AGOURON PHARMACEUTICALS INC
S-4/A, 1998-11-05
PHARMACEUTICAL PREPARATIONS
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        As filed with the Securities and Exchange Commission on November 5, 1998
                                                      Registration No. 333-61317



                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                             -----------------------
                                 AMENDMENT NO. 4
                                       TO
                                    FORM S-4
                             REGISTRATION STATEMENT
                                      UNDER
                           THE SECURITIES ACT OF 1933
                          Agouron Pharmaceuticals, Inc.
             (Exact name of registrant as specified in its charter)

California                            2830                            33-0061928
(State or other           (Primary Standard Industrial          (I.R.S. Employer
jurisdiction of           Classification Code Number)        Identification No.)
incorporation or
organization)

            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:
                  John M. Dunn, Esq. and Stanton D. Wong, Esq.
                          PILLSBURY MADISON & SUTRO LLP
                                101 West Broadway
                                   Suite 1800
                           San Diego, California 92101

     Approximate date of commencement of proposed sale to the public: As soon as
practicable after approval by the shareholders.
     If the  securities  being  registered  on this  Form are being  offered  in
connection  with the formation of a holding company and there is compliance with
General Instruction G, 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,  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(d)
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. [ ]
                             -----------------------
     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.









                [Agouron Pharmaceuticals Letterhead appears here]

   
                                November 12, 1998


         Dear Shareholder:

         You are cordially  invited to attend the Annual Meeting of Shareholders
         of  Agouron  Pharmaceuticals,  Inc.  which  will be held on  Wednesday,
         December  16,  1998,  at 10:00 a.m.,  San Diego time,  at the  Sheraton
         Grande  Torrey  Pines,   10950  North  Torrey  Pines  Road,  La  Jolla,
         California 92037.
    
         At the  Annual  Meeting,  shareholders  will be asked to  consider  and
         approve a proposal (the "Divisional  Stock  Proposal"),  which is being
         recommended by your Board of Directors  (the "Board"),  to increase the
         number of shares of authorized  Common Stock to 150,000,000  shares, to
         create  two  series  of  Common  Stock  that are  intended  to  reflect
         separately  the  performances  of  Agouron's   Oncology  Division  (the
         "Oncology    Division")    and   its   other    businesses    ("Agouron
         Pharmaceuticals")  and  to  authorize  the  issuance  of  one  or  more
         additional series of Common Stock by the Board from undesignated shares
         of Common  Stock;  75,000,000  shares will be initially  designated  as
         Agouron Pharmaceuticals Common Stock ("Agouron  Pharmaceuticals Stock")
         and  25,000,000  will  be  initially  designated  as  Agouron  Oncology
         Division Common Stock ("Oncology Division Stock").  Undesignated shares
         of  Common  Stock  may be used for new  series  of  Common  Stock or to
         increase or decrease shares of an existing series of Common Stock.  The
         Company is  currently  investigating  the  availability  of names under
         which  the  Oncology  Division  will  operate.  The  exact  name of the
         division and of the  divisional  stock will be determined and announced
         prior to the implementation of the Divisional Stock Proposal.
   
         If the Divisional Stock Proposal is approved by the  shareholders,  the
         Board  will have the  authorization  to  create a new  series of Common
         Stock intended to reflect the performance of the Oncology Division (the
         "Oncology  Division  Stock").   Each  outstanding  share  of  Agouron's
         existing  Common Stock (the "Existing  Common Stock") will be converted
         into one share of a series of Common  Stock  intended  to  reflect  the
         performance  of the  Agouron  Pharmaceuticals  Division  ("the  Agouron
         Pharmaceuticals  Stock"),  and 0.5 shares of Oncology  Division  Stock,
         intended to reflect  the  performance  of the  Oncology  Division.  The
         transactions contemplated by the Divisional Stock Proposal are intended
         to be tax free for both the  Company and its  shareholders  except with
         respect to cash received in lieu of fractional shares.
    
         The  Divisional  Stock  Proposal is designed to separate the  business,
         cash flows and reported operating results of the Oncology Division from
         the rest of the Company's  business,  enable better capital  allocation
         decisions, charge the managers of each Division with the responsibility
         of  maximizing  the  returns  from their  businesses,  and  provide the
         opportunity  to structure more focused  incentives to management  teams
         and employees.  In addition,  this new equity structure should increase
         the  Company's   flexibility  in  raising  capital  and  responding  to
         acquisitions and other strategic  opportunities by enabling the Company
         to issue Agouron  Pharmaceuticals  Stock or Oncology  Division Stock as
         appropriate under the particular circumstances.

         By providing  investors with separate  classes of Common Stock intended
         to reflect the respective  performances of Agouron  Pharmaceuticals and
         the Oncology Division,  we believe the Divisional Stock Proposal should
         allow  investors  and analysts to gain a better  understanding  of each
         business and enable  investors  to invest in either or both  securities
         depending upon their individual


<PAGE>


         investment  objectives.  The Board believes that the  Divisional  Stock
         Proposal  should result in greater  market  recognition of the value of
         each of these  businesses,  while at the same time enabling the Company
         to preserve the operational and financial  benefits it currently enjoys
         as a single company.

         The  Divisional  Stock  Proposal will not result in a  distribution  or
         spin-off  to  shareholders  of any  assets or  liabilities  of  Agouron
         Pharmaceuticals,   Inc.  or  its   subsidiaries.   Holders  of  Agouron
         Pharmaceuticals  Stock and the Oncology  Division  Stock will be common
         shareholders  of the Company and, as such, will be subject to all risks
         associated with an investment in Agouron Pharmaceuticals,  Inc. and all
         of its businesses, assets and liabilities.  Following implementation of
         the Divisional Stock Proposal,  there can be no assurance as to whether
         or to what  extent the  market  values of the  Agouron  Pharmaceuticals
         Stock  and the  Oncology  Division  Stock  will  reflect  the  separate
         performance of Agouron  Pharmaceuticals  and the Oncology Division,  or
         that the combined  market values of the Agouron  Pharmaceuticals  Stock
         and the Oncology  Division  Stock will equal or exceed the market value
         of the  Existing  Common  Stock.  In  addition,  implementation  of the
         Divisional  Stock  Proposal  will,  to  an  extent,  make  the  capital
         structure  of the Company  more  complex and may give rise to occasions
         when the interests of the holders of Agouron  Pharmaceuticals Stock and
         the holders of the Oncology Division Stock may diverge or conflict.

         At the Annual Meeting,  shareholders will also be asked to consider and
         approve  proposals  to  increase  the  number of shares  available  for
         issuance under the Company's 1996 Stock Option Plan and to increase the
         number of shares  available for purchase  under the Company's  Employee
         Stock Purchase Plan.  Additionally,  the shareholders  will be asked to
         elect nine  directors,  all of whom shall  serve  until the 1999 Annual
         Meeting of  Shareholders  and until the election and  qualification  of
         their   successors,   and  to  ratify  the  selection  of   independent
         accountants.

         The Board has carefully  considered the  Divisional  Stock Proposal and
         each of the other  proposals set forth in the Notice of Annual  Meeting
         and  believes  that  the  approval  of  each  of the  proposals  by the
         shareholders   is  in  the  best  interests  of  the  Company  and  the
         shareholders.  Accordingly,  the Board unanimously  recommends that the
         shareholders  approve the  Divisional  Stock  Proposal  and each of the
         other   proposals  set  forth  in  the  Notice  of  Annual  Meeting  of
         Shareholders  which are described in more detail in the attached  Proxy
         Statement/Prospectus.  The Board also recommends that shareholders vote
         for the  nine  nominees  for  director  listed  in the  attached  Proxy
         Statement/Prospectus.

         To  expedite  the  admissions  process for the Annual  Meeting,  please
         indicate if you will be attending by marking the appropriate box on the
         enclosed proxy card and returning it to our transfer agent, ChaseMellon
         Shareholder Services.

         Regardless  of whether  you plan to be  present at the Annual  Meeting,
         your  shares  should  be  represented  and  voted.  Therefore,   please
         complete,  sign and return  the  enclosed  Proxy  Card in the  envelope
         provided  at your  earliest  convenience,  whether  or not you  plan to
         attend.

                  Sincerely,

                  /s/ Peter Johnson

                  Peter Johnson
                  President and Chief Executive Officer



<PAGE>


                          AGOURON PHARMACEUTICALS, INC.
                          10350 North Torrey Pines Road
                         La Jolla, California 92037-1020
   
                    NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
                         TO BE HELD ON DECEMBER 16, 1998

     The   Annual   Meeting  of   Shareholders   (the   "Meeting")   of  Agouron
Pharmaceuticals,  Inc., a California corporation (the "Company") will be held at
the Sheraton  Grande  Torrey  Pines,  10950 North  Torrey Pines Road,  La Jolla,
California  92037,  on Wednesday,  December 16, 1998,  at 10:00 a.m.,  San Diego
time, for the following purposes:
    
         1.   To elect nine  directors of the  Company,  all of whom shall serve
              until the 1999  Annual  Meeting  of  Shareholders  (and  until the
              election and qualification of their successors).

         2.   To consider and vote upon a proposal  (the  "Divisional  Stock
              Proposal")  to amend and restate the Company's  Articles of
              Incorporation to (i) increase the number of shares of authorized
              Common Stock to  150,000,000  shares, of which  75,000,000  shares
              would  initially be  esignated  as  Agouron Pharmaceuticals  Stock
              and  25,000,000  shares would  initially be  designated  as
              Oncology  Division Common  Stock,  (ii) provide  authorization  to
              the Board to  designate  and issue any  undesignated shares in one
              or more additional series of Common Stock, to determine the number
              of shares,  rights, preferences,  privileges and restrictions of
              any such series,  and to increase or decrease the number of shares
              of any existing series, and (iii) convert each share of the
              Company's  existing  Common Stock into one share of Agouron
              Pharmaceuticals Stock and 0.5 shares of Oncology  Division  Stock,
              all as described in the attached Proxy Statement/Prospectus.

         3.   To consider and vote upon a proposal to amend the  Company's  1996
              Stock Option Plan to increase the number of shares  available  for
              issuance under such plan by 1,000,000 shares.

         4.   To  consider  and vote  upon a  proposal  to amend  the  Company's
              Employee  Stock  Purchase  Plan to  increase  the number of shares
              available for purchase under such plan by 200,000 shares.

         5. To ratify the selection of independent accountants.

         6.   To consider  and act upon such other  business as may  properly be
              presented  to the  Meeting or any  adjournments  or  postponements
              thereof.
   
     Only shareholders of record as of the close of business on October 19, 1998
will be entitled to notice of and to vote at the Meeting or any  adjournments or
postponements  thereof.  A list of shareholders  entitled to vote at the Meeting
will be  available  for  inspection  at the  offices of the  Company for 10 days
before the Meeting.
    
     All  shareholders  are  cordially  invited to attend the Meeting in person.
Regardless of whether you plan to attend the Meeting,  please complete, sign and
date the  enclosed  Proxy and return it promptly in the  accompanying  envelope,
postage for which has been provided if mailed in the United  States.  The prompt
return of Proxies  will  ensure a quorum  and save the  Company  the  expense of
further solicitation. Any shareholder returning the enclosed Proxy may revoke it
prior to its  exercise  by voting in person at the Meeting or by filing with the
Secretary of the Company a written revocation or a duly executed Proxy bearing a
later date.

                           By Order of the Board of Directors


                           /s/ Gary E. Friedman, Secretary
   
La Jolla, California
November 12, 1998
    

<PAGE>


   
                                TABLE OF CONTENTS


Page

Proxy Statement/Prospectus.....................................................1

Available Information..........................................................2

Incorporation of Certain Documents by Reference................................2

Safe Harbor Cautionary Statement...............................................3

Questions and Answers..........................................................4

Proxy Statement Summary........................................................8

         The Annual Meeting....................................................8
         The Company..........................................................10
         The Divisional Stock Proposal........................................11
         Comparison of Existing Common Stock with Agouron Pharmaceuticals
                   Stock and Oncology Division Stock..........................14
         Agouron Pharmaceuticals, Inc. Selected Consolidated Financial Data...19
         Agouron Pharmaceuticals Selected Financial Data......................20
         Agouron Oncology Division Selected Financial Data....................21
         Price Range of Common Stock and Dividend Policy......................22

Risk Factors..................................................................23

General.......................................................................37

Proposal 1 - Election of Directors............................................39

Proposal 2 - The Divisional Stock Proposal....................................42

         General..............................................................42
         Background of and Reasons for the Divisional Stock Proposal..........43
         Vote Required........................................................46
         Recommendation of the Board..........................................46
         Management and Allocation Policies...................................46
         Description of Capital Stock.........................................52
         Oncology Division Designated Shares..................................56
         Increase in Authorized Common Stock..................................57
         Determinations by the Board..........................................57
         Dividend Policy......................................................58
         Nasdaq National Market Listing.......................................58
         Exchange Procedures..................................................58
         Stock Transfer Agent and Registrar...................................58
         Financial Advisor....................................................58
         No Dissenters' Rights................................................58
         Material Federal Income Tax Considerations...........................59
         Amendment of Stock Plans.............................................61
         Restatement of Rights Agreement......................................62
         Anti-Takeover Considerations.........................................64

    
<PAGE>




                           TABLE OF CONTENTS (cont'd)
   
Proposal 3 - Amendment of the 1996 Stock Option Plan..........................66

Proposal 4 - Amendment of the Employee Stock Purchase Plan....................71

Proposal 5 - Ratification of Selection of Independent Accountants.............73

Security Ownership of Certain Beneficial Owners and Management................74

Executive Compensation........................................................75

Certain Transactions..........................................................81

Submission of Shareholder Proposals...........................................81

Legal Matters.................................................................81

Experts.......................................................................81

Other Matters.................................................................81

    
         Annex I - Index of Defined Terms

         Annex II - Proposed Restated Articles of Incorporation
   
         Annex III - Agouron Pharmaceuticals, Inc.
                  Management's Discussion and Analysis
                  Consolidated Financial Statements

         Annex IV - Agouron Pharmaceuticals
                  Description of Business
                  Management's Discussion and Analysis
                  Combined Financial Statements of Agouron Pharmaceuticals

         Annex V - Agouron Oncology Division
                  Description of Business
                  Management's Discussion and Analysis
                  Combined Financial Statements of Agouron Oncology Division
    
         Annex VI - - Amended and Restated Agouron Stock Option Plan

         Annex VII - Amended and Restated Employee Stock Purchase Plan







<PAGE>

   
                           PROXY STATEMENT/PROSPECTUS
                         ANNUAL MEETING OF SHAREHOLDERS
                         TO BE HELD ON DECEMBER 16, 1998

         This Proxy  Statement/Prospectus  ("Proxy  Statement")  is furnished in
connection  with the  solicitation  of  Proxies by and on behalf of the Board of
Directors  (the  "Board")  of  Agouron   Pharmaceuticals,   Inc.,  a  California
corporation  ("Agouron"  or the  "Company"),  for  use at the  Company's  Annual
Meeting of Shareholders  for the fiscal year ended June 30, 1998 (the "Meeting")
to be held at the Sheraton  Grande Torrey Pines,  10950 North Torrey Pines Road,
La Jolla,  California 92037, on Wednesday,  December 16, 1998 at 10:00 a.m., San
Diego time, and at any  adjournments or postponements  thereof.  At the Meeting,
shareholders  will be asked (i) to elect nine  directors  of the Company to hold
office until the 1999 Annual Meeting of Shareholders  and until their successors
are elected and  qualified,  (ii) to increase the number of shares of authorized
Common Stock to 150,000,000  shares,  of which 75,000,000 shares would initially
be designated as Agouron Pharmaceuticals Common Stock ("Agouron  Pharmaceuticals
Stock") and 25,000,000  shares would initially be designated as Agouron Oncology
Division Common Stock ("Oncology Division Stock"),  to provide  authorization to
the  Board  to  designate  and  issue  any  undesignated  shares  in one or more
additional  series of Common  Stock,  determine  the number of  shares,  rights,
preferences,  privileges and  restrictions  of any such series,  and increase or
decrease the number of shares of any existing series,  and to convert each share
of the Company's  existing Common Stock ("Existing Common Stock") into one share
of Agouron  Pharmaceuticals Stock and 0.5 shares of Oncology Division Stock (the
"Divisional Stock  Proposal"),  (iii) to increase the number of shares available
for issuance  under the  Company's  1996 Stock Option Plan by 1,000,000  shares,
(iv) to increase the number of shares available for purchase under the Company's
Employee Stock Purchase Plan by 200,000  shares,  (v) to ratify the selection of
the Company's independent accountants,  and (vi) to transact such other business
as may properly be presented to the Meeting or any adjournments or postponements
thereof.  This Proxy  Statement also  constitutes  the Prospectus of the Company
with  respect  to the  shares of  Agouron  Pharmaceuticals  Stock  and  Oncology
Division Stock to be issued  pursuant to the Divisional  Stock  Proposal.  It is
anticipated that this Proxy Statement and the accompanying  Proxy will be mailed
to the Company's shareholders on or about November 12, 1998. An Index of Defined
Terms showing the pages on which certain terms used in this Proxy  Statement are
defined is included as Annex I.
    
     See "Risk Factors" beginning on page 23 for certain information that should
be considered in connection with an evaluation of the Divisional Stock Proposal.

         The Existing Common Stock is traded on the Nasdaq National Market under
the symbol AGPH. There has been no prior market for the Agouron  Pharmaceuticals
Stock or the Oncology  Division  Stock.  Application  will be made to The Nasdaq
Stock  Market,  Inc.  to  redesignate  the  Existing  Common  Stock  as  Agouron
Pharmaceuticals  Stock,  to be quoted on the Nasdaq  National  Market  under the
symbol AGPH, and for the quotation of the Oncology  Division Stock on the Nasdaq
National Market under a separate symbol to be determined.

         Shareholders  should  note that if the  Divisional  Stock  Proposal  is
approved,  holders  will  not have to send in  their  certificates  representing
shares of Existing  Common Stock to be exchanged for  certificates  representing
shares of Agouron  Pharmaceuticals Stock. DO NOT MAIL YOUR EXISTING COMMON STOCK
CERTIFICATES  TO EITHER THE COMPANY OR ITS  TRANSFER  AGENT IN  CONNECTION  WITH
THESE TRANSACTIONS.

     The Board has carefully  considered the Divisional  Stock Proposal and each
of the other proposals set forth in the Notice of Annual Meeting of Shareholders
and believes that the approval of these proposals by the  shareholders is in the
best  interests  of the Company  and the  shareholders.  Accordingly,  the Board
unanimously  recommends  that the  shareholders  approve  the  Divisional  Stock
Proposal and each of the other  proposals  which are described in more detail in
this Proxy Statement.

     THESE  SECURITIES  HAVE NOT BEEN APPROVED OR  DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISION NOR HAS THE SECURITIES
AND  EXCHANGE  COMMISSION  OR ANY STATE  SECURITIES  COMMISSION  PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
   
Dated:  November 12, 1998
    

<PAGE>




                              AVAILABLE INFORMATION

         The  Company  is  subject  to  the  informational  requirements  of the
Securities  Exchange  Act of 1934,  as amended  (the  "Exchange  Act"),  and, in
accordance therewith, files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission").  Such reports,  proxy
statements,  and other  information  filed by the Company can be  inspected  and
copied at the public  reference  facilities  maintained by the Commission at 450
Fifth Street, N.W., Room 1024,  Washington,  D.C. 20549, and at the Commission's
Regional  Offices at Seven World Trade Center,  13th Floor,  New York,  New York
10048,  and Citicorp  Center,  500 West  Madison  Street,  Suite 1400,  Chicago,
Illinois  60661.  Copies  of such  material  can be  obtained  from  the  Public
Reference  Section  of the  Commission  at 450 Fifth  Street,  N.W.,  Room 1024,
Washington,  D.C.  20549, at prescribed  rates or by accessing the  Commission's
World Wide Web site at http://www.sec.gov.

         The Company has filed a registration statement on Form S-4 (referred to
herein,  together  with  all  amendments  and  exhibits,  as  the  "Registration
Statement")  with the  Commission  under the  Securities Act of 1933, as amended
(the "Securities Act"), covering the shares of Agouron Pharmaceuticals Stock and
Oncology  Division  Stock  issuable  in  connection  with the  Divisional  Stock
Proposal.  This Proxy  Statement,  which also  constitutes the Prospectus of the
Company filed as part of the Registration Statement, does not contain all of the
information set forth in the  Registration  Statement and the exhibits  thereto,
certain parts of which are omitted in accordance  with the rules and regulations
of the  Commission.  For further  information,  reference  is hereby made to the
Registration  Statement,  which is available for  inspection  and copying as set
forth above.  Statements contained in this Proxy Statement as to the contents of
any contract or other document which is filed as an exhibit to the  Registration
Statement  are  necessarily  summaries  thereof,  and  each  such  statement  is
qualified  in its  entirety by  reference  to the full text of such  contract or
document.

                 INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
   
         The following  documents  which have been filed by the Company with the
Commission (File No 0-15609) are incorporated herein by reference: Annual Report
on Form 10-K for the fiscal  year ended June 30,  1998 and  Quarterly  Report on
Form 10-Q for the quarter ended  September 30, 1998. All documents  filed by the
Company  pursuant  to Section  13(a),  13(c),  14 or 15(d) of the  Exchange  Act
subsequent  to the date of this  Proxy  Statement  and  prior to the date of the
Meeting  shall be  deemed  to be  incorporated  by  reference  into  this  Proxy
Statement and to be a part hereof from the date any such document is filed.  Any
statement  contained in a document  incorporated or deemed to be incorporated by
reference  herein shall be deemed to be modified or  superseded  for purposes of
this Proxy Statement 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 so  modified  or
superseded, to constitute a part of this Proxy Statement.

         This Proxy Statement  incorporates  documents by reference that are not
presented  herein or delivered  herewith.  A copy of such  documents  (excluding
exhibits  unless such exhibits are  specifically  incorporated by reference into
the  information  incorporated  herein) will be provided  without charge to each
person,  including any beneficial owner, to whom a Proxy Statement is delivered,
upon oral or written request of any such person.  Requests should be directed to
Agouron  Corporate  Communications,  10350 North  Torrey  Pines Road,  La Jolla,
California 92037;  telephone (619) 622-3000.  In order to ensure timely delivery
of the documents, any request should be made by November 23, 1998.

