
outcome of regulatory reviews, the rate of technological advances, the market
acceptance of any approved Company products, administrative and legal expenses
and competitive factors. To the extent the Company's capital resources are
insufficient to meet current or planned operating requirements, the Company
will seek to obtain additional funds through equity or debt financings,
collaborative or other arrangements with corporate partners, licensees and
others, and from other sources, which may have the effect of diluting the
holdings of existing shareholders. No assurance can be given that additional
financing will be available when needed or on terms acceptable to the Company.
If adequate funds are not available, the Company may be required to delay or
eliminate expenditures for certain of its programs or to license third parties
to commercialize products or technologies that the Company would otherwise seek
to develop and commercialize itself, any of which would have a material adverse
effect on the Company. See "Use of Proceeds."

DEPENDENCE ON OTHERS

The Company's strategy for development and commercialization of certain of
its products entails entering into various arrangements with corporate
partners, licensees and others, and upon the subsequent success of these
partners, licensees and others in performing preclinical and clinical testing,
obtaining regulatory approvals, manufacturing and marketing. These arrangements
may require the Company to transfer certain material rights to such corporate
partners, licensees and others. In the event the Company determines to license
or sublicense certain of its commercial rights, there can be no assurance such
arrangements will not result in reduced product revenue to the Company. While
the Company believes its partners, licensees and others will have an economic
motivation to succeed in performing their contractual responsibilities, the
amount and timing of resources to be devoted to these activities will be
controlled by others. Consequently, there can be no assurance that any revenues
or profits will be derived from such arrangements, that any of the Company's
current strategic arrangements will be continued or that the Company will be
able to enter into future collaborations.

Under the provisions of certain agreements entered into between the Company
and JT, JT has agreed to collaborate on the discovery, development,
commercialization and marketing of certain novel therapeutic drugs including
VIRACEPT, anti-hepatitis C and anti-herpes drugs and to make certain payments
related thereto to the Company. In the event JT fails to make any of the
anticipated payments, or otherwise delays in the making of any of the payments,
such event could have a material adverse effect on the Company. See "Business--
Research and Development Agreements--Japan Tobacco Inc."

LACK OF MANUFACTURING CAPABILITIES

The Company has not yet manufactured at a commercial scale and currently does
not have the facilities to manufacture its product candidates in commercial
quantities under current good manufacturing practices ("GMP") prescribed by
FDA. To be successful, if approved by FDA, the Company's products must be

7
<PAGE>

manufactured in commercial quantities under GMP and at acceptable costs.
Although the Company is producing clinical quantities of certain chemical
compounds in certain of its laboratory facilities that have undergone GMP
inspections and been approved by the State of California, and has business
relationships with manufacturers to supply significant portions of its clinical
trial material requirements, the current facilities and manufacturing
relationships of the Company are not adequate to meet anticipated commercial
production needs. Therefore, the Company will need to develop additional
manufacturing facilities and/or be dependent upon its collaborators, licensees
or upon contract manufacturers for the commercial manufacture of products it
may develop. The Company has no experience in such commercial manufacturing and
no assurance can be given that the Company will be able to make the transition
to commercial production successfully or be able to arrange for contract
manufacturing. In the event the Company is unable to obtain contract
manufacturing on acceptable terms, its ability to commercialize or timely
deliver its products at acceptable cost may be adversely affected.

LACK OF SALES AND MARKETING CAPABILITIES

The Company has no experience in the sales, marketing and distribution of
pharmaceutical products and will have to develop a pharmaceutical sales force
and/or rely on collaborators, licensees or on arrangements with others to
provide for the sales, marketing and distribution of any products approved by
FDA or foreign regulatory authorities. There can be no assurance that the
Company will be able to establish sales, marketing and distribution
capabilities or make arrangements with its collaborators, licensees or others
to perform such activities or that such efforts will be successful. Further,
there can be no assurance that any products, if approved, will gain market
acceptance.

PATENTS AND PROPRIETARY TECHNOLOGY

The Company seeks to protect its proprietary technology by means of patents,
trade secrets and unpatented proprietary know-how. The Company has applied for,
and will in the future apply for United States and foreign patents, patents for
certain of its technology and products. Most of the Company's products are
expected to be synthetic chemical compounds, the patentability of which will be
determined under principles and procedures well established by the United
States Patent Office under United States patent law. No assurance can be given
that the Company's patent applications will issue as patents or that any
patents that may be issued will provide Agouron with adequate protection for
the covered products or technology.

Many of the processes and much of the know-how of importance to the Company's
technology are dependent upon the skills, knowledge and experience of its
scientific and technical personnel; such skills, knowledge and experience are
not patentable. To help protect its rights, the Company requires all employees,
significant consultants and advisors, and collaborators to enter into
confidentiality agreements with Agouron. There can be no assurance, however,
that these agreements will provide adequate protection for the Company's trade
secrets, know-how or other proprietary information in the event of any
unauthorized use or disclosure. Further, in the absence of patent protection,
the Company may be exposed to competitors who independently develop
substantially equivalent technology or otherwise gain access to the Company's
trade secrets, know-how or other proprietary information. There can be no
assurance that the Company's activities will not infringe on the patents or
proprietary rights of others. The commercial success of the Company will also
depend in part on not infringing patent or proprietary rights of others and not
breaching any licenses granted to the Company. There can be no assurance that
the Company will be able to obtain a license to any technology that it may
require to conduct its business or that, if obtainable, such technology can be
licensed at a reasonable cost. Failure by the Company to obtain a license to
any technology that it may require to commercialize any of its products may
have a material adverse effect on the Company.

The cost of obtaining and enforcing patent protection and of protecting
proprietary technology may involve a substantial commitment of the Company's
resources. Any such commitment may divert resources from other areas of the
Company.

8
<PAGE>

TECHNOLOGICAL CHANGE AND COMPETITION

The pharmaceutical and biotechnology industries are subject to intense
competition and rapid technological change. The Company believes that industry-
wide interest in the application of protein structure-based drug design and
related technology will continue and may accelerate as the technology becomes
more widely understood. Competitors of the Company in the United States and
abroad are numerous and include, among others, pharmaceutical, biotechnology
and chemical companies, universities and other research organizations. For
example, the Company is aware of several pharmaceutical companies that have HIV
protease inhibitors, some of which are in more advanced stages of clinical
development than VIRACEPT, including those of Abbott Laboratories, Inc., Merck
& Co., Inc. and Roche Holdings, Inc. There can be no assurance that these
competitors will not succeed in developing technologies and products that are
more effective than any which have been or are being developed by the Company
or which would render the Company's technology and products obsolete and
noncompetitive.

Many of the Company's competitors have substantially greater financial and
technical resources and production and marketing capabilities and experience
than the Company. In addition, many of the Company's competitors have
significantly greater experience than the Company in conducting preclinical
testing and human clinical trials of new pharmaceutical products and in
obtaining FDA and other regulatory approvals of products. Accordingly, certain
of the Company's competitors may succeed in obtaining regulatory approval for
products more rapidly or effectively than the Company. If the Company commences
commercial sales of its products, it will also be competing with respect to
manufacturing efficiency and sales and marketing capabilities, areas in which
it currently has no experience.

GOVERNMENT REGULATION

Preclinical studies, clinical trials and the production and marketing of the
Company's products and its ongoing research and development activities are
subject to regulation by numerous governmental authorities in the United States
and other countries. Rigorous preclinical and clinical testing and obtaining
regulatory approvals can take many years and require the expenditure of
substantial resources. Failures or delays by the Company or its collaborators
or licensees in obtaining regulatory approvals would adversely affect the
marketing of products developed by the Company and the Company's ability to
receive product revenues or royalties. Further, there can be no assurance that
the Company or its collaborators or licensees will be able to obtain necessary
regulatory approvals. There can be no assurance that clinical data will be
accepted by regulatory agencies or that any approvals will be granted on a
timely basis, if at all. Any significant delays or requests to provide
additional data in the approval process could have a material adverse effect on
the Company. See "Business--Government Regulation."

If regulatory approval of a drug is obtained, such approval may involve
limitations and restrictions on the drug's use. In addition, any marketed drug
and its manufacturer are subject to continual governmental review and any
subsequent discovery of previously unrecognized problems could result in
restrictions on the product or manufacturer, including, without limitation,
withdrawal of the product from the market. Failure of the Company to comply
with applicable regulatory requirements can, among other things, result in
fines, suspension of regulatory approvals, product recalls, seizure of
products, operating restrictions or criminal prosecution.

Additionally, the Company is or may become subject to various federal, state
and local laws, regulations and recommendations relating to safe working
conditions, laboratory and manufacturing practices, the experimental use of
animals and the use and disposal of hazardous or potentially hazardous
substances, including radioactive compounds and infectious disease agents, used
in connection with Agouron's research and development work. The Company is
unable to predict the extent of restrictions that might arise from any
governmental or administrative action.

9
<PAGE>

UNCERTAINTY OF THIRD-PARTY REIMBURSEMENT AND PRODUCT PRICING

The Company's ability to commercialize products successfully will depend in
part on reimbursement of the costs of such products and related treatments at
acceptable levels from government authorities, private health insurers and
other organizations, such as health maintenance organizations ("HMOs"). There
can be no assurance that reimbursement in the United States or foreign
countries will be available for any products the Company may develop or, if
available, will not be decreased in the future, or that reimbursement amounts
will not reduce the demand for, or the price of, the Company's products,
thereby adversely affecting the Company's business.

Third-party payors are increasingly challenging the prices charged for
medical products and services. Also, the trend toward managed health care in
the United States and the concurrent growth of organizations, such as HMOs,
which can control or significantly influence the purchase of health care
services and products, as well as legislative proposals to reform health care
or reduce government insurance programs, may result in lower prices for
pharmaceutical products. The cost containment measures that health care
providers are instituting and the effect of any health care reform could
materially adversely affect the Company's ability to sell its products if
successfully developed and approved. Moreover, the Company is unable to predict
what additional legislation or regulation, if any, relating to the health care
industry or third-party coverage and reimbursement may be enacted in the future
or what effect such legislation or regulation would have on the Company's
business.

PRODUCT LIABILITY; LIMITED INSURANCE COVERAGE

The testing, marketing and sale of human health care products entail an
inherent risk of allegations of product liability and there can be no assurance
that product liability claims will not be asserted against the Company, its
collaborators or its licensees. The Company currently has only limited amounts
of product liability insurance for clinical trials and there can be no
assurance that the Company will be able to obtain or maintain product liability
insurance on acceptable terms or that such insurance will provide adequate
coverage against any potential claims. Furthermore, there can be no assurance
that any collaborators and licensees of Agouron will agree to indemnify the
Company, be sufficiently insured or have a sufficient net worth to protect the
Company from any product liability claims.

USE OF HAZARDOUS MATERIALS

The Company's research and development activities involve the controlled use
of hazardous materials, chemicals, viruses and various radioactive compounds.
Although the Company believes that its safety procedures for handling and
disposing of such materials comply with the standards prescribed by state and
federal regulations, the risk of accidental contamination or injury from these
materials cannot be completely eliminated. In the event of such an accident,
the Company could be held liable for any damages that result and any liability
could have a material adverse effect on the financial condition of the Company.

ATTRACTION AND RETENTION OF PERSONNEL

The future success of the Company will depend in large part on its ability to
continue to attract and retain highly qualified scientific, technical and
managerial personnel. Competition for such personnel is intense and there can
be no assurance that Agouron will be able to attract and retain the personnel
necessary for the development of its business. In addition, much of the know-
how developed by the Company resides in its scientific and technical personnel
and such know-how is not readily transferable to other scientific and technical
personnel. Further, the Company's anticipated growth and expansion into areas
and activities requiring additional expertise, such as manufacturing and
marketing, will require the addition of new technical and management personnel
and the development of additional expertise by existing personnel. The loss of
or failure to recruit scientific, technical and managerial personnel could have
a material adverse effect on the Company.

10
<PAGE>

DILUTION; ABSENCE OF DIVIDENDS

Purchasers of shares of Common Stock in this offering will experience
immediate and substantial dilution in the net tangible book value of their
shares. Further dilution will occur upon the exercise of outstanding stock
options and warrants, the expiration dates of which do not occur for a number
of years. The Company has never declared or paid dividends on its Common Stock
to date and does not anticipate paying any dividends in the foreseeable future.
See "Dilution."

VOLATILITY OF STOCK PRICE

The market price of the Common Stock has in recent years fluctuated
significantly and it is likely that the price of the Common Stock will
fluctuate in the future. Announcements by the Company or others regarding its
existing and future collaborations, results of clinical trials, scientific
discoveries, technological innovations, commercial products, patents or
proprietary rights or regulatory actions may have a significant adverse effect
on the market price of the Common Stock. Fluctuations in financial performance
from period to period also may have a significant impact on the market price of
the Common Stock.

11
<PAGE>

USE OF PROCEEDS

The net proceeds to be received by Agouron from the sale of Common Stock
offered hereby, after deducting estimated underwriting discounts and
commissions and offering expenses, are estimated to be $78,600,000 ($90,400,000
if the Underwriters' over-allotment option is exercised in full), assuming a
public offering price of $28.00 per share. The Company currently intends to use
the net proceeds in the following approximate amounts: product research,
development and preclinical and clinical testing, $52,000,000; sales, marketing
and manufacturing infrastructure, $15,000,000; capital equipment and
facilities, including scientific equipment and computers, $8,000,000; and the
balance of the net proceeds, if any, will be added to the Company's working
capital and made available for general corporate purposes. The amounts actually
expended for each purpose may vary significantly depending upon a number of
factors, including the status of competitive products, the progress of the
Company's research and development programs, timing of regulatory approvals,
technological advances and determinations as to the commercial potential of the
Company's products. In addition, the Company's research and development
expenditures will vary as projects are added, expanded or terminated as a
result of variations in funding from existing or future collaborative partners.
The Company reserves the right to reallocate the proceeds of this offering in
response to these and related contingencies. To the extent the offering
proceeds are less than estimated herein, the Company would expect to reduce the
proceeds allocated to clinical and preclinical testing. The Company believes
that its current capital resources, existing contractual commitments, a
$24,000,000 milestone payment received from JT on August 24, 1995 and the net
proceeds of this offering will enable it to maintain its current and planned
operations through at least fiscal 1997. Additional funding may be required
before the commercialization of any products. See "Risk Factors--Additional
Financing Requirements and Access to Capital."

Until applied to any of the foregoing uses, the net proceeds of the offering
will be invested by the Company in interest-bearing deposit accounts,
certificates of deposit or similar financial instruments. The Company will
invest its liquid assets in a manner that will not subject it to regulation
under the Investment Company Act of 1940.

CAPITALIZATION

The following table sets forth the capitalization of the Company as of June
30, 1995 and as adjusted to reflect the sale of the shares of Common Stock
offered hereby. See "Use of Proceeds."

<TABLE>
<CAPTION>
JUNE 30, 1995
------------------
AS
ACTUAL ADJUSTED
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Long-term liabilities................................ $ 1,884 $ 1,884
-------- --------
Stockholders' equity:
Common Stock, no par value, 75,000,000 shares autho-
rized, 7,359,282 shares issued and outstanding and
10,359,282 shares outstanding as adjusted(1)....... 76,113 154,713
Accumulated deficit................................. (63,522) (63,522)
-------- --------
Total stockholders' equity.......................... 12,591 91,191
-------- --------
Total capitalization................................ $ 14,475 $ 93,075
======== ========
</TABLE>
--------
(1) Excludes 2,926,364 shares reserved for issuance under the Company's Stock
Option Plans (of which 2,585,692 shares were subject to outstanding
options) and 45,000 shares reserved for issuance under outstanding
warrants.

12
<PAGE>

PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY

The Common Stock trades on The Nasdaq Stock Market under the symbol AGPH. The
following table sets forth the high and low sale prices as reported by Nasdaq
for the fiscal periods indicated.

<TABLE>
<S> <C> <C>
FISCAL 1994
Quarter ended September 30.............................. $10 1/4 $ 7 3/4
Quarter ended December 31............................... 12 1/2 8 3/4
Quarter ended March 31.................................. 16 3/4 9 1/2
Quarter ended June 30................................... 14 1/4 9 3/4
FISCAL 1995
Quarter ended September 30.............................. 13 3/4 9 3/4
Quarter ended December 31............................... 13 1/4 10
Quarter ended March 31.................................. 19 10 7/8
Quarter ended June 30................................... 27 1/4 15
FISCAL 1996
Quarter ending September 30, 1995 (through September 14). 39 1/4 23 1/4
</TABLE>

On September 14, 1995, the last sale price of the Common Stock as reported by
The Nasdaq Stock Market was $28.50 per share. There were approximately 5,000
beneficial owners of the Common Stock as of such date.

The Company has not declared any dividends on the Common Stock and does not
intend to declare any cash dividends on the Common Stock in the foreseeable
future.

DILUTION

As of June 30, 1995, the net tangible book value of the Company was
$12,591,000, or $1.71 per share of Common Stock. Net tangible book value per
share is equal to net tangible assets (tangible assets of the Company less
total liabilities) divided by the 7,359,282 shares of Common Stock outstanding.
After giving effect to the sale of the 3,000,000 shares of Common Stock by the
Company in this offering and the receipt of the estimated net proceeds
therefrom, the pro forma net tangible book value of the Company as of June 30,
1995 would have been $91,191,000, or $8.80 per share of Common Stock. This
represents an immediate increase in net tangible book value of $7.09 per share
to existing shareholders and an immediate dilution of $19.20 per share to new
investors. The following table illustrates the pro forma dilution of a new
investor's equity in a share of Common Stock as of June 30, 1995:

<TABLE>
<S> <C> <C>
Assumed public offering price............................... $28.00
Net tangible book value before offering..................... $1.71
Increase attributable to new investors...................... 7.09
-----
Pro forma net tangible book value after offering............ 8.80
------
Dilution of net tangible book value to new investors........ $19.20
======
</TABLE>

13
<PAGE>

SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

The following data for the years ended June 30, 1991, 1992, 1993, 1994 and
1995 have been derived from financial statements audited by Price Waterhouse
LLP, independent accountants. The information presented below should be read in
conjunction with the Company's Annual Report on Form 10-K for the year ended
June 30, 1995 and Management's Discussion and Analysis of Financial Condition
and Results of Operations and the financial statements and related notes
included elsewhere in this Prospectus. See "Incorporation of Certain
Information by Reference."