    

<PAGE>


                PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
                        SAFE HARBOR CAUTIONARY STATEMENT

         This  Proxy  Statement  contains   forward-looking   statements.   Such
statements, including but not limited to those regarding anticipated expenses of
the   Oncology   Division,   sales  and   revenues   attributable   to   Agouron
Pharmaceuticals,  timing and  initiation  of clinical  trials,  development  and
marketing of future products,  the anticipated  benefits of the Divisional Stock
Proposal  and  other   projections,   estimates  and  statements  of  belief  or
expectancy,  are subject to certain  risks and  uncertainties  which could cause
actual results to differ materially from those projected. See "Important Factors
Regarding  Forward-Looking  Statements"  attached as Exhibit 99 to the Company's
Annual  Report on Form 10-K for the fiscal  year  ended June 30,  1998 and "Risk
Factors."  Important  factors which may affect these projections or expectations
include, but are not limited to: the impact of competitive products,  regulatory
approvals, changes in the overall economy, availability of future financing, the
potential  divergence of interests of holders of Agouron  Pharmaceuticals  Stock
and Oncology Division Stock,  potential changes in policies without  shareholder
approval,  and other  unanticipated  events.  Readers are cautioned not to place
undue reliance on these forward-looking  statements,  which speak only as of the
date hereof. The Company undertakes no obligation to publicly release the result
of any  revisions  to  these  forward-looking  statements  which  may be made to
reflect  events  or  circumstances  after  the date  hereof  or to  reflect  the
occurrence of unanticipated events.


<PAGE>


                              QUESTIONS AND ANSWERS
       RELATING TO THE DIVISIONAL STOCK PROPOSAL AND RELATED TRANSACTIONS

Q:       WHY AM I RECEIVING THIS PROXY STATEMENT?

A:       In addition to the standard Annual Meeting business of electing
         directors and ratifying  accountants,  the oard is  distributing  this
         Proxy  Statement to shareholders of the Company in connection with a
         proposal that would,  among other things,  create two new series of
         Common Stock intended to separately reflect the performance of (i) the
         Company's  Oncology Division and (ii) the Company's  antiviral
         business and all of the other  businesses of the Company that are not
         attributed  to the Oncology  Division.  The  Divisional Stock Proposal
         also  authorizes  the Board to establish  additional  series of Common
         Stock.  The Board is also  distributing  this Proxy  Statement in
         connection with proposals to amend the Company's stock option
         and stock purchase plans.

         The Board of  Directors  is seeking  your proxy to vote in favor of the
         Divisional  Stock Proposal and the other proposals listed in this Proxy
         Statement at its annual meeting of shareholders (the "Meeting").


Q.       WHAT IS A DIVISIONAL STOCK?

A.       Divisional  stock,  which is also  referred to as  "tracking  stock" or
         "letter stock," represents shares of common stock of a corporation,  in
         this case the Company, which are intended to "track" the performance of
         a group of assets or a division of the Company.  The Restated  Articles
         of  Incorporation of the Company would,  among other things,  authorize
         two new  series  of  divisional  stock,  to be  designated  as  Agouron
         Pharmaceuticals Stock and Oncology Division Stock.

                  - The Oncology  Division  Stock,  when issued,  is intended to
                  reflect the separate  performance of the Oncology  Division of
                  the Company,  which is engaged in research and  development of
                  pharmaceuticals for the treatment of cancer.

                  - The Agouron  Pharmaceuticals Stock, when issued, is intended
                  to  reflect  the  separate   performance   of  the   Company's
                  anti-viral business and all of the other remaining  businesses
                  of the  Company  that  are  not  attributed  to  the  Oncology
                  Division.

         Although the two series of  Divisional  Stock are intended to track the
         performance  of the  Company's  different  operating  divisions,  these
         divisions are not separate legal  entities.  As a  consequence,  assets
         allocated to each division  remain assets of the Company as a whole and
         will be available  to satisfy  liabilities  of the  Company,  including
         obligations arising from lawsuits and indebtedness related to the other
         division's business.

Q.       WHEN AND WHERE WILL THE ANNUAL MEETING BE HELD?

A.       The Meeting will be held on  Wednesday,  December  16,  1998,  at 10:00
         a.m., San Diego time, at the Sheraton Grande Torrey Pines,  10950 North
         Torrey Pines Road, La Jolla, California 92037.

Q.       WHAT DO I NEED TO DO NOW?

A.       Just mail in your  completed  and  signed  proxy  card in the  enclosed
         return  envelope  as  soon  as  possible  so that  your  shares  may be
         represented at the Meeting.



<PAGE>


Q.       WHAT DOES THE BOARD OF DIRECTORS RECOMMEND?

A.       The Board of Directors has unanimously approved each proposal, believes
         that the  adoption  of each  proposal is in the best  interests  of the
         Company and its shareholders  and unanimously  recommends that you vote
         "FOR" the  election of the nine  nominees  for  director  listed in the
         Proxy Statement and "FOR" each of proposals 2 through 5.

Q.       WHAT VOTE IS REQUIRED TO APPROVE THE DIVISIONAL STOCK PROPOSAL AND
         THE OTHER PROPOSALS?

A.       The approval of the Divisional Stock Proposal  requires the affirmative
         vote of the  holders of a  majority  of the  outstanding  shares of the
         Existing  Common  Stock.  The  approval of each of the other  proposals
         requires  the  affirmative  vote of the  holders of a  majority  of the
         shares  represented  in person or by proxy and  voting at the  meeting,
         provided that those affirmatively voted shares also constitute at least
         a majority of the required quorum.

Q.       WILL THE DIVISIONAL STOCK PROPOSAL RESULT IN A CHANGE IN
         CONTROL OF AGOURON?

A.       There will be no change in control of the Company if the Divisional
         Stock Proposal is approved.

Q.       WILL THE DIVISIONAL STOCK PROPOSAL RESULT IN A SPIN-OFF?

A.       No. The Divisional  Stock Proposal will not result in a distribution or
         spin-off  of  any  assets  or   liabilities   of  the  Company  or  its
         subsidiaries.  Holders of Agouron  Pharmaceuticals  Stock and  Oncology
         Division Stock will continue to be common  shareholders  of the Company
         and,  as  such,  will  be  subject  to all  risks  associated  with  an
         investment  in  the  Company  and  all of its  businesses,  assets  and
         liabilities.

Q.       WHY DID THE COMPANY DECIDE TO DISTRIBUTE A DIVISIONAL STOCK AS OPPOSED
         TO SPINNING OFF THE ONCOLOGY
         ASSETS?

A.       While both alternatives would separate the two operating  divisions and
         allow  for  separate  market  valuations  of each  division,  the Board
         believed  that a spin-off  of a separate  company  owning the  oncology
         assets could create  significant  tax,  credit and control  issues.  By
         issuing a divisional  stock,  the Company will retain  ownership of its
         technologies,  which the Board  considers  to be a long-term  strategic
         benefit to all of the Company's  shareholders.  In addition, as part of
         one company,  each  division will be in a position to benefit from cost
         savings  and  synergies  with the  other  compared  to the  costs  each
         division would incur if it operated separately.

Q.       SHOULD I SEND IN MY STOCK CERTIFICATES?
   
A.       No. If the Divisional  Stock Proposal is approved,  then upon amendment
         and  restatement of the Company's  Articles of  Incorporation,  each of
         your shares of Existing  Common Stock will be  automatically  converted
         into one  share of  Agouron  Pharmaceuticals  Stock  and 0.5  shares of
         Oncology Division Stock.
    
         In connection with this conversion,  the stock certificate representing
         your shares of Existing  Common Stock will  represent  ownership of the
         same  number of shares of Agouron  Pharmaceuticals  Stock.  The Company
         will send to you your certificates for Oncology Division Stock.



<PAGE>


Q.       WHAT DO I NEED TO DO TO RECEIVE MY CERTIFICATES FOR THE ONCOLOGY
         DIVISION STOCK?

A.       You do not need to do anything  to receive  your  certificates  for the
         Oncology  Division  Stock.  If all of the events take place as planned,
         certificates  representing whole shares of Oncology Division Stock (and
         cash in lieu of fractional  shares) will be mailed to all  shareholders
         after the Effective Date as directed by the Board.

Q.       WHEN WILL ALL OF THIS TAKE PLACE?
   
A.       If the Divisional  Stock Proposal is approved,  the Company  intends to
         file its Restated Articles of Incorporation with the Secretary of State
         of California  shortly after the Meeting.  If all of these events occur
         as  planned,  this event  (the  "Effective  Date")  would take place in
         December.  However,  the Board of Directors  could choose to effect the
         Divisional  Stock  Proposal  at a  later  time,  or not to  effect  the
         Divisional Stock Proposal, depending on the circumstances at the time.
    
Q.       WHAT ARE THE TAX CONSEQUENCES TO ME?

A.       The  implementation  of the Divisional Stock Proposal is intended to be
         tax-free to shareholders  for federal income tax purposes  (except with
         respect to any cash received in lieu of  fractional  shares) based upon
         the  facts and law at the time of this  Proxy  Statement.  For  federal
         income tax purposes,  cash received for  fractional  shares will likely
         result  in  recognition  of gain or  loss.  You  should  consult  a tax
         advisor.

Q.       WHAT WILL MY EXISTING COMMON STOCK REPRESENT IF EVERYTHING TAKES PLACE
         AS PROPOSED?
   
A.       Upon the completion of all the events as planned,  the equity  interest
         in the Company  represented by all the Existing Common Stock will equal
         the equity interest of the total of the Agouron  Pharmaceuticals  Stock
         and the Oncology  Division  Stock.  Each share of Existing Common Stock
         will be converted into one share of Agouron  Pharmaceuticals  Stock and
         0.5 shares of Oncology Division Stock.
    
Q.       WILL THE AGOURON PHARMACEUTICALS STOCK AND THE ONCOLOGY DIVISION STOCK
         BE LISTED ON THE NASDAQ NATIONAL MARKET?

A.       The   Company   will   file  an   application   to  list  the   Agouron
         Pharmaceuticals  Stock and the  Oncology  Division  Stock on the Nasdaq
         National Market. The Agouron Pharmaceuticals Stock will be traded under
         the symbol AGPH and the Oncology  Division Stock will be traded under a
         separate symbol to be determined.

Q.       WHAT VOTING RIGHTS WILL I HAVE?

A.       After the Effective  Date,  each share of Agouron  Pharmaceuticals
         Stock will be entitled to one vote and each share of Oncology  Division
         Stock will have a number of votes  (including  a fraction  of one vote)
         equal to the ratio of the weighted average market  capitalization  of
         the Oncology  Division Stock and the Agouron  Pharmaceuticals  Stock to
         be  initially  determined  on the  earlier  of the  90th day  following
         commencement  of trading of the  Oncology  Division Stock or the record
         date  established  for the first meeting of shareholders  following
         implementation  of the Divisional Stock Proposal.  The initial vote so
         established  shall  remain  unchanged  until June 30, 2000.
         On July 1, 2000,  and on July 1 every two (2) years  thereafter,
         the number of votes to which holders of Oncology  Division  Stock are
         entitled will be adjusted to reflect the relative market  value of such
         series as compared to the market value of Agouron Pharmaceuticals
         Stock. This periodic adjustment  of the relative  voting rights of each
         series will be done so a holder's  voting  rights will more  closely
         reflect  the market  value of the  holder's  equity investment in the
         Company.

         The Agouron  Pharmaceuticals Stock and the Oncology Division Stock will
         vote   together   as  a  single   class   except  in  certain   limited
         circumstances, under which the holders of Agouron Pharmaceuticals Stock
         or  Oncology  Division  Stock  will have  rights to vote as a  separate
         class.


<PAGE>



Q.       DOES THE COMPANY INTEND TO PAY DIVIDENDS?

A.       The  Company  has never  paid cash  dividends  on shares of its  Common
         Stock. The Board currently  intends to retain future earnings,  if any,
         for the  development of the businesses of Agouron  Pharmaceuticals  and
         the Oncology  Division and does not anticipate  paying dividends on the
         Agouron  Pharmaceuticals  Stock or the Oncology  Division  Stock in the
         foreseeable future.

Q.       WHAT DO I DO IF I HAVE ADDITIONAL QUESTIONS?

A.       If you have any questions prior to the Meeting, please call
         Agouron Investor Relations at 619-622-3000.


<PAGE>



                             PROXY STATEMENT SUMMARY

         The following is a summary of certain  information  contained elsewhere
in this Proxy Statement and the Annexes  hereto.  Reference is made to, and this
Summary is qualified in its entirety by, the more detailed information contained
or  incorporated  by reference in this Proxy  Statement and the Annexes  hereto.
Unless otherwise defined herein, capitalized terms used in this Summary have the
respective  meanings  ascribed to them  elsewhere in this Proxy  Statement.  See
Annex I, "Index of Defined Terms." Shareholders are urged to read carefully this
Proxy   Statement   and  the   Annexes   hereto  in  their   entirety.   Agouron
Pharmaceuticals and the Oncology Division (and any additional  divisions created
by the issuance of  additional  series by the Board) are  sometimes  referred to
herein collectively as the "Divisions" and individually as a "Division."

                               THE ANNUAL MEETING
   
DATE, TIME AND PLACE OF MEETING                      The Annual Meeting  will be
                                                     held on December 16,  1998,
                                                     at 10:00 a.m.,  San Diego
                                                     time,  at the
                                                     Sheraton  Grande  Torrey
                                                     Pines,  10950 North  Torrey
                                                     Pines Road,  La Jolla,
                                                     California 92037.


RECORD DATE                                          October 19, 1998

PROPOSALS TO BE CONSIDERED  The following  proposals (the  "Proposals")  will be
considered AT THE MEETING and voted upon at the Annual Meeting:

                                                     PROPOSAL  1 -  Election  of
                                                     Directors.  To  elect  nine
                                                     directors  of the  Company,
                                                     all  of  whom  shall  serve
                                                     until   the   1999   Annual
                                                     Meeting of Shareholders and
                                                     until  the   election   and
                                                     qualification    of   their
                                                     successors.

                                                     PROPOSAL 2 - The Divisional
                                                     Stock Proposal. To consider
                                                     and vote upon the amendment
                                                     and   restatement   of  the
                                                     Company's    Articles    of
                                                     Incorporation     to    (i)
                                                     increase   the   number  of
                                                     shares of authorized Common
                                                     Stock    to     150,000,000
                                                     shares, of which 75,000,000
                                                     shares  would  initially be
                                                     designated    as    Agouron
                                                     Pharmaceuticals  Stock  and
                                                     25,000,000   shares   would
                                                     initially be  designated as
                                                     Oncology   Division  Common
                                                     Stock,     (ii)     provide
                                                     authorization  to the Board
                                                     to designate  and issue any
                                                     undesignated  shares in one
                                                     or more  additional  series
                                                     of   Common    Stock,    to
                                                     determine   the  number  of
                                                     shares,             rights,
                                                     preferences, privileges and
                                                     restrictions  of  any  such
                                                     series,  and to increase or
                                                     decrease   the   number  of
                                                     shares   of  any   existing
                                                     series,  including  Agouron
                                                     Pharmaceuticals  Stock  and
                                                     Oncology   Division  Stock,
                                                     and  (iii)   convert   each
                                                     share   of  the   Company's
                                                     Existing  Common Stock into
                                                     one   share   of    Agouron
                                                     Pharmaceuticals  Stock  and
                                                     0.5   shares  of   Oncology
                                                     Division   Stock,   all  as
                                                     described   in  this  Proxy
                                                     Statement.
    
                                                     PROPOSAL 3 -  Amendment  to
                                                     the  Company's  1996  Stock
                                                     Option  Plan.  To  consider
                                                     and vote upon an  amendment
                                                     to the Company's 1996 Stock
                                                     Option  Plan to increase by
                                                     1,000,000 shares the number
                                                     of  shares   available  for
                                                     issuance under such plan.



<PAGE>


                                                     PROPOSAL 4 -  Amendment  to
                                                     the   Company's    Employee
                                                     Stock   Purchase  Plan.  To
                                                     consider  and vote  upon an
                                                     amendment  to  increase  by
                                                     200,000  shares  the number
                                                     of  shares   available  for
                                                     purchase under such plan.

                                                     PROPOSAL 5 -  Selection  of
                                                     Independent Accountants. To
                                                     ratify  the   selection  of
                                                     PricewaterhouseCoopers  LLP
                                                     as      the       Company's
                                                     independent accountants for
                                                     the fiscal year ending June
                                                     30, 1999.

IF THE  DIVISIONAL  STOCK  PROPOSAL  IS NOT  APPROVED BY THE  SHAREHOLDERS,  THE
AGOURON  PHARMACEUTICALS  STOCK  AND THE  ONCOLOGY  DIVISION  STOCK  WILL NOT BE
CREATED AND THE EXISTING  COMMON STOCK WILL NOT BE  RECLASSIFIED  AND  CONVERTED
INTO AGOURON PHARMACEUTICALS STOCK AND ONCOLOGY DIVISION STOCK.

VOTE REQUIRED                                        Holders of  Existing Common
                                                     Stock are  entitled  to one
                                                     vote per share on all
                                                     matters brought  before the
                                                     Meeting and to cumulate
                                                     votes for the election  of
                                                     the  nine  directors.
                                                     Therefore,  in voting for
                                                     directors, each outstanding
                                                     share of Existing  Common
                                                     Stock is entitled to nine
                                                     votes which may be cast for
                                                     one candidate or
                                                     distributed  in any manner
                                                     among the  nominees  for
                                                     director.  However,  the
                                                     right to cumulate votes  in
                                                     favor  of  one  or  more
                                                     candidates  may  not  be
                                                     exercised   until  the
                                                     candidate  or  candidates
                                                     have  been nominated  and
                                                     the  shareholder has  given
                                                     notice  at  the Meeting  of
                                                     the  intention to  cumulate
                                                     votes.  If  any  one
                                                     shareholder  gives  notice,
                                                     all  shareholders  may
                                                     cumulate votes for
                                                     candidates for  nomination.
                                                     Assuming that a quorum
                                                     is present at the  Meeting,
                                                     the nine persons  receiving
                                                     the highest number of votes
                                                     will be  elected  to the
                                                     Board.  The required quorum
                                                     for the Meeting  shall
                                                     consist of a majority
                                                     of the  outstanding  shares
                                                     of Existing Common Stock
                                                     which are entitled to vote
                                                     in person or by proxy at
                                                     the Meeting.

                                                     Proposal 2. The affirmative
                                                     vote  by the  holders  of a
                                                     majority of the outstanding
                                                     shares   of  the   Existing
                                                     Common Stock.

                                                     Proposals  3, 4 and 5.  The
                                                     affirmative   vote  by  the
                                                     holders  of a  majority  of
                                                     the shares of the  Existing
                                                     Common  Stock   represented
                                                     and  voting at the  Meeting
                                                     (which shares constitute at
                                                     least  a  majority  of  the
                                                     required   quorum  for  the
                                                     Meeting).


RECOMMENDATION OF THE BOARD                          The Board has  carefully
                                                     considered  each  Proposal
                                                     and believes  that the
                                                     approval of each of these
                                                     Proposals  by the
                                                     shareholders is  in  the
                                                     best  interest  of  the
                                                     Company and the
                                                     shareholders.  Accordingly,
                                                     the Board unanimously
                                                     recommends that the
                                                     shareholders  vote "FOR"
                                                     each of the  Proposals  and
                                                     "FOR" the election of the
                                                     nine  nominees for director
                                                     listed herein.




<PAGE>


                                   THE COMPANY

         The  principal  executive  offices of the  Company are located at 10350
North Torrey Pines Road, La Jolla,  California 92037 and its telephone number is
(619) 622-3000.

Agouron Pharmaceuticals

         Agouron  Pharmaceuticals  encompasses  all  of  the  activities  of the
Company except for those  activities  related to the research,  development  and
commercialization of oncology products being pursued by the Oncology Division.

         Agouron   Pharmaceuticals,   through   its  own  sales  and   marketing
organization,  is  currently  marketing  in the  United  States  the first  drug
developed by the Company,  VIRACEPT (nelfinavir mesylate),  for treatment of HIV
infection. In addition,  Agouron Pharmaceuticals is expected to initiate a phase
II/III pivotal clinical trial of REMUNE,  an immune-based  therapeutic agent for
treatment   of  HIV   infection   and  AIDS   being   co-developed   by  Agouron
Pharmaceuticals   and  The  Immune  Response   Corporation.   Further,   Agouron
Pharmaceuticals   has  a  number  of  programs  in  progress  for  discovery  or
development  of other new drugs in the  fields  of viral  disease,  inflammatory
disease  and  other  serious  diseases.  Agouron  Pharmaceuticals  utilizes  the
proprietary core drug discovery technology of Alanex Corporation, a wholly-owned
subsidiary of the Company,  to accelerate the steps  necessary to discover small
molecule  drug  candidates.  Such steps  include the initial  identification  of
compounds  that exhibit  activity  against  selected  biological  targets to the
progression of these compounds to drug candidates for human clinical trials.

         Agouron  Pharmaceuticals'  long-term  goal is increasing  profitability
from the sale of drugs  generated  from its own drug  discovery and  development
efforts, and from development and commercialization of drugs licensed by Agouron
Pharmaceuticals.   To  augment  its  technical  capabilities,   to  enhance  the
likelihood of successful commercialization of its products and to offset some of
its operating  costs,  Agouron  Pharmaceuticals  has entered into  collaborative
research   and   development   arrangements   with  other   companies.   Agouron
Pharmaceuticals  has generally retained  significant  commercial rights in drugs
developed in its collaborative research and development programs funded in whole
or in part by other  companies.  Agouron  Pharmaceuticals  anticipates  that its
successfully  developed  products  will be  commercialized  both through its own
direct sales and  marketing  activities  in certain  pharmaceutical  markets and
through  manufacturing  and marketing  relationships  with other  pharmaceutical
companies.

Agouron Oncology Division

         The  Oncology  Division  will  be  organized  as a  distinct  operating
division of the Company  and will  continue  its  commitment  to the  discovery,
development  and  marketing of  small-molecule  drugs  engineered  to inactivate
proteins  which play key roles in  cancer.  Approximately  25% of the  Company's
total  anticipated  research and development  expenditures  during the Company's
1999  fiscal  year are  expected  to be  incurred  by the  Oncology  Division in
connection with four clinical development programs and four preclinical research
programs.  Included are AG3340, an inhibitor of matrix  metalloprotease  ("MMP")
currently in pivotal  phase  II/III  clinical  trials for  treatment of lung and
prostate cancer, programs that pursue other inhibitors of MMPs and inhibitors or
antagonists  of  the  following:  glycinamide  ribonucleotide  formyltransferase
("GART");  cyclin dependent  kinases  ("cdk");  gonadotropin  releasing  hormone
("GnRH");  poly (ADP ribose)  polymerase  ("PARP");  and a receptor for vascular
endothelial  growth factor ("VEGF").  The Oncology Division is presently pursing
these  programs  on an  independent  basis.  See  Annex  V -  "Agouron  Oncology
Division" for a more complete description of the programs initially allocated to
the Oncology Division.  The Company is currently  investigating the availability
of names under which the Oncology  Division will operate.  The exact name of the
Division and of the Divisional  Stock will be determined and announced  prior to
the implementation of the Divisional Stock Proposal.


<PAGE>


                          THE DIVISIONAL STOCK PROPOSAL
GENERAL
   
         If the Divisional  Stock Proposal is approved by the  shareholders  and
implemented  by the Board of  Directors,  the  Company's  existing  Articles  of
Incorporation  will be amended to increase  the number of shares of Common Stock
to  150,000,000  and to  designate  two new series of Common  Stock - 75,000,000
shares of Agouron Pharmaceuticals Common Stock ("Agouron Pharmaceuticals Stock")
and  25,000,000  shares of Agouron  Oncology  Division  Common Stock  ("Oncology
Division  Stock") and convert each share of the Company's  Existing Common Stock
into one  share of  Agouron  Pharmaceuticals  Stock and 0.5  shares of  Oncology
Division  Stock.  The amendment would also authorize the Board to establish from
time to time one or more  additional  series with the number of shares,  rights,
preferences,   privileges   and   restrictions   as  determined  by  the  Board.
Undesignated  shares  of  Common  Stock  could  also  be used  to  increase  the
authorized   shares  of  any  existing  series  of  Common  Stock.  The  rights,
preferences,  privileges and restrictions of the Agouron  Pharmaceuticals  Stock
and the Oncology  Division Stock are described in more detail  elsewhere in this
Proxy Statement. See "Proposal 2--The Divisional Stock  Proposal--Description of
Capital Stock" and the proposed Restated  Articles of Incorporation  included as
Annex II.

         The ratio of 0.5 shares of  Oncology  Division  Stock for each share of
Existing  Common  Stock  was  determined  by  the  Board  in  consultation  with
PaineWebber  Incorporated  ("PaineWebber"),  the Company's  financial advisor in
connection with the Divisional Stock Proposal. Such ratio is the quotient of the
total  number of  Oncology  Division  Shares  divided by the number of shares of
Existing Common Stock outstanding. The number of Oncology Division Shares is the
quotient of the initial  estimated  fair market value of the  Oncology  Division
divided by the desired initial trading range of the Oncology Division stock. The
initial  estimated fair market value of the Oncology  Division was determined by
the Board in  consultation  with  PaineWebber  and was based on an  analysis  of
comparable  company  valuations,  prevailing  market  conditions,  financial and
operating  information  of  the  Oncology  Division  and  independent  financial
projections  and  discounted  cash flow  analyses of the  programs  and products
associated with Oncology Division.
    
         The  Divisional  Stock  Proposal is designed to separate the  Company's
research  and  development  activities  in  oncology  from  the  balance  of the
Company's  business by establishing two separate  operating  divisions,  Agouron
Pharmaceuticals  and the  Oncology  Division.  The  Oncology  Division  Stock is
intended  to  reflect  the  value  and track  the  performance  of the  Oncology
Division,  whereas the Agouron  Pharmaceuticals Stock is intended to reflect the
value  and  track  the  performance  of  the  Company's   anti-viral  and  other
businesses.  See Annex IV -  "Agouron  Pharmaceuticals"  and Annex V -  "Agouron
Oncology Division" for a more complete description of each Division.

         The Company has established  policies designed to separate the business
and operations of Agouron  Pharmaceuticals and the Oncology Division, to operate
each on a stand-alone  basis, to allocate debt,  corporate  overhead,  interest,
taxes and other charges  between the two Divisions on an objective  basis and to
ensure  that terms of  inter-division  transactions  approximate  the terms that
could be obtained from unaffiliated third parties.  In addition,  these policies
set forth certain  allocations in connection with the  commercialization  of the
Oncology Division's  potential products.  See "Proposal 2 - The Divisional Stock
Proposal - Management and Allocation Policies."

RISK FACTORS

         When evaluating the Divisional Stock Proposal,  shareholders  should be
aware of certain risk factors relating thereto.  Such risk factors include:  (i)
the  risks  associated  with  an  investment  in  the  Company  and  all  of its
businesses,  assets and liabilities;  (ii) limited separate  shareholder  rights
with respect to the two series of Common Stock;  (iii) limited  separate  voting
rights with  respect to the two series;  (iv) the lack of legal  precedent  with
respect to the fiduciary  duties of the board of directors of a company with two
series  of  common  stock,  the  rights of which are  defined  by  reference  to
specified  businesses  of the  company;  (v) the  ability of the Board to change
certain management and allocation  policies without shareholder  approval;  (vi)
the  potential  diverging  interests of each series of Common  Stock;  (vii) the
ability  of the  Board to  transfer  funds,  services  and  assets  between  the
Divisions;  (viii) the Company's ability to issue authorized but unissued shares
of Agouron  Pharmaceuticals  Stock,  Oncology Division Stock or other classes of
stock without shareholder approval; (ix) no assurances as to the market price of
the Agouron  Pharmaceuticals  Stock or the  Oncology  Division  Stock  following
effectiveness of the Divisional Stock


<PAGE>


Proposal;  (x) the risk that liquidating  distributions  to a Division's  Common
Stock may not correspond to the value of that Division's assets at the time of a
dissolution  of  the  Company;  (xi)  the  utilization  of tax  benefits  by the
Divisions;  (xii)  limitations on potential  unsolicited  acquisitions of either
Division; and (xiii) certain anti-takeover considerations.

         Shareholders should also be aware of certain risks with respect to each
Division's operations, which include (i) the early stage of product development,
the uncertainty of product  development and market  acceptance and technological
uncertainty;  (ii) uncertainty associated with clinical testing; (iii) a limited
history of profitability  and uncertainty of continued  profitability of Agouron
Pharmaceuticals;  (iv) a history of operating losses and lack of revenues of the
Oncology Division;  (v) additional financing requirements and access to capital;
(vi)  dependence  on others;  (vii)  limited  manufacturing  capability;  (viii)
limited  sales  and  marketing   capabilities;   (ix)  patents  and  proprietary
technology;  (x) technological change and intense  competition;  (xi) government
regulation;  (xii) uncertainty of third-party reimbursement and product pricing;
(xiii) product liability and limited insurance coverage;  (xiv) use of hazardous
materials;  (xv) attraction and retention of personnel;  and (xvi) volatility of
stock  prices.  For  additional   information  with  respect  to  the  foregoing
considerations, see "Risk Factors."

REASONS FOR THE DIVISIONAL STOCK PROPOSAL

         The Divisional  Stock  Proposal was adopted by the Board  following its
review of various  alternatives to enhance shareholder value over the long term.
Creating  separate  series of Common Stock  intended to reflect  separately  the
performance of Agouron  Pharmaceuticals  and the Oncology  Division could enable
investors  to  gain  a  better   understanding  of  the  businesses  of  Agouron
Pharmaceuticals and the Oncology Division,  while preserving for the Company the
financial,  strategic and operational  benefits it currently  enjoys as a single
company.  The Board also believes that the separate reporting of each Division's
results would create a framework for increased and more focused equity  research
coverage by the investment  community and would separate the Oncology Division's
current   operating   losses   from  the  results  of   operations   of  Agouron
Pharmaceuticals.  The  Divisional  Stock  Proposal is  intended to increase  the
Company's  ability  to focus  the  management  of the  respective  Divisions  on
maximizing  the returns  from such  businesses  and provide the  opportunity  to
structure  incentives  for  employees of each Division that are tied directly to
the  operating  results  and  share  price  performance  of that  Division.  The
Divisional  Stock  Proposal is also  intended  to provide  the  Company  greater
flexibility with regard to raising capital and the choice of stock consideration
for acquisitions and investments,  including strategic partnering  transactions.
In  particular,  development,  clinical  testing  and  commercialization  of the
Oncology  Division's  products will require substantial funds. A separate equity
security for the Oncology Division is expected to allow the Oncology Division to
raise   capital   without   diluting   the   interests  of  holders  of  Agouron
Pharmaceuticals   Stock.  See  "Proposal  2  -  The  Divisional  Stock  Proposal
Background of and Reasons for the Divisional Stock Proposal."

INCREASE IN AUTHORIZED STOCK

         The Divisional Stock Proposal  increases the number of shares of Common
Stock the Company is authorized to issue from  75,000,000 to  150,000,000 in the
aggregate. If the Divisional Stock Proposal is approved,  75,000,000 shares will
be initially designated Agouron Pharmaceuticals Stock, 25,000,000 shares will be
initially   designated  Oncology  Division  Stock  and  50,000,000  shares  will
initially be undesignated  shares of Common Stock. The Board would be authorized
to designate and issue shares in one or more  additional  series of Common Stock
or to increase the number of designated shares of Agouron  Pharmaceuticals Stock
or Oncology  Division  Stock.  The  authorized  but  unissued  shares of Agouron
Pharmaceuticals  Stock and the Oncology  Division  Stock would be available  for
issuance from time to time by the Company at the discretion of the Board for any
proper corporate  purpose.  The issuance of such additional  shares would not be
subject to approval by the  shareholders of the Company unless deemed  advisable
by the Board or required by applicable  law,  regulation or stock market listing
requirements.  See "Proposal 2 - The Divisional  Stock Proposal - Description of
Capital Stock."

         The Board believes that an increase in the number of authorized  shares
of the Common Stock at this time is in the best interest of the Company in order
to have  available  the  number of shares  needed to  implement  aspects  of the
Divisional  Stock  Proposal  and provide for share  dividends,  stock  splits or
acquisitions  and  other  strategic   opportunities  if  such  transactions  are
determined to be in the best interest of the Company. Other than the issuance of
shares to the holders of Existing Common Stock pursuant to the Divisional  Stock
Proposal and the issuance of


<PAGE>


shares  pursuant to the Company's  employee stock option and purchase  plans, as
amended in connection  with the Divisional  Stock  Proposal,  the Company has no
present  intention or agreement with respect to issuance of any of the shares of
Agouron  Pharmaceuticals  Stock,  the  Oncology  Division  Stock  or  any of the
undesignated  shares  of Common  Stock.  However,  the  Board may in the  future
consider  the  creation  of  additional  series of Common  Stock  that track the
performance of other lines of the Company's business.

SUMMARY OF MATERIAL FEDERAL INCOME TAX CONSIDERATIONS

         The  Company  has  received an opinion  from its tax  counsel,  as more
specifically set forth in "Proposal 2--The Divisional Stock Proposal -- Material
Federal  Income Tax  Considerations,"  that for United States federal income tax
purposes (i) the Agouron  Pharmaceuticals  Stock and the Oncology Division Stock
will be treated for federal  income tax  purposes as common stock of the Company
and (ii) except with respect to cash paid in lieu of fractional shares,  holders
of the Agouron  Pharmaceuticals  Stock and the Oncology  Division Stock will not
recognize income,  gain or loss in and as a result of the  reclassification  and
conversion of the Existing Common Stock.  However,  there are no court decisions
or other authorities bearing directly on transactions  similar to the Divisional
Stock Proposal. Further, the Internal Revenue Service ("IRS") has announced that
it will not issue  advance  rulings on the federal  income tax  consequences  of
transactions  similar  to  the  Divisional  Stock  Proposal.   It  is  possible,
therefore,  that the IRS could  assert that the Oncology  Division  Stock or the
Agouron Pharmaceuticals Stock or both represent property other than stock of the
Company.  Any such  determination  could have a material  adverse  effect on the
Company and result in adverse tax  consequences for shareholders of the Company.
See "Proposal 2 - The Divisional  Stock Proposal -- Material  Federal Income Tax
Considerations."  Shareholders are urged to consult their own tax advisors as to
the particular tax consequences to them of the reclassification  contemplated by
the Divisional Stock Proposal under federal, state, local or foreign law.

DISSENTERS' RIGHTS

         Under the California  Corporations Code, holders of the Existing Common
Stock  have no  dissenters'  rights  in  connection  with the  Divisional  Stock
Proposal.

FRACTIONAL SHARES

         Fractional shares of Oncology Division Stock will not be issued. If the
number of  shares  of  Oncology  Division  Stock to be  issued to any  holder of
Existing Common Stock includes a fraction of a whole share, the Company will pay
to such holder,  within 60 trading days after the Effective Date, the cash value
of such  fractional  share based on the average of the daily average of the high
and low sale  prices of the  Oncology  Division  Stock  reported  on the  Nasdaq
National Market during the first ten trading days following the Effective Date.


<PAGE>



     COMPARISON OF EXISTING COMMON STOCK WITH AGOURON PHARMACEUTICALS STOCK
                          AND ONCOLOGY DIVISION STOCK

         The  following  is a comparison  of the  Existing  Common Stock and the
proposed Agouron Pharmaceuticals Stock and Oncology Division Stock. This summary
is qualified in its entirety by the more detailed information  contained in this
Proxy Statement and the Annexes hereto.  See "Risk  Factors,"  "Proposal  2--The
Divisional  Stock  Proposal--  Description  of Capital  Stock" and the  Restated
Articles of Incorporation (the "Restated Articles") included in Annex II to this
Proxy Statement.

<TABLE>
<CAPTION>

                          THE DIVISIONAL STOCK PROPOSAL
<S>                           <C>                                     <C>

EXISTING COMMON STOCK         AGOURON PHARMACEUTICALS STOCK           ONCOLOGY DIVISION STOCK

SHAREHOLDERS OF ONE COMPANY:

Holders of Existing Common    Holders of Agouron Pharmaceuticals      Holders of Oncology Division
Stock are subject to the      Stock will continue to be subject       Stock will continue to be
risks associated with an      to the risks associated with an         subject to the risks associated
investment in the Company     investment in the Company and all       with an investment in the Company
and all of its businesses,    of its businesses, assets and           and all of its businesses, assets
assets and liabilities.       liabilities.  Financial affects         and liabilities.  Financial affects
                              arising from the Oncology Division      arising from Agouron Pharmaceuticals
                              that affect the Company's results       that affect the Company's results
                              of operations or financial              of operations or financial
                              condition could, if significant,        condition could, if significant,
                              affect the results of operations        affect the results of operations
                              or financial condition of Agouron       or financial condition of the
                              Pharmaceuticals or the market           Oncology Division of the market
                              price of the Agouron Pharmaceuticals    price of the Oncology Division
                              Stock.                                   Stock.

                              Any net losses of either Division,      Any net losses of either Division,
                              and dividends or distributions on,      and dividends or distributions on,
                              or repurchases of, either series of     or repurchases of, either series of
                              Common Stock or any Preferred Stock,    Common Stock or any Preferred Stock,
                              will reduce the assets of the           will reduce the assets of the
                              Company legally available for           Company legally available for
                              payment of future dividends on the      payment of future dividends on the
                              other series of Common Stock.           other series of Common Stock.
   
NUMBER OF SHARES OUTSTANDING:
(BASED UPON NUMBER OF SHARES OF EXISTING COMMON STOCK
OUTSTANDING AS OF OCTOBER 19, 1998)

         31,282,508                      31,282,508                               15,641,254

INCLUSION IN NASDAQ NATIONAL MARKET:

Nasdaq National Market       Application  will be   made to The  Nasdaq    Application  will  be  made  to The  Nasdaq
under the symbol AGPH.       Stock Market,  Inc. for the  redesignation    Stock  Market,  Inc.  for  the  listing  of
                             of  Existing  Common  Stock  as  Agouron      Oncology Division Stock under a separate
                             Stock,  which will trade                      Pharmaceuticals symbol to be determined.
                             under the symbol AGPH.
                             
    
</TABLE>



<PAGE>
<TABLE>
<CAPTION>




                          THE DIVISIONAL STOCK PROPOSAL
<S>                         <C>                                         <C>
EXISTING COMMON STOCK        AGOURON PHARMACEUTICALS STOCK              ONCOLOGY DIVISION STOCK

DIVIDENDS:

The Company has never        The Company intends to retain earnings      The Company intends to retain earnings
paid any cash dividends      to finance future growth and, therefore,    to finance future growth and, therefore,
on shares ot its capital     does not anticipate paying any cash         does not anticipate paying any cash
stock.                       dividends on the Agouron Pharmaceuticals    dividends on the Oncology Division
                             Stock in the foreseeable future.            Stock in the foreseeable future.

Dividends  on the  Existing  Dividends  on the Agouron  Pharmaceuticals  Dividends  on the Oncology  Division  Stock
Common  Stock  are  limited  Stock  will be paid at the  discretion  of  will  be  paid  at  the  discretion  of the
to  assets  of the  Company  the  Board   based   primarily   upon  the  Board based  primarily  upon the  financial
legally  available  for the  financial     condition,     results    of  condition,   results  of   operations   and
payment of dividends  under  operations  and business  requirements  of  business   requirements   of  the  Oncology
the              California  Agouron  Pharmaceuticals  and the  Company  Division   and  the  Company  as  a  whole.
Corporations  Code  and are  as a  whole.  Dividends  will  be  payable  Dividends   will  be  payable  out  of  the
payable  at the  discretion  out of the  lesser  of (i) the  assets  of  lesser  of (i) the  assets  of the  Company
of    the    Board    based  the  Company  legally  available  for  the  legally   available   for  the  payment  of
primarily      upon     the  payment of dividends  and (ii) the Agouron  dividends  and (ii) the  Oncology  Division
financial        condition,  Pharmaceuticals     Available     Dividend  Available  Dividend  Amount.  See "Proposal
results of  operations  and  Amount.  See "Proposal 2 - The  Divisional  2  -  The   Divisional   Stock  Proposal  -
business   requirements  of  Stock  Proposal -  Description  of Capital  Description  of  Capital  Stock -  Dividend
the Company.                 Stock - Dividend Rights."                   Rights."

                             The Board,  subject to the limitations set  The Board,  subject to the  limitations set
                             forth above,  may, in its sole discretion,  forth above,  may, in its sole  discretion,
                             declare and pay dividends  exclusively  on  declare and pay  dividends  exclusively  on
                             the   Agouron    Pharmaceuticals    Stock,  the Oncology  Division  Stock,  exclusively
                             exclusively   on  the  Oncology   Division  on the Agouron  Pharmaceuticals  Stock,  or
                             Stock, or on any combination  thereof,  in  on any  combination  thereof,  in  equal or
                             equal or unequal amounts,  notwithstanding  unequal   amounts,    notwithstanding   the
                             the   amount   of   dividends   previously  amount of dividends  previously declared on
                             declared on either series,  the respective  either  series,  the  respective  voting or
                             voting  or  liquidation  rights  of either  liquidation  rights of either series or any
                             series or any other factor.                 other factor.

</TABLE>

<PAGE>

<TABLE>
<CAPTION>



                          THE DIVISIONAL STOCK PROPOSAL
<S>                          <C>                                         <C>

EXISTING COMMON STOCK        AGOURON PHARMACEUTICALS STOCK               ONCOLOGY DIVISION STOCK

VOTING RIGHTS:

One vote per share.          One vote per share.                         Each share of Oncology  Division Stock will
                                                                         have  a  number  of  votes   (including   a
                                                                         fraction  of one  vote)  equal to the ratio
                                                                         of    the    weighted     average    market
                                                                         capitalization  of  the  Oncology  Division
                                                                         Stock  and  the   Agouron   Pharmaceuticals
                                                                         Stock  to be  initially  determined  on the
                                                                         earlier   of   the   90th   day   following
                                                                         commencement  of  trading  of the  Oncology
                                                                         Division   Stock   or   the   record   date
                                                                         established   for  the  first   meeting  or
                                                                         consent    of    shareholders     following
                                                                         implementation   of  the  Divisional  Stock
                                                                         Proposal.  The initial vote so  established
                                                                         shall  remain   unchanged  until  June  30,
                                                                         2000.  On July 1, 2000,  and on each July 1
                                                                         thereafter,  the  number  of votes to which
                                                                         each share of  Oncology  Division  Stock is
                                                                         entitled  will be  adjusted  to reflect the
                                                                         ratio  of  the  weighted   average   market
                                                                         capitalization  of  the  Oncology  Division
                                                                         Stock  and  the   Agouron   Pharmaceuticals
                                                                         Stock   on   such    date.    The    market
                                                                         capitalization  of  each  series  of  stock
                                                                         will  be  determined  by  multiplying   the
                                                                         number  of   outstanding   shares  of  each
                                                                         series  by the  Fair  Market  Value  of one
                                                                         share of such  series.  Fair  Market  Value
                                                                         means the  average of the daily  average of
                                                                         high  and low per  share  sales  prices  as
                                                                         reported  by  the  Nasdaq  National  Market
                                                                         (or  the  appropriate   exchange  or  stock
                                                                         market on which  such  shares  are  traded)
                                                                         for  the  20   consecutive   trading   days
                                                                         commencing  on the 30th  trading  day prior
                                                                         to such  date.  In the event  such  selling
                                                                         prices are  unavailable,  Fair Market Value
                                                                         will be determined by the Board.