<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------------------
1991 1992 1993 1994 1995
------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Contract....................... $ 3,781 $ 5,307 $ 8,266 $16,301 $ 26,722
Interest....................... 1,014 1,540 1,704 1,350 1,239
------- ------- ------- ------- --------
Total revenues............... 4,795 6,847 9,970 17,651 27,961
------- ------- ------- ------- --------
Costs and Expenses:
Research and development....... 9,353 13,142 17,404 23,957 36,317
General and administrative..... 1,880 2,519 2,127 2,961 4,358
Interest....................... 183 318 268 195 225
------- ------- ------- ------- --------
Total expenses............... 11,416 15,979 19,799 27,113 40,900
------- ------- ------- ------- --------
Net loss......................... $(6,621) $(9,132) $(9,829) $(9,462) $(12,939)
======= ======= ======= ======= ========
Net loss per common share........ $(1.42) $(1.47) $(1.40) $(1.31) $(1.77)
======= ======= ======= ======= ========
Shares used in computing per
share amounts................... 4,674 6,199 6,997 7,241 7,296
BALANCE SHEET DATA:
Working capital.................. $ 8,978 $35,115 $29,933 $21,039 $ 8,837
Total assets..................... 15,672 45,625 41,721 37,178 27,097
Long-term liabilities............ 1,179 3,050 2,613 2,285 1,884
Stockholders' equity............. 10,620 37,517 33,757 24,852 12,591
Dividends per common share(1).... -- -- -- -- --
</TABLE>
--------
(1) The Company has never declared or paid dividends on the Common Stock.

14
<PAGE>

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

OVERVIEW

The Company has been primarily engaged in the research and development of
human pharmaceuticals utilizing protein structure-based drug design since its
inception in 1984. Such research and development has been funded from the
Company's equity-derived working capital, through collaborative arrangements
with other companies and through grants from the National Institutes of Health.
The Company's net operating losses incurred since inception are primarily a
result of the Company's independent research and development activities. Net
losses for the fiscal years ended June 30, 1993, 1994 and 1995 were $9,829,000,
$9,462,000 and $12,939,000. As product sales may not begin for several years
and preclinical and clinical development activities and costs are increasing in
certain research and development programs, it is anticipated that net operating
losses will continue and will increase in the next several years.

RESULTS OF OPERATIONS

Collaborative research and development agreements with Japan Tobacco Inc.
("JT"), Syntex (U.S.A.) Inc. (now a subsidiary of Roche Holdings, Inc.)
("Roche"), Schering-Plough Corporation ("Schering") and Eli Lilly and Company
("Lilly") accounted for approximately 94%, 94% and 97% of the Company's total
contract revenue for 1993, 1994 and 1995. Total contract revenue for 1994
increased approximately 97% over 1993 due principally to the effect of a full
year of activities on the collaborative programs covered by the 1992 agreement
with JT ("JT 1992") and the June 1993 collaborative agreement with Roche, and
the initiation of work on additional collaborative programs with JT under an
expanded research agreement established in February 1994 ("JT 1994"). Partially
offsetting these increases was the absence of any funding in 1994 from Lilly
due to the completion of a collaborative research program in April 1993. Total
contract revenues for 1995 increased approximately 64% over 1994 due
principally to an anti-HIV collaboration with JT initiated in December 1994
("JT HIV"), the effect of a full year of program activities associated with JT
1994 and increased activities for research programs with Roche. These increases
were partially offset by the absence of funding in 1995 from Schering due to
the completion of a collaborative research program in April 1994. The Company
anticipates that its contract revenues for 1996 will exceed the level of such
revenues recognized in 1995.

Interest income decreased by approximately 21% from 1993 to 1994 and 8% from
1994 to 1995, primarily due to a generally declining portfolio of cash, cash
equivalents and short-term investments which were utilized to fund operations.
The Company anticipates that interest income will increase in 1996.

Research and development spending increased by approximately 38% from 1993 to
1994 and by approximately 52% from 1994 to 1995, due principally to staff-
related expenses and third-party costs associated with increasing preclinical
and clinical development activities associated with the Company's leading
product candidates: THYMITAQ for the treatment of cancer and VIRACEPT for the
treatment of HIV infections and AIDS. Collaborator-funded program expenditures
representing 55%, 45% and 65% of total research and development costs and
expenses in 1993, 1994 and 1995, generated a significant majority of the
increases in research and development costs and expenses. The Company's self-
funded research and development programs generated approximately 45%, 55% and
35% of total research and development costs and expenses in 1993, 1994 and
1995. Of such self-funded costs during 1993, 1994 and 1995, approximately 60%,
44% and 49% was dedicated to the preclinical and clinical development of anti-
proliferative drugs in the Company's most advanced programs. The Company
anticipates that total research and development costs and expenses will
increase in 1996 in response to expanding drug design efforts on various
projects and increasing preclinical and clinical studies associated with
several of the Company's product development programs.

General and administrative costs and expenses represented approximately 11%
of total costs and expenses in each of 1993, 1994 and 1995. The increase in
absolute dollar spending for such costs from 1993

15
<PAGE>

to 1994 was due mainly to certain administrative costs associated with the JT
collaborations and increased occupancy costs related to additional leased
facilities. The increase from 1994 to 1995 was due to increasing average staff
levels (approximately 36%) and staff-related expenditures and certain
administrative costs associated with the JT collaborations. The Company
anticipates that total general and administrative costs and expenses will
increase in 1996 due to additional staff, costs associated with planned
facility expansion and increasing commercial development and sales and
marketing activities.

Interest expense declined by approximately 27% from 1993 to 1994 and
increased by approximately 15% from 1994 to 1995 due to fluctuations in
interest rates and the level of debt and capital lease obligations from year to
year.

FINANCIAL CONDITION

Liquidity and Capital Resources

Since its inception, the Company's cash expenditures have substantially
exceeded its revenues and the Company has relied primarily on equity, lease and
debt financing and various collaborative arrangements to fund its operations
and capital expenditures. To date, the Company has raised net equity proceeds
of approximately $76,100,000, principally from corporate and venture capital
investors and through its public offerings in calendar 1987, 1989 and 1991. The
Company believes that its current capital resources, existing contractual
commitments, a JT milestone payment of $24,000,000 which was received on August
24, 1995 and the net proceeds of this offering, will be sufficient to meet its
operating needs through fiscal 1997. This belief is based on current research
and clinical development plans, the current regulatory environment, historical
industry experience in the development of therapeutic drugs and general
economic conditions. The Company believes that additional funding may be
required before the commercialization of any products. As a result, the Company
anticipates pursuing various financing alternatives such as collaborative
arrangements and additional public offerings or private placements of Company
common or preferred stock. If such alternatives are not available, the Company
may be required to delay or eliminate expenditures for certain of its potential
products under development or to license third parties to commercialize
products or technologies that the Company would otherwise seek to develop
itself.

CAPITAL EXPENDITURES

During 1995, capital expenditures totaled $2,032,000 compared with $1,829,000
and $3,186,000 during 1994 and 1993, of which $17,000, $58,000 and $85,000 were
financed through capital lease obligations. Of the total capital expenditures
during 1993, 1994 and 1995, approximately $1,202,000, $119,000 and $130,000
represented leasehold improvement costs associated with certain of the
Company's scientific and administrative facilities. With the exception of the
leasehold improvement costs incurred during 1993, 1994 and 1995, virtually all
of the capital expenditures during 1993, 1994 and 1995 represented laboratory
equipment and scientific instrumentation necessary to support an expanding
research and development effort.

Capital expenditures during 1996 are expected to be approximately $2,200,000
to support product manufacturing, development and research activities. The
Company may utilize lease or debt financing for certain expenditures if
available on acceptable terms.

16
<PAGE>

BUSINESS

OVERVIEW

Agouron is a pioneer and leader in technologies for the atom by atom design
of novel synthetic drugs based upon the molecular structures of target proteins
which play key roles in human disease. The Company is conducting phase II
clinical trials of two drugs generated by these design technologies:
VIRACEPT(TM) (formerly AG1343) for treatment of HIV infection, and THYMITAQ(TM)
(formerly AG337) for treatment of malignant solid tumors. In addition, ten
preclinical programs are in progress for discovery and development of other new
drugs in the fields of cancer, viral diseases and immuno-inflammatory disease.

VIRACEPT, an orally administered inhibitor of the enzyme HIV protease, has
been the subject of two four-week pilot phase II studies evaluating the acute
anti-HIV activity and safety of alternative doses of the drug. The first pilot
phase II study evaluated two daily dose levels of VIRACEPT administered in a
capsule formulation to 20 HIV-infected patients in England. The second pilot
phase II study evaluated three daily dose levels (two of which were higher than
those in the English study) of VIRACEPT administered in a tablet formulation to
30 patients at two centers in the United States. In nearly all patients in
these studies, VIRACEPT reduced the amount of HIV and/or increased the number
of CD4+ T cells (primary cells of the immune system) detectable in blood.
Additionally, VIRACEPT has been reported to be safe and well tolerated in the
pilot phase II studies. On the basis of these results and other factors,
Agouron and the pharmaceutical division of JT have recently announced their
decision to proceed collaboratively with large-scale clinical trials of
VIRACEPT. In connection with this decision, JT has made a milestone-related
payment to Agouron of $24,000,000. Agouron intends to initiate large-scale
clinical trials in calendar 1995 which, if successful, could lead to the
submission of a NDA to FDA for VIRACEPT in calendar 1997.

THYMITAQ, an inhibitor of the enzyme thymidylate synthase ("TS"), is being
tested clinically as a chemotherapeutic agent for treatment of malignant solid
tumors associated with cancer of the colon, lung, prostate, pancreas, liver and
head/neck. In a majority of more than 50 evaluable patients treated to date in
six ongoing phase II studies in the United States, an intravenous formulation
of THYMITAQ has stabilized previously progressive malignant disease and, in
some patients, caused significant reductions in the mass of solid tumors. An
oral formulation of THYMITAQ is also being developed. If satisfied with the
results of these phase II studies, Agouron intends to initiate pivotal trials
of THYMITAQ in one or more solid tumors in calendar 1995 which, if successful,
could lead to the submission of a NDA for THYMITAQ in calendar 1997.

Agouron's goal is to become profitable from the sale of differentiated drugs
generated principally from its own drug discovery and development efforts. To
augment its technical capabilities, to enhance the likelihood of successful
commercialization of its products and to offset some of its operating costs,
the Company has entered into certain collaborative research and development
arrangements with other companies. The Company has generally retained
significant commercial rights in drugs developed in its collaborative research
and development programs. The Company anticipates that any successfully
developed products will be commercialized through its own direct sales and
marketing activities in certain markets or, where appropriate, through
manufacturing and marketing relationships with other pharmaceutical companies.

17
<PAGE>

In collaboration with Roche, Agouron is pursuing the design and development
of inhibitors of matrix metalloproteases ("MMPs") intended to intervene in the
degradation of bone and connective tissue in arthritis, and in the invasion,
growth and metastasis of malignant solid tumors. Agouron retains exclusive
commercial rights to products from the collaboration in the field of cancer,
subject to the payment of royalties to Roche.

RESEARCH AND DEVELOPMENT PROGRAMS

Agouron's research and development programs concentrate in three areas of
human disease: cancer, viral diseases and immuno-inflammatory disease. All of
Agouron's drug discovery programs apply the Company's core technologies for the
atom by atom design of small synthetic drug molecules based upon the three
dimensional molecular architecture of proteins that play key roles in human
disease. See "Drug Design Technology."

The following table outlines Agouron's preclinical and clinical research and
development programs. Some of these programs are being pursued by Agouron
independently while others are being undertaken in collaboration with other
companies.

<TABLE>
<CAPTION>
PROGRAM INDICATION PROTEIN TARGET DEVELOPMENT STAGE PARTNER
------- ---------- -------------- ----------------- -------
<S> <C> <C> <C> <C>
Cancer
THYMITAQ (AG337)- i.v. Solid Tumors TS Phase II None
THYMITAQ (AG337)- oral Solid Tumors TS Phase I None
AG331 Solid Tumors TS Phase I None
GART Solid Tumors GART Preclinical None
MMP Metastasis Collagenase Preclinical Roche
AICART Solid Tumors AICART Research None
cdk4 Solid Tumors cdk4 Research None
VEGF Receptor Solid Tumors kdr Research None
Viral Disease
VIRACEPT (AG1343) HIV Infection HIV Protease Phase II JT
Rhinovirus Common Cold RhV 3C Protease Research JT
Cytomegalovirus CMV Infection CMV Protease Research JT
Herpes simplex Herpes Infection HSV-1 Protease Research JT
Hepatitis C Viral Diseases Hepatitis C Protease Research JT
Immuno-Inflammatory Disease
MMP Arthritis Stromelysin Research Roche
AICART Inflammation AICART Research None
Calcineurin Immuno-suppression Calcineurin Research None
</TABLE>

CANCER

Overview

The development of new drugs for treatment of cancer is a primary scientific
and commercial focus of the Company. Cancer is the second leading cause of
death in the United States and most developed nations. While much progress has
been made in the treatment of certain forms of cancer, most existing anti-
cancer drugs display limited efficacy and significant toxicities that restrict
their clinical usefulness. As a result, there remains a critical need for anti-
cancer drugs which are less toxic and more efficacious either as tumoricidal
(tumor-killing) or tumoristatic (tumor-controlling) agents.

Agouron believes that the next generation of agents for treatment of the most
common human cancers should have a target other than DNA, should be more
capable of evading drug resistance and should retain

18
<PAGE>

activity against non-proliferating tumor cells. The Company's anti-cancer drug
discovery and development programs are aimed at meeting these criteria by
focusing on the discovery and development of inhibitors of the following
enzymes: thymidylate synthase (TS); glycinamide ribotide formyltransferase
("GART"); matrix metalloproteases (MMPs); aminoimidazole carboxamide
ribonucleotide formyltransferase (AICART); cyclin dependent kinase 4 ("cdk4");
and a receptor for Vascular Endothelial Growth Factor ("VEGF"). Three of these
enzyme targets (TS, GART and AICART) have a common structural motif that
permits lead inhibitors from one program to be useful in others.

TS Inhibitors: THYMITAQ (formerly AG337) and AG331

The enzyme TS catalyzes a critical step in the synthesis of DNA and is
especially crucial to cancer cells undergoing uncontrolled proliferation.
Independent research has established that the efficacy of the anti-tumor drug
5-fluorouracil derives from its ability to inactivate TS. Inhibition of TS
kills tumor cells by inducing programmed cell death--a form of natural
cellular suicide by which normal cell growth is usually regulated. It has been
Agouron's goal to design highly specific inhibitors of TS that overcome the
several limitations of 5-fluorouracil. In particular, Agouron has focused on
the design of TS inhibitors of novel chemical character that it believes may
be capable of penetrating fatty membranes and tissues, circumventing some of
the more common forms of drug resistance and passing into and out of cells by
passive diffusion, allowing for much greater clinical control of toxicity and
for a broader spectrum of anti-tumor activity. Two compounds to emerge from
Agouron's TS program are currently in clinical development: THYMITAQ is in
phase II clinical testing and AG331 is currently in phase I clinical testing.

Phase I studies of THYMITAQ initially conducted at the medical hospital of
the University of Newcastle upon Tyne in England, under the sponsorship of the
British Cancer Research Campaign, evaluated first an intravenous ("i.v.")
formulation and then an oral formulation of THYMITAQ. In these phase I
studies, which were ultimately extended into the United States and involved a
total of 45 advanced cancer patients, the maximum tolerated 5-day dose of
THYMITAQ was determined through a series of dose escalations. On the basis of
these studies, a dose of 1000mg/m/2//day was determined to be appropriate for
phase II efficacy studies. The phase I studies demonstrated that THYMITAQ i.v.
was well tolerated: at the maximum tolerated dose, the predominant toxicities
were determined to be myelosuppression (suppression of bone marrow activity)
of short duration and mucositis (mouth sores) which could frequently be
mitigated with a simple mouthwash. A subsequent phase I study involving 32
patients in England demonstrated that oral administration of THYMITAQ resulted
in a pharmacokinetic and safety profile similar to that of the i.v.
formulation.

In the fall of 1994, the Company initiated six phase II trials of the i.v.
formulation of THYMITAQ. The six studies, now being carried out at ten
clinical sites in the United States, are evaluating 5-day courses of treatment
with THYMITAQ in patients with malignant solid tumors associated with cancer
of the colon, lung, liver, pancreas, prostate or head/neck. The design of
these phase II trials provides that a study of THYMITAQ against any tumor type
will be expanded to approximately 30 patients if a sustained reduction in
tumor mass of 50% or greater is observed in one or more of the first 14
evaluable patients to be treated.

Certain preliminary results from the phase II studies have become available.
In a majority of more than 50 evaluable patients enrolled in the six studies,
THYMITAQ has stabilized previously progressive malignancy and, in some
patients, caused measurable reductions in tumor mass. In one or more patients
with cancer of the liver or head/neck confirmed reductions in tumor mass of
greater than 50% have been observed, qualifying THYMITAQ for expanded phase II
studies in these diseases in accordance with the study design. Agouron expects
to select one or two of these malignant diseases in which to pursue pivotal
phase III clinical trials aimed at qualifying THYMITAQ for registration. If
successful, such pivotal trials could permit the Company to file a NDA
covering both the oral and i.v. formulations of THYMITAQ in calendar 1997. See
"Risk Factors--Uncertainty Associated with Clinical Trials."