                             Except as  otherwise  described  herein     Except as otherwise described herein, or as
                             or as provided under the California         provided under the California Corporations
                             Corporations Code, the holders of           Code, the holders of Oncology Division
                             Agouron Pharmaceuticals Stock and the       Stock and the holders of Agouron
                             holders of Oncology Division Stock will     Pharmaceuticals Stock will vote together as
                             vote together as a single voting class.     a single voting class.
</TABLE>

<PAGE>
<TABLE>
<CAPTION>




                          THE DIVISIONAL STOCK PROPOSAL
<S>                          <C>                                         <C>

EXISTING COMMON STOCK        AGOURON PHARMACEUTICALS STOCK               ONCOLOGY DIVISION STOCK

CONVERSION AT OPTION OF COMPANY:

None.                        None.                                       The Company may, at any time,  convert each
                                                                         share of Oncology  Division  Stock into any
                                                                         combination  of cash  and/or  a  number  of
                                                                         shares  of  Agouron  Pharmaceuticals  Stock
                                                                         having a Fair  Market  Value  equal to 125%
                                                                         of the Fair  Market  Value of one  share of
                                                                         Oncology Division Stock.

                                                                         The ratio of the Fair Market Value of one
                                                                         share of Oncology Division Stock to one
                                                                         share of Agouron Pharmaceuticals Stock could
                                                                         be affected by many factors, including the
                                                                         results of operations and financial condition
                                                                         of the Company and each Division, trading
                                                                         volume, share issuances and repurchases and
                                                                         general economic and market conditions.
                                                                         The respective Fair Market Values of the
                                                                         Oncology Division Stock and the Agouron
                                                                         Pharmaceuticals Stock could also be affected
                                                                         by decisions of management regarding the
                                                                         reallocation of assets, expenses and liabilities,
                                                                         the allocation of corporate opportunities by the
                                                                         Board, as well as decisions regarding how the
                                                                         Company's liabilities will be met, how
                                                                         financing resources between two divisions
                                                                         will be allocated or what amount of dividends,
                                                                         if any, may be declared on either series of
                                                                         Common Stock.  See "Risk Factors--Risks
                                                                         Related to the Divisional Stock Proposal--
                                                                         Decisions That Affect Fair Market Values
                                                                         Can Affect Shareholder Rights."
                                                                         

</TABLE>

<PAGE>
<TABLE>
<CAPTION>





                          THE DIVISIONAL STOCK PROPOSAL
<S>                          <C>                                          <C>

EXISTING COMMON STOCK        AGOURON PHARMACEUTICALS STOCK                ONCOLOGY DIVISION STOCK

RIGHTS ON DISPOSITION OF ASSETS OF A DIVISION:

None.                        None.                                        If  the   Company   disposes   of  all  or
                                                                          substantially  all of the  properties  and
                                                                          assets allocated to the Oncology  Division
                                                                          (i.e.,   80%  or  more  on  a  fair  value
                                                                          basis),   the   Company  is   required  to
                                                                          exchange  each  outstanding  share  of the
                                                                          Oncology    Division    Stock    for   any
                                                                          combination   of   cash   and/or   Agouron
                                                                          Pharmaceuticals   Stock   having   a  Fair
                                                                          Market  Value  equal  to 125% of the  Fair
                                                                          Market  Value  of one  share  of  Oncology
                                                                          Division Stock.

                                                                          The proceeds from any disposition of
                                                                          properties and assets that do not comprise
                                                                          all or substantially all of the properties
                                                                          and asets allocated to the Oncology
                                                                          Division will be assets of the Oncology
                                                                          Division and will be used for its benefit,
                                                                          subject to the policies described under
                                                                          "Proposal 2 - The Divisional Stock
                                                                          Proposal - Management and Allocation
                                                                         

LIQUIDATION:
   
Holders of Existing  Common  Holders  of Agouron  Pharmaceuticals  Stock  Holders of  Oncology  Division  Stock will
Stock   are   entitled   to  will  be  entitled  to  a  portion  of  the  be  entitled  to a portion  of the  assets
receive  the net  assets of  assets   remaining  for   distribution   to  remaining for  distribution  to holders of
the   Company,    if   any,  holders of Common  Stock in  proportion  to  Common   Stock   in   proportion   to  the
remaining for  distribution  the aggregate  Liquidation Units of Agouron  aggregate  Liquidation  Units of  Oncology
to  holders   of   Existing  Pharmaceuticals   Stock.   Each   share  of  Division  Stock.  Each  share of  Oncology
Common Stock.                Agouron  Pharmaceuticals  Stock  will  have  Division Stock  will  have 25  Liquidation
                             100 Liquidation Units.                       Units.  The  number of  Liquidation  Units
                                                                          to which the  Oncology  Division  Stock is
                                                                          entitled  is  subject  to   adjustment  if
                                                                          shares of either  series  are  subdivided,
                                                                          combined or  distributed  as a dividend to
                                                                          the shareholders of such series.
    
</TABLE>

<PAGE>


                          AGOURON PHARMACEUTICALS, INC.
                      SELECTED CONSOLIDATED FINANCIAL DATA
   
     The following table summarizes certain selected consolidated financial data
of the Company for each of the five years in the period  ended June 30, 1998 and
for the three month periods ended  September 30, 1997 and 1998. The  information
presented  should  be  read  in  conjunction  with  the  consolidated  financial
statements included in Annex III to this Proxy Statement.
<TABLE>
<CAPTION>
(In thousands, except
per share amounts)
                                                                                                 Three months ended
                                                      Year Ended June 30,                             September 30,

                                      1994        1995        1996        1997        1998         1997        1998
<S>                              <C>         <C>          <C>         <C>         <C>         <C>         <C>
Statement of Income (Loss) Data:
   Total revenues                $  16,301   $  26,722    $ 55,955    $132,063    $466,505    $  91,857   $ 144,937
   Product sales                         0           0           0      56,969     409,298       79,502     133,870
   Research & development
     expenses(1)                    23,957      36,317      71,010     108,137     150,657       26,932      37,364
   Net income (loss) (1)  and (2)   (9,462)    (12,939)    (19,523)    (42,806)     13,154        3,630       6,890
   Net income (loss) per share   $    (.66) $     (.89)  $    (.99)  $   (1.59)  $     .40   $     .11   $     .21
   Shares used in computing net income
          (loss) per share          14,482      14,592      19,688      26,946      33,214       33,158      33,179

                                                 June 30,                                          September 30,
                                      1994        1995        1996        1997        1998         1998

Balance Sheet Data:
   Working capital               $  21,039   $   8,837    $ 70,381    $115,786    $127,728    $ 138,533
   Total assets                     37,178      27,097     102,577     266,914     363,337      338,784
   Long-term liabilities             2,285       1,884       1,734       7,217       6,915        7,180
   Stockholders' equity(3)          24,852      12,591      75,583     191,282     236,169      245,372

    
</TABLE>

     (1) In 1998, includes in-licensing expenses of $26,000,000 ($15,600,000 net
         of tax) for  commercial  rights  to three  development  stage  anti-HIV
         products.

     (2) In 1997, includes the write-off of $57,500,000 of in-process technology
         associated with the acquisition of Alanex Corporation, partially offset
         by the  realization of  $43,800,000  of deferred tax assets  associated
         with the Company's expectation of future taxable income.

     (3) The Company has never  declared  or paid cash  dividends  on its common
stock.


<PAGE>



                 AGOURON PHARMACEUTICALS SELECTED FINANCIAL DATA
   
     The following table summarizes  certain selected  financial data of Agouron
Pharmaceuticals for each of the five years in the period ended June 30, 1998 and
for the three month periods ended  September 30, 1997 and 1998. The  information
presented should be read in conjunction with the financial  statements and notes
thereto and related Management's  Discussion and Analysis of Financial Condition
and  Results of  Operations  of Agouron  Pharmaceuticals,  a division of Agouron
Pharmaceuticals, Inc., included in Annex IV to this Proxy Statement.
<TABLE>
<CAPTION>
(In thousands, except
per share amounts)
                                                                                                 Three months ended
                                                     Year Ended June 30,                              September 30,


                                      1994        1995        1996        1997        1998         1997        1998
<S>                              <C>         <C>         <C>          <C>         <C>         <C>         <C>
Statement of Income (Loss) Data:
   Total revenues                $  12,100   $  23,679    $ 37,942    $116,793    $451,077    $  88,759   $ 144,937
   Product sales                         0           0           0      56,969     409,298       79,502     133,870
   Research & development
     expenses(1)                    10,681      24,394      53,763      81,293     113,132       19,595      25,437
   Net income (loss) (1) and (2)     1,241      (2,664)    (18,349)    (34,234)     29,364        6,642      13,792
   Tax benefit allocated from Oncology
     Division                            0           0           0       4,290       8,023        2,007       5,685
   Net income (loss) attributable to
     Agouron Pharmaceuticals stock   1,241      (2,664)    (18,349)    (29,944)     37,387        8,649      19,477

                                                June 30,                                           September 30,
                                      1994        1995        1996        1997        1998         1998

Balance Sheet Data:
   Working capital               $  21,543      10,640      71,607     114,368     125,933      138,702
   Total assets                     37,178      27,097     102,577     262,246     360,654      337,146
   Long-term liabilities             2,285       1,884       1,734       7,217       6,915        7,180
   Division equity(3)               25,356      14,394      76,809     189,864     234,374      245,541
    
</TABLE>

     (1) In 1998, includes in-licensing expenses of $26,000,000 ($15,600,000 net
         of tax) for  commercial  rights  to three  development  stage  anti-HIV
         products.

     (2) In 1997, includes the write-off of $57,500,000 of in-process technology
         associated with the acquisition of Alanex Corporation, partially offset
         by the  realization of  $43,800,000  of deferred tax assets  associated
         with Agouron Pharmaceuticals' expectation of future taxable income.

     (3) Agouron  Pharmaceuticals  has never  declared or paid cash dividends on
its equivalent common stock.


<PAGE>


                AGOURON ONCOLOGY DIVISION SELECTED FINANCIAL DATA
   
     The following  table  summarizes  certain  selected  financial  data of the
Oncology  Division  for each of the five years in the period ended June 30, 1998
and for the  three  month  periods  ended  September  30,  1997  and  1998.  The
information  presented should be read in conjunction with the combined financial
statements and notes thereto and related Management's Discussion and Analysis of
Financial  Condition and Results of Operations of Agouron Oncology  Division,  a
division  of Agouron  Pharmaceuticals,  Inc.,  included in Annex V to this Proxy
Statement.
<TABLE> 
<CAPTION>

(In thousands, except per share amounts)
                                                                                               Three months ended
                                                    Year Ended June 30,                             September 30,

                                    1994        1995        1996        1997        1998         1997        1998
<S>                             <C>          <C>           <C>         <C>         <C>        <C>         <C>

Statement of Operations Data:

Revenues:
   Contract and license          $   4,201   $   3,043    $ 18,013    $ 15,270    $ 15,428    $   3,098   $       0

Operating expenses:
   Research and development         13,276      11,923      17,247      26,844      37,525        7,337      11,927
   General and administrative        1,628       1,394       1,940       1,288       2,136          780         660

Net loss                         $ (10,703)  $ (10,274)   $ (1,174)   $(12,862)   $(24,233)   $  (5,019)  $ (12,587)

</TABLE>

<TABLE>
<CAPTION>

                                                         June 30,                               September 30,

                                   1994        1995        1996        1997        1998         1998
<S>                              <C>         <C>          <C>         <C>         <C>         <C>

Balance Sheet Data:

   Working capital               $    (504)  $  (1,803)   $ (1,226)   $  1,418    $  1,795    $    (169)
   Total assets                          0           0           0       4,668       2,683        1,638
   Division equity(1)                 (504)     (1,803)     (1,226)      1,418       1,795         (169)

    
     (1) Agouron Oncology  Division has never declared or paid cash dividends on
its equivalent common stock.

</TABLE>

<PAGE>


                 PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY

         The Existing  Common Stock trades on the Nasdaq  National  Market under
the symbol AGPH.  The  following  table sets forth the high and low sales prices
for the Existing  Common Stock,  as reported by Nasdaq,  for the fiscal  periods
indicated.  All  prices  have been  adjusted  to reflect a 2-for-1  stock  split
effected in the form of a 100% stock dividend in August 1997.


                                                     High              Low
Fiscal 1997

         Quarter ended September 30               $  23.125        $  14.500
         Quarter ended December 31                   35.750           21.125
         Quarter ended March 31                      50.500           33.500
         Quarter ended June 30                       45.500           29.187

Fiscal 1998

         Quarter ended September 30               $  56.500        $  39.250
         Quarter ended December 31                   56.500           26.750
         Quarter ended March 31                      40.000           29.250
         Quarter ended June 30                       40.250           28.750

Fiscal 1999
   
         Quarter ended September 30               $  36.125         $  19.250


        On July 20, 1998, the trading day prior to the Company's announcement of
its proposal to create a separate  operating  division,  the last  reported sale
price for  Existing  Common Stock on the Nasdaq  National  Market was $29.50 per
share.  On August 11, 1998, the trading day prior to the Company's  announcement
of the  Divisional  Stock  Proposal,  the last  reported sale price for Existing
Common Stock on the Nasdaq  National Market was $22.78 per share. On October 19,
1998,  the last reported sale price for the Existing  Common Stock on the Nasdaq
National  Market was  $36.875  per share.  As of October  19,  1998,  there were
approximately 30,000 shareholders of the Existing Common Stock.
    
        The Company has never  declared or paid  dividends on its capital  stock
and does not  anticipate  paying any dividends in the  foreseeable  future.  The
Company currently intends to retain its earnings, if any, for the development of
its businesses.




<PAGE>



                                  RISK FACTORS

     You  should  consider  the  following  factors,  in  addition  to the other
information  contained  elsewhere in this Proxy  Statement  and the Exhibits and
Annexes  hereto,   in  connection  with  the  Divisional  Stock  Proposal.   For
definitions of certain defined terms, see "Annex I - Index of Defined Terms."

RISKS RELATED TO THE DIVISIONAL STOCK PROPOSAL

         SHAREHOLDERS  OF ONE COMPANY;  Financial  Effects of One Division Could
Adversely Affect the Other Divisions.  Agouron  Pharmaceuticals and the Oncology
Division are not separate  legal  entities.  Holders of Agouron  Pharmaceuticals
Stock and Oncology  Division Stock will be  shareholders of a single company and
will  not  have  any  interest  in the  assets  of  their  respective  Division.
Notwithstanding the attribution of assets and liabilities  (including contingent
liabilities)  and  stockholders'  equity among the  Divisions for the purpose of
preparing  their  respective  financial  statements,  the change in the  capital
structure of the Company  contemplated by the Divisional Stock Proposal will not
affect legal title to such assets or responsibility  for such liabilities of the
Company or any of its  subsidiaries.  The assets of each Division are subject to
the  obligations  and  liabilities  incurred by either  Division,  whether  such
obligations or liabilities arise from lawsuits,  contract or other  indebtedness
allocated to such  Division.  In the event one Division is unable to satisfy its
obligations or liabilities out of assets or other resources allocated to it, the
Company may be required to satisfy the  obligations or liabilities  using assets
or resources  allocated to the other  Division.  As such, the holders of Agouron
Pharmaceuticals  Stock and Oncology  Division Stock can be affected by decisions
of the Board and the Company's  management  regarding the assets and liabilities
of both Divisions.  The Board or management  may,  subject to the Management and
Allocation   Policies   described  under  "Proposal   2--The   Divisional  Stock
Proposal--Management  and Allocation  Policies" and the Board's fiduciary duties
to the Company and its shareholders, allocate assets and divert earnings between
Divisions without shareholder approval.

         Financial  effects arising from a Division that affect the consolidated
results of  operations  or  financial  position of the Company  could affect the
results of operations  or financial  position of the other  Division(s)  and the
market  price of the series of Common  Stock  related to the other  Division(s).
Moreover, any net losses of Agouron Pharmaceuticals or the Oncology Division and
any distributions on, or repurchases of, any shares of capital stock will reduce
the funds of the Company  legally  available for the payment of dividends on all
classes  and  series  of  common  stock  of the  Company.  Accordingly,  Agouron
Pharmaceuticals  and the Oncology Division financial  information should be read
in conjunction with the Company's consolidated financial information.

         The Company will continue to prepare consolidated  financial statements
and also provide such consolidated  financial  statements to the shareholders of
each of Agouron  Pharmaceuticals  and the Oncology  Division.  If the Divisional
Stock Proposal is approved,  the Company will provide to shareholders of each of
Agouron Pharmaceuticals and the Oncology Division separate financial statements,
management's  discussion  and  analysis of  financial  condition  and results of
operations,  descriptions  of businesses and other relevant  information for the
respective  Division,   together  with  the  Company's   consolidated  financial
statements.  Upon  request,  the Company  will provide to any  shareholder  of a
Division  a copy of the  separate  financial  statements  related  to the  other
Divisions.

         LIMITED  SEPARATE   SHAREHOLDER  RIGHTs.  Under  the  Divisional  Stock
Proposal,  holders of the Agouron Pharmaceuticals Stock would not have any legal
rights  specifically  related to the assets attributed to the Oncology Division,
and the  shareholders  of the Oncology  Division would not have any legal rights
specifically related to the assets attributed to Agouron Pharmaceuticals, except
(i) as set forth in the provisions  relating to dividend and liquidation  rights
and  requirements for a mandatory  exchange of the Oncology  Division Stock upon
the  disposition  of all or  substantially  all of  the  properties  and  assets
allocated  to the  Oncology  Division,  as  described  under  "Proposal 2 -- The
Divisional Stock  Proposal--Description of Capital Stock--General Redemption and
Conversion  Provisions" and (ii) separate voting rights in limited circumstances
as  required by the  California  Corporations  Code,  as  discussed  below under
"--Limited  Separate Voting Rights;  Variable Voting Rights."  Separate meetings
for the holders of Agouron  Pharmaceuticals  Stock and Oncology  Division  Stock
will not be held.


<PAGE>



         Holders of Agouron  Pharmaceuticals  Stock and Oncology  Division Stock
will be common  shareholders of the Company,  and will continue to be subject to
all the  risks  associated  with an  investment  in the  Company  and all of its
businesses and liabilities. The Company and its subsidiaries will continue to be
responsible for each of their respective liabilities.

         LIMITED  SEPARATE  VOTING RIGHTS;  Variable  Voting  Rights.  Under the
Divisional Stock Proposal, holders of both the Agouron Pharmaceuticals Stock and
of the Oncology  Division  Stock will vote  together as a single  voting  group,
except  in  certain   limited   circumstances   provided  under  the  California
Corporations  Code.  Accordingly,  except in limited  circumstances,  holders of
shares of one series of Common Stock could not bring a proposal to a vote of the
holders of that series of Common Stock only,  but would be required to bring any
proposal to a vote of all common shareholders. If a separate vote on a matter by
the holders of either the Agouron Pharmaceuticals Stock or the Oncology Division
Stock is not required under the California  Corporations  Code, and if the Board
does not require a separate vote,  either class of Common Stock that is entitled
to more than the number of votes  required  to approve  such matter will be in a
position  to control  the  outcome  of such vote even if the  matter  involves a
divergence  or  conflict  of  the  interests  of  the  holders  of  the  Agouron
Pharmaceuticals   Stock  and  the  Oncology  Division  Stock.  See  "--Potential
Divergence  of  Interests;  No  Specific  Procedures  for  Resolution"  and  "--
Allocation of Proceeds of Mergers or Consolidations."

         Conversely, if a separate vote on a matter by the holders of either the
Agouron  Pharmaceuticals  Stock or the Oncology Division Stock is required under
the California  Corporations  Code, by stock market rules or by the Board,  such
holders of either Agouron Pharmaceuticals Stock or Oncology Division Stock could
prevent approval of such matter,  even if the holders of a majority of the total
number of votes cast or  entitled  to be cast with  respect to both the  Agouron
Pharmaceuticals Stock and the Oncology Division Stock voting together as a group
were to vote in favor of it.

         Each outstanding share of Agouron  Pharmaceuticals  Stock will have one
vote. Each  outstanding  share of Oncology  Division Stock will have a number of
votes  (including  a fraction  of one vote)  equal to the ratio of the  weighted
average  market  capitalization  of the Oncology  Division Stock and the Agouron
Pharmaceuticals  Stock to be initially determined on the earlier of the 90th day
following  commencement of trading of the Oncology  Division Stock or the record
date  established  for the first  meeting or consent of  shareholders  following
implementation of the Divisional Stock Proposal. The initial vote so established
shall remain  unchanged  until June 30, 2000. On July 1, 2000 and on each July 1
every two years thereafter,  the number of votes to which each share of Oncology
Division Stock is entitled will be adjusted to reflect the ratio of the weighted
average  market  capitalization  of the Oncology  Division Stock and the Agouron
Pharmaceuticals  Stock as of such date. The relative  market  capitalization  of
each series of Oncology Division Stock and Agouron  Pharmaceuticals  Stock shall
be determined by multiplying the number of outstanding  shares of each series by
the Fair Market  Value of one share of such  series.  The formula is intended to
equate the  proportionate per share voting rights of each series of Common Stock
to their respective market  capitalization from time to time.  Accordingly,  the
relative  voting power per share of Agouron  Pharmaceuticals  Stock and Oncology
Division Stock will fluctuate  based on the respective Fair Market Values of the
two series of Common Stock. Fair Market Value could be affected by many factors,
including the results of  operations  of the Company and each of the  Divisions,
trading volume,  share issuances and  repurchases,  general  economic and market
conditions,  and decisions regarding allocations between the Divisions.  Changes
in the aggregate votes or relative voting power of Agouron Pharmaceuticals Stock
or the Oncology  Division  Stock could  result from the  market's  reaction to a
decision  by the  Company's  management  or Board  that is  perceived  to affect
differently  one  series  of  Common  Stock in  comparison  to the  other or the
issuance or  repurchase  of shares of Common  Stock of either  series.  Upon the
approval  by  shareholders  and the  filing of the  Restated  Articles  with the
California  Secretary  of State,  holders of Agouron  Pharmaceuticals  Stock are
anticipated  to have a greater  total  voting  power than  holders  of  Oncology
Division  Stock.  As a result,  on  matters  submitted  to a vote of the  common
shareholders   as  a  group,   the   preferences   of  the  holders  of  Agouron
Pharmaceuticals  Stock are likely to dominate and  determine the outcome of such
vote  unless  and until the  relative  number of shares  outstanding  and/or the
market value of each series of the Company's  Common Stock  materially  changes.
See "--Decisions That Affect Fair Market Values Can Affect  Shareholder  Rights"
and  "Proposal  2 --  The  Divisional  Stock  Proposal--Description  of  Capital
Stock--Voting Rights."


<PAGE>





         FIDUCIARY DUTIES OF THE BOARD; No Definitive Precedent Under California
Law.  Under the  California  Corporations  Code,  each  member of the Board must
discharge  his or her duties in a manner he or she  believes in good faith to be
in the best interests of the  corporation  and its  shareholders  with the care,
including  reasonable  inquiry,  an ordinarily prudent person in a like position
would exercise under similar circumstances. Although the Company is not aware of
any precedent  concerning the manner in which principles of California law would
be  applied  in  the  context  of  the  capital  structure  contemplated  by the
Divisional  Stock  Proposal,  California  courts  generally  apply the statutory
standard  described above to determine if a board of directors has satisfied its
fiduciary duties.  Courts  interpreting  California law have held that directors
satisfy their fiduciary duties if they make a good faith business  determination
in an informed and deliberate manner with a careful  consideration of the action
to be taken. If the Board acts in accordance with the standards  described above
with respect to any matter having a disparate impact upon the holders of Agouron
Pharmaceuticals  Stock or the holders of Oncology Division Stock, it should have
a defense  to any  challenge  made by or on behalf of either  group of  holders.
Nevertheless,  a California  court hearing a case involving such a challenge may
decide to apply  principles of California law other than those discussed  above,
or,  because  such a case could be a case of first  impression,  may fashion new
principles  of  California   law  to  decide  such  a  case.   There  may  arise
circumstances involving a divergence or conflict of the interests of the holders
of Agouron Pharmaceuticals Stock and holders of Oncology Division Stock in which
the Board is held to have properly discharged its duty to act in accordance with
its good faith  business  judgment of the best  interests  of the Company but in
which  holders of  Agouron  Pharmaceuticals  Stock or  Oncology  Division  Stock
consider themselves to be disadvantaged  relative to the other series. In such a
case,  such holders might not have any remedy under  California law with respect
to the circumstances giving rise to the divergence or conflict of interests.

         Disproportionate ownership interests of members of the Board in Agouron
Pharmaceuticals  Stock or Oncology Division Stock or disparity in the respective
market  values of the Agouron  Pharmaceuticals  Stock and the Oncology  Division
Stock held by such directors could create  potential  conflicts of interest when
directors are faced with decisions that could have  different  implications  for
the different  series.  See  "--Potential  Divergence of Interests;  No Specific
Procedures   for   Resolution"   and   "Proposal    2--The    Divisional   Stock
Proposal--Management   and   Allocation   Policies--Fiduciary   and   Management
Responsibilities."

         MANAGEMENT AND  ALLOCATION  POLICIES  SUBJECT TO CHANGE.  The Board has
adopted certain management and allocation policies described herein with respect
to  cash   management,   the  allocation  of  corporate   expenses,   rights  to
commercialize products,  inter-Division  transactions and other matters, any and
all of  which  could  be  modified  or  rescinded  by  the  Board,  in its  sole
discretion,  without the approval of shareholders,  although there is no present
intention  to do so. The Board could also adopt  additional  policies  depending
upon the  circumstances.  The Board  could  decide to  modify  or  rescind  such
policies,  or to adopt  additional  polices,  and any such  decision  could have
disparate  effects  upon  holders of shares of any series of Common  Stock.  Any
determination  of the Board to  modify or  rescind  such  policies,  or to adopt
additional  policies,  including  any such  decision  that would have  disparate
impacts  upon holders of Agouron  Pharmaceuticals  Stock and holders of Oncology
Division Stock, would be made in accordance with the Board's good faith business
judgment of the best  interests of the Company,  taking into  consideration  the
interests of all common  shareholders.  See "Proposal 2 -- The Divisional  Stock
Proposal--Management and Allocation Policies."

         POTENTIAL   DIVERGENCE  OF  INTERESTS;   No  Specific   Procedures  for
Resolution.  Occasions  may arise when the  interest  of the  holders of Agouron
Pharmaceuticals  Stock and the holders of Oncology Division Stock may diverge or
appear to diverge.  Examples include, among others,  determinations by the Board
to:  (i)  allocate  resources  and  financial  support  to  or  pursue  business
opportunities or operational  strategies  through one Division instead of one or
more of the other Divisions;  (ii) exchange each  outstanding  share of Oncology
Division  Stock for cash or  shares  of  Agouron  Pharmaceuticals  Stock,  (iii)
approve the disposition of all or substantially all of the properties and assets
of the Oncology Division,  (iv) allocate consideration to be received by holders
of Common  Stock in  connection  with a merger or  consolidation  involving  the
Company  among holders of different  series of Common  Stock,  (v) if and to the
extent there are Designated Shares (as defined below),  allocate the proceeds of
future  issuances  of  the  Oncology   Division  Stock  either  to  the  Agouron
Pharmaceuticals shareholders or to the equity of the Oncology Division, (vi)


<PAGE>


pay  or  omit  dividends  on  any  series  of  Common  Stock  or  (vii)  approve
transactions  involving the transfer of funds or assets from one Division to the
other or make other  operational  or  financial  decisions  with  respect to one
Division that could be considered to be detrimental to the other Division.

         Other than as  described  under  "Proposal  2 -- The  Divisional  Stock
Proposal -- Management and  Allocation  Policies," no specific  procedures  have
been adopted for  consideration  of matters  involving a divergence of interests
among the holders of the  Company's  Common  Stock.  The policies that have been
adopted  could be modified or  rescinded by the Board,  in its sole  discretion,
without the approval of shareholders,  although there is no present intention to
do so. The Board  could also adopt  additional  policies.  The Board  intends to
exercise its judgment from time to time,  depending on the circumstances,  as to
how  best  to  obtain   information   regarding  the  divergence  (or  potential
divergence)  of interests,  under what  circumstances  to seek the assistance of
outside  advisors,  whether a  committee  of the Board  should be  appointed  to
address the matter, and how to assess which available alternative is in the best
interests  of the Company and all of its  shareholders.  The Board  believes the
advantages  of  retaining  flexibility  in  determining  how best to fulfill its
responsibilities  in such circumstances as they may arise outweigh any perceived
advantages from attempting to adopt specific  procedures in advance to cover all
conceivable  circumstances.   Each  of  the  foregoing  potential  diverging  or
conflicting interests is discussed below:

         OPERATIONAL  AND  FINANCIAL  DECISIONS.  The Board  could,  in its sole
discretion,  from time to time,  make  operational  and  financial  decisions or
implement  policies  that affect  disproportionately  the  businesses of Agouron
Pharmaceuticals and the Oncology Division, such as transfers of services,  funds
or  assets  between  Divisions  and  other  inter-Division   transactions,   the
allocation of financing  opportunities  in the public markets and the allocation
of business opportunities, resources and personnel that may be suitable for both
Divisions. Any such decision may favor one Division at the expense of the other.
For example,  the decision to obtain funds for one Division may adversely affect
the ability of the other  Division to obtain funds  sufficient  to implement its
growth  strategies.  All such  decisions  will be made by the  Board in its good
faith business judgment or in accordance with procedures and policies adopted by
the Board from time to time,  including the policies  described  under "Proposal
2--The  Divisional  Stock  Proposal--Management  and Allocation  Policies," in a
manner designed to be consistent with the best interests of the Company,  taking
into  consideration  the  interests  of all  common  shareholders.  For  further
discussion of potential divergence of interests,  see "--Fiduciary Duties of the
Board; No Definitive  Precedent  Under  California  Law,"  "--Transfers of Funds
Between Divisions;  Equity Contributions," and "Proposal 2--The Divisional Stock
Proposal--Management and Allocation Policies."

         OPTIONAL  EXCHANGE OF ONCOLOGY  DIVISION STOCK. The Board could, in its
sole discretion and without shareholder  approval,  determine to exchange shares
of Oncology Division Stock for cash or shares of Agouron  Pharmaceuticals  Stock
(or any combination  thereof) at a 25% premium over the Fair Market Value of the
Oncology Division Stock at any time. Any such  determination  could be made at a
time  when  either  or both  of the  Oncology  Division  Stock  and the  Agouron
Pharmaceuticals  Stock may be considered to be  overvalued  or  undervalued.  In
addition,  any such  conversion at any premium would dilute the interests in the
Company of the holders of the Agouron  Pharmaceuticals  Stock and would preclude
holders of the Oncology  Division  Stock from  retaining  their  investment in a
security  that  is  intended  to  reflect  separately  the  performance  of that
Division.   If  such   exchange  is   perceived   as  dilutive  to  the  Agouron
Pharmaceuticals Stock, the market price of such stock may be adversely affected.
The  Company  cannot  predict  the  impact on the market  prices of the  Agouron
Pharmaceuticals  Stock or the Oncology  Division  Stock of its ability to effect
any such  exchange or the effect,  if any,  that the  exercise by the Company of
this   exchange   right   would  have  on  the  market   price  of  the  Agouron
Pharmaceuticals Stock or the Oncology Division Stock prevailing at such time. In
determining  whether to convert  the  Oncology  Division  Stock into the Agouron
Pharmaceuticals  Stock,  the Board  will act in  accordance  with its good faith
business  judgment  that any such  conversion  is in the best  interests  of the
Company as a whole, but not necessarily in the best interests of either Division
individually.  See "Proposal 2--The  Divisional Stock  Proposal--Description  of
Capital Stock--General Redemption and Conversion Provisions."

         FAIR VALUE UPON DISPOSITION OF DIVISION  ASSETS.  As long as the assets
attributed to a Division  continue to represent less than  substantially  all of
the properties and assets of the Company,  the Board may approve sales and other
dispositions of any amount of the properties and assets of such Division without
shareholder approval. The proceeds from any such sale would be assets attributed
to such  Division  and used  for its  benefit,  subject  to the  management  and
allocation   policies   described  under  "Proposal   2--The   Divisional  Stock
Proposal--Management


<PAGE>


and  Allocation  Policies."  The  Restated  Articles  contain  provisions  that,
following  a  disposition  of all or  substantially  all  of the  assets  of the
Oncology  Division,  the  shares  of  Oncology  Division  Stock are  subject  to
mandatory exchange by the Company for cash or shares of Agouron  Pharmaceuticals
Stock (or any  combination  thereof) at a 25% premium over the Fair Market Value
of the Oncology  Division  Stock as  determined  by the trading  prices during a
specified period prior to consummation of the disposition. Consequently, holders
of Oncology  Division  Stock may  receive a greater or lesser  premium for their
shares  than any  premium  that might be paid by a  third-party  buyer of all or
substantially all of the assets of the Oncology Division. In addition,  any such
exchange could be made at a time when the Oncology Division Stock or the Agouron
Pharmaceuticals  Stock may be considered to be  overvalued or  undervalued.  See
"--Optional  Exchange of  Oncology  Division  Stock."  The  decision to sell the
assets of the Oncology Division may have the effect of precluding holders of the
Oncology  Division  Stock  from  realizing  their  anticipated  return  on their
investment in the Oncology Division Stock. Moreover, if the proceeds from such a
sale resulted in a price greater than the 25% premium,  the Company's obligation
to the holders of the Oncology Division Stock would be limited to payment of the
25% premium as set forth in the  Restated  Articles.  The terms of the  Oncology
Division Stock and the Agouron Pharmaceuticals Stock do not require the Board to
select the option that would result in the  distribution  with the highest value
to the holders of the Oncology Division Stock or with the smallest effect on the
Agouron  Pharmaceuticals  Stock. The Board would select an option based upon its
good faith  business  judgment that such option is in the best  interests of the
Company, taking into consideration the interests of all common shareholders. See
"--Fiduciary Duties of the Board; No Definitive Precedent under California Law."

         ALLOCATION OF PROCEEDS UPON ISSUANCE OF ONCOLOGY DIVISION STOCK. If and
to the extent there are Oncology  Division  Designated Shares at the time of any
sale of  shares of  Oncology  Division  Stock,  the Board  would  determine  the
allocation  of the  proceeds of such sale  between  the Agouron  Pharmaceuticals
shareholders and the Oncology Division.  In such case, the Board could (assuming
there are sufficient Oncology Division Designated Shares) allocate up to 100% of
the  net  proceeds  of the  sale  of  Oncology  Division  Stock  to the  Agouron
Pharmaceuticals  shareholders  or  allocate  some or all  such  proceeds  to the
Oncology Division,  and such allocated amount of net proceeds would be reflected
entirely on the financial statements of the Division to which such proceeds were
allocated.  Any such  allocation of net proceeds to the Agouron  Pharmaceuticals
shareholders would reduce the number of Oncology Division Designated Shares.

         NO  ASSURANCE  OF  PAYMENT  OF  DIVIDENDS.  The  Company  has not  paid
dividends  in the past  and does not  anticipate  paying  any  dividends  in the
foreseeable  future. Any dividends on the Agouron  Pharmaceuticals  Stock or the
Oncology Division Stock that may be declared by the Board will be payable out of
the lesser of: (i) the funds of the Company legally  available for such purpose,
which are determined on the basis of the entire Company,  and (ii) the Available
Dividend Amount with respect to the relevant Division, which in general is equal
to the amount legally  available for such purpose  determined in accordance with
California  law applied as if such  Division were a separate  corporation.  Such
dividends are further  subject to the prior payment of dividends on  outstanding
shares of any class or series of capital stock of the Company with  preferential
dividend  provisions.  Any net losses of the Company  (without regard to whether
such  losses  arose  from  any  specific   Dividends),   and  any  dividends  or
distributions  on, or repurchases of, the Agouron  Pharmaceuticals  Stock or the
Oncology Division Stock, and dividends on, and certain repurchases of, preferred
stock,  will reduce the funds of the Company  legally  available  for payment of
dividends on both the Agouron  Pharmaceuticals  Stock and the Oncology  Division
Stock.  Subject  to  limitations  of the  California  Corporations  Code and the
Restated  Articles,   the  Board  may  declare  and  pay  dividends  on  Agouron
Pharmaceuticals  Stock and Oncology  Division Stock in equal or unequal amounts,
or may  decide  not to  declare  and pay  such  dividends,  notwithstanding  the
relationship   between  the  Available   Dividend  Amounts  for  the  respective
Divisions,  the  respective  amounts of prior  dividends paid on, or liquidation
rights of, the Agouron  Pharmaceuticals  Stock or the Oncology Division Stock or
any other factor.  See "Proposal 2--The Divisional Stock Proposal  --Description
of Capital Stock --Dividend Rights" and "--Dividend Policy."

         ALLOCATION  OF  PROCEEDS  OF MERGERS OR  CONSOLIDATIONS.  The  Restated
Articles  do not  contain  any  provisions  governing  how  consideration  to be
received  by  the  Company's   shareholders  in  connection  with  a  merger  or
consolidation  involving  the  Company  (in  which  the  Common  Stock  is to be
converted  into other  securities,  cash or other  property)  is to be allocated
among  holders of the Oncology  Division  Stock and the Agouron  Pharmaceuticals
Stock.  In any such merger or  consolidation,  the  allocation of  consideration
would be determined by the Board.



<PAGE>


         TRANSFER  OF  FUNDS  AMONG  DIVISIONS;  EQUITY  CONTRIBUTIONS.  If  the
Divisional  Stock  Proposal is approved by  shareholders,  all debt  incurred or
stock issued by the Company and its  subsidiaries  following the issuance by the
Company of the Agouron  Pharmaceuticals  Stock and the Oncology  Division  Stock
would be (unless the Board otherwise  provides)  specifically  attributed to and
reflected in the  financial  statements of the Division that includes the entity
which  incurred  the debt or  issued  the stock or, in the case of debt or stock
that  is  not  specifically   attributed  to  one  of  the  Divisions,   Agouron
Pharmaceuticals. The Board could, however, determine from time to time that debt
incurred  or  stock  issued  by  entities  included  in  a  Division  should  be
specifically  attributed  to and  reflected in the  financial  statements of the
other Division(s) to the extent that the debt is incurred or the preferred stock
is issued for the benefit of such other Division(s).

         To the extent cash needs of one Division  exceed cash  provided by such
Division,  one of the other Divisions may transfer funds to such other Division.
The  Company  has  provided  and  will  continue  to  provide  centralized  cash
management  functions under which cash receipts of certain entities  included in
the  Divisions  are  remitted  to  Agouron   Pharmaceuticals  and  certain  cash
disbursements  of the other Divisions will be funded by Agouron  Pharmaceuticals
on a daily  basis.  Such  transfers  of  funds  between  the  Divisions  will be
reflected as  borrowings or as the creation of, or at the option of the Board an
increase  or  reduction  in the  number of  Designated  Shares  of the  relevant
Division. In addition, the Board has approved an allocation of up to $25 million
in cash from  Agouron  Pharmaceuticals  to the  Oncology  Division  (the "Equity
Line").  Amounts  drawn on the Equity Line will be exchanged  automatically  for
Oncology  Division  Designated  Shares  based  on the Fair  Market  Value of the
Oncology  Division  Stock on the date of exchange or at such time as the maximum
amount  of the  Equity  Line is drawn or the  Board  otherwise  determines.  See
"Proposal 2--The Divisional Stock Proposal--Management and Allocation Policies."

         There are no specific  criteria for determining when a transfer will be
reflected  as a borrowing  or as the creation of, or an increase or reduction in
the number of, Oncology Division  Designated  Shares.  The Board expects to make
such  determinations,  either in  specific  instances  or by  setting  generally
applicable policies from time to time, after consideration of such factors as it
deems relevant,  including,  without limitation,  the needs of the Company,  the
financing  needs and objectives of the Divisions,  the investment  objectives of
the Divisions,  the  availability,  cost and time  associated  with  alternative
financing sources, prevailing interest rates and general economic conditions.

         Loans from one Division to another  Division will bear interest at such
rates and have such repayment  schedules and other terms as are established from
time to time by, or pursuant to procedures  established by, the Board. The Board
expects to make such determinations,  either in specific instances or by setting
generally  applicable  policies from time to time,  after  consideration of such
factors as it deems relevant,  including,  without limitation,  the needs of the
Company,  the use of proceeds by and creditworthiness of the recipient Division,
the capital  expenditure  plans and investment  opportunities  available to each
Division  and the  availability,  cost  and  time  associated  with  alternative
financing sources. There can be no assurance that interest rates and other terms
established by the Board for any inter-Division loan will approximate those that
could have been  obtained by the  borrowing  Division had it been a  stand-alone
corporation.

         Although  the  creation  of or any  increase  in the number of Oncology
Division  Designated  Shares  resulting from an equity  contribution  by Agouron
Pharmaceuticals  to the Oncology Division or an exchange of amounts  outstanding
under the Equity  Line (or any  decrease  in such  number of  Oncology  Division
Designated  Shares) would be determined by reference to the Fair Market Value of
the  Oncology  Division  Stock as of the date of such  event,  an  increase  (or
decrease)  could  occur at a time when the  Oncology  Division's  stock could be
considered  undervalued  or  overvalued.  In  addition,  the  creation  of or an
increase  in the number of  Oncology  Division  Designated  Shares may result in
dilution in net  tangible  book value per share to the  existing  holders of the
Oncology Division Stock.

         ABSENCE  OF  APPROVAL  RIGHTS  WITH  RESPECT  TO  FUTURE  ISSUANCES  OF
AUTHORIZED  SHARES.  The approval of the shareholders of the Company will not be
sought by the Company for the  issuance of  authorized  but  unissued  shares of
Agouron  Pharmaceuticals  Stock,  Oncology  Division Stock or additional  series
established by the Board or securities of the Company that are convertible  into
or  exchangeable  for such  shares,  unless  deemed  advisable  by the  Board or
required  by  applicable  law,  regulation  or  stock  market  requirements.  In
addition, the Board may, without soliciting the vote of shareholders,  designate
and  issue  shares of a new  series of Common  Stock  intended  to  reflect  the
performance of new or additional divisions as otherwise described herein.


<PAGE>



         DECISIONS THAT AFFECT FAIR MARKET VALUES CAN AFFECT SHAREHOLDER RIGHTS.
The relative voting power per share of the Agouron Pharmaceuticals Stock and the
Oncology  Division  Stock and the  number of shares of  Agouron  Pharmaceuticals
Stock  issuable upon the optional  conversion  of or mandatory  exchange for the
Oncology  Division  Stock will differ  depending  upon the relative  Fair Market
Values of the Agouron  Pharmaceuticals Stock and the Oncology Division Stock. In
addition,  the number of Oncology Division  Designated Shares will increase upon
advances  under the  Equity  Line  provided  by Agouron  Pharmaceuticals  to the
Oncology  Division.  The amount of increase will depend on the Fair Market Value
of the Oncology  Division  Stock at the time of such  advances.  The Fair Market
Values of the  Oncology  Division  Stock and the Agouron  Pharmaceuticals  Stock
could be affected by many factors,  including  decisions of  management  and the
Board  regarding  the  reallocation  of assets,  expenses and  liabilities,  the
allocation  of corporate  opportunities  between  Divisions,  the  allocation of
financing  resources,  the amount of dividends,  if any, that may be declared on
either  series  of  Common  Stock,  the  allocation  of  responsibility  for the
Company's  liabilities,  and other  inter-Division  transactions.  See "Proposal
2--The Divisional Stock Proposal--Management and Allocation Policies."