19
<PAGE>

Phase I clinical studies of an i.v. formulation of AG331 are being completed
at the University of Southern California in Los Angeles and at the Fox Chase
Cancer Center in Philadelphia. In these dose escalation studies, AG331 has
been well tolerated until the occurrence of potentially dose limiting liver
toxicity at a dose of 800mg/m/2//day; the pharmacokinetic and safety data from
the studies are presently being evaluated. Because of the encouraging
performance of THYMITAQ in phase I and early phase II testing, AG331 is being
treated by the Company as a "backup" to THYMITAQ.

To date, the Company has self-funded the development of THYMITAQ and AG331
and retains all commercial rights to these compounds.

GART Inhibitors and MMP Inhibitors

Based upon the current status of its preclinical programs, the Company
anticipates selecting its next clinical development compound(s) from the GART
and/or MMP programs.

GART is an enzyme in a biochemical pathway through which tumor cells
synthesize purines, essential components of DNA. With the exception of liver
cells, all normal human tissues obtain purines via an alternative pathway (the
purine salvage pathway). The Company believes that inhibitors of GART will
show a high degree of selectivity for tumor cells and less significant bone
marrow toxicity than other chemotherapeutic agents.

Independent research has shown MMPs to be involved in many disease states.
Within the cancer field, certain MMPs have been associated with tumor growth,
the metastasis of tumor cells to secondary sites within the body and the
growth of new blood vessels (angiogenesis), through which tumor cells obtain
nutrients and growth factors. The Company believes that MMPs thus represent a
new opportunity for the discovery of novel tumoristatic agents. The Company
further believes that orally active inhibitors of certain combinations of
MMPs, but not of all MMPs, are most likely to have the optimal safety and
efficacy profiles of superior tumoristatic agents.

In both the GART and MMP programs, Agouron has generated active and potent
inhibitors of target enzymes which have displayed biological activity in
preclinical test systems in vitro and in vivo. The Company expects to select
one or more development compounds for scale-up and preclinical toxicology
studies from either or both the GART and MMP programs during calendar 1995.
The Company retains all commercial rights in drugs discovered in the GART
program and, subject to payment of royalties to Roche, for MMP inhibitors in
the field of cancer. The Company is pursuing the discovery of MMP inhibitors
in collaboration with Roche. See "Immuno-Inflammatory Disease" and "Research
and Development Agreements--Roche."

AICART Inhibitors

The enzyme AICART catalyzes a rate-determining step in the purine
biosynthetic pathway and represents a second target for anti-cancer drugs
which are active by virtue of their anti-purine effects. Research has shown
that inhibiting the rate-limiting enzyme in such a pathway produces the most
significant effects on the growth of cells dependent on that pathway. The
scientific rationale for GART as a target for new anti-tumor drugs applies
equally to AICART. Agouron scientists believe that two inhibitors of the
purine pathway--an inhibitor of GART and an inhibitor of AICART--may be highly
synergistic in producing anti-tumor activity when administered in combination.

The Company's scientists have solved the three-dimensional molecular
structure of AICART and are engaged in design, synthesis and evaluation of
AICART inhibitors intended to be efficacious in the treatment of cancer. The
Company presently retains all commercial rights to any compounds resulting
from this program.

20
<PAGE>

cdk4

Cyclin dependent kinases are enzymes that play roles in regulating the
transitions between phases in the life cycles of all cells. The member of this
family of enzymes known as cdk4 has been implicated by independent research in
driving cells from a quiescent phase to the highly proliferative phase
characteristic of malignancies--particularly in familial melanomas, esophageal
carcinomas and pancreatic cancers. Agouron has recently initiated a drug
discovery program aimed at the design of selective small molecule drugs with
the potential to inhibit the activity of cdk4 and therefore block the
transition of cancer cells into their proliferative phase.

VEGF Receptor

The process known as angiogenesis, the formation of new blood vessels, is a
key factor in the maintenance and progression of several disease states
including the metastasis of malignant tumors. The ability of cancer cells to
carry out angiogenesis depends in part upon the activity of a protein known as
Vascular Endothelial Growth Factor (VEGF) which by binding to a receptor known
as kdr, triggers the growth of endothelial cells. Agouron has recently
initiated a drug discovery program whose objective is the design of drugs that
block the kdr receptor for VEGF and therefore compromise the ability of tumors
to carry out a key process in angiogenesis.

VIRAL DISEASES

Overview

The development of new drugs for the treatment of certain viral diseases is
another scientific and commercial focus of the Company. The Company is
presently conducting programs aimed at discovery and/or development of four
classes of anti-viral drugs which block viral proteases, enzymes required by
several families of pathogenic viruses to carry out replication and infection.
Agouron's anti-viral drug programs include HIV protease inhibitors (including
VIRACEPT), rhinovirus 3C protease inhibitors, herpes virus protease inhibitors
and hepatitis C protease inhibitors. Agouron is developing its anti-viral drugs
in collaboration with JT. See "Research and Development Agreements--Japan
Tobacco Inc."

HIV Protease Inhibitor: VIRACEPT (formerly AG1343)

Research and development of drugs for treatment of HIV infection and AIDS in
the pharmaceutical industry have thus far produced both successes and
disappointments. Initially, scientists were optimistic that blocking the
essential HIV enzyme reverse transcriptase ("RT") would prove sufficient to
defeat the replication of HIV and curb the progression of HIV infection to
AIDS. As a result of research and development efforts by several pharmaceutical
companies, several RT inhibitors are now approved for use in the United States.
However, the clinical usefulness of this first generation of anti-HIV drugs has
generally been limited by their toxicity and by the ability of HIV to mutate
into forms that are resistant to them. The dependency of all the currently
approved anti-HIV drugs upon the same mechanism of action is one of the reasons
that the success of existing therapies in treating HIV and AIDS has so far been
limited. For this reason, it has been a high priority at Agouron, as well as at
other pharmaceutical companies, to discover and develop new anti-HIV drugs that
work by a mechanism of action other than inhibition of RT.

Inhibitors of the enzyme HIV protease are widely regarded as one of the most
promising new classes of anti-HIV drugs. HIV protease is an enzyme that
performs an essential role in the infectious cycle of HIV. Research shows that
inhibition of the protease enzyme renders HIV unable to form new infectious
virus. Several other companies also are conducting clinical development of
drugs in this class. Agouron believes that the most successful HIV protease
inhibitors will be those with the most favorable combination of potency, safety
and convenience of formulation and schedule of administration. See
"Competition" and "Risk Factors--Technological Change and Competition."

21
<PAGE>

Phase I safety and pharmacokinetic studies have been completed and pilot
phase II efficacy trials are in progress in human subjects for VIRACEPT, an
orally administered inhibitor of HIV protease being developed by Agouron.
Results from a phase Ia study of 12 healthy volunteers in England indicated
that single oral doses of VIRACEPT of up to 800mg were well tolerated and
produced plasma concentrations of up to 4000ng/ml. In a phase Ib study of 14
healthy volunteers, multiple oral doses (400mg two times per day or 300mg three
times per day) over a seven day period were also well tolerated and resulted in
average minimum plasma concentrations in excess of levels required to inhibit
95% of HIV replication in vitro. In both studies, VIRACEPT was reported to be
safe and well tolerated.

Two four-week pilot phase II clinical studies have evaluated the safety and
acute anti-HIV efficacy of several daily doses of VIRACEPT administered orally
to HIV-infected subjects. The first four-week study evaluated two dose levels
of VIRACEPT in 20 patients in England. In 10 patients who received doses of
257 mg of active drug three times daily, VIRACEPT produced reductions of HIV in
patients' blood from pre-treatment levels of up to 99% and an average maximum
of 80%. In 10 other patients who have received doses of 515 mg of active drug
twice daily, VIRACEPT produced reductions in HIV from pre-treatment levels of
up to 99% and average maximum reductions of 91%. In both dosing groups, the
average amount of HIV in the blood of patients was substantially below pre-
treatment levels at the end of four weeks of treatment. CD4+ T cells in the
patients enrolled in the first two dosing groups increased by up to 491 cells
per cubic millimeter of blood and by more than 140 cells on average.

The second four-week phase II study involving 30 patients treated twice daily
with total doses of 1000mg, 1200mg or 1500mg of VIRACEPT in a tablet
formulation has been completed at two centers in the United States. Results
from the U.S. study include evidence that the two higher doses of VIRACEPT
produced reductions in HIV from pre-treatment levels of up to 99% and average
maximum reductions greater than those seen in the English study. Additionally,
results from the U.S. study include evidence that most patients with certain
HIV-related clinical conditions such as lymphadenopathy (disease of the lymph
nodes) or oral candidiasis (fungal infection) experienced improvement in or
resolution of such conditions. To date, the drug has been reported to be safe
and well tolerated in the pilot phase II studies.

The Company and JT have reviewed currently available results from both the
English and U.S. pilot phase II studies and, at the time of JT's election to
make a $24,000,000 milestone-related payment to Agouron, announced their
decision to proceed with clinical development of VIRACEPT. Accordingly, during
calendar 1995 the Company intends to initiate a program of phase II/III
clinical studies to further evaluate the safety and efficacy of VIRACEPT used
alone and used in combination with other agents. The Company's current
development plans are aimed at permitting Agouron to file a NDA for VIRACEPT in
calendar 1997 if clinical trials are successful. However, there can be no
assurance that subsequent clinical studies will duplicate results of the pilot
phase II studies of VIRACEPT that have been undertaken to date or will result
in the submission or approval of a NDA for VIRACEPT. See "Risk Factors--
Uncertainty Associated with Preclinical and Clinical Testing."

Rhinovirus 3C Protease Inhibitors

Rhinoviruses are believed to be the single most frequent cause of the common
cold. While rhinovirus infections are a periodic annoyance to most normal
individuals, they produce more severe and prolonged symptoms in people with
asthma, emphysema and chronic obstructive pulmonary disease. The family of
rhinoviruses has eluded attempts to develop a useful vaccine because it
contains more than 100 serotypes. However, all known strains of rhinoviruses
depend on a critical enzyme, the 3C protease, at several stages of their life-
cycle for production of new infectious viruses. It has been shown both by
independent research and by Agouron scientists that inactivating this enzyme
halts rhinovirus production in vitro. Because there is no known natural
counterpart for the 3C protease enzyme in humans, Agouron scientists believe
that the potential for toxicity from a selective inhibitor of the rhinovirus 3C
protease is low.

22
<PAGE>

Agouron's rhinovirus protease research has resulted in the design of potent,
selective rhinovirus 3C protease inhibitors currently being evaluated in
preclinical pharmacological studies of anti-viral activity, cellular toxicity
and oral bioavailability. It is the Company's goal to select one such inhibitor
for development in calendar 1996.

CMV and HSV-1 Protease Inhibitors

Among the most clinically significant members of the family of herpes viruses
are herpes simplex virus-1 (HSV-1) and cytomegalovirus (CMV). Like HIV and
rhinoviruses, HSV-1 and CMV each contain a protease enzyme essential for virus
maturation and infection. Agouron believes that these protease enzymes
represent targets for a new class of anti-viral drugs with the potential for
low toxicity. Agouron scientists are currently seeking to solve the three-
dimensional structures of the targeted protease enzymes from both HSV-1 and CMV
in preparation for application of its drug design technologies. No inhibitor of
HSV-1 or CMV has yet been selected by Agouron for development.

Hepatitis C Protease Inhibitors

The ability to treat infection by hepatitis C virus represents a significant
unmet clinical need, particularly in Asian countries. Hepatitis C virus depends
upon a key protease enzyme for the production of new infectious viruses. As no
human counterpart of the hepatitis C protease enzyme is known, Agouron
scientists believe that the potential for toxicity of selective hepatitis C
protease inhibitors is low. Agouron's anti-hepatitis C project is an early
stage research program in which no inhibitor has been selected for development.

IMMUNO-INFLAMMATORY DISEASE

Overview

Another scientific and commercial focus of the Company is the development of
drugs for treatment of immuno-inflammatory disease. These include MMP
inhibitors for use against degenerative diseases such as rheumatoid arthritis
and osteoarthritis, AICART inhibitors for use as anti-inflammatory agents and
immuno-suppressive agents for treatment of various neuro-degenerative
disorders.

MMP Inhibitors

In addition to their role in the growth and metastasis of solid tumors, MMPs
display high levels of enzymatic activity in such degenerative diseases as
rheumatoid arthritis and osteoarthritis. Certain members of the MMP family are
associated most closely with these disease states and, Agouron believes, offer
targets for orally active drugs with potential for minimal toxicity. If
successfully developed, the Company believes such selective inhibitors of
certain MMPs have the potential to interrupt the progression of arthritic
disease itself rather than just to treat the symptoms. The Company has retained
a royalty position in any products resulting from the collaborative program
with Roche used to treat arthritis and other degenerative bone diseases. See
"Research and Development Agreements--Roche."

AICART Inhibitors

AICART is being pursued by Agouron scientists as a target for the development
of novel anti-inflammatory drugs. It is widely believed that the anti-
inflammatory effects observed following administration of low doses of the
anti-cancer drug methotrexate result from the drug's indirect inhibition of
AICART. Used for chronic therapy, methotrexate accumulates in the liver and
other tissues and frequently results in serious toxicity. Agouron scientists
believe that inhibitors of AICART designed to avoid accumulation in tissues may
be superior anti-inflammatory drugs for conditions such as arthritis. The
Company's initial lead compounds in this program are being used to validate
this assertion. Having solved the three-dimensional molecular structure of the
AICART enzyme, Agouron scientists believe they are uniquely positioned to
initiate protein structure-based drug design of novel inhibitors of the AICART
enzyme intended to be efficacious in the treatment of inflammatory disease. No
candidate for development has yet been identified in this program. The Company
presently retains all commercial rights to any compounds resulting from this
program.

23
<PAGE>

Calcineurin Inhibitors

Company scientists have solved the three-dimensional molecular structure of a
key enzyme involved in the activation of cells involved in the immune response.
This enzyme, calcineurin, is the indirect site of action of the two most
commonly used drugs for post-organ transplant immuno-suppressive therapy--
cyclosporin and FK506. Agouron scientists believe that intervention in this
pathway by direct, rather than indirect, inhibition of calcineurin may provide
a superior class of immuno-suppressive drugs with the potential for reduced
toxicity. The Company also intends to explore the clinical potential of
calcineurin inhibitors in various neuro-degenerative disorders. No candidate
for development has yet been identified in this program. The Company presently
retains all commercial rights to any compounds resulting from this program.

DRUG DESIGN TECHNOLOGY

Common to all of Agouron's drug discovery programs is the design of novel
drugs based upon the structure of proteins which play key roles in human
disease. It is the centrality of this protein structure-based approach to
rational drug design which distinguishes the Company from most other
pharmaceutical and biotechnology companies.

Background: Conventional Drug Discovery

Historically, the pharmaceutical industry has relied upon drug discovery by
screening--sifting through vast inventories of naturally-occurring and man-made
chemicals in search of previously undiscovered substances with therapeutic
uses. While screening has been the basis for the discovery of virtually all
drugs currently in use, the Company believes it has become an increasingly
unsatisfactory approach as it is both costly and inefficient and the rate of
discovery of new therapeutic compounds has declined over the last decade. Most
importantly, there remain many important therapeutic needs for which screening-
based research has failed to yield acceptably safe and effective drugs.

The Idea of Designing Drugs

With the ability to synthesize chemical compounds of predetermined
composition, came the desire to overcome the limitations and unpredictability
of screening by building molecules specifically designed to perform therapeutic
tasks. This vision of "rational drug design" was made more plausible by the
discovery that, despite many differences between them, drugs work according to
the same general scheme.

Nearly every drug molecule works through a structural interaction with a
"target" or "receptor" molecule or protein which play key roles in all
biological processes. In the most common model for this interaction, the drug
molecule inserts itself into a functionally important crevice of its target
protein like a key in a lock, binds there and either induces or, more commonly,
inhibits the protein's normal function. This universal drug-target scheme
suggested a powerful alternative approach to drug discovery: if it were
possible to identify in advance the appropriate protein target for a given
therapeutic need and if enough were known about the distinguishing structure of
that target protein, it ought to be feasible to design the structure of an
ideal drug to interact with it.

Protein Structure-Based Drug Design

Agouron's scientists have developed an approach for drug discovery which
exploits the three-dimensional structures of molecular targets. At the heart of
the Company's strategy is the analytical technique of protein x-ray
crystallography, which enables Agouron scientists to determine the three-
dimensional atomic structures of target proteins and the drugs which bind to
them. The Company's approach to drug design integrates genetic engineering
techniques, which allow the identification, purification and modification of
appropriate target proteins, with innovations in protein x-ray crystallography
and the use of increasingly sophisticated programs run on high speed computers
which permit chemists to predict and simulate molecular structure, dynamics and
energetics.

24
<PAGE>

Genetic Engineering

In contrast to the biotechnology industry, Agouron employs genetic
engineering techniques to produce proteins not as products, but as drug
targets. Genetic engineering techniques can assist scientists in identifying
appropriate molecular targets for particular therapeutic objectives, produce
target proteins in sufficient amounts to permit structural studies and modify
proteins to probe the connections between a target protein's structure and
function.

Protein X-ray Crystallography

The only method which has been successful in determining the precise three-
dimensional atomic structure of large proteins is an analytic technique known
as protein x-ray crystallography. Agouron believes it has assembled the largest
and most experienced group of protein crystallographers in the pharmaceutical
industry.

X-ray crystallographic studies require that a target protein be in
crystalline form. Once such crystals are obtained, a single crystal is
bombarded with a powerful x-ray beam. The protein crystal diffracts the x-ray
beam and generates a definitive diffraction pattern. A complex analytical
process involving extensive mathematical computations is then performed on the
x-ray diffraction data. From the results of these calculations, it is possible
to determine the exact three-dimensional structure of the target protein. It is
this elusive information which provides the critical starting point for three-
dimensional drug design.

Drug Design

Having determined the architecture of the target protein in three-dimensional
atomic detail and having identified its functionally critical regions, Agouron
chemists, crystallographers and molecular biologists are positioned to begin
the process of drug design. The structure of the target protein along with
representations of its chemical and electronic properties (most of which can be
computed accurately if the protein structure is known) are displayed on an
interactive computer graphics system. Ideas for the structure of a drug
molecule which complements the unique structure and electronic environment of
the target protein are developed by members of the design team and are then
simulated and evaluated on the computer with the aid of more than 100
specialized analytical software programs.

The most promising computer designs of drug candidates are chemically
synthesized by the Company's medicinal chemists. As in conventional drug
development strategies, experimental measurements are taken of the ability of
such a newly synthesized drug candidate to produce the intended effect upon the
target protein. Company crystallographers then re-determine the structure of
the protein target, now in combination with the candidate drug molecule, and
are able to see in detail the structural interactions actually achieved by the
candidate drug with its target. Agouron scientists are positioned to relate the
performance of such a compound measured by familiar biochemical techniques to
its structural interactions with the target as revealed crystallographically.
The design team can then incorporate the results of this specialized analysis
into the next generation of its compounds.

In summary, Agouron's drug design methodology consists of iterative cycles of
design, simulation, synthesis, structural assessment and redesign. Its power
lies in the ability of Agouron's drug design team to see the primary event in
drug action--the interaction of the drug with its target--as it actually occurs
and to be guided in the design and optimization of drugs by the details of this
interaction. This "look" at the heart of drug and target interaction is
provided by Agouron's protein x-ray crystallography research group, which the
Company believes to be unique in the pharmaceutical industry by virtue of its
configuration and experience.

RESEARCH AND DEVELOPMENT AGREEMENTS

The Company has funded its research and development primarily from working
capital generated from both private and public sales of Agouron equity,
corporate collaborative arrangements and federal grants.

25
<PAGE>

The Company has an ongoing program of business development which may, from
time-to-time, lead to the establishment of corporate collaborations in addition
to those noted below.

Japan Tobacco Inc.

In December 1992, the Company entered into an agreement with JT to
collaborate on the discovery, development and commercialization of novel
therapeutic drugs which act on key proteins related to the human immune system
(JT 1992). In February 1994, the Company expanded its strategic alliance with
JT into the field of anti-viral drugs for the treatment of infections caused by
hepatitis C, the herpes family of viruses and rhinoviruses (JT 1994). In
December 1994, the Company added its anti-HIV drug, VIRACEPT, to the JT
collaboration with the execution of a worldwide development and licensing
agreement (JT HIV). In January 1995, JT 1992 was canceled by mutual agreement
and JT 1992 resources were reallocated to JT 1994 programs.

Under the provisions of JT 1994, JT has agreed to make certain research
payments of not less than $8,000,000 to the Company over a two-year period
ending December 1996. Such payments could approximate more than $21,000,000
over a four-year period if certain technical milestones are achieved. In
addition, JT made an up-front payment of $7,778,000, which is being amortized
to revenue over a twenty-four month period. Under the provisions of JT HIV, JT
has made payments of $30,000,000 to Agouron representing an initial payment of
$2,500,000, a milestone payment of $3,500,000 in recognition of the
satisfactory completion of a phase I clinical study and a second milestone
payment of $24,000,000 in connection with JT's decision to commit to the
further clinical development of VIRACEPT. Agouron and JT will ultimately share
equally the costs of further development of VIRACEPT.

Under the provisions of JT 1994, the Company will have exclusive rights to
develop, manufacture and market anti-hepatitis C and anti-herpes drugs in the
United States, Canada and Mexico. JT will have exclusive rights to develop,
manufacture and market these drugs in Japan, Taiwan and South Korea. Outside
the countries in which they respectively have exclusive rights, Agouron and JT
will have co-exclusive rights to manufacture and market jointly developed anti-
hepatitis C and anti-herpes drugs. Each company will pay royalties to the other
based upon their respective sales of anti-hepatitis C and anti-herpes drugs.
The Company will have exclusive, world-wide, royalty-free rights to develop,
manufacture and market drugs for the treatment or prevention of infections by
pathogenic rhinoviruses. JT will have the first right to negotiate for a
license to develop, manufacture and market such anti-rhinovirus drugs in Japan
and certain other countries in Asia. Under the provisions of JT HIV, Agouron
has exclusive commercial rights to VIRACEPT (with the right to sublicense,
subject to JT's right of first refusal) in the United States, Canada and
Mexico. JT has exclusive commercial rights to VIRACEPT (with the right to
sublicense, subject to the Company's right of first refusal) in Japan and
certain other countries of Asia. Exclusive commercial rights (with the right to
sublicense) in Europe and all remaining countries of the world will be held by
a joint venture owned equally by Agouron and JT. The two companies will share
profits equally from the worldwide commercialization of VIRACEPT.

Under a separate agreement dated December 1992, JT purchased 155,844 shares
of newly issued Common Stock for an aggregate purchase price of $3,000,000.
Such purchase represented approximately 2% of the total outstanding Common
Stock.

Roche

In June 1993, the Company entered into an agreement with Syntex (U.S.A.) Inc.
(now a subsidiary of Roche Holdings, Inc.) (Roche) to collaborate on the
discovery of novel matrix metalloprotease inhibitor drugs. Matrix
metalloprotease inhibitor drugs are being developed for use against cancer and
degenerative diseases such as rheumatoid arthritis and osteoarthritis. Under
the provisions of the agreement, Roche has agreed to make certain research
payments of approximately $8,500,000 to the Company over a three-year period
ending June 1996. The Company is funding a portion of the activities associated
with this collaboration

26
<PAGE>

on its own account. The Company has retained a royalty position in any MMP
inhibitors used to treat arthritis and other degenerative bone diseases.
Subject to the payment of royalties to Roche, the Company retains all
commercial rights to MMP inhibitors in the field of cancer. Under the terms of
the agreement, the Company will have a royalty position in certain other
agreement products, if any, and other development and commercial rights in
other agreement products, if any.

Under a separate agreement dated June 1993, Syntex Corporation (Roche)
purchased 155,844 shares of newly issued Common Stock for an aggregate purchase
price of $3,000,000. Such purchase represented approximately 2% of the total
outstanding Common Stock.

Schering-Plough Corporation

In April 1994, the Company and Schering completed a three year collaborative
research agreement providing for the discovery and development of anti-cancer
drugs which target oncogenic ras proteins. Each company may pursue further
discovery or development efforts in this program area at its sole discretion
and expense with no subsequent obligations to the other company.

Eli Lilly and Company

In April 1993, the Company and Lilly completed a five year collaborative
research program in several therapeutic categories. Further development of any
discoveries made in the program will be undertaken at each company's sole
discretion and expense. Agouron has continuing commercial rights and/or
financial interests in certain of these discoveries.

National Institutes of Health

The Company is the grantee organization for two grants from the NIH to
conduct research related to HIV.

COMPETITION

The pharmaceutical and biotechnology industries are subject to intense
competition and rapid and significant technological change. Many companies and
organizations, including major pharmaceutical, biotechnology and chemical
companies, universities and other research organizations, are engaged in
discovery and development of drugs for diseases targeted by the Company. For
example, the Company is aware of several pharmaceutical companies that have HIV
protease inhibitors, some of which are in more advanced stages of clinical
development than VIRACEPT, including those of Abbott Laboratories, Inc., Merck
& Co., Inc. and Roche Holdings, Inc. Certain companies and organizations have
substantially greater financial and other resources, larger research and
development staffs and more extensive production and marketing organizations,
experience and capabilities than the Company. In addition, many companies have
significantly greater experience than the Company in preclinical testing and in
conducting human clinical trials of potential pharmaceutical products and in
obtaining FDA and other regulatory approvals. All of these companies and other
research organizations compete with the Company in recruiting and retaining
highly qualified scientific and management personnel.

Agouron was the first company to devote itself to the development and
application of protein structure-based drug design. As such, the Company
believes that it has achieved certain competitive advantages including
developmental lead time, level of commitment to the technology and the
development of certain practical or technical capabilities. However, in recent
years several pharmaceutical companies have undertaken to establish
capabilities in protein x-ray crystallography, either internally or through
academic collaborations, and can be presumed to be engaged in the use of such
technology for the same purposes as is the Company. Certain biotechnology
companies and other companies have also entered into the field of protein
structure-based drug design. For example, Abbott, Ciba-Geigy Limited, Glaxo
Wellcome plc, Merck

27
<PAGE>

and Roche have developed programs focused on structure-based drug design. The
Company expects that the technology for protein structure-based drug design
will become more widely implemented over time and will ultimately become more
common in the pharmaceutical industry.

The Company believes that its ability to compete successfully will be based
on its ability to create and maintain scientifically advanced technology,
attract and retain scientific personnel with a broad range of expertise, obtain
patent protection or otherwise develop proprietary products or processes,
conduct clinical trials and obtain required government approvals on a timely
basis, select and pursue drug design projects in areas in which significant
market opportunities exist or are likely to develop, manufacture its products
on a cost-effective basis and successfully market its products either alone or
in conjunction with others. Many of the Company's competitors have
substantially greater financial resources, clinical and regulatory experience,
manufacturing capabilities and sales and marketing organizations than Agouron.
See "Risk Factors--Technological Change and Competition" and "Risk Factors--
Attraction and Retention of Personnel."

PATENTS AND TRADE SECRETS

The Company seeks patent protection for its proprietary technology and
potential products in the United States and in foreign countries. Most of the
Company's products are expected to be synthetic chemical compounds which may be
afforded patent protection under principles and procedures well established by
the United States Patent and Trademark Office under United States patent law.

The Company's strategy is to pursue a strong patent portfolio. The Company is
currently prosecuting a number of patent applications in the United States and
in various other countries seeking protection for certain series of compounds,
including AG331, THYMITAQ and VIRACEPT and certain proprietary technology. The
Company will continue to file patent applications on its evolving technology,
processes and products. The Company has recently received one United States
patent covering processes of making THYMITAQ and related compounds and
intermediates thereof and one foreign patent covering AG331 and related
compounds and intermediates thereof, as well as certain processes for making
such compounds and intermediates. The Company's failure to obtain patent
protection for its products could have an adverse impact on the Company.

GOVERNMENT REGULATION

The production and marketing of the Company's products and its ongoing
research and development activities are subject to regulation for safety,
efficacy and quality by numerous governmental authorities in the United States
and other countries. Pharmaceutical products intended for therapeutic use in
humans are principally governed by FDA regulations in the United States and by
comparable government regulations in foreign countries. Various federal, state
and local statutes and regulations also govern or influence the research and
development, manufacturing, safety, labeling, storage, recordkeeping,
distribution and marketing of such products. The process of completing
preclinical and clinical testing and obtaining the approval of FDA and similar
health authorities in foreign countries to market a new drug product requires a
significant number of years and the expenditure of substantial resources.
Failures or delays by the Company

28
<PAGE>

or its collaborators or licensees in obtaining regulatory approvals would
adversely affect the marketing of products being developed by the Company and
the Company's ability to receive product revenues or royalties.

The steps required by FDA before a new human pharmaceutical product may be
marketed in the United States include: (a) preclinical laboratory tests, in
vivo preclinical studies and formulation studies; (b) the submission to FDA of
a request for authorization to conduct clinical trials on an Investigational
New Drug Application ("IND"), which must become effective before human clinical
trials may commence; (c) adequate and well-controlled human clinical trials to
establish the safety and efficacy of the drug for its intended use; (d)
submission to FDA of a NDA; and (e) review and approval of the NDA by FDA
before the drug product may be shipped or sold commercially. Prior to obtaining
FDA approval for each product, each manufacturing establishment for new drugs
must be registered with and receive appropriate approval by FDA.

Preclinical tests include laboratory evaluation of product chemistry and
formulation, as well as animal studies to assess the safety and efficacy of the
product. Preclinical test results are submitted to FDA as a part of the IND.
Clinical trials are typically conducted in three sequential phases, although
the phases may overlap. Phase I represents the initial administration of the
drug to a small group of humans, either healthy volunteers or patients, to test
for safety, dosage tolerance, absorption, distribution, metabolism, excretion
and clinical pharmacology and, if possible, early indications of effectiveness.
Phase II involves studies in a small sample of the actual intended patient
population to assess the efficacy of the investigational drug for a specific
clinical indication, to ascertain dose tolerance and the optimal dose range and
to collect additional clinical information relating to safety and potential
adverse effects. Once an investigational drug is found to have some efficacy
and an acceptable clinical safety profile in the targeted patient population,
phase III studies are often initiated to further establish safety and efficacy
of the investigational drug in a broader sample of the target patient
population. The results of the clinical trials together with the results of the
preclinical tests and complete manufacturing information are submitted in a NDA
to FDA for approval. See "Risk Factors--Uncertainty Associated with Clinical
Trials."

If a NDA is submitted to FDA, there can be no assurance that such application
will be reviewed and approved by FDA in a timely manner, if at all. Even after
initial FDA approval has been obtained, further studies, including post-market
studies, may be required to provide additional information. Results of such
post-market programs may limit or expand the further marketing of the product.

The Company is also subject to foreign regulatory requirements governing
development, manufacturing and sales of pharmaceutical products that vary
widely from country to country. Approval of a drug by applicable regulatory
agencies of foreign countries must be secured prior to the marketing of such
drug in those countries. The regulatory approval process may be more or less
rigorous from country to country and the time required for approval may be
longer or shorter than that required in the United States.

In addition to the regulatory framework for pharmaceutical product approvals,
the Company is and may become subject to various federal, state, local and
foreign laws, regulations and recommendations relating to safe working
conditions, laboratory and manufacturing practices, the experimental use of
animals and the use and disposal of hazardous or potentially hazardous
substances, including radioactive compounds and infectious disease agents, used
in connection with Agouron's research and development work. The Company is
unable to predict the extent of restrictions that might arise from any
governmental or administrative action. See "Risk Factors--Government
Regulation."

MANUFACTURING

The Company currently has no manufacturing facilities for production of
commercial quantities of any compounds under development as pharmaceutical
products. The Company's facilities include scale-up laboratories in which the
Company intends to produce, under GMP, amounts of its drug product candidates
sufficient for use in certain early clinical trials. The Company is relying
upon third parties to manufacture its

29
<PAGE>

products in quantities sufficient to meet both clinical and initial commercial
needs. The Company will be dependent upon these manufacturers to comply with
GMP and to meet its production requirements. There can be no assurance that
these manufacturers will timely deliver the Company's products or that the
Company would be able to find substitute manufacturers, if necessary. See "Risk
Factors--Manufacturing and Marketing."

HUMAN RESOURCES

As of June 30, 1995, the Company had 258 employees, 72 of whom hold Ph.D. or
M.D. degrees. Two hundred nineteen employees are engaged in, or directly
support, research and product development. The Company's employees are not
covered by a collective bargaining agreement and the Company considers its
relations with its employees to be excellent. The Company has entered into
confidentiality agreements with all of its employees.

FACILITIES

The Company leases space in three facilities which provide a total of
approximately 93,000 square feet of office and laboratory space. The Company's
corporate headquarters are located at 10350 North Torrey Pines Road, Suite 100,
La Jolla, California 92037, where the Company occupies approximately 25,000
square feet under two leases which expire in April 1997. Research and
development activities are conducted at 3565 General Atomics Court, San Diego,
California 92121 (where the Company is the sole tenant and occupies
approximately 43,500 square feet under a lease which expires September 2001)
and at 11099 North Torrey Pines Road, La Jolla, California 92037 (where the
Company occupies approximately 24,500 square feet under two leases which expire
in September 2000). These two research and development buildings provide state-
of-the-art facilities designed specifically to implement and support the
Company's innovative approach to drug design. Included in the facilities are
approved scale-up laboratories in which kilogram quantities of Company-designed
drug compounds are manufactured under current GMP for use in clinical trials.
The Company believes that its facilities are adequate for its current
operations, except that additional facilities will be necessary if the Company
undertakes commercial manufacturing.

LEGAL PROCEEDINGS

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

30
<PAGE>

MANAGEMENT

OFFICERS AND DIRECTORS

The executive officers and directors of the Company are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Peter Johnson(2)(4)................... 50 President, Chief Executive
Officer and Director
Neil J. Clendeninn, M.D., Ph.D........ 46 Vice President, Clinical
Affairs
Steven S. Cowell(2)................... 46 Vice President, Finance and
Chief Financial Officer
Gary E. Friedman(2)................... 48 Vice President, General
Counsel, Secretary and Director
Robert C. Jackson, Ph.D............... 52 Vice President, Research and
Development
Barry D. Quart, Pharm.D............... 38 Vice President, Regulatory
Affairs
R. Kent Snyder........................ 41 Vice President, Commercial
Affairs
Glenn R. Zinser....................... 52 Vice President, Operations
John N. Abelson, Ph.D.(1)............. 56 Director
Patricia M. Cloherty(3)(4)............ 53 Director
A.E. Cohen(1)(4)...................... 59 Director
Michael E. Herman(1)(4)............... 54 Director
Irving S. Johnson, Ph.D.(4)........... 70 Director
Antonie T. Knoppers, M.D., Ph.D.(3)... 80 Director
Melvin I. Simon, Ph.D.(3)............. 58 Director
</TABLE>
--------
(1)Member of Directors Compensation Committee
(2)Member of Management Compensation Committee
(3)Member of Audit Committee
(4)Member of Executive Committee

Peter Johnson, a founder of the Company, has served as a director and as
president and chief executive officer of the Company since its inception in
1984. Through 1989, Mr. Johnson held various positions with The Agouron
Institute, including executive director. Mr. Johnson received a M.A. from the
University of California, San Diego.