         NO ASSURANCES  AS TO MARKET PRICE OR LIQUIDITY.  Because there has been
no prior market for the Agouron  Pharmaceuticals Stock and the Oncology Division
Stock,  there  can be no  assurance  as to  their  market  prices  or  liquidity
following  issuance thereof.  There can be no assurance that the combined market
values of the Agouron Pharmaceuticals Stock and the Oncology Division Stock held
by a shareholder immediately following the effectiveness of the Divisional Stock
Proposal will equal or exceed the market value of the Existing Common Stock held
by such shareholder  prior to the announcement or effectiveness of the Company's
Divisional Stock Proposal, and the combined market value could be less than such
market value of the Existing Common Stock.  Until an orderly market develops for
the  Agouron  Pharmaceuticals  Stock  and the  Oncology  Division  Stock,  their
respective  trading  prices may fluctuate  significantly.  If an active  trading
market does develop,  there can be no assurance that it will be maintained.  The
prices at which the shares of Agouron Pharmaceuticals Stock or Oncology Division
Stock will trade will be determined in the trading markets and may be influenced
by many factors,  including the consolidated  results of the Company, as well as
the respective performance of Agouron Pharmaceuticals and the Oncology Division,
investors'  expectations for the Company and each Division,  trading volume, the
number of market makers  supporting each Divisional  Stock, the amount and level
or analyst coverage of each Division and general economic and market conditions.
There  is  no  assurance  that  investors  will  assign  value  to  the  Agouron
Pharmaceuticals  Stock or the  Oncology  Division  Stock  based on the  reported
financial results and fundamental  operating  prospects of the related Division.
Financial  results  of the  Divisions  that  impact the  Company's  consolidated
results of operations or financial  condition  could affect the market prices of
the Agouron  Pharmaceuticals Stock and the Oncology Division Stock. In addition,
the  Company  cannot  predict  the  impact on the market  values of the  Agouron
Pharmaceuticals  Stock or the Oncology  Division  Stock of certain  terms of the
securities, such as the ability of the Company to convert shares of the Oncology
Division Stock, the discretion of the Board to make various  determinations,  or
the  impact on the  market  value of each  series of Common  Stock of its voting
power.  See also "--Risks  Related to Agouron  Pharmaceuticals  and the Oncology
Division - Volatility of Stock Price and Liquidity."

         NO ADJUSTMENT TO LIQUIDATING DISTRIBUTIONS. In the event of a voluntary
or  involuntary  dissolution,  liquidation  or winding up of the  affairs of the
Company  (other  than  pursuant  to a merger,  business  combination  or sale of
substantially  all  assets),  holders of  outstanding  shares of each  series of
Common Stock would receive the assets,  if any,  remaining for  distribution  to
common  shareholders  on a per share basis in proportion to the  respective  per
share liquidation units of such series.  The Restated Articles provide that each
share of Agouron  Pharmaceuticals Stock has 100 liquidation units and each share
of Oncology  Division Stock has 25 liquidation  units.  Because the  liquidation
units will not be adjusted to reflect  changes in the  relative  market value or
performance of each of the Divisions,  the per share liquidating distribution to
a holder of Agouron  Pharmaceuticals  Stock or  Oncology  Division  Stock is not
likely to  correspond to the value of the assets of Agouron  Pharmaceuticals  or
the Oncology Division,  respectively, at the time of a dissolution,  liquidation
or  winding  up  of  the  Company.   See  "Proposal   2--The   Divisional  Stock
Proposal--Description of Capital Stock--Liquidation Rights."

         USE OF TAX BENEFITS BY OTHER  DIVISION.  The Company's  management  and
allocation  policies  provide  that,  to the  extent any  Division  is unable to
utilize  its  operating  losses or other  projected  tax  benefits to reduce its
current  or  deferred  income  tax  expense,  such  losses or  benefits  will be
reallocated to the other Division on a quarterly basis


<PAGE>


for financial  reporting purposes.  Accordingly,  although the actual payment of
taxes is a corporate  liability  of the Company as a whole,  separate  financial
statements  will be  prepared  for each  Division  and any losses that cannot be
utilized by a Division will be allocated to the profitable  Division rather than
carried  forward to reduce the future tax  liability of the Division  generating
such losses.  Since  Agouron  Pharmaceuticals  is currently  profitable  and the
Oncology  Division  is expected  to incur  losses for at least the next  several
years,  this  could  result in the  Oncology  Division  being  charged a greater
portion of the total  corporate tax liability and reporting lower earnings after
taxes in the future than would have been the case if such  Division had retained
its losses or other  benefits in the form of a net operating loss carry forward.
See  "Proposal  2--The  Divisional  Stock  Proposal--Management  and  Allocation
Policies."

         LIMITATIONS   ON  POTENTIAL   UNSOLICITED   ACQUISITIONS.   If  Agouron
Pharmaceuticals  or the Oncology  Division were  stand-alone  corporations,  any
person interested in acquiring either of such corporations  without  negotiation
with management could seek control of the outstanding  stock of such corporation
by means of a tender  offer or proxy  contest.  Although  the  Divisional  Stock
Proposal  would  create two series of Common  Stock that are intended to reflect
the separate performance of the Divisions, a person interested in acquiring only
one Division without  negotiation  with the Company's  management would still be
required  to  seek  control  of  the  voting  power  represented  by  all of the
outstanding  capital stock of the Company entitled to vote on such  acquisition,
including  the  series of  Common  Stock  related  to the  other  Division.  See
"--Limited  Separate  Shareholder  Rights,"  "--Limited  Separate Voting Rights;
Variable   Voting    Rights,"   and   "Proposal    2--The    Divisional    Stock
Proposal--Description of Capital Stock--Voting Rights."

         ANTI-TAKEOVER  CONSIDERATIONS.  The Company  has adopted a  Shareholder
Rights  Plan  pursuant  to which each share of Common  Stock  (including,  after
implementation of the Divisional Stock Proposal, if approved,  shares of Agouron
Pharmaceuticals Stock and Oncology Division Stock) is accompanied by a preferred
stock purchase right. These rights will cause a substantial dilution to a person
or group that attempts to acquire the Company on terms not approved by the Board
and may have the effect of deterring hostile takeover attempts. In addition, the
existence of two series of Common Stock could present  complexities and could in
certain circumstances pose obstacles,  financial and otherwise,  to an acquiring
person. For example,  the Company could, in the sole discretion of the Board and
without  shareholder  approval,  exercise  its rights to exchange  the shares of
Oncology  Division  Stock for shares of Agouron  Pharmaceuticals  Stock at a 25%
premium over the Fair Market Value of the Oncology  Division Stock,  which could
result in additional  dilution to persons  seeking  control of the Company.  The
Shareholder  Rights  Plan and the  existence  of the two series of Common  Stock
could, under certain circumstances,  prevent shareholders from profiting from an
increase in the market  value of their shares as a result of a change in control
of the Company by delaying or  preventing  such change in control.  Although the
Board has no present  intention  of doing so, it could issue shares of Preferred
Stock or of a new or  existing  series of  Common  Stock  that  could be used to
create  voting or other  impediments  or to discourage  persons  seeking to gain
control  of the  Company  and could also be  privately  placed  with  purchasers
favorable to the Board in opposing such action.

RISKS RELATED TO AGOURON PHARMACEUTICALS AND THE ONCOLOGY DIVISION

         EARLY STAGE OF PRODUCT DEVELOPMENT;  UNCERTAINTY OF PRODUCT DEVELOPMENT
AND MARKET ACCEPTANCE;  TECHNOLOGICAL UNCERTAINTY. The Company has completed the
development and  commercialization of only one Agouron  Pharmaceuticals  product
and no Oncology  Division  products  and does not expect to have any  additional
products  commercially  available  until  calendar  2000,  if at all.  While the
Company has received  regulatory  approval to begin human  clinical  testing for
certain of its compounds  (see Annex IV and Annex V), 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 or be  accepted  and
successful in the marketplace. 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


<PAGE>


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  preclinical  testing and in phase I and phase II
human clinical  trials,  extensive  further  clinical testing of these potential
products  is  required  before the  Company  can seek  marketing  approval  from
regulatory authorities.  Furthermore, results obtained in preclinical studies or
in 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.

         UNCERTAINTY ASSOCIATED WITH CLINICAL TESTING. Before seeking regulatory
approvals  for the  commercial  sale of any of its  products,  the Company  must
undertake extensive preclinical and clinical testing to demonstrate their safety
and efficacy in humans.  Historical  results of clinical testing of VIRACEPT and
the Company's other clinical  programs are not necessarily  predictive of future
results.  There can be no  assurance  that  clinical  studies of products  under
development  will  demonstrate  the safety and  efficacy of such  products.  The
failure to  adequately  demonstrate  the safety and  efficacy  of a  therapeutic
product could delay or prevent regulatory approval of the product.  There can be
no assurance that unacceptable  toxicities or side effects will not occur at any
time in the course of human  clinical  trials or commercial use of the Company's
drugs. The appearance of any such unacceptable  toxicities or side effects could
interrupt,  limit,  delay or abort the development of any of the Company's drugs
or, if  previously  approved,  necessitate  their  withdrawal  from the  market.
Furthermore,  there can be no assurance that disease  resistance  will not limit
the efficacy of VIRACEPT or other of the  Company's  drugs,  if any.  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.  Additionally,  the Company has made and may in the
future make changes to the  formulation  of its drugs and/or the  processes  for
manufacturing  its drugs.  Any such  changes  in  formulation  or  manufacturing
processes could result in delays in conducting further  preclinical and clinical
testing.  There can be no assurance that any products  under  development by the
Company will be safe when  administered  to patients.  Delays in planned patient
enrollment in the Company's  current  clinical  trials or future clinical trials
may result in increased costs, program delays or both. There can be no assurance
that if clinical  trials are  completed the Company will be able to submit a New
Drug  Application  and/or Product  License  Application as scheduled or that any
such application will be reviewed and approved by FDA in a timely manner,  or at
all.  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
humans.

         HISTORY OF OPERATING LOSSES AND UNCERTAINTY OF CONTINUED  PROFITABILITY
OF AGOURON PHARMACEUTICALS;  DEPENDENCE ON VIRACEPT. Agouron Pharmaceuticals has
had product sales only since fiscal 1997 and reported net income only for fiscal
1998.  Continued  profitability of Agouron  Pharmaceuticals will be dependent in
the  foreseeable  future upon the sales of  VIRACEPT.  There can be no assurance
that  commercial  sales  of  VIRACEPT  alone  will be able to  maintain  Agouron
Pharmaceuticals' substantial rate of growth in revenues or to either generate or
maintain  profitable  operating results on a consistent basis. Any disruption in
the supply or  manufacturing  process for VIRACEPT  may have a material  adverse
effect on  revenues.  Operating  results will also be impacted by the timing and
amount of Agouron  Pharmaceuticals'  research,  development  and clinical  trial
programs,  the level of its selling and marketing  efforts,  the  efficiency and
cost of its  manufacturing  activities,  the nature of its business  development
activities  and on the  timing  and  receipt  of fees from  existing  and future
collaborative relationships.

         HISTORY OF OPERATING LOSSES; LACK OF REVENUES OF THE ONCOLOGY DIVISION.
The Oncology  Division  has  recorded  operating  losses  since  inception.  The
Oncology  Division  has no product  sales and its only source of revenues in the
past has  been  from  payments  by  collaborative  partners.  The  collaborative
agreements  with  Hoffmann-LaRoche  Inc,  and  F.  Hoffmann-La  Roche  Ltd  that
accounted for substantially all of the Oncology  Division's contract and license
revenues for fiscal 1996,  1997 and 1998 have been  terminated,  and the Company
anticipates  no contract  and license  revenues  for the  Oncology  Division for
fiscal  1999.  Because  all of the  Oncology  Division's  potential  therapeutic
products  will  require  substantial   additional   research,   development  and
preclinical and clinical testing prior to  commercialization,  it may be several
years, if ever, before the Oncology Division


<PAGE>


         recognizes   revenue  from  sales  and  royalties  on  these  potential
products.   Accordingly,   the  Oncology  Division  is  expected  to  experience
significant  operating  losses for at least the next several years. The Oncology
Division  may  never  achieve  a  profitable   level  of  operations   and  that
profitability,  if achieved,  may not be sustained on an ongoing basis.  For the
immediate future,  the Oncology Division intends to rely entirely on the funding
capabilities of Agouron Pharmaceuticals.  There can be no assurance that Agouron
Pharmaceuticals  will be capable of  continuing  to fund (or that the Board will
elect to fund) the Oncology Division as currently anticipated.

   
         ADDITIONAL  FINANCING  REQUIREMENTS AND ACCESS TO CAPITAL.  The Company
has expended  approximately  $487,000,000 on research and development activities
since its  inception.  Both Agouron  Pharmaceuticals  and the Oncology  Division
intend 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 and existing
contractual  commitments  will enable Agouron  Pharmaceuticals  and the Oncology
Division to maintain  their  current  and  planned  operations  through at least
fiscal  1999.  No  assurance  can be given  that  there will be no change in the
operations  of  Agouron  Pharmaceuticals  or the  Oncology  Division  that would
consume available  resources more rapidly than anticipated.  Additional  funding
may be  required  by  either or both  Agouron  Pharmaceuticals  or the  Oncology
Division before the  commercialization  of any additional  products.  The future
capital  requirements of both Agouron  Pharmaceuticals and the Oncology Division
will  depend on many  factors,  including  the product  contribution  to Agouron
Pharmaceuticals  from commercial sale of VIRACEPT,  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 capital resources
of Agouron Pharmaceuticals are insufficient to meet current or planned operating
requirements of both Agouron Pharmaceuticals and the Oncology Division,  Agouron
Pharmaceuticals  or the Oncology  Division may seek to obtain  additional  funds
through  equity or debt  financing,  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 Agouron  Pharmaceuticals  or the Oncology  Division.  If adequate
funds are not available, Agouron Pharmaceuticals or the Oncology Division may be
required  to  delay or  eliminate  expenditures  for  certain  programs,  cancel
licenses  from  third  parties  or to license  third  parties  to  commercialize
products or  technologies  that either Agouron  Pharmaceuticals  or the Oncology
Division would otherwise seek to develop and commercialize  itself, any of which
could have a material  adverse effect on Agouron  Pharmaceuticals,  the Oncology
Division or the Company.

         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,  licensors,  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 not terminated early or that the Company will
be able to enter into future collaborations.

         MANUFACTURING  CAPABILITIES.  The Company is  dependent  on a number of
contract  manufacturers for the commercial manufacture of VIRACEPT under current
Good Manufacturing  Practices ("GMP").  Failure to meet GMP standards would have
an adverse impact on the Company's business. No assurance can be given that such
manufacturers can be retained or that such manufacturers will continue to timely
deliver sufficient product quantities 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


<PAGE>


has business  relationships  with its  collaborators  and with  manufacturers to
supply  significant  portions of its clinical trial material  requirements,  the
current facilities and existing  manufacturing  relationships of the Company may
not be adequate to meet anticipated commercial production needs. Therefore,  the
Company will be dependent upon its  collaborators and licensees or upon contract
manufacturers  for the commercial  manufacture  of products it may develop.  The
Company has limited  experience  in such  commercial  manufacturing  and related
matters and no assurance  can be given that the Company will be able to continue
to arrange for contract manufacturing or that adequate supplies of raw materials
will be  available.  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.

         SALES AND MARKETING CAPABILITIES. While the Company has established its
capabilities in the sales, marketing and distribution of pharmaceutical products
in  the  United  States  and  Canada,  there  can  be  no  assurance  that  such
capabilities will be sufficient or successfully  maintained in the United States
or other markets outside of the United States and Canada.  Further, there can be
no assurance that any products,  if approved,  will gain market acceptance.  The
Company's  results of  operations  and cash flows for at least the next  several
years will be highly dependent upon the timing and extent of VIRACEPT sales.

         PATENTS  AND  PROPRIETARY  TECHNOLOGY.  The  Company  has been  granted
certain  patents  relating to its  inventions  in the United  States and certain
other  countries.  The Company  also has  various  pending  patent  applications
claiming  inventions  in various  fields.  The  Company  expects to  continue to
attempt to secure patent  protection  for its potential  products,  and that any
such patents  will be owned by the Company and licensed or be made  available to
the applicable Division. The Company believes that its current and future patent
portfolio is important to its future operations.

         Patent   protection   is   recognized   as  being   important   to  the
pharmaceutical  industry in general,  e.g., as providing a period of exclusivity
against generic competition,  which serves as a return for the great expenditure
of resources incurred in discovering and developing a drug and for advancing the
state of the  art.  The  commercial  success  of the  products  of both  Agouron
Pharmaceuticals  and the Oncology Division may depend, in part, on the Company's
ability to enforce its patents  against  infringing  competitors.  Although  the
Company's issued patents, pending patent applications, and future patents may be
of  importance  to the  Divisions,  there can be no  assurance  that  additional
patents will be granted or that any patents now or hereafter  granted will be of
commercial benefit.

         The  granting  of a patent  is not  conclusive  as to the  validity  or
enforceability  of the claims  therein,  which define the scope of the Company's
exclusive rights.  The validity and enforceability of a United States patent, as
well as of a patent from certain other  countries,  may be challenged by a third
party in a litigation  or  proceeding  before a court or patent  office.  If the
validity or enforceability of a patent claim is successfully  challenged in such
a  litigation  or  proceeding,  then third  parties may be free to use a claimed
invention, in some cases without payment to the Company.  Moreover, there can be
no  assurance  that patent  claims  covering a Division's  products  will not be
infringed or that infringement will be avoided by successfully  designing around
a claimed invention.

         There also can be no assurance  that the  technology or products of the
Divisions,  whether  patented or not, will not infringe third parties'  patents.
The Company is aware of certain patent applications or patents of third parties,
and there may be other patents or patent  applications,  covering subject matter
related to Agouron  Pharmaceuticals  or the Oncology  Division's  technology and
potential products. Research,  development or commercialization of the Company's
products  may  require  that the  Company  obtain  licenses  under  such  patent
applications,  if granted, or patents of third parties. However, there can be no
assurance that the Company will be able to obtain such licenses on  commercially
reasonable terms or at all. If a third party obtains a patent covering a product
of a Division,  the Company could be required to defend against an  infringement
action,  which  could be costly  and  time-consuming.  Furthermore,  any fees or
royalties required to be paid under a patent license,  settlement agreement,  or
litigation judgment could be significant.

         The Company seeks to protect certain unpatented  proprietary technology
and  know-how   through  the   maintenance  of  trade  secrets  or  confidential
information.  Certain  technology  and know-how of  importance  to the Company's
drug-discovery and manufacturing operations depend on the skills, knowledge, and
experience  of  its  scientific  and  technical  personnel,   for  which  patent
protection may not be available. To help protect its rights, the


<PAGE>


Company generally requires all employees, relevant consultants and advisors, and
collaborators  to  enter  into  confidentiality  agreements.  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 its  unauthorized  use or  disclosure.  Competitors  may  independently
develop  substantially  equivalent  technology,  undermining  the  value  of the
Company's  trade  secrets.  Third parties may even obtain  patents  covering the
Company's  proprietary  technology  or know-how,  which may  adversely  affect a
Division's ability to use such technology or know-how.

         The  costs  of  obtaining  and  enforcing  patents  and  of  protecting
proprietary  technology  may involve a substantial  commitment of either or both
Division's  resources.  Any such  commitment  may  divert  resources  from other
operations of the impacted Division.

         TECHNOLOGICAL  CHANGE AND INTENSE  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,  HIV  protease
inhibitors developed by Abbott  Laboratories,  Inc., Merck & Co., Inc. and Roche
are currently  being  marketed.  There can be no assurance  that these and other
competitors  will not have  products or 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. The Company also competes
with respect to manufacturing  efficiency and sales and marketing  capabilities,
areas in which the Company has limited 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,  licensors 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,
licensors 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.

         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.


<PAGE>



         VOLATILITY  OF STOCK  PRICE  AND  LIQUIDITY.  The  market  price of the
Existing Common Stock, like that of the common stock of other  biopharmaceutical
companies, has in recent years fluctuated  significantly,  and it is likely that
should the  Divisional  Stock  Proposal be approved and  implemented  the market
prices  of  Agouron  Pharmaceuticals  Stock and  Oncology  Division  Stock  will
fluctuate  significantly  in  the  future.  Factors  such  as  announcements  of
technological  innovations  or new  commercial  products  by a  Division  or its
competitors,  progress with clinical trials, governmental regulation, changes in
reimbursement policies,  developments in patent or other proprietary rights of a
Division or its competitors, including litigation,  developments in a Division's
relationships with current or future collaborators and licensees, if any, public
concern as to the safety and  efficacy of drugs  developed by a Division and its
competitors,  changes in  estimates of a Division's  performance  by  securities
analysts, changes in the Company's policies regarding the allocation of business
opportunities   and  other  matters  among  the  Divisions  and  general  market
conditions  may have a  significant  effect on the market  price of the  Agouron
Pharmaceuticals  Stock and Oncology  Division  Stock.  Fluctuations in financial
performance  of the  respective  Divisions from period to period also may have a
significant impact on the market price of the Agouron  Pharmaceuticals Stock and
Oncology  Division Stock.  Additionally,  because there has been no prior market
for the Agouron  Pharmaceuticals Stock or the Oncology Division Stock, there can
be no assurance  that an orderly and liquid market will exist or evolve for such
securities  following the  implementation  of the Divisional Stock Proposal.  In
addition to many of the factors noted above, such market will be impacted by the
number of market makers,  if any,  supporting the Divisional Stock and the level
of analyst coverage, if any, experienced by each Division.

         UNCERTAINTY  OF  THIRD-PARTY  REIMBURSEMENT  AND PRODUCT  PRICING.  The
Company's ability to commercialize  products successfully will depend in part on
the  availability  of  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 for commercial sales. There can be no assurance that the
Company will be able to 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
Company.



<PAGE>


         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,   sales  and  marketing  and
managerial personnel. Competition for such personnel is intense and there can be
no assurance  that the Company 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.  The loss of or  failure  to recruit  scientific,  technical,  sales,
marketing,  manufacturing and managerial personnel could have a material adverse
effect on the Company.



<PAGE>


                                     GENERAL
   
         This Proxy  Statement  and the enclosed  form of Proxy are furnished in
connection  with the  solicitation  of Proxies by and on behalf of the Board for
use at the Meeting to be held at the Sheraton  Grande Torrey Pines,  10950 North
Torrey Pines Road, La Jolla,  California 92037, on Wednesday,  December 16, 1998
at 10:00 a.m., San Diego time, and at any adjournments or postponements thereof.
    
         Any shareholder returning the enclosed Proxy may revoke it prior to its
exercise by voting in person at the Meeting or by filing with the  Secretary  of
the Company a written revocation or a duly executed Proxy bearing a later date.