Neil J. Clendeninn joined the Company in February 1993 as vice president,
clinical affairs. From 1985 until joining the Company, Dr. Clendeninn held
various positions with Burroughs Wellcome Co., including head of the
chemotherapy section from 1988. From 1981 through 1985, Dr. Clendeninn worked
with the clinical oncology and clinical pharmacology groups at the National
Institutes of Health. Dr. Clendeninn received a M.D. and a Ph.D. in
pharmacology from New York University.

Steven S. Cowell joined the Company in August 1991 as vice president, finance
and chief financial officer. From 1982 until joining the Company, Mr. Cowell
held various positions, the most recent of which was vice president and
controller at Cetus Corporation, a public biotechnology company primarily
engaged in the development, manufacture and marketing of pharmaceutical
products. Mr. Cowell is a Certified Public Accountant in California and
received a B.S. in business administration from the University of California,
Berkeley.

31
<PAGE>

Gary E. Friedman, a founder of the Company, has served as a director since
its inception, as the secretary of the Company since May 1986 and as vice
president and general counsel since December 1991. Previously, from 1982 until
December 1991, Mr. Friedman was a principal of the law firm of Friedman, Jay &
Cramer, a Professional Corporation. Mr. Friedman is a California Certified
Specialist in Taxation. Mr. Friedman received a J.D. and a M.B.A. from the
University of California, Berkeley, and a L.L.M. in taxation from the
University of San Diego.

Robert C. Jackson joined the Company in March 1991 as vice president,
research and development. From June 1990 to February 1991, Dr. Jackson was
group director of the anti-cancer drug discovery program at The DuPont Merck
Pharmaceutical Company and, from 1982 to June 1990, held various positions with
the Parke-Davis Pharmaceutical Research Division of the Warner-Lambert Company,
including director of tumor biology and director of the chemotherapy
department. Dr. Jackson received a Ph.D. in biochemistry from the University of
London.

Barry D. Quart joined the Company in June 1993 as vice president, regulatory
affairs. From 1983 until joining the Company, Dr. Quart held various management
positions with the Bristol-Myers Squibb Company, including executive director
of international regulatory affairs from 1992. Dr. Quart received a Pharm.D. in
clinical pharmacy from the University of California, San Francisco.

R. Kent Snyder joined the Company in July 1991 as vice president, business
development. In June 1995, Mr. Snyder's title was changed to vice president,
commercial affairs. From 1982 until joining the Company, Mr. Snyder held
various positions with Marion Laboratories, Inc. and its successor
organization, Marion Merrell Dow Inc. (now Hoechst Marion Roussel), including
director of U.S./European licensing. Prior to his employment at Marion, from
1978 to 1982, he held various sales and marketing positions with Roche
Biomedical Laboratories, Inc. Mr. Snyder received a M.B.A. from Rockhurst
College.

Glenn R. Zinser joined the Company in 1987 and, since July 1995, has served
as vice president, operations. Previously, from 1987 through June 1995, Mr.
Zinser held various management positions with the Company, including senior
director, operations from July 1993 through June 1995. Mr. Zinser received a
M.B.A. from the University of California, Los Angeles.

John N. Abelson, a founder of the Company, has served as a director since its
inception. Dr. Abelson, a molecular biologist, is a member of the National
Academy of Sciences. Since 1982, Dr. Abelson has been a member of the faculty
of the Division of Biology at the California Institute of Technology where,
from October 1989 until June 1995, he served as chairman. Previously, Dr.
Abelson was a member of the faculty in the Department of Chemistry at the
University of California, San Diego. Dr. Abelson received a Ph.D. in biophysics
from The Johns Hopkins University and was a postdoctoral fellow at the
Laboratory of Molecular Biology in Cambridge, England. Dr. Abelson also serves
as a director of The Agouron Institute.

Patricia M. Cloherty joined the Board in December 1988. Since 1970, Ms.
Cloherty has been associated with Patricof & Co. Ventures, Inc. (formerly Alan
Patricof Associates, Inc.), a New York venture capital firm ("Patricof"), and
has been a general partner of its funds since 1973. In 1993, she was elected
president of Patricof. Ms. Cloherty also served as deputy administrator for the
U.S. Small Business Administration in 1977 and 1978. Ms. Cloherty also serves
on the board of directors of several private companies and is the chairman of
the National Venture Capital Association.

A.E. Cohen joined the Board in March 1992. Mr. Cohen is an independent
management consultant. From 1957 until his retirement in January 1992, Mr.
Cohen held various positions at Merck & Co., Inc., including senior vice
president and president of the Merck Sharp & Dohme International Division.
Currently, Mr. Cohen is the chairman of the board of Neurobiological
Technologies, Inc. and is a member of the board of directors of Akzo N.V.,
Immunomedics, Inc., Macrochem Corporation, Teva Pharmaceutical Industries Ltd.
and Vasomedical, Inc., all of which are public companies. Mr. Cohen also serves
on the board of directors of several private companies.

32
<PAGE>

Michael E. Herman joined the Board in October 1992. Mr. Herman is a private
investor, as well as president and chief operating officer of the Kansas City
Royals Baseball Team. From October 1974 until his retirement in 1990, Mr.
Herman held various positions at Marion Laboratories, Inc. (now Hoechst Marion
Roussel), including executive vice president and chief financial officer.
Currently, Mr. Herman serves as chairman of the finance committee of the Ewing
Marion Kauffman Foundation, a private foundation located in Kansas City, where
from 1985 through 1990, he was the president and chief operating officer. Mr.
Herman is also a member of the board of directors of Cerner Corporation and
Seafield Capital, both of which are public companies, and serves on the board
of directors of several private companies.

Irving S. Johnson joined the Board in May 1989. Dr. Johnson is an independent
consultant in biomedical research working with numerous private companies. From
1953 until his retirement in November 1988, Dr. Johnson held various positions
at Lilly, including vice president of research from 1973 until 1988. Dr.
Johnson also served on several committees of the National Academy of Sciences,
the Office of Technology Assessment and the National Institutes of Health.
Currently, he is a member of the board of directors of Allelix
Biopharmaceuticals Inc., Athena Neurosciences, Inc. and Ligand Pharmaceuticals
Incorporated, all of which are public companies. Dr. Johnson received a Ph.D.
in developmental biology from the University of Kansas.

Antonie T. Knoppers joined the Board in July 1991. Dr. Knoppers is an
independent management consultant. From 1952 until his retirement in 1975, Dr.
Knoppers held various positions at Merck & Co., Inc., including vice chairman
of the board and president and chief operating officer. Dr. Knoppers is a
member of the board of directors of Centocor, Inc., a public biotechnology
company. In addition, he is a member of the board of trustees of the Salk
Institute, was the former chairman of the U.S. Council of the International
Chamber of Commerce and a member of the advisory board of PaineWebber
Development Corporation, an affiliate of PaineWebber Incorporated, a
representative of the Underwriters in this offering. Dr. Knoppers received a
M.D. from the University of Amsterdam and a Ph.D. from the University of
Leiden, The Netherlands.

Melvin I. Simon, a founder of the Company, has served as a director since its
inception. Dr. Simon, a molecular geneticist, is a member of the National
Academy of Sciences. Currently, Dr. Simon is chairman of the Division of
Biology at the California Institute of Technology where he has been a member of
the faculty since 1982. Previously, Dr. Simon was a member of the faculty in
the Department of Biology at the University of California, San Diego. Dr. Simon
received a Ph.D. in biochemistry from Brandeis University. Dr. Simon also
serves as a director of The Agouron Institute.

The Board consists of nine directors elected by the holders of the Common
Stock. All directors of the Company hold office until the next annual meeting
of the shareholders and the election and qualification of their successors.
Non-officer members of the Board of Directors of the Company receive cash
compensation in the amount of $250 per meeting attended for their services as a
director.

DESCRIPTION OF SECURITIES

The authorized capital stock of the Company consists of 75,000,000 shares of
Common Stock, without par value, and 2,000,000 shares of preferred stock,
without par value ("Preferred Stock"). There is no Preferred Stock outstanding.
The Board of Directors is authorized to determine the dividend rights, dividend
rate, conversion rights, voting rights, rights and terms of redemption,
liquidation preferences and sinking fund terms on any series of the Preferred
Stock, the number of shares constituting such series and the designation
thereof. The Company has no present plans to issue any shares of Preferred
Stock. The issuance of Preferred Stock could have the effect of aiding the
Board of Directors in opposing takeover attempts and could adversely affect the
voting power of the holders of the Common Stock.

33
<PAGE>

COMMON STOCK

At June 30, 1995, there were approximately 7,359,282 shares of Common Stock
outstanding held by approximately 5,000 beneficial owners. The holders of
shares of Common Stock are entitled to elect all directors. The bylaws of the
Company provide that there are nine directors. Upon giving notice of intent to
cumulate, holders of Common Stock may cumulate votes in the election of
directors. In general, the approval of proposals submitted to shareholders at a
meeting requires a favorable vote of the majority of the holders of the shares
of the Common Stock represented and voting at the meeting on which the matter
is to be adopted. Each share of Common Stock entitles its owner to one vote.
Additionally, under California law, certain fundamental matters affecting the
Company may require a favorable vote of a greater percentage. As an example,
sale or transfer of all Company assets or merger or dissolution of the Company
would each require the affirmative vote of a majority of the outstanding
shares. Holders of Common Stock are entitled to receive dividends when, as and
if declared by the Board of Directors. Under the Company's articles of
incorporation, holders of Common Stock have no preemptive, subscription,
redemption or conversion rights and there are no sinking fund provisions with
respect to the Common Stock. All of the outstanding shares of Common Stock are,
and the shares to be issued in this offering will be, validly issued, fully
paid and non-assessable.

As of June 30, 1995, warrants to purchase a total of 45,000 shares of Common
Stock and options to purchase a total of 2,585,692 shares of Common Stock were
outstanding. Certain of the Company's current shareholders, including all
directors and executive officers, have agreed not to offer, sell, contract to
sell or grant any option to purchase or otherwise dispose of any of the Common
Stock owned by them for a period of 90 days after the date of this Prospectus
without the prior written consent of the Representatives of the Underwriters.
See "Underwriting."

PREFERRED STOCK

The Board of Directors has the authority, without further action by the
stockholders, to issue up to 2,000,000 shares of Preferred Stock in one or more
series, and to fix the rights, preferences, privileges and restrictions
thereof, including, but not limited to, dividend rights, conversion rights,
voting rights, rights and terms of redemption, and liquidation preferences. The
issuance of Preferred Stock may have the effect of delaying, deferring or
preventing a change in control of the Company without any further action by the
stockholders. The Board of Directors, without stockholder approval, can issue
Preferred Stock, with voting and conversion rights which could adversely affect
the voting power of the holders of Common Stock. In addition, such Preferred
Stock may have other rights, including economic rights, senior to the Common
Stock and, as a result, the issuance thereof could have a material adverse
affect on the market value of the Common Stock. The Company has no present plan
to issue any shares of Preferred Stock. However, the Board of Directors is
evaluating the appropriateness of adopting a shareholder rights agreement which
would provide certain protections for the Company and its shareholders from
certain changes in control of the Company not approved by the Board of
Directors. If adopted, such an agreement could result in the issuance of
warrants to acquire shares of Preferred Stock.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Common Stock is First Interstate
Bank of California, Los Angeles.

34
<PAGE>

UNDERWRITING

Upon the terms and subject to the conditions of the Underwriting Agreement
(the "U.S. Underwriting Agreement") among the Company and the Underwriters
named below (the "U.S. Underwriters"), for whom PaineWebber Incorporated and
Robertson, Stephens & Company, L.P. are acting as Representatives (the
"Representatives"), and concurrently with the sale of an aggregate of 600,000
shares of Common Stock to the International Underwriters (as defined below),
the U.S. Underwriters severally have agreed to purchase from the Company and
the Company has agreed to sell to the U.S. Underwriters, 2,400,000 shares of
Common Stock, which in the aggregate equal the number of shares set forth
opposite the names of such U.S. Underwriters below:

<TABLE>
<CAPTION>
NUMBER OF
U.S. UNDERWRITERS SHARES
----------------- ---------
<S> <C>
PaineWebber Incorporated........................................ 937,500
Robertson, Stephens & Company, L.P.............................. 937,500
Bear, Stearns & Co. Inc......................................... 150,000
Alex. Brown & Sons Incorporated................................. 150,000
Smith Barney Inc................................................ 150,000
Punk, Ziegel & Knoell 75,000
---------
Total....................................................... 2,400,000
=========
</TABLE>

The Company also has entered into an underwriting agreement (the
"International Underwriting Agreement") with certain underwriters outside the
United States and Canada (the "International Underwriters"; and, together with
the U.S. Underwriters, the "Underwriters") for whom PaineWebber International
(U.K.) Ltd. and Robertson, Stephens & Company, L.P. are acting as Managers (the
"Managers"). Subject to the terms and conditions of the International
Underwriting Agreement, and concurrently with the sale of 2,400,000 shares of
Common Stock to the U.S. Underwriters, the Company has agreed to sell to the
International Underwriters, and the International Underwriters severally have
agreed to purchase, an aggregate of 600,000 shares of Common Stock. The initial
public offering price per share and the total underwriting discounts and
commissions per share will be identical in the U.S. Underwriting Agreement and
the International Underwriting Agreement with respect to all shares of Common
Stock being purchased by the Underwriters from the Company.

In the U.S. Underwriting Agreement and the International Underwriting
Agreement, the several U.S. Underwriters and the several International
Underwriters, respectively, have agreed, subject to certain conditions, to
purchase all of the shares of Common Stock being sold pursuant to each such
Agreement (other than those covered by the over-allotment option described
below), if any are purchased. The U.S. Underwriting Agreement provides that, in
the event of a default by a U.S. Underwriter, in certain circumstances, the
purchase commitments of non-defaulting U.S. Underwriters may be increased or
the U.S. Underwriting Agreement may be terminated, and the International
Underwriting Agreement provides that, in the event of a default by an
International Underwriter, in certain circumstances, the purchase commitments
of non-defaulting International Underwriters may be increased or the
International Underwriting Agreement may be terminated. The sale of Common
Stock to be purchased by the U.S. Underwriters and the International
Underwriters are conditioned on one another.

35
<PAGE>

The Company has been advised by the Representatives that the Underwriters
propose to offer the shares of Common Stock in part to the public at the price
to the public set forth on the cover page of this Prospectus, and in part to
certain securities dealers (who may include Underwriters) at such price less a
concession not in excess of $1.00 per share; and that the Underwriters and such
dealers may reallow a discount not in excess of $.10 per share to other
dealers, including the Underwriters. After the commencement of the public
offering, the public offering price, the concession to selected dealers and the
discount to other dealers may be changed by the Representatives and the
Managers.

Each U.S. Underwriter has represented and agreed that, as part of the
distribution of the U.S. Shares, (a) it is not purchasing any U.S. Shares for
the account of anyone other than a United States Person (as defined below) and
(b) it has not offered or sold, and will not offer or sell, directly or
indirectly, any U.S. Shares or distribute any prospectus relating to the United
States offering to any person outside the United States or to anyone other than
a United States Person. Each International Underwriter has represented and
agreed that, as part of the distribution of the International Shares, (a) it is
not purchasing any International Shares for the account of any United States or
Canadian Person and (b) it has not offered or sold, and will not offer or sell,
directly or indirectly, any International Shares or distribute any prospectus
to any person within the United States or Canada or to any United States or
Canadian Person. The foregoing limitations do not apply to stabilization
transactions or to sales between the U.S. Underwriters and the International
Underwriters pursuant to the Agreement Between U.S. and International
Underwriters. As used herein, "United States or Canadian Person" means any
individual who is a resident of the United States or Canada, or any
corporation, pension, profit-sharing or other trust or other entity organized
under or governed by the laws of the United States or Canada or any political
subdivision of either thereof (other than a branch located outside the United
States and Canada of any United States or Canadian Person) and includes any
United States or Canadian branch of a person who is otherwise not a United
States or Canadian Person.

Sales may be made between the U.S. Underwriters and the International
Underwriters of such number of shares of Common Stock as may be mutually
agreed. The per share price of any shares sold shall be the price to the public
set forth on the cover page of this Prospectus less an amount not greater than
the per share amount of the concession to dealers set forth above. To the
extent there are sales between the U.S. Underwriters and the International
Underwriters, the number of shares of Common Stock initially available for sale
by the U.S. Underwriters may be more or less than the amount specified on the
cover page of this Prospectus.

The Company has granted to the U.S. Underwriters an option, exercisable
during the 45-day period after the date of this Prospectus, under which the
U.S. Underwriters may purchase up to 450,000 additional shares of Common Stock
from the Company at the price to the public set forth on the cover page of this
Prospectus, less the underwriting discounts and commissions. The U.S.
Underwriters may exercise the option only to cover over-allotments, if any,
made in connection with the offering of the shares of Common Stock offered
hereby. To the extent such option is exercised, each U.S. Underwriter will
become obligated, subject to certain conditions, to purchase approximately the
same percentage of such additional shares of Common Stock as it was obligated
to purchase pursuant to the U.S. Underwriting Agreement.

The Company and certain of the Company's current shareholders, including all
directors and executive officers of the Company, have agreed not to offer,
sell, contract to sell or otherwise dispose of any shares of Common Stock, or
rights to acquire shares of Common Stock, for a period of 90 days after the
date of this Prospectus without the prior written consent of the
Representatives.