         All shares  represented  by valid  Proxies will be voted in  accordance
with the  directions  specified  thereon and  otherwise in  accordance  with the
judgment of the  proxyholders.  Any duly executed Proxy on which no direction is
specified  will be voted FOR the  election of the  nominees  named herein to the
Board and FOR  Proposals  2, 3, 4 and 5  described  in the Notice of Meeting and
this Proxy Statement.
   
         Only  shareholders of record as of the close of business on October 19,
1998 (the "Record Date") will be entitled to vote at the Meeting.  As of October
19, 1998, there were outstanding 31,282,508 shares of Existing Common Stock.
    
         Holders of Existing  Common Stock are entitled to one vote per share on
all matters brought before the Meeting and to cumulate votes for the election of
the nine directors.  Therefore, in voting for directors,  each outstanding share
of  Existing  Common  Stock is  entitled to nine votes which may be cast for one
candidate or distributed in any manner among the nominees for director. However,
the  right to  cumulate  votes in  favor  of one or more  candidates  may not be
exercised  until  the  candidate  or  candidates  have  been  nominated  and the
shareholder  has given notice at the Meeting of the intention to cumulate votes.
If any one shareholder  gives such notice,  all  shareholders may cumulate their
votes for candidates in nomination.

        The persons  authorized to vote shares  represented by executed  Proxies
for Existing  Common Stock in the  enclosed  form (if  authority to vote for the
election of directors is not withheld)  will have full  discretion and authority
to vote  cumulatively  and to allocate votes among any or all of the nominees as
they may  determine  or,  if  authority  to vote for a  specified  candidate  or
candidates had been withheld,  among those candidates for whom authority to vote
has not been withheld.

         The required  quorum for the Meeting shall consist of a majority of the
outstanding shares of Existing Common Stock which are entitled to vote in person
or by proxy at the  Meeting.  Assuming  that a quorum is present at the Meeting,
the nine persons  receiving  the highest  number of votes will be elected to the
Board.  The  approval  of  Proposal 2 will  require  the  affirmative  vote of a
majority of the outstanding  shares of Existing Common Stock.  Each of Proposals
3, 4 and 5 requires the affirmative  vote of a majority of the shares present in
person or represented by proxy at the Meeting, provided that those affirmatively
voted shares also constitute at least a majority of the required quorum.

         Abstentions  have the same  effect as  negative  votes with  respect to
Proposal  2.   Abstentions  will  generally  not  be  counted  for  purposes  of
determining  whether approval of Proposals 3, 4 or 5 has been obtained (although
they may,  depending  upon the number of shares  voted,  have the same effect as
negative votes with respect to those proposals due to the  requirement  that the
shares voting affirmatively  constitute a majority of the required quorum). If a
broker which is the record holder of certain shares indicates on a proxy that it
does not have discretionary  authority to vote on a particular matter as to such
shares,  or if  shares  are not  voted in  other  circumstances  in which  proxy
authority is defective or has been withheld with respect to a particular matter,
these non-voted shares will be counted for quorum purposes but are not deemed to
be present or  represented  for  purposes  of  determining  whether  shareholder
approval  of that  matter has been  obtained  (however,  they will have the same
effect as negative votes with respect to Proposal 2 and may,  depending upon the
number of shares voted,  have the same effect as negative  votes with respect to
Proposals 3, 4 and 5).


<PAGE>



         The expense of printing and mailing Proxy material will be borne by the
Company. In addition to the solicitation of Proxies by mail, solicitation may be
made by  certain  directors,  officers  or other  employees  of the  Company  by
telephone, telegraph, facsimile or in person. No additional compensation will be
paid to such persons for such  solicitation.  However,  the Company will request
brokers, nominees, fiduciaries, custodians and others to forward Proxy materials
to the beneficial  owners of the Company's shares and the Company will reimburse
such  brokers  or other  persons  for their  reasonable  out-of-pocket  expenses
incurred in connection with forwarding such materials.  The Company has retained
D.F.  King & Co.,  Inc. to perform  various  proxy  advisory,  distribution  and
solicitation  services at a cost of approximately  $7,500 plus  reimbursement of
out-of-pocket expenses.



<PAGE>


                       PROPOSAL 1 - ELECTION OF DIRECTORS

         Under the bylaws of the  Company,  the number of directors is to be not
less than six nor more than eleven, with the actual number to be fixed from time
to time by  resolution  of the Board.  The Board has fixed at nine the number of
directors to be elected at the 1998 Annual Meeting of Shareholders.

         Nine  directors  are to be elected at the Meeting,  each to serve until
the next Annual Meeting of Shareholders  and until their  respective  successors
are  elected  or  appointed.  Unless  authority  to vote  for all  directors  is
withheld,  it is intended that the shares represented by the enclosed Proxy will
be voted for the election of the nominees  named. In the event any of them shall
become  unable or  unwilling  to  accept  nomination  or  election,  the  shares
represented  by the enclosed  Proxy will be voted for the election of such other
person as the Board may  recommend in his or her place.  The Board has no reason
to believe that any such nominee will be unable or unwilling to serve.

     The nine nominees for election as directors, all of whom are members of the
present Board, are Peter Johnson, Gary E. Friedman, John N. Abelson, Patricia M.
Cloherty, A.E. Cohen, Michael E. Herman, Irving S. Johnson,  Antonie T. Knoppers
and Melvin I.  Simon.  Their  terms will last until the 1999  Annual  Meeting of
Shareholders.  Certain information  concerning the nominees for directors is set
forth below.

     THE BOARD  RECOMMENDS THAT YOU VOTE FOR THE NOMINEES FOR DIRECTORS,  AS SET
FORTH IN ITEM 1 ON THE PROXY CARD.

NOMINEES FOR ELECTION AS DIRECTORS

NAME                                      AGE        POSITION

Peter Johnson                              53        President, Chief Executive
                                                     Officer and Director
Gary E. Friedman                           51        Corporate Vice President,
                                                     General Counsel,
                                                     Secretary and Director
John N. Abelson, Ph.D.(1)                  59        Director
Patricia M. Cloherty(2)                    56        Director
A.E. Cohen(1)                              62        Director
Michael E. Herman(1)                       57        Director
Irving S. Johnson, Ph.D.                   73        Director
Antonie T. Knoppers, M.D., Ph.D.(2)        83        Director
Melvin I. Simon, Ph.D.(2)                  61        Director


(1)  Member of Directors Compensation Committee
(2)  Member of Audit 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.

     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. In June 1997, Mr.  Friedman
was promoted to corporate vice president.  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.

     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


<PAGE>


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. From 1993 until 1997 she was
president of Patricof. From 1997 to the present, Ms. Cloherty has been executive
co-chairman as well as a general  partner 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.

     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
Vasomedical, Inc., and is a member of the board of directors of Akzo Nobel N.v.,
Teva   Pharmaceutical   Industries  Ltd.,  Smith  Barney  (Mutual  Funds),   and
Pharmaceutical Product Development, Inc., all of which are public companies. Mr.
Cohen also serves as trustee to The  Population  Council and is a consultant  to
Chugai Pharmaceutical Co. Ltd., Tokyo ("Chugai"),  and serves as chairman of the
board of Chugai's U.S. subsidiary  companies.  Mr. Cohen also is a member of the
board of directors of Lung Check, Inc.

     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,  a
public  company,  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 Eli Lilly and Company, 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.  and  Ligand  Pharmaceuticals
Incorporated,  and is on the scientific advisory board of ELAN Corporation,  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 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.  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.


<PAGE>



COMMITTEES AND MEETINGS OF THE BOARD

     The Company has a Directors  Compensation Committee and an Audit Committee.
The Company does not have a Nominating  Committee.  During the fiscal year ended
June 30, 1998, the Board held six meetings.

     During the fiscal year ended June 30, 1998,  members of the Audit Committee
consisted of Ms.  Cloherty,  Chairperson,  Dr. Knoppers and Dr. Simon. The Audit
Committee oversees the Company's  accounting and financial  reporting  policies,
makes  recommendations  to the Board  regarding the  appointment  of independent
accountants,  reviews with the independent accountants the accounting principles
and  practices  followed by the Company and the adequacy  thereof,  approves the
Company's  annual  audit  and  financial  results  and any  material  change  in
accounting principles,  policies and procedures and makes recommendations to the
Board with regard to any of the preceding. The Audit Committee held two meetings
in the fiscal year ended June 30, 1998.

     During  the  fiscal  year ended  June 30,  1998,  members of the  Directors
Compensation  Committee consisted of Mr. Herman,  Chairman, Dr. Abelson, and Mr.
Cohen.  The  Directors  Compensation  Committee  recommends  to  the  Board  the
Company's overall compensation and the individual  compensation elements for the
Company's executive officers and directors. The Directors Compensation Committee
does not approve  grants of stock  options to executive  officers and  directors
under the Company's  stock option plans.  The Directors  Compensation  Committee
held two  meetings in the fiscal year ended June 30, 1998.  During  fiscal 1998,
the full Board was  responsible  for  approving  grants of options to  executive
officers and directors.

     No incumbent director attended fewer than 75% of the aggregate of the Board
and Committee meetings in which such director was entitled to participate.



<PAGE>


                   PROPOSAL 2 - THE DIVISIONAL STOCK PROPOSAL
GENERAL
   
         The shareholders of the Company are being asked to consider and approve
the Divisional  Stock Proposal  which,  if approved,  will amend and restate the
Company's  Articles  of  Incorporation  to  increase  the  number  of  shares of
authorized Common Stock to 150,000,000  shares, of which 75,000,000 shares would
initially be designated as Agouron  Pharmaceuticals  Stock and 25,000,000 shares
would  initially be designated  as Oncology  Division  Common Stock,  to provide
authorization to the Board to designate and issue any undesignated shares in one
or more additional series of Common Stock and to determine the number of shares,
rights, preferences, privileges and restrictions of any such series, to increase
or decrease the number of shares of any existing  series  including  the Agouron
Pharmaceuticals Stock and the Oncology Division Stock, and to convert each share
of the Company's existing Common Stock into one share of Agouron Pharmaceuticals
Stock and 0.5 shares of Oncology Division Stock.
    
         The  reclassification  and conversion of the Existing Common Stock into
Agouron    Pharmaceuticals    Stock   and   Oncology    Division    Stock   (the
"Reclassification")  are intended for United States  federal income tax purposes
to be tax free to both the Company and its  shareholders  except with respect to
cash paid in lieu of fractional shares.
See "--Certain Federal Income Tax Considerations."
   
         The ratio of 0.5 shares of  Oncology  Division  Stock for each share of
Existing  Common  Stock  was  determined  by  the  Board  in  consultation  with
PaineWebber,  the Company's  financial advisor in connection with the Divisional
Stock  Proposal.  Such ratio is the  quotient  of the total  number of  Oncology
Division  Shares  divided  by the  number  of shares of  Existing  Common  Stock
outstanding.  The number of  Oncology  Division  Shares is the  quotient  of the
initial  estimated  fair market  value of the Oncology  Division  divided by the
desired  initial  trading  range  of  approximately  $8 to $11  of the  Oncology
Division  stock.  See  "Risk  Factors  - No  Assurance  as to  Market  Price  or
Liquidity." The initial  estimated fair market value of the Oncology Division of
approximately  $150,000,000  was  determined by the Board in  consultation  with
PaineWebber  and was based on an  analysis  of  comparable  company  valuations,
prevailing  market  conditions,  financial  and  operating  information  of  the
Oncology Division and independent financial projections and discounted cash flow
analyses of the programs and products associated with Oncology Division.
    
         IF THE DIVISIONAL  STOCK PROPOSAL IS NOT APPROVED BY THE  SHAREHOLDERS,
THE ONCOLOGY  DIVISION STOCK WILL NOT BE CREATED,  AND THE EXISTING COMMON STOCK
WILL NOT BE RECLASSIFIED  AND CONVERTED INTO AGOURON  PHARMACEUTICALS  STOCK AND
ONCOLOGY DIVISION STOCK.

         If the Divisional Stock Proposal is approved by the shareholders at the
Annual Meeting,  the Company  anticipates that the Restated  Articles (see Annex
II) will be filed with the  California  Secretary of State  shortly  thereafter.
However,  the Board could choose to effect the Divisional  Stock Proposal at any
time thereafter, or not to effect the Divisional Stock Proposal depending on the
circumstances  at the time.  The Restated  Articles will become  effective  upon
filing  with  the  California   Secretary  of  State  (the  "Effective   Date").
Certificates formerly representing shares of Existing Common Stock that are held
by shareholders will be deemed to represent an equal number of shares of Agouron
Pharmaceuticals   Stock.  New  certificates   representing   shares  of  Agouron
Pharmaceuticals  Stock will be issued in  replacement of  certificates  formerly
representing  shares of Existing Common Stock as such  certificates are received
and canceled by the transfer agent.  Shareholders should not mail in their stock
certificates  evidencing  Existing  Common  Stock to either  the  Company or its
transfer agent in connection with the Divisional  Stock  Proposal.  Certificates
representing  Oncology  Division  Stock  will  be  distributed  as  promptly  as
practicable  after the Effective  Date. At any time prior to filing the Restated
Articles with the California Secretary of State, including after adoption by the
shareholders  of the  Company,  the  Board  may  abandon  the  Divisional  Stock
Proposal,  or any part  thereof,  without  further  action by the  shareholders.
Approval of the  Divisional  Stock  Proposal is an approval of the amendments of
the Company's  Articles of Incorporation as set forth in the Restated  Articles.
The  names of the  Oncology  Division  and of the  Oncology  Division  Stock are
subject to change but will be determined prior to filing the Restated  Articles.
By approving  the  Divisional  Stock  Proposal,  the  shareholders  will also be
granting  authority to the Company to change the name of the  Oncology  Division
and the Oncology  Division  Stock as set forth in the  Restated  Articles and to
make such other changes as may be required by the California  Secretary of State
in order to conform the Restated Articles to the California Corporations Code.


<PAGE>



         Fractional  shares of  Oncology  Division  Stock  will not be issued in
connection with the Reclassification.  If more than one share of Existing Common
Stock is held by the same  holder of record,  the  Company  will  aggregate  the
number of shares of Oncology  Division  Stock  issuable to such holder upon such
distribution  (including  any  fractions of shares).  If the number of shares of
Oncology  Division  Stock  calculated  to be issued  to any  holder of record of
Existing Common Stock includes a fraction of a whole share, the Company will pay
to such record holder the cash value of such fractional  share within 60 trading
days of the Effective Date,  based upon the average of the daily average of high
and low prices of the Oncology  Division Stock on the Nasdaq National Market for
each of the first ten trading days  following the Effective  Date.  Shareholders
who own their stock  beneficially  through  brokers or other nominees  listed as
holders of record will have their  fractional  shares  handled  according to the
practices  of such  broker or  nominee,  which may  result in such  shareholders
receiving  a price that is higher or lower than the price paid by the Company to
holders of record.  If the necessary trading of Oncology Division Stock does not
occur within 20 trading days after the Effective  Date, the Board will determine
the cash value of a share of Oncology  Division  Stock and the amount to be paid
in lieu of fractional shares.

         The  authorized  but  unissued  shares  of the  two new  series  of the
Company's  Common  Stock and the  undesignated  shares of Common  Stock  will be
available for issuance from time to time by the Company at the discretion of the
Board for any proper  corporate  purpose,  which could include raising  capital,
payment of stock dividends,  providing  compensation or benefits to employees or
acquiring  companies or  businesses.  Such Common Stock would  provide the Board
with a means to complete  acquisitions  or to further  divide the  Company  into
additional  divisions,  through the creation of separate series of Common Stock.
In addition, the Board could use undesignated shares of Common Stock to increase
or  decrease  the  number  of  shares of an  existing  series  of Common  Stock,
including  Agouron  Pharmaceuticals  Stock and Oncology  Division Stock, but not
below the number of  outstanding  shares of that  series.  The  issuance of such
additional shares or series would not be subject to approval by the shareholders
of the Company  unless  deemed  advisable by the Board or required by applicable
law,  regulation  or the  listing  requirements  of the  stock  market  or stock
exchange upon which the Company's shares are listed.

BACKGROUND OF AND REASONS FOR THE DIVISIONAL STOCK PROPOSAL

         The  Divisional  Stock Proposal has been approved by the Board with the
goal of  creating  flexibility  for the  future  growth of the  Company,  and to
advance the Company's  financial and strategic  objectives,  all in an effort to
enhance the overall return to the holders of Existing Common Stock.

         If Agouron shareholders approve the Divisional Stock Proposal and it is
implemented by the Board, the resulting  amendments to the Company's Articles of
Incorporation will create two series of Common Stock of the Company,  namely the
Agouron  Pharmaceuticals  Stock and the Oncology Division Stock, each having the
rights  and  privileges  described  elsewhere  in  this  Proxy  Statement.   The
Divisional  Stock  Proposal will also authorize the Board to issue shares in one
or more  additional  or  existing  series of Common  Stock  with each new series
having the rights,  preferences,  privileges and restrictions  determined by the
Board before the issuances of any shares of such series.  See "-  Description of
Capital Stock" and Annex II.

         The Oncology  Division Stock is intended to reflect the value and track
the performance of the Oncology  Division.  Through the Oncology  Division,  the
Company  seeks to create a  focused,  integrated  oncology  business  which will
develop and  commercialize  novel  products  for the  diagnosis,  treatment  and
prevention of cancer.  The Oncology Division will, on its own and in combination
with  partners and with Agouron  Pharmaceuticals  (when  appropriate),  develop,
manufacture and market those oncology related products.

         The Board  reviewed in detail the financial  performance of the Company
since the FDA  approved  the sale of VIRACEPT  in March  1997.  Since that date,
revenues  from  VIRACEPT  sales have grown  steadily,  allowing  the  Company to
continue its vigorous  investment  in research and  development  ("R&D") for new
products. Such R&D expenditures in non-VIRACEPT related programs,  however, have
impacted  and  are  expected  to  continue  to  impact  the  overall   financial
performance of the Company and overall  shareholder  return.  One of the desired
consequences  of the  Divisional  Stock Proposal is that the Board believes that
the market will evaluate the Company's  profitable  VIRACEPT driven non-oncology
division  and its  potential  for future  growth  separately  from the  Oncology
Division which will continue as a research and development business for the near
future.


<PAGE>



         Approximately  25% of the Company's total  anticipated R&D expenditures
during the  Company's  1999 fiscal year are  expected to be incurred in oncology
related programs.  Currently the Company has four clinical  development programs
and four  preclinical  research and development  programs in the oncology field.
The Board  believes that tracking the oncology  operations  separately  from the
rest of the  Company  will help the Company  realize  what it believes to be the
unappreciated value of the Company's R&D pipeline of products for oncology while
at the same time reducing the impact of those R&D  expenditures on the financial
results of the Company's VIRACEPT-driven non-oncology business.

         In addition to its review of the financial  performance of the Company,
the Board considered the Company's present organizational structure,  which does
not completely  recognize and resolve the inherent conflict between a profitable
business and a business  division still in the development  stage. For these and
other  reasons,  management  engaged  PaineWebber  to discuss  with the  Company
various  alternatives  designed  to  achieve  greater  overall  value  in  these
respective   businesses.   PaineWebber   advised  that  the  separation  of  the
development  stage  oncology  division  from the  VIRACEPT  driven  non-oncology
business,  and the  creation of two  classes or series of Common  Stock to track
those  divisions,   should  result  in  the  market  separately  evaluating  the
performances of Agouron Pharmaceuticals and the Oncology Division.

         At  meetings  held on February  12, 1998 and August 6, 1998,  the Board
considered a variety of  structural  proposals to increase the overall  value of
the Existing  Common Stock to the Company's  shareholders.  The Board  evaluated
alternatives  available  to the  Company  in view of its  strategic  objectives,
capital  requirements,  past  financial  results  and  other  factors.  They had
extensive discussions with senior financial and legal officers of the Company as
well as representatives  of PaineWebber.  Among the alternatives which the Board
considered  were  (i) the  preservation  of the  Company's  current  equity  and
operating structure;  (ii) the separation of various of the Company's businesses
through a distribution  (for example,  in a spin-off) of certain programs to the
Company's  shareholders or the creation of special purpose  financing  entities;
(iii) the license to third parties of certain of the Company's  technology;  and
(iv) the creating of two classes or series of Common Stock to reflect separately
the results of the  Company's  profitable  anti-viral  related  business and its
development stage oncology division.

         The Board  determined that the license to third parties of the oncology
assets or other technology would not realize the full value of those development
stage  programs.  The Board also determined that a spin-off to shareholders of a
separate   company  owning  the  Company's  other   technologies   could  create
significant  tax, credit and control  issues.  Following  deliberation  over and
consideration of the advantages and  disadvantages of the various  alternatives,
the Board concluded that the Divisional  Stock Proposal was the best alternative
for the Company and its shareholders.

         The Board's  adoption of the  Divisional  Stock Proposal is part of its
ongoing effort to increase the long-term value of the Company.