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

The rules of the Securities and Exchange Commission (the "Commission")
generally prohibit the Underwriters from making a market in the Common Stock
during the two business day period prior to commencement of sales in this
offering (the "Cooling Off Period"). The Commission has, however, adopted

36
<PAGE>

Rule 10b-6A ("Rule 10b-6A") which provides an exemption from such prohibition
for certain passive market making transactions. Such passive market making
transactions must comply with applicable price and volume limits and must be
identified as passive market making transactions. In general, pursuant to Rule
10b-6A, a passive market maker may display its bid for a security at a price
not in excess of the highest independent bid for the security. If all
independent bids are lowered below the passive market maker's bid, however,
such bid must then be lowered when certain purchase limits are exceeded.
Further, net purchases by a passive market maker on each day are generally
limited to a specified percentage of the passive market maker's average daily
trading volume in a security during a specified prior period and must be
discontinued when such limit is reached. Pursuant to the exemption provided by
Rule 10b-6A, certain of the Underwriters and selling group members may engage
in passive market making in the Common Stock during the Cooling Off Period.
Passive market makers may stabilize the market price of the Common Stock at a
level above that which might otherwise prevail and, if commenced, may be
discontinued at any time.

LEGAL MATTERS

The validity of the Common Stock being offered hereby has been passed upon
for the Company by Ferris & Britton, a professional corporation, San Diego,
California. Paul, Weiss, Rifkind, Wharton & Garrison, New York, New York, is
acting as counsel for the Underwriters in connection with certain legal matters
relating to the sale of the Common Stock offered hereby.

EXPERTS

The financial statements as of June 30, 1995 and 1994 and for each of the
three years in the period ended June 30, 1995 included in this Prospectus and
the financial statements incorporated in this Prospectus by reference to the
Annual Report on Form 10-K for the year ended June 30, 1995 have been so
included and incorporated in reliance on the report of Price Waterhouse LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.

AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Exchange Act,
as amended, and, in accordance therewith, files reports, proxy statements and
other information with the Securities and Exchange Commission (the
"Commission"). Such reports, proxy statements and other information filed by
the Company may be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street N.W., Judiciary
Plaza, Washington, D.C. 20549, and at the Commission's regional offices:
Chicago Regional Office, Suite 1400, 500 West Madison Street, Chicago, Illinois
60661; and New York Regional Office, Room 1400, 75 Park Place, New York, New
York 10007. Copies of such materials can also be obtained at prescribed rates
from the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Judiciary Plaza, Washington, D.C. 20549. The Common Stock of the Company is
quoted on The Nasdaq Stock Market, and such material may also be inspected at
the offices of Nasdaq Operations, 1735 "K" Street, N.W., Washington, D.C.
20006.

The Company has filed with the Commission a Registration Statement on Form S-
3 under the Securities Act of 1933, as amended (the "Securities Act"), with
respect to the Common Stock offered hereby. This Prospectus does not contain
all of the information set forth in the Registration Statement, certain parts
of which are omitted in accordance with the rules and regulations of the
Commission. For further information with respect to the Company and the Common
Stock offered hereby, reference is made to the Registration Statement and the
exhibits thereto, which may be inspected without charge at, and copies thereof
may be obtained at prescribed rates from, the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549.

37
<PAGE>

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Report of Price Waterhouse LLP, Independent Accountants............... F-2

Financial Statements:
Balance Sheet as of June 30, 1994 and 1995.......................... F-3
Statement of Operations for the years ended June 30, 1993, 1994 and
1995............................................................... F-4
Statement of Stockholders' Equity for the years ended June 30, 1993,
1994 and 1995...................................................... F-5
Statement of Cash Flows for the years ended June 30, 1993, 1994 and
1995............................................................... F-6
Notes to Financial Statements....................................... F-7-F-13
</TABLE>

NOTE: All schedules are omitted because they are either not applicable or not
required or the information is shown elsewhere in the financial statements
or in the notes thereto.

F-1
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of Agouron Pharmaceuticals, Inc.

In our opinion, the accompanying balance sheet and the related statements of
operations, of stockholders' equity and of cash flows present fairly, in all
material respects, the financial position of Agouron Pharmaceuticals, Inc. at
June 30, 1994 and 1995, and the results of its operations and its cash flows
for each of the three years in the period ended June 30, 1995, in conformity
with generally accepted accounting principles. These financial statements are
the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.

Price Waterhouse LLP

San Diego, California
July 25, 1995, except as to Notes 1, 4 and 9, which
are as of August 24, 1995

F-2
<PAGE>

AGOURON PHARMACEUTICALS, INC.

BALANCE SHEET
(DOLLARS IN THOUSANDS)

ASSETS
<TABLE>
<CAPTION>
JUNE 30,
------------------
1994 1995
-------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................ $ 2,104 $ 4,358
Short-term investments................................... 27,757 15,886
Accounts receivable...................................... 328 344
Other current assets..................................... 891 871
-------- --------
Total current assets................................... 31,080 21,459
Property and equipment, net................................ 6,098 5,638
-------- --------
$ 37,178 $ 27,097
======== ========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable......................................... $ 1,514 $ 5,426
Accrued liabilities...................................... 519 683
Deferred revenue......................................... 6,818 5,745
Current portion of long-term debt........................ 1,190 768
-------- --------
Total current liabilities.............................. 10,041 12,622
-------- --------
Long-term liabilities:
Long-term debt, less current portion..................... 992 580
Accrued rent............................................. 1,293 1,304
-------- --------
Total long-term liabilities............................ 2,285 1,884
-------- --------
Stockholders' equity:
Common stock, no par value, 75,000,000 shares authorized,
7,278,488 and 7,359,282 shares issued and outstanding... 75,435 76,113
Accumulated deficit...................................... (50,583) (63,522)
-------- --------
Total stockholders' equity............................. 24,852 12,591
-------- --------
Commitments and contingencies (Note 8)..................... -- --
-------- --------
$ 37,178 $ 27,097
======== ========
</TABLE>

See accompanying notes to financial statements.

F-3
<PAGE>

AGOURON PHARMACEUTICALS, INC.

STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------
1993 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
Revenues:
Contract.................................... $ 8,266 $ 16,301 $ 26,722
Interest.................................... 1,704 1,350 1,239
--------- --------- ---------
9,970 17,651 27,961
--------- --------- ---------
Costs and expenses:
Research and development.................... 17,404 23,957 36,317
General and administrative.................. 2,127 2,961 4,358
Interest.................................... 268 195 225
--------- --------- ---------
19,799 27,113 40,900
--------- --------- ---------
Net loss...................................... $ (9,829) $ (9,462) $ (12,939)
========= ========= =========
Net loss per common share..................... $ (1.40) $ (1.31) $ (1.77)
========= ========= =========
Shares used in computing net loss per common
share........................................ 6,997,000 7,241,000 7,296,000
========= ========= =========
</TABLE>

See accompanying notes to financial statements.

F-4
<PAGE>

AGOURON PHARMACEUTICALS, INC.

STATEMENT OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
COMMON STOCK
----------------- ACCUMULATED
SHARES AMOUNT DEFICIT TOTAL
--------- ------- ----------- --------
<S> <C> <C> <C> <C>
Balance at June 30, 1992............... 6,903,933 $68,809 $(31,292) $ 37,517
Stock issuances:
Private sales........................ 311,688 5,940 -- 5,940
Exercise of stock options............ 2,500 21 -- 21
Employee stock purchase plan......... 8,425 70 -- 70
Options granted for services
provided............................ -- 38 -- 38
Net loss............................... -- -- (9,829) (9,829)
--------- ------- -------- --------
Balance at June 30, 1993............... 7,226,546 74,878 (41,121) 33,757
Stock issuances:
Exercise of stock options............ 32,649 352 -- 352
Employee stock purchase plan......... 19,293 170 -- 170
Options granted for services
provided............................ -- 35 -- 35
Net loss............................... -- -- (9,462) (9,462)
--------- ------- -------- --------
Balance at June 30, 1994............... 7,278,488 75,435 (50,583) 24,852
Stock issuances:
Exercise of stock options............ 49,125 382 -- 382
Employee stock purchase plan......... 31,669 296 -- 296
Net loss............................... -- -- (12,939) (12,939)
--------- ------- -------- --------
Balance at June 30, 1995............... 7,359,282 $76,113 $(63,522) $ 12,591
========= ======= ======== ========
</TABLE>

See accompanying notes to financial statements.

F-5
<PAGE>

AGOURON PHARMACEUTICALS, INC.

STATEMENT OF CASH FLOWS

(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Cash received from contracts................... $ 7,973 $ 20,307 $ 25,633
Cash paid to suppliers, employees and service
providers..................................... (16,962) (24,955) (34,113)
Interest received.............................. 1,704 1,350 1,239
Interest paid.................................. (268) (195) (225)
-------- -------- --------
Net cash provided (used) by operating activities. (7,553) (3,493) (7,466)
-------- -------- --------
Cash flows from investing activities:
Net (increase) decrease in short-term
investments................................... 6,878 (840) 11,871
Expenditures for property and equipment........ (2,655) (1,783) (1,978)
-------- -------- --------
Net cash provided (used) by investing activities. 4,223 (2,623) 9,893
-------- -------- --------
Cash flows from financing activities:
Net proceeds from issuance of common stock..... 6,031 522 678
Principal payments under equipment leases...... (572) (550) (613)
Increase (decrease) in long-term debt, net..... (312) 465 (238)
-------- -------- --------
Net cash provided (used) by financing activities. 5,147 437 (173)
-------- -------- --------
Net increase (decrease) in cash and cash
equivalents..................................... 1,817 (5,679) 2,254
Cash and cash equivalents at beginning of year... 5,966 7,783 2,104
-------- -------- --------
Cash and cash equivalents at end of year......... $ 7,783 $ 2,104 $ 4,358
======== ======== ========
Reconciliation of net loss to net cash provided
(used) by operating activities:
Net loss....................................... $ (9,829) $ (9,462) $(12,939)
Depreciation and amortization.................. 1,755 2,180 2,455
Net (increase) decrease in accounts receivable
and other current assets...................... (172) (635) 4
Net increase (decrease) in accounts payable,
accrued liabilities, deferred revenue and
other liabilities............................. 655 4,389 3,014
Options granted for services provided.......... 38 35 --
-------- -------- --------
Net cash provided (used) by operating activities. $ (7,553) $ (3,493) $ (7,466)
======== ======== ========
</TABLE>

See accompanying notes to financial statements.

F-6
<PAGE>

AGOURON PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS

NOTE 1--THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES

The Company

Agouron Pharmaceuticals, Inc. ("Agouron" or the "Company") was incorporated
in the state of California on June 22, 1984. The Company is engaged in the
development of human pharmaceuticals utilizing protein structure-based drug
design.

Short-term Investments

Short-term investments consist principally of government or government agency
securities, corporate notes and bonds, commercial paper and certificates of
deposit with original maturities of three to thirty-six months. Included in
short-term investments at June 30, 1994 and 1995 is $246,000 and $172,000 of
accrued interest receivable.

The Company adopted Statement of Financial Accounting Standards No. 115
"Accounting for Certain Investments in Debt and Equity Securities" ("FAS 115")
for investments held as of or acquired after July 1, 1994. The Company has
classified its short-term investments as available-for-sale. The adoption of
FAS 115 did not have a material impact on the Company's financial position or
results of operations.

Concentration of Credit and Market Risk and Off Balance Sheet Risk

The Company invests its excess cash principally in marketable securities from
a diversified portfolio of institutions with strong credit ratings and, by
policy, limits the amount of credit exposure at any one institution. These
investments are generally not collateralized and primarily mature within one
year. The Company has not realized any material losses from such investments in
1993, 1994 or 1995.

Property and Equipment

Property and equipment is recorded at cost. Depreciation is computed using
the straight-line method over estimated useful lives of three to five years.
Leasehold improvements are amortized over the life of the lease. Charges to
costs and expenses for repairs and maintenance were $508,000, $534,000 and
$422,000 for the years ended June 30, 1993, 1994 and 1995.

Revenue Recognition

Contract revenues (including profit, if any) are earned and recognized as
work is performed. Contract payments received in advance of performance are
recorded as deferred revenue. Subsequent contract revenues are recognized
according to the provisions of each collaborative agreement, generally on a
percentage-of-completion basis over the life of the contract.

Statement of Cash Flows

For purposes of the Statement of Cash Flows, cash equivalents are highly
liquid investments purchased with an original maturity of three months or less.
Non-cash financing activities are comprised primarily of capital lease
obligations and were $85,000, $58,000 and $17,000, for 1993, 1994 and 1995.

Income Taxes

Effective July 1, 1993, the Company adopted, on a prospective basis,
Statement of Financial Accounting Standards No. 109 "Accounting for Income
Taxes" ("FAS 109"). Under FAS 109, deferred tax is recognized

F-7
<PAGE>

AGOURON PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

using the liability method, whereby tax rates are applied to cumulative
temporary differences based on when and how they are expected to affect the tax
return. The adoption of FAS 109 did not have a material impact on the Company's
financial statements.

Liquidity and Capital Resources

As of June 30, 1995, the Company believes that its current capital resources,
existing contractual commitments and the JT milestone payment of $24,000,000
which was received on August 24, 1995 (see Notes 4 and 9), will be sufficient
to meet its operating needs through fiscal 1996. This belief is based on
current research and clinical development plans, the current regulatory
environment, historical industry experience in the development of therapeutic
drugs and general economic conditions. However, the Company will need
additional financing to meet the planned operating needs of fiscal 1997 and
beyond. Such needs would include the expenditure of substantial funds to
continue research and development activities, conduct existing and planned
preclinical studies and tests, conduct human clinical trials and establish
certain manufacturing, sales and marketing capabilities. As a result, the
Company anticipates pursuing various financing alternatives, such as
collaborative arrangements and additional public offerings or private
placements of Company common or preferred stock. If such alternatives are not
available, the Company may be required to delay or eliminate expenditures for
certain of its potential products under development or to license third parties
to commercialize products or technologies that the Company would otherwise seek
to develop itself.

NOTE 2--SHORT-TERM INVESTMENTS

At June 30, 1995, the amortized cost and estimated fair value of short-term
investments held as available-for-sale were as follows:
<TABLE>
<CAPTION>
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
United States government
securities..................... $10,236 $ 5 $(60) $10,181
Corporate obligations........... 3,037 2 (16) 3,023
Other interest bearing
securities..................... 2,613 -- -- 2,613
------- --- ---- -------
$15,886 $ 7 $(76) $15,817
======= === ==== =======
</TABLE>

Realized gains and losses on the disposal of available-for-sale securities
during 1995 totaled $3,000 and $7,000, respectively. The cost of securities
sold is based upon the specific identification method. At June 30, 1995,
scheduled maturities for available-for-sale securities were less than one year
for $14,720,000 and between one and two years for $1,166,000. At June 30, 1995,
short-term investments are carried on the balance sheet at amortized cost. The
difference between amortized cost and fair value has not been reflected in
stockholders' equity as such difference is not material.

F-8
<PAGE>

AGOURON PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

NOTE 3--COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS
<TABLE>
<CAPTION>
JUNE 30,
-----------------------
1994 1995
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Accounts receivable:
Employee receivables.......................... $ 270 $ 262
Other receivables............................. 58 82
---------- -----------
$ 328 $ 344
========== ===========
Property and equipment, net:
Scientific instrumentation.................... $ 6,748 $ 7,787
Computer equipment............................ 4,838 5,453
Leasehold improvements........................ 2,535 2,798
Furniture and fixtures........................ 794 944
---------- -----------
14,915 16,982
Less accumulated depreciation and
amortization................................. (8,817) (11,344)
---------- -----------
$ 6,098 $ 5,638
========== ===========
Accrued liabilities:
Accrued vacation.............................. $ 489 $ 623
Other......................................... 30 60
---------- -----------
$ 519 $ 683
========== ===========
</TABLE>

NOTE 4--SIGNIFICANT CONTRACT AND GRANT ARRANGEMENTS

Japan Tobacco Inc.

In December 1992, the Company entered into an agreement with Japan Tobacco
Inc. ("JT") to collaborate on the discovery, development and commercialization
of novel therapeutic drugs which act on key proteins related to the human
immune system ("JT 1992"). In February 1994, the Company expanded its strategic
alliance with JT into the field of anti-viral drugs for the treatment of
infections caused by hepatitis C, the herpes family of viruses and the
rhinoviruses ("JT 1994"). In December 1994, the Company added its anti-HIV
drug, VIRACEPT, to the JT collaboration with the execution of a worldwide
development and licensing agreement ("JT HIV"). In January 1995, JT 1992 was
canceled by mutual agreement and JT 1992 resources were reallocated to JT 1994
programs.

Under the provisions of JT 1994, JT has agreed to make certain research
payments to the Company of not less than $8,000,000 over a two year period
ending December 1996. Such payments could approximate more than $21,000,000
over a four year period if certain technical milestones are achieved. In
addition, JT made an up-front payment of $7,778,000, which is being amortized
to revenue over a twenty-four month period. Under the provisions of JT HIV, JT
has made payments of $30,000,000 to Agouron representing an initial payment of
$2,500,000, a milestone payment of $3,500,000 in recognition of the
satisfactory completion of a phase I clinical study and a second milestone
payment of $24,000,000 in connection with JT's decision to commit to the
further clinical development of VIRACEPT. Agouron and JT will ultimately share
equally the costs of further development of VIRACEPT.

F-9
<PAGE>

AGOURON PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
manufacture and market jointly developed anti-hepatitis C and anti-herpes
drugs. Each company will pay royalties to the other based upon their respective
sales of anti-hepatitis C and anti-herpes drugs. The Company will have
exclusive, world-wide, royalty-free rights to develop, manufacture and market
drugs for the treatment or prevention of infections by pathogenic rhinoviruses.
JT will have the first right to negotiate for a license to develop, manufacture
and market such anti-rhinovirus drugs in Japan and certain other countries in
Asia. Under the provisions of JT HIV, Agouron has exclusive commercial rights
to VIRACEPT (with the right to sublicense, subject to JT's right of first
refusal) in the United States, Canada and Mexico. JT has exclusive commercial
rights to VIRACEPT (with the right to sublicense, subject to Agouron's right of
first refusal) in Japan and certain other countries in Asia. Exclusive
commercial rights (with the right to sublicense) in Europe and all remaining
countries of the world will be held by a joint venture owned equally by Agouron
and JT. The two companies will share profits equally from the worldwide
commercialization of VIRACEPT.

Under the combined terms of the agreements, the Company has incurred costs of
$1,144,000, $5,043,000 and $19,211,000 and recognized corresponding revenues of
$2,156,000, $11,144,000 and $22,880,000 for the years ended June 30, 1993, 1994
and 1995.

Under a separate agreement dated December 1992, JT purchased 155,844 shares
of newly issued common stock for an aggregate purchase price of $3,000,000.
Such purchase represented approximately 2% of the total outstanding common
stock.

Syntex (U.S.A.) Inc.

In June 1993, the Company entered into an agreement with Syntex (U.S.A.) Inc.
(now a subsidiary of Roche Holdings, Inc.) ("Roche"), to collaborate on the
discovery of novel matrix metalloprotease inhibitor drugs for use against
cancer and degenerative diseases such as rheumatoid arthritis and
osteoarthritis. Under the provisions of the agreement, Roche has agreed to make
certain research payments to the Company over a three-year period ending June
1996 of approximately $8,500,000. Under the agreement, the Company has incurred
costs and recognized corresponding revenues of $120,000, $2,307,000 and
$3,043,000 during the years ended June 30, 1993, 1994 and 1995. The Company is
funding a portion of the activities associated with this collaboration on its
own account. Under the terms of the agreement, the Company will have a royalty
position in certain agreement products, if any, and other development and
commercial rights in other agreement products, if any.

Under a separate agreement dated June 1993, Syntex Corporation (Roche)
purchased 155,844 shares of newly issued common stock for an aggregate purchase
price of $3,000,000. Such purchase represented approximately 2% of the total
outstanding common stock.

Schering-Plough Corporation

In April 1994, the Company and Schering-Plough Corporation completed a three-
year collaborative research agreement providing for the discovery and
development of anti-cancer drugs which target oncogenic ras proteins. Each
company may pursue further discovery or development efforts in this program
area at its sole discretion and expense with no subsequent obligations to the
other company. Under the agreement, the Company has incurred costs and
recognized corresponding revenues of $2,570,000 and $1,894,000 during the years
ended June 30, 1993 and 1994.

Eli Lilly and Company

In April 1993, the Company and Eli Lilly and Company completed a five year
collaborative research program in several therapeutic categories. Further
development of any discoveries made in the program will

F-10
<PAGE>

AGOURON PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
be undertaken at each company's sole discretion and expense. Agouron has
continuing commercial rights and/or financial interests in certain of these
discoveries. During the collaborative research program, the Company has been
reimbursed for certain costs incurred and has recognized revenues of $2,941,000
during 1993.

National Institutes of Health

The Company is currently the grantee organization for two grants from the
National Institutes of Health to conduct research related to the Human
Immunodeficiency Virus. Costs incurred and the corresponding reimbursement
revenues recognized under various grant programs were $479,000, $956,000 and
$799,000 for 1993, 1994 and 1995.

NOTE 5--LONG-TERM DEBT

At June 30, 1994 and 1995, long-term debt and capital lease obligations were
as follows:

<TABLE>
<CAPTION>
1994 1995
----------- ----------
<S> <C> <C>
Notes payable, secured with personal property
and a certificate of deposit for $400,000;
interest at prime plus 1.5%; maturing September
1995, June 1997 and November 1998.............. $ 1,169,000 $ 931,000
Capital leases, with interest rates between 6.7%
and 16.5%, maturing at various dates through
December 1998.................................. 1,013,000 417,000
----------- ----------
Total long-term debt and capital lease
obligations.................................... 2,182,000 1,348,000
Current portion of long-term debt............... (1,190,000) (768,000)
----------- ----------
Long-term debt.................................. $ 992,000 $ 580,000
=========== ==========
</TABLE>

Maturities of long-term debt, excluding capital leases, are as follows:
1996--$445,000, 1997--$344,000, 1998--$100,000, 1999--$42,000 and 2000 and
thereafter $0.

NOTE 6--INCOME TAXES

At June 30, 1994 and 1995, the Company has total deferred income taxes of
$23,609,000 and $30,299,000, which have been fully reserved as follows:
<TABLE>
<CAPTION>
JUNE 30, 1994 JUNE 30, 1995
------------- -------------
<S> <C> <C>
Deferred revenue............................ $ 2,737,000 $ 2,358,000
Book and tax depreciation differences....... 1,588,000 1,664,000
Accrued liabilities......................... 715,000 790,000
Net operating loss carryforwards............ 14,437,000 19,638,000
Foreign tax credits......................... 1,237,000 1,913,000
Research and development tax credits........ 2,895,000 3,936,000
------------ ------------
23,609,000 30,299,000
Valuation allowance......................... (23,609,000) (30,299,000)
------------ ------------
Deferred taxes, net......................... $ -- $ --
============ ============
</TABLE>

The Company has not recorded provisions for any United States income taxes
due to net operating losses for tax reporting purposes. At June 30, 1995, the
Company had net operating loss carryforwards for federal tax reporting purposes
of approximately $53,509,000, expiring from 2000 through 2010. The Company also
has federal research and development credit carryforwards of approximately
$2,721,000 at June 30, 1995, expiring from 2000 through 2010. The future
utilization of, or limitation as to the use of, net operating loss
carryforwards for federal and state income tax purposes may be impacted by the
issuance of additional equity securities.

F-11
<PAGE>

AGOURON PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
As a result of California's partial conformity with federal provisions
regarding net operating loss and research and development credit carryforwards,
the Company has net operating loss and research and development credit
carryforwards of approximately $15,055,000 and $1,215,000 for state tax
reporting purposes at June 30, 1995, expiring from 1996 through 2010.

Included in general and administrative costs and expenses at June 30, 1993,
1994 and 1995 is approximately $116,000, $611,000 and $863,000 of foreign tax
expense associated with the contract research payments from JT.

NOTE 7--STOCKHOLDERS' EQUITY

Stock Options

The Company has two stock option plans whereby 3,220,000 shares of common
stock have been reserved for issuance to its officers, directors, employees and
consultants. The plans, as amended, are administered by the Board of Directors
or its designees and provide generally that, for incentive stock options, the
exercise price shall not be less than the fair market value of the shares at
the date of grant and, for certain non-qualified stock options, the price shall
not be less than 85% of the fair market value of the shares at the date of
grant and may be at any price determined by the Board of Directors for others.
The options expire not later than ten years from the date of the grant and
generally become exercisable ratably over a four-year period beginning one year
from the grant date. As of June 30, 1995, 293,636 of these options had been
exercised, 1,107,922 were exercisable and 340,672 shares of common stock remain
available for option grant. The following table summarizes stock option
activity for 1993 through 1995:

<TABLE>
<CAPTION>
SHARES PRICE
--------- -------------
<S> <C> <C>
Outstanding June 30, 1992........................ 803,278
Options granted................................. 494,239 $ 7.88-$13.88
Options exercised............................... (2,500) 7.38- 9.15
Options canceled................................ (20,550) 7.38- 15.50
---------
Outstanding June 30, 1993........................ 1,274,467
Options granted................................. 703,450 8.63- 16.00
Options exercised............................... (32,649) 5.40- 12.00
Options canceled................................ (39,829) 7.88- 15.50
---------
Outstanding June 30, 1994........................ 1,905,439
Options granted................................. 773,275 10.13- 24.50
Options exercised............................... (49,125) 5.40- 15.50
Options canceled................................ (43,897) 7.88- 16.13
---------
Outstanding June 30, 1995........................ 2,585,692 $ 5.40-$24.50
=========
</TABLE>

Employee Stock Purchase Plan

In December 1992, the shareholders approved an Employee Stock Purchase Plan
("ESPP") which commenced on January 1, 1993. Under the ESPP, 250,000 shares of
common stock have been reserved for issuance and 190,613 shares remain
available for purchase at June 30, 1995. Eligible employees may purchase shares
of the Company's common stock through payroll deductions at prices equal to 85%
of the fair market value of the common stock on either the first or last day of
a purchase period. During 1995, 25,524 shares were issued at a price of $9.24
per share and 6,145 shares were issued at a price of $9.88 per share. During
1994, 10,073 shares were issued at a price of $8.2875 per share and 9,220
shares were issued at a price of $9.35 per share. During 1993, 8,425 shares
were issued at a price of $8.2875 per share.

F-12
<PAGE>

AGOURON PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS--(CONCLUDED)

Stock Warrants

As part of certain financing arrangements in 1986, the Company issued a
warrant to purchase 45,000 shares of the Company's common stock at a per share
price of $6.30. This warrant is currently exercisable and expires in July 1996.

NOTE 8--COMMITMENTS AND CONTINGENCIES

Certain scientific instrumentation and computer and other equipment are
subject to leases which are classified as capital leases. At June 30, 1994 and
1995, $2,601,000 ($624,000, net) and $2,364,000 ($227,000, net) of such leased
equipment were included in property and equipment.

Rental expenses (principally for leased facilities under long-term operating
lease commitments) were $1,502,000, $1,973,000 and $2,198,000 for 1993, 1994
and 1995. Future minimum payments for capital and operating leases at June 30,
1995 are as follows:

<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
-------- -----------
<S> <C> <C>
1996............................................... $350,000 $ 2,579,000
1997............................................... 56,000 2,565,000
1998............................................... 37,000 2,244,000
1999............................................... 8,000 2,295,000
2000............................................... -- 2,411,000
Thereafter......................................... -- 2,291,000
-------- -----------
Total minimum lease payments....................... 451,000 $14,385,000
===========
Less amount representing interest.................. (34,000)
--------
Obligation under capital leases.................... $417,000
========
</TABLE>

NOTE 9--SUBSEQUENT EVENT

On August 24, 1995 the Company received a $24,000,000 milestone payment from
JT along with JT's commitment to continue with the clinical development of
VIRACEPT. JT's actions were taken after their review and evaluation of a number
of factors including certain results from two pilot phase II clinical studies
of VIRACEPT.

F-13
<PAGE>

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

NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION AND
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR THE UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE
HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO ITS DATE. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL
OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE REGISTERED
SECURITIES TO WHICH IT RELATES. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY
CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Incorporation of Certain Information by Reference........................ 2
Prospectus Summary....................................................... 3
Risk Factors............................................................. 5
Use of Proceeds.......................................................... 12
Capitalization........................................................... 12
Price Range of Common Stock and
Dividend Policy......................................................... 13
Dilution................................................................. 13
Selected Financial Data.................................................. 14
Management's Discussion and Analysis of Financial Condition and Results
of Operations 15
Business................................................................. 17
Management............................................................... 31
Description of Securities................................................ 33
Underwriting............................................................. 35
Legal Matters............................................................ 37
Experts.................................................................. 37
Available Information.................................................... 37
Financial Statements..................................................... F-1
</TABLE>

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

3,000,000 SHARES

[LOGO OF AGOURON PHARMACEUTICALS, INC.]

COMMON STOCK

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

PROSPECTUS

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

PAINEWEBBER INCORPORATED

ROBERTSON, STEPHENS & COMPANY

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

SEPTEMBER 15, 1995

-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
<PAGE>

[ALTERNATE PAGES FOR INTERNATIONAL PROSPECTUS]

3,000,000 SHARES

[LOGO OF AGOURON PHARMACEUTICALS, INC.]

COMMON STOCK

-----------

ALL OF THE SHARES OF COMMON STOCK OFFERED HEREBY ARE BEING SOLD BY AGOURON
PHARMACEUTICALS, INC. OF THE 3,000,000 SHARES OF COMMON STOCK OFFERED, 600,000
SHARES ARE BEING OFFERED IN AN INTERNATIONAL OFFERING OUTSIDE OF THE UNITED
STATES AND CANADA (THE "INTERNATIONAL SHARES") AND 2,400,000 SHARES ARE BEING
OFFERED IN A CONCURRENT OFFERING IN THE UNITED STATES. THE PRICE TO THE PUBLIC
AND THE AGGREGATE UNDERWRITING DISCOUNTS AND COMMISSIONS PER SHARE WILL BE
IDENTICAL FOR BOTH OFFERINGS. SEE "UNDERWRITING."

THE COMMON STOCK IS TRADED ON THE NASDAQ STOCK MARKET UNDER THE SYMBOL AGPH.
ON SEPTEMBER 14, 1995, THE CLOSING SALE PRICE OF THE COMMON STOCK AS REPORTED
BY NASDAQ WAS $28.50 PER SHARE. SEE "PRICE RANGE OF COMMON STOCK AND DIVIDEND
POLICY."

THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS" AT PAGE 5.

-----------
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>
Underwriting
Price Discounts and Proceeds to
to Public Commissions(1) Company(2)
---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share........................... $28.00 $1.68 $26.32
---------------------------------------------------------------------------------------------
Total............................... $84,000,000 $5,040,000 $78,960,000
---------------------------------------------------------------------------------------------
Total Assuming Full Exercise of Over-
Allotment Option(3)................ $96,600,000 $5,796,000 $90,804,000
</TABLE>

-----------

The International Shares are offered by the International Underwriters,
subject to prior sale, when, as and if delivered to and accepted by the
International Underwriters, and subject to their right to reject orders in
whole or in part. It is expected that delivery of the Common Stock offered
hereby will be made in New York City on or about September 20, 1995.

-----------
PAINEWEBBER INTERNATIONAL ROBERTSON, STEPHENS & COMPANY

-----------

THE DATE OF THIS PROSPECTUS IS SEPTEMBER 15, 1995.
<PAGE>

[ALTERNATE PAGES FOR INTERNATIONAL PROSPECTUS]
THE INTERNATIONAL SHARES MAY NOT BE OFFERED OR SOLD, DIRECTLY OR INDIRECTLY,
IN THE UNITED STATES OR CANADA OR TO ANY PERSON WHO IS A UNITED STATES OR
CANADIAN PERSON, AS PART OF THE DISTRIBUTION OF THE INTERNATIONAL SHARES. ALL
APPLICABLE PROVISIONS OF THE FINANCIAL SERVICES ACT OF 1986 AND THE COMPANIES
ACT OF 1985 WITH RESPECT TO ANYTHING DONE BY ANY PERSON IN RELATION TO THE
COMMON STOCK, IN, FROM OR OTHERWISE INVOLVING THE UNITED KINGDOM, MUST BE
COMPLIED WITH. FOR A DESCRIPTION OF THESE AND OTHER RESTRICTIONS ON THE
OFFERING AND SALE OF THE SHARES, SEE "UNDERWRITING."

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

INCORPORATION OF CERTAIN INFORMATION BY REFERENCE

Agouron's Annual Report on Form 10-K for the fiscal year ended June 30, 1995
and the description of the Company's Common Stock contained in the Company's
Registration Statement on Form 8-A having an effective date of June 16, 1987
(file number 0-15609), are hereby incorporated by reference in this Prospectus,
except as superseded or modified herein. All documents filed with the
Securities and Exchange Commission (the "Commission") pursuant to Section
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 (the "Exchange
Act") after the date of this Prospectus and prior to the termination of the
offering, shall be deemed to be incorporated by reference into this Prospectus
and to be a part hereof from the date of filing of such documents. Any
statement contained in any document incorporated or deemed to be incorporated
by reference herein shall be deemed to be modified or superseded for purposes
of this Prospectus to the extent that a statement contained herein or in any
other subsequently filed document which also is or is deemed to be incorporated
by reference herein modifies or supersedes such statement. Any such statement
so modified or superseded shall not be deemed, except as modified or
superseded, to constitute a part of this Prospectus. Agouron will provide
without charge to each person, including any beneficial owner, to whom this
Prospectus is delivered, upon written or oral request of such person, a copy of
any and all of the documents that have been or may be incorporated by reference
herein (other than exhibits to such documents which are not specifically
incorporated by reference into such documents). Such requests should be
directed to the Chief Financial Officer at Agouron's executive offices at 10350
North Torrey Pines Road, La Jolla, California 92037; (619) 622-8000.
<PAGE>

[ALTERNATE PAGES FOR INTERNATIONAL PROSPECTUS]
CERTAIN UNITED STATES TAX CONSEQUENCES TO NON-UNITED STATES HOLDERS

The following is a general discussion of the material United States federal
tax consequences of the ownership and disposition of Common Stock by a person
(a "non-U.S. Holder") that, for United States federal income tax purposes, is a
nonresident alien individual, a foreign corporation, a foreign partnership, or
a foreign estate or trust, as such terms are defined in the Internal Revenue
Code of 1986, as amended (the "Code"). The discussion does not consider
specific facts and circumstances that may be relevant to a particular holder's
tax position. Each holder is urged to consult a tax advisor with respect to the
United States federal tax consequences of holding and disposing of Common
Stock, as well as any tax consequences that may arise under the laws of any
state, municipality, foreign or other taxing jurisdiction. This discussion
assumes that any distribution by the Company to a non-U.S. Holder will consist
solely of cash.

Dividends paid to a non-U.S. Holder of Common Stock will be subject to
withholding of United States federal income tax at a 30% rate or such lower
rate as may be specified by an applicable income tax treaty, unless the
dividends are effectively connected with the conduct of a trade or business of
the non-U.S. Holder within the United States. Dividends received by such non-
U.S. Holder that are effectively connected with the conduct of a trade or
business of the non-U.S. Holder within the United States are exempt from the
withholding tax described above. A non-U.S. Holder may claim this exemption by
filing Form 4224 (Exemption From Withholding of Tax on Income Effectively
Connected with the Conduct of Trade or Business in the United States) with the
Company or its dividend paying agent. In order to claim the benefit of an
applicable tax treaty rate, a non-U.S. Holder may have to file with the Company
or its dividend-paying agent an exemption or reduced treaty rate certificate or
letter in accordance with the terms of such treaty.

A non-U.S. Holder generally will not be subject to United States federal
income tax with respect to gain recognized on a disposition of Common Stock
unless (i) the gain is effectively connected with a trade or business of the
non-U.S. Holder in the United States, (ii) in the case of a non-U.S. Holder who
is a nonresident alien individual and holds the Common Stock as a capital
asset, such holder is present in the United States for 183 or more days in the
taxable year of the sale, (iii) the non-U.S. Holder has owned more than 5% of
the Common Stock at any time during the five-year period ending on the date of
the disposition of such interest and the Common Stock is, at the time of the
disposition, a United States real property interest within the meaning of
section 897(c)(1) of the Code, or (iv) the non-U.S. Holder is subject to tax
pursuant to certain provisions of the Code applicable to expatriates.

Common Stock held by a non-U.S. Holder at the time of death will be included
in such holder's gross estate for United States federal estate tax purposes,
unless an applicable estate tax treaty provides otherwise.

Under temporary United States Treasury regulations, United States information
reporting requirements and backup withholding tax will not apply to dividends
paid on Common Stock to a non-U.S. Holder at an address outside the United
States. Payment by a United States office of a broker of the proceeds of a sale
of Common Stock is subject to both backup withholding at a rate of 31% and
information reporting unless the holder certifies its non-United States status
under penalties of perjury or otherwise establishes an exemption. Information
reporting requirements (but not backup withholding) will also apply to a
payment of the proceeds of a sale of Common Stock by a foreign office of a
United States broker, or certain foreign brokers, unless the broker has
documentary evidence in its records that the holder is a non-U.S. Holder and
certain other conditions are met, or the holder otherwise establishes an
exemption.

A non-U.S. Holder may obtain a refund of any amounts withheld under the
backup withholding rules by filing the appropriate claim for refund with the
United States Internal Revenue Service.

The tax consequences to non-U.S. Holders who acquire Common Stock through
partnerships engaged in a trade or business in the United States may be
different from those discussed above.

These backup withholding and information reporting rules are under review by
the United States Treasury and their application to the Common Stock could be
changed by future regulations.

35
<PAGE>

[ALTERNATE PAGES FOR INTERNATIONAL PROSPECTUS]
UNDERWRITING

Upon the terms and subject to the conditions of the Underwriting Agreement
(the "International Underwriting Agreement") among the Company and the
Underwriters named below (the "International Underwriters"), for whom
PaineWebber International (U.K.) Ltd. and Robertson, Stephens & Company, L.P.
are acting as Managers (the "Managers"), and concurrently with the sale of an
aggregate of 2,400,000 shares of Common Stock to the U.S. Underwriters (as
defined below), the International Underwriters severally have agreed to
purchase from the Company and the Company has agreed to sell to the
International Underwriters severally, 600,000 shares of Common Stock, which in
the aggregate equal the number of shares set forth opposite the names of such
International Underwriters below:

<TABLE>
<CAPTION>
NUMBER
OF
INTERNATIONAL UNDERWRITERS SHARES
-------------------------- -------
<S> <C>
PaineWebber International (U.K.) Ltd............................... 300,000
Robertson, Stephens & Company, L.P................................. 300,000
-------
Total.......................................................... 600,000
=======
</TABLE>

The Company also has entered into an underwriting agreement (the "U.S.
Underwriting Agreement") with certain underwriters in the United States (the
"U.S. Underwriters"; and, together with the International Underwriters, the
"Underwriters") for whom PaineWebber Incorporated and Robertson, Stephens &
Company, L.P. are acting as Representatives (the "Representatives"). Subject to
the terms and conditions of the U.S. Underwriting Agreement, and concurrently
with the sale of 600,000 shares of Common Stock to the International
Underwriters, the Company has agreed to sell to the U.S. Underwriters
severally, and the U.S. Underwriters severally have agreed to purchase, an
aggregate of 2,400,000 shares of Common Stock. The initial public offering
price per share and the total underwriting discount per share will be identical
in the International Underwriting Agreement and the U.S. Underwriting Agreement
with respect to all shares of Common Stock being purchased by the Underwriters
from the Company.

In the International Underwriting Agreement and the U.S. Underwriting
Agreement, the several International Underwriters and the several U.S.
Underwriters, respectively, have agreed, subject to certain conditions, to
purchase all of the shares of Common Stock being sold pursuant to each such
Agreement (other than those covered by the over-allotment options described
below), if any are purchased. The International Underwriting Agreement provides
that, in the event of a default by an International Underwriter, in certain
circumstances, the purchase commitments of non-defaulting International
Underwriters may be increased or the International Underwriting Agreement may
be terminated, and the U.S. Underwriting Agreement provides that in the event
of a default by a U.S. Underwriter, in certain circumstances, the purchase
commitments of nondefaulting U.S. Underwriters may be increased or the U.S.
Underwriting Agreement may be terminated. The sales of Common Stock to be
purchased by the International Underwriters and the U.S. Underwriters are
conditioned upon one another.

The Company has been advised by the Managers that the Underwriters propose to
offer the shares of Common Stock in part to the public at the price to the
public set forth on the cover page of this Prospectus, and in part to certain
securities dealers (who may include Underwriters) at such price less a
concession not in excess of $1.00 per share; and that the Underwriters and such
dealers may reallow a discount not in excess of $.10 per share to other
dealers, including the Underwriters. After the commencement of the public
offering, the public offering price, the concession to selected dealers and the
discount to other dealers may be changed by the Managers and the
Representatives.

Each International Underwriter has represented and agreed that, as part of
the distribution of the International Shares, (a) it is not purchasing any
International Shares for the account of any United States or Canadian Person
(as defined below) and (b) it has not offered or sold, and will not offer or
sell, directly or indirectly, any International Shares or distribute any
prospectus relating to the International offering to any

36
<PAGE>

[ALTERNATE PAGES FOR INTERNATIONAL PROSPECTUS]
person within the United States or Canada or to any United States or Canadian
Person. Each U.S. Underwriter has represented and agreed that, as part of the
distribution of the U.S. Shares, (a) it is not purchasing any U.S. Shares for
the account of anyone other than a United States Person and (b) it has not
offered or sold, and will not offer or sell, directly or indirectly, any U.S.
Shares or distribute any prospectus to any person outside the United States or
to anyone other than a United States Person. The foregoing limitations do not
apply to stabilization transactions or to sales between the International
Underwriters and the U.S. Underwriters pursuant to the Agreement Between U.S.
and International Underwriters. As used herein, "United States or Canadian
Person" means any individual who is a resident of the United States or Canada,
or any corporation, pension, profit-sharing or other trust or other entity
organized under or governed by the laws of the United States or Canada or any
political subdivision of either thereof (other than a branch located outside
the United States and Canada of any United States or Canadian Person) and
includes any United States or Canadian branch of a person who is otherwise not
a United States or Canadian Person.

Sales may be made between the International Underwriters and the U.S.
Underwriters of such number of shares of Common Stock as may be mutually
agreed. The per share price of any shares sold shall be the price to the public
set forth on the cover page of this Prospectus less an amount not greater than
the per share amount of the concession to dealers set forth above. To the
extent there are sales between the International Underwriters and the U.S.
Underwriters, the number of shares of Common Stock initially available for sale
by the International Underwriters may be more or less than the amount specified
on the cover page of this Prospectus.

Each International Underwriter has represented and agreed that (i) it has not
offered or sold and will not offer or sell in the United Kingdom, by means of
any document, any Common Stock other than to persons whose ordinary business is
to buy or sell shares or debentures, whether as principal or agent, or in
circumstances which do not constitute an offer to the public within the meaning
of the Companies Act of 1985 of the United Kingdom, (ii) it has complied and
will comply with all applicable provisions of the Financial Services Act 1986
with respect to anything done by it in relation to the Common Stock in, from or
otherwise involving the United Kingdom and (iii) it has only issued or passed
on, and will only issue or pass on, in the United Kingdom any document received
by it in connection with the issue of the Common Stock to a person who is of a
kind described in Article 9(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1988 or is a person to whom any document may
otherwise lawfully be issued or passed on.

37
<PAGE>

LEGAL MATTERS

EXPERTS

AVAILABLE INFORMATION

38
<PAGE>

[ALTERNATE PAGES FOR INTERNATIONAL PROSPECTUS]
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION AND
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR THE UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR
THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
ITS DATE. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE REGISTERED
SECURITIES TO WHICH IT RELATES. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES
IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Incorporation of Certain Information by Reference........................ 2
Prospectus Summary....................................................... 3
Risk Factors............................................................. 5
Use of Proceeds.......................................................... 12
Capitalization........................................................... 12
Price Range of Common Stock and
Dividend Policy......................................................... 13
Dilution................................................................. 13
Selected Financial Data.................................................. 14
Management's Discussion and Analysis of Financial Condition and Results
of Operations 15
Business................................................................. 17
Management............................................................... 31
Description of Securities................................................ 33
Certain United States Tax Consequences to
Non-United States Holders............................................... 35
Underwriting............................................................. 36
Legal Matters............................................................ 38
Experts.................................................................. 38
Available Information.................................................... 38
Financial Statements..................................................... F-1
</TABLE>

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

3,000,000 SHARES

[LOGO OF AGOURON PHARMACEUTICALS, INC.]

COMMON STOCK

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

PROSPECTUS

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

PAINEWEBBER INTERNATIONAL

ROBERTSON, STEPHENS & COMPANY

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

SEPTEMBER 15, 1995

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>

PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

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

<TABLE>

<S> <C>
Securities and Exchange Commission Registration Fee........... $ 33,310
NASD Filing Fee and Expenses.................................. 10,160
Transfer Agent's Fee and Expenses............................. 10,000
Accounting Fees and Expenses.................................. 100,000
Legal Fees and Expenses....................................... 50,000
Blue Sky Fees and Expenses (including legal fees and expenses) 10,000
Printing and Engraving........................................ 85,000
Miscellaneous................................................. 51,530
--------
$350,000
========
</TABLE>

ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Section 317 of the California General Corporation Law generally provides
indemnification to officers and directors of the Company against expenses,
judgments, fines and amounts paid in settlement under certain conditions and
subject to certain limitations.

Article VII of the articles of incorporation of the Company provides that
liability of the directors of the Company for monetary damages shall be
eliminated to the fullest extent permissible under California law. Further,
Article VIII of the articles of incorporation authorizes the Company to provide
indemnification of agents (as defined in Section 317) for breach of duty to the
Company and its shareholders through bylaw provisions or through agreements with
such agents, or both, in excess of the indemnification otherwise permitted by
Section 317, subject to the limits on such excess indemnification set forth in
Section 317.

Section 3.15 of the bylaws of the Company authorizes the Company to indemnify
any person who was or is a party, or is threatened to be made a party, to any
proceeding (other than actions by or in the right of the Company to procure a
judgment in its favor) by reason of the fact that such person is or was an agent
of the Company, against expenses, judgments, fines, settlements and other
amounts actually and reasonably incurred in connection with such proceeding if
such person acted in good faith and in a manner such person reasonably believed
to be in the best interests of the Company. Section 3.15 also authorizes the
Company to indemnify any person who was or is a party, or is threatened to be
made a party, to any threatened, pending or completed action by or in the right
of the Company to procure a judgment in its favor by reason of the fact that
such person is or was an agent of the Company against expenses actually and
reasonably incurred by such person in connection with the defense or settlement
of such action if such person acted in good faith.

Any indemnification under Section 3.15 is to be made by the Company only if
authorized in the specific case upon determination that indemnification of the
agent is proper in the circumstances because the agent has met the applicable
standard of conduct required by Paragraphs 3.15.2 or 3.15.3 of the bylaws.

Pursuant to authorization provided under the articles of incorporation and the
bylaws, the Company has entered into indemnification agreements with each of its
present directors. The Company has also entered into similar agreements with
certain of the Company's officers who are not directors. Generally, the
indemnification agreements attempt to provide the maximum protection permitted
by California law as it may be amended from time to time. Moreover, the
indemnification agreements provide for certain additional indemnification.
Under such additional indemnification provisions, however, an individual will
not receive indemnification for judgments, settlements or expenses if he or she
is found liable to the Company (except to the extent the court determines he or
she is fairly and reasonably entitled to indemnity for expenses) for settlements
not approved by the Company or for settlements and expenses if the settlement is
not approved by the court. The indemnification agreements provide for the
Company to advance to the individual any and all reasonable expenses (including
legal fees and expenses) incurred in investigating or defending any such action,
suit or proceeding. In order to receive

II-1
<PAGE>

an advance of expenses, the individual must submit to the Company copies of
invoices presented to him or her for such expenses. Also, the individual must
repay such advances upon a final judicial decision that he or she is not
entitled to indemnification.

Section 3.15 of the bylaws also provides that, in the event of a determination
by the Board of Directors of the Company to purchase insurance for certain of
its agents, the Company shall purchase and maintain insurance on behalf of any
such agent against liability asserted against or incurred by the agent in such
capacity or arising out of the agent's status, whether or not the Company would
have the power to indemnify the agent against such liability under the
provisions of Section 3.15.

The Company has in effect directors and officers liability insurance policies
which insure directors and officers of the Company. The policies expire on
October 13, 1995 and provide a combined total limit of $5,000,000 per policy
year. Although the Company intends to renew the policies on or before their
expiration date, there can be no assurance that the policies will be renewed on
terms acceptable to the Company. Under the policies, the directors and officers
of the Company are insured against loss arising from claims made against them
due to wrongful acts while acting in their individual and collective capacities
as directors and officers, subject to certain exclusions. In addition, the
policies insure the Company against losses for which its directors and officers
are entitled to indemnification, subject to a retention of $250,000 payable by
the Company. The policies are "claims made" policies and provide coverage only
for losses arising out of claims first made against the Company and reported to
the insurer during the policy period.

ITEM 16. EXHIBITS

The following is a list of all exhibits filed as part of the Registration
Statement:

Exhibit
Number Description
------ -----------

1.1++ Form of U.S. Underwriting Agreement (Proof of July 29, 1995).

1.2++ Form of International Underwriting Agreement (Proof of July 28, 1995).

4* Restated Articles of Incorporation.

5++ Opinion of Ferris & Britton, A P.C., regarding legality.

23.1 Consent of Independent Accountants.

23.2++ Consent of Counsel for Company (contained in Exhibit 5).

24++ Power of Attorney of Board of Directors (contained on signature page
of this Registration Statement.
--------
* Incorporated by Reference to Form 10-Q for the Quarter ended December 31,
1992.

++ Previously filed.

ITEM 17. UNDERTAKINGS

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling the registrant,
pursuant to the foregoing provisions, 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 Securities 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 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 Securities Act and will be governed by the final
adjudication of such issue.

II-2
<PAGE>

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 this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.

(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 that, for purposes of determining
any liability under the Securities Act, each filing of the registrant's Annual
Report pursuant to Section 13(a) or Section 15(d) of the Exchange Act (and,
where applicable, each filing of an employee benefit plan's Annual Report
pursuant to Section 15(d) of the Exchange Act) that is incorporated by reference
in the registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.

II-3
<PAGE>

SIGNATURES

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS AMENDMENT TO
REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO
DULY AUTHORIZED, IN THE CITY OF SAN DIEGO, STATE OF CALIFORNIA, ON THE 14TH DAY
OF SEPTEMBER, 1995.

AGOURON PHARMACEUTICALS, INC.

BY: /s/ PETER JOHNSON
-------------------------
PETER JOHNSON,
PRESIDENT

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT TO
REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>

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

Peter Johnson President, Chief Executive September 14, 1995
----------------------------- Officer and Director
Peter Johnson

Steven S. Cowell Vice President, Finance and September 14, 1995
----------------------------- Chief Financial Officer
Steven S. Cowell

Gary E. Friedman Vice President, General Counsel, September 14, 1995
----------------------------- Secretary and Director
Gary E. Friedman

*John N. Abelson Director September 14, 1995
-----------------------------
John N. Abelson

*Patricia M. Cloherty Director September 14, 1995
-----------------------------
Patricia M. Cloherty

*A.E. Cohen Director September 14, 1995
-----------------------------
A.E. Cohen

*Michael E. Herman Director September 14, 1995
-----------------------------
Michael E. Herman

*Irving S. Johnson Director September 14, 1995
-----------------------------
Irving S. Johnson

*Antonie T. Knoppers Director September 14, 1995
-----------------------------
Antonie T. Knoppers

*Melvin I. Simon Director September 14, 1995
-----------------------------
Melvin I. Simon

*By: Gary E. Friedman
------------------------
Gary E. Friedman
Attorney in Fact

</TABLE>

II-4
<PAGE>

EXHIBIT INDEX

<TABLE>
<CAPTION>
Exhibit
Number Description Page
------ ----------- ------
<C> <S> <C>

1.1++ Form of U.S. Underwriting Agreement (Proof of July 29, 1995)

1.2++ Form of International Underwriting Agreement (Proof of July 28, 1995).

4* Restated Articles of Incorporation

5++ Opinion of Ferris & Britton, A P.C., regarding legality

23.1 Consent of Independent Accountants

23.2++ Consent of Counsel for Company (contained in Exhibit 5)

24++ Power of Attorney of Board of Directors (contained on signature
page of this Registration Statement)

</TABLE>
----------------
* Incorporated by Reference to Form 10-Q for the Quarter ended December 31,
1992.

++ Previously filed.

<PAGE>

Exhibit 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-3 of our report dated July 25, 1995, except as
to Notes 1, 4 and 9, which are as of August 24, 1995, relating to the financial
statements of Agouron Pharmaceuticals, Inc., which appears in such Prospectus.
We also consent to the references to us under the headings "Experts" and
"Selected Financial Data" in such Prospectus. However, it should be noted that
Price Waterhouse LLP has not prepared or certified such "Selected Financial
Data."

Price Waterhouse LLP

San Diego, California

September 14, 1995