         In reaching its conclusion,  the Board  identified the following as the
advantages of the Divisional Stock Proposal:

         o        The creation of two series of Common Stock intended to reflect
                  separately  the  performance  of  Agouron   Pharmaceuticals
                  and  the  Oncology   Division  offers  the  opportunity  to
                  increase shareholder value by more  specifically  tracking the
                  financial  performance  of each  Division.  Separate  equity
                  securities  could  enable  investors  to  gain a  better
                  understanding  of the businesses  of Agouron  Pharmaceuticals
                  and the  Oncology  Division  and allow  shareholders  to
                  invest in either or both  securities  depending  on their
                  investment  objectives.  The  separate    reporting of each
                  Division's  results  would create a framework  for  increased
                  and more focused equity  research  coverage by the investment
                  community and would separate the Oncology  Division
                  operating results from the results of operations of Agouron
                  Pharmaceuticals.

         o        The  Divisional  Stock  Proposal  will provide  financial  and
                  strategic  flexibility  for  Agouron  Pharmaceuticals  and the
                  Oncology   Division   to  raise   capital  and  to  engage  in
                  acquisitions,  strategic  investments,  and other transactions
                  affecting either Agouron Pharmaceuticals or the Oncology


<PAGE>


                  Division  as a result  of the  availability  of two  different
                  equity  securities for issuance.  In particular,  development,
                  clinical  testing  and   commercialization   of  the  Oncology
                  Division's products will require substantial funds. A separate
                  equity security for the Oncology Division is expected to allow
                  the Company to raise  capital  through  offerings  of Oncology
                  Division  Stock  without  diluting the interests of holders of
                  Agouron  Pharmaceuticals  Stock.  In  addition,  by  issuing a
                  separate  security  intended to reflect the performance of the
                  development stage Oncology  Division,  the Company can seek to
                  raise  funds  with  investors  who have  different  investment
                  objectives than those who may seek to invest in the Company as
                  a whole or in Agouron Pharmaceuticals.

         o        Creating  separate  series of Common  Stock,  each of which is
                  designed  to  reflect  the  operating  results  of a  distinct
                  division,   increases  the  Company's  ability  to  focus  the
                  management  of the  respective  Divisions  on  maximizing  the
                  returns from such  businesses and provides the  opportunity to
                  structure  incentives  for employees that are tied directly to
                  the  business  results  and share  price  performance  of that
                  Division.

         o        The  Divisional Stock Proposal will retain for the Company the
                  advantages of doing business as a single  company.
                  Specifically, the Company will retain ownership  of all of its
                  technologies, which  the  Board  considers  to be a
                  significant  long-term  strategic  benefit  given  what it
                  believes  to be the  potential  of the  products  under
                  development. Further, as part  of one company,  each  Division
                  will be in a position to benefit from cost savings and
                  synergies with the other compared  to the costs each  Division
                  would incur if it  operated  separately.  These include
                  management and administrative  synergies,  a potentially lower
                  overall borrowing cost as a resultof the credit  rating of the
                  combined  Company and  potential  federal,  state and local
                  tax benefits that may be greater for the combined Company than
                  for the two  Divisions  operating separately.

         o        The  ability  of the  Board to create  one or more  additional
                  series of Common  Stock or to increase or decrease  the number
                  of  shares  in  existing  series  without  the need to  obtain
                  shareholder   approval   at  the  time  of  creation  of  each
                  additional  series would provide the Board with a means to act
                  quickly and definitively in future  acquisitions or to further
                  divide the Common Stock of the Company into additional series.

         o        Implementation  of the  Divisional Stock  Proposal is intended
                  to be tax free for United  States federal income tax  purposes
                  to the Company and its  shareholders  except with  respect to
                  cash paid in lieu of fractional shares.
                  See "- Certain Federal Income Tax Considerations."

         o        By permitting the Board to redeem the Oncology  Division Stock
                  under  certain  conditions,  the proposal  allows the Board to
                  retain   the   flexibility   to   consider   possible   future
                  restructuring options.


         The Board also considered the following potential  disadvantages of the
Divisional Stock Proposal:

         o        The  Divisional  Stock  Proposal  requires  a complex  capital
                  structure  which may not be  well-understood  by investors and
                  thus could inhibit the  efficient  valuation of either or both
                  series of Common Stock.

         o        There is limited  experience with the use of divisional  stock
                  in  companies  having  a  business  unit  with an  established
                  history  of  earnings  and  another   business   unit  in  the
                  development stage.

         o        There are  potential  diverging or  conflicting  interests of
                  the two Divisions and issues that could arise in resolving any
                  conflicts.  See "- Management  and  Allocation  Policies" and
                  "Risk Factors - Potential Divergence of Interests;
                  No Specific Procedures for Resolution."

         o        Investors  in the Oncology  Division  Stock or Agouron
                  Pharmaceuticals  Stock will be exposed to the risks of the
                  Company's  consolidated  businesses  and  liabilities  such
                  as tort or  product liability  claims and shareholder lawsuits
                  because both Divisions  remain legally a part of the
                  Company.  See


<PAGE>


                  "Risk  Factors--Risks  Related to the Divisional  Stock
                   Proposal -  Shareholders  of One Company;
                   Financial  Effects of One Division Could Adversely
                   Affect the Other Division" and "- Management
                   and Allocation Policies."

         o        The  market  values  of  Agouron   Pharmaceuticals  Stock  and
                  Oncology   Division   Stock  may  be  affected  by  investors'
                  reactions  to   decisions  by  the  Board  or  the   Company's
                  management  regarding  the  allocation  of  assets,  expenses,
                  liabilities and corporate opportunities between the divisions.

         o        Divisional  Stock will create a possible  inability to use the
                  pooling  method  of  accounting  in  connection   with  future
                  acquisitions using Agouron  Pharmaceuticals  Stock or Oncology
                  Division  Stock,  and  the  possible  inability  or  increased
                  difficulty  of  receiving a ruling from the  Internal  Revenue
                  Service  in  connection  with  a  proposed  acquisition  to be
                  effected  using  either  Oncology  Division  Stock or  Agouron
                  Pharmaceuticals Stock.

         o        The costs  associated with  implementing  the Divisional Stock
                  Proposal and the ongoing cost of operating  separate Divisions
                  will exceed the costs associated with operating the Company as
                  it currently exists.

         The Board  determined  that on balance the potential  advantages of the
Divisional  Stock Proposal  outweigh the potential  disadvantages  and concluded
that the  Divisional  Stock Proposal is in the best interests of the Company and
its shareholders.

VOTE REQUIRED

         The Divisional  Stock  Proposal  requires the  affirmative  vote of the
holders of a majority of the outstanding shares of Existing Common Stock.

RECOMMENDATION OF THE BOARD

     THE BOARD HAS  CAREFULLY  CONSIDERED  THE  DIVISIONAL  STOCK  PROPOSAL  AND
BELIEVES THAT ITS APPROVAL BY THE  SHAREHOLDERS  IS IN THE BEST INTERESTS OF THE
COMPANY AND THE SHAREHOLDERS. ACCORDINGLY, THE BOARD UNANIMOUSLY RECOMMENDS THAT
THE SHAREHOLDERS APPROVE THE DIVISIONAL STOCK PROPOSAL.

MANAGEMENT AND ALLOCATION POLICIES

         Because Agouron  Pharmaceuticals and the Oncology Division will each be
a part of a single company, the Board and management have carefully considered a
number of  issues  with  respect  to  intracompany  business  transactions,  the
financing  of  Agouron  Pharmaceuticals  and  the  Oncology  Division,  and  the
allocation  of debt,  corporate  overhead,  interest,  taxes and  other  charges
between the two Divisions. The Board and management have established policies to
accomplish the fundamental objective of the Divisional Stock Proposal,  which is
to separate the business and  operations of the Oncology  Division from those of
Agouron  Pharmaceuticals,  to operate the  Oncology  Division  on a  stand-alone
basis,  and to  allocate  costs and  charges  between  the two  Divisions  on an
objective basis.

         POLICIES SUBJECT TO CHANGE WITHOUT SHAREHOLDER APPROVAL.  The principal
terms of the  foregoing  policies,  as they are  expected to be in effect at the
Effective Date, are summarized below.  Shareholder approval of these policies is
not being sought by this Proxy Statement, and the description of the policies is
provided for the information of  shareholders.  Except as otherwise  provided in
the policies,  the Board may further  modify or rescind the policies in its sole
discretion  without  approval of the  shareholders,  subject only to the Board's
fiduciary duty to the Company's shareholders.  The Board has no present plans to
change  any of such  policies.  The Board  may also  adopt  additional  policies
depending upon the  circumstances.  Any  determination of the Board to modify or
rescind  the  policies,  or to adopt  additional  policies,  including  any such
decision  that would have  disparate  impacts  upon  holders of the Common Stock
representing  the  two  Divisions,  would  be  governed  by  the  principles  of
California  law discussed  under "Risk Factors - Risks Related to the Divisional
Stock Proposal Management and Allocation


<PAGE>


Policies Subject to Change."  However,  the Board will make any such decision in
accordance  with its good faith  business  judgment of the best interests of the
Company. In addition,  generally accepted accounting principles require that any
change in policy be  preferable  (in  accordance  with such  principles)  to the
previous policy.

         FINANCIAL  STATEMENTS,  ALLOCATION  MATTERS.  The Company  will prepare
financial statements in accordance with generally accepted accounting principles
for Agouron  Pharmaceuticals  and the  Oncology  Division,  and these  financial
statements,  taken together,  will comprise all of the accounts  included in the
corresponding  consolidated  financial  statements of the Company. The financial
statements  of each of Agouron  Pharmaceuticals  and the Oncology  Division will
reflect the financial  condition,  results of  operations  and cash flows of the
businesses included therein. The financial statements of Agouron Pharmaceuticals
will  also  include  any  accounts  or assets of the  Company  not  specifically
allocated to the Oncology Division.

         Division  financial  statements may include  allocated  portions of the
Company's debt,  interest,  corporate overhead and taxes.  Notwithstanding  such
allocations,  for the purpose of preparing each Division's financial statements,
holders  of  Agouron  Pharmaceuticals  Stock and  Oncology  Division  Stock will
continue to be subject to all of the risks  associated with an investment in the
Company  and all of its  businesses,  assets  and  liabilities.  See  Annex IV -
"Agouron  Pharmaceuticals - Combined Financial  Statements," Annex V - "Oncology
Division -- Combined Financial  Statements" and "Risk Factors - Risks Related to
the Divisional Stock Proposal -- Shareholders of One Company;  Financial Effects
on One Division Could Affect the Other Divisions."

         DEBT  FINANCING.  Each Division's debt will increase or decrease by the
amount  of any net cash  generated  by,  or  required  to fund,  the  Division's
operating activities,  dividend payments,  share repurchases and other financing
activities.  Interest  will be charged to each  Division  based on the amount of
such  Division's  debt.  Changes  in the  cost  of the  Company's  debt  will be
reflected in adjustments in the weighted average interest cost of such debt.

         FUNDING FOR THE  ONCOLOGY  DIVISION.  The  development  of the Oncology
Division's  products will require  substantial  funds. See "Risk Factors - Risks
Related  to  Agouron   Pharmaceuticals  and  the  Oncology  Division  Additional
Financing Requirements and Access to Capital." Agouron  Pharmaceuticals  intends
to  fund  the  operations  of  the  Oncology  Division  as  necessary.   Agouron
Pharmaceuticals  may raise  funds  for the  Oncology  Division  through a public
offering of shares of the Oncology Division Stock as market  conditions  permit.
The Board has approved the  allocation of up to $25 million in cash from Agouron
Pharmaceuticals  to the Oncology Division (the "Equity Line").  Amounts drawn on
the Equity Line are expected to be exchanged  for Oncology  Division  Designated
Shares  when the  maximum  amount of the Equity  Line is reached or as the Board
otherwise determines.  Such stock will be distributed to Agouron Pharmaceuticals
shareholders on at least an annual basis.

         The Equity Line will be reviewed  annually for extension or termination
on or before June 30 of each  calendar  year. If  terminated,  all amounts drawn
under the Equity Line as of such  termination date will be repaid in cash or, at
the option of the Board,  will be  exchanged  for Oncology  Division  Designated
Shares in the manner  described  below.  Upon  exchange  for  Oncology  Division
Designated Shares, the Equity Line will be re-established.

         The number of Oncology  Division  Designated Shares to be exchanged for
amounts drawn under the Equity Line will be determined by dividing the amount of
the accumulated  Equity Line advances on the date of exchange by the Fair Market
Value of the  Oncology  Division  Common  Stock.  The Fair  Market  Value of the
Oncology  Division Stock will equal the average of the daily average of high and
low prices of the Oncology  Division Stock of the 20 trading days  commencing on
the 30th trading day immediately prior to the exchange date.

         Any amounts  advanced under the Equity Line (or general  inter-division
advances as described under "-- Other Interdivision Transactions") may be repaid
in total or in part at any time prior to their  exchange for  Oncology  Division
Designated Shares.

         REVENUE  ALLOCATION.  Other than revenues  received in connection  with
transactions  subject to the policies  described under "--  Interdivision  Asset
Transfers" and "Other Interdivision  Transactions,"  revenues from the sale of a
Division's products and services shall be credited to that Division.


<PAGE>



         EXPENSE  ALLOCATION.  Other than expenses  incurred in connection  with
transactions  subject to the policy regarding  Interdivision  Transactions,  all
direct  expenses  shall be charged to the Division for the benefit of which they
are incurred.  Indirect costs will be allocated to each Division in a reasonable
and  consistent  manner based on  utilization by the Division of the services to
which such costs relate.

         CORPORATE  OVERHEAD.  A portion of the  Company's  shared  general  and
administrative expenses (such as executive management,  human resources,  legal,
accounting and auditing, tax, treasury, strategic planning,  information systems
support,   and   environmental   services)   will  be   allocated   to   Agouron
Pharmaceuticals and the Oncology Division based upon specific  identification of
such services used by such Division. Where determinations based on use alone are
impracticable,  other methods and criteria will be used that management believes
are equitable and provide a reasonable  estimate of the cost attributable to the
Divisions.

         TAX ALLOCATIONS. Income taxes shall be allocated to each Division based
upon the financial statement income,  taxable income,  credits and other amounts
properly  allocable  to  such  Division  under  generally  accepted   accounting
principles as if each Division were a separate taxpayer; provided, however, that
as of the end of any fiscal quarter of the Company, any tax benefit attributable
to any Division that cannot be utilized by such Division to offset or reduce its
current or deferred  income tax expense may be  allocated  to the  Divisions  in
proportion  to  their  taxable  income  without  any  compensating   payment  or
allocation.  The federal income taxes of the Company and the subsidiaries  which
own assets  allocated  between the  Divisions are  determined on a  consolidated
basis.  Consolidated  federal  income tax provisions and related tax payments or
refunds will be allocated between the Divisions based principally on the taxable
income and tax credits directly attributable to each Division.  Such allocations
will  reflect  each  Division's  contribution  (positive  or  negative)  to  the
Company's  consolidated  federal taxable income and the consolidated federal tax
liability and tax credit position. Had the Divisions filed separate tax returns,
the provision  for income taxes and net income for each  Division  (prior to tax
allocations  from other  divisions)  would not have  differed  from the  amounts
reported  in the  Divisions'  statements  of income for the years ended June 30,
1996,  1997 and 1998.  However,  the amounts of current and  deferred  taxes and
taxes  payable or  refundable  allocated  to each  Division in these  historical
financial  statements  may differ from those that would have been  allocated  to
each Division had they filed separate income tax returns.

         Depending on the tax laws of the  respective  jurisdictions,  state and
local income taxes are calculated on either a consolidated  or combined basis or
on a separate  corporation  basis.  State income tax  provisions and related tax
payments or refunds  determined  on a  consolidated  or  combined  basis will be
allocated between the Divisions based on their respective  contributions to such
consolidated  or combined  state  taxable  incomes.  State and local  income tax
provisions  and  related  tax  payments  which  are  determined  on  a  separate
corporation  basis will be allocated  between the Divisions in a manner designed
to reflect  the  respective  contributions  of the  Divisions  to the  Company's
separate state or local taxable income.

         ACQUISITION OF PROGRAMS,  PRODUCTS OR ASSETS.  Upon the  acquisition by
the Company from a third party of any programs,  products or assets  (whether by
acquisition  of  assets or  stock,  merger,  consolidation  or  otherwise),  the
aggregate cost of the acquisition and the programs,  products or assets acquired
shall be allocated  among the Divisions of the Company.  In the case of material
acquisitions,  such allocation shall be made in a manner determined by the Board
to be fair and  reasonable  to each  Division and to holders of the Common Stock
representing  each  Division,  taking into account such matters as the Board and
its financial  advisors,  if any, deem relevant.  Any such  determination by the
Board will be final and binding on all holders of Common Stock.

         DISPOSITION OF PROGRAMS,  PRODUCTS OR ASSETS. Upon any sale,  transfer,
assignment or other disposition by the Company of any product,  program or asset
not  consisting  of all or  substantially  all of the assets of a Division,  all
proceeds from such  disposition  shall be allocated to the Division to which the
program,  product or asset had been allocated. If the program,  product or asset
was allocated to more than one Division,  the proceeds of the disposition  shall
be allocated  among such Divisions based on their  respective  interests in such
program,  product or asset. Such allocation shall be made in a manner determined
by the Board to be fair and  reasonable  to such  Division and to holders of the
Common Stock representing such Division, taking into account such matters as the
Board and its financial advisors, if any, deem relevant.  Any such determination
by the Board will be final and binding on all holders of Common Stock.


<PAGE>



         INTERDIVISION ASSET TRANSFERS.  The Board may at any time and from time
to time reallocate any program,  product or other asset from one Division to any
other  Division.  All such  reallocations  shall be done at fair market value as
determined by the Board. Such determination shall take into account, in the case
of a program under  development,  the commercial  potential and the phase of the
clinical development of such program, the expenses associated with realizing any
income from such program (and the likelihood and timing of any such realization)
and other  matters  that the  Board and its  financial  advisors,  if any,  deem
relevant. The consideration for such reallocation may be paid by one Division to
another in cash or other  consideration  with a value  equal to the fair  market
value of the  assets  being  reallocated  or, in the case of a  reallocation  of
assets from  Agouron  Pharmaceuticals  to the Oncology  Division,  the Board may
elect to account for such  reallocation as an increase in the Oncology  Division
Designated Shares.

         Notwithstanding  the foregoing,  no Key Oncology Division  Program,  as
defined below, will be transferred out of the Oncology Division. A "Key Oncology
Division  Program" is any of the following:  (i) AG3340;  or (ii) any additional
oncology  program or product being  developed  from time to time in the Oncology
Division  which (a)  constituted  20% or more of the  research  and  development
budget of the Oncology Division in any one of the three most recently  completed
fiscal  years,  or (b) has had a cumulative  investment of $8 million or more in
research and development expenses by the Oncology Division.

         COMMERCIALIZATION  OF  ONCOLOGY  PRODUCTS.  The  Board  has  determined
certain allocations of rights concerning development-stage oncology products for
which development and registration  will be completed by the Oncology  Division.
Agouron Pharmaceuticals shall have the worldwide right to commercialize oncology
indications of AG3340, AG3433 (or a substituted  product),  AG2034 and AG2037 if
successfully  developed and  registered by the Oncology  Division.  The Oncology
Division shall have the exclusive, worldwide,  royalty-free right to develop and
commercialize for oncology indications any other products  discovered,  acquired
and/or developed by the Oncology  Division or Agouron  Pharmaceuticals.  Agouron
Pharmaceuticals  shall  have the  exclusive,  worldwide,  royalty-free  right to
develop and commercialize for non-oncology  indications any product  discovered,
acquired and/or developed by the Oncology Division.

         The Oncology  Division  may elect to  co-promote  AG3340,  AG3433 (or a
substituted  product),  AG2034  and/or  AG2037 in the  United  States and Canada
through a specialty  oncology  sales and marketing  organization  by agreeing to
provide up to fifty percent of the total sales and marketing effort with respect
to the  applicable  product in the United  States and  Canada.  If the  Oncology
Division  elects to co-promote a product,  it shall be entitled to share in that
percentage  of profits  from the sale of such  product in the United  States and
Canada which  corresponds  to the  percentage  of the total sales and  marketing
efforts for such product  contributed by the Oncology  Division.  Profits in the
United  States and Canada  shall be  computed by  deducting  from net sales of a
product  amounts  representing  the  applicable  cost of goods  sold,  and other
allowable   expenses.   Notwithstanding  the  Oncology  Division's  election  to
co-promote  a product and to share in profits  from such product and in order to
provide  the  Oncology   Division  with  an  adequate  minimum  return  for  its
development and registration  efforts for a product, the Oncology Division shall
be entitled to receive the  greater  of: (i) the  Oncology  Division's  share of
profits from the net sales of such product in the United  States and Canada plus
royalties based upon Agouron  Pharmaceuticals' net sales of such product outside
of the  United  States  and  Canada  according  to the  schedule  below  or (ii)
royalties  based  upon  Agouron  Pharmaceuticals'  worldwide  net  sales of such
product according to the schedule below:

      AG3340:  16% of first $150 million of net sales; 18% of net sales above
               $150 million
      AG3433   (OR A SUBSTITUTED PRODUCT): 18% of first $150 million of 
               net sales;
               20% of net sales above $150 million
      AG2034:  17% of first $150 million of net sales;
               19% of net sales above $150 million
      AG2037:  18% of first $150 million of net sales;
               20% of net sales above $150 million

         Agouron  Pharmaceuticals  and the  Oncology  Division  shall also share
equitably in any license  fees and/or  royalties  received  from any third party
licensees of AG3340, AG3433 (or a substituted product), AG2034 or AG2037.

         If Agouron  Pharmaceuticals  is  obligated  to pay  royalties  or other
payments to a third party to settle any infringement claim or action arising out
of the development and commercialization of a product, then fifty percent of


<PAGE>


         the royalties and other  payments  paid by Agouron  Pharmaceuticals  to
such  third  parties  to  settle  such  infringement  claim or  action  shall be
creditable against royalty or other payment  obligations payable to the Oncology
Division on such product; provided, however, that in no case shall the royalties
and other payments due to the Oncology Division in a quarterly period be reduced
by more than  fifty  percent  of the  amounts  otherwise  due in such  quarterly
period.  Any remaining  creditable  amount may be used in  subsequent  quarterly
periods  to offset  royalties  and other  payments  due the  Oncology  Division.
Additionally,  the  royalty  rates that would  otherwise  apply for a  quarterly
period in a country  shall be  reduced by fifty  percent  in such  country if no
valid Agouron patent claims exist,  or if the parties  mutually agree that it is
not commercially reasonable to pursue third-party infringers; royalty rates that
would  otherwise  apply for a  quarterly  period may also be adjusted in certain
other circumstances as determined by the Board.

         OTHER INTERDIVISION TRANSACTIONS. This policy shall cover Interdivision
transactions  other than asset  transfers,  which shall be subject to the policy
regarding  Interdivision  Asset  Transfers.  From time to time,  a Division  may
engage in  transactions  directly  with the other  Divisions or jointly with the
other  Divisions and one or more third parties.  Such  transactions  may include
agreements by one Division to provide products and services for use by the other
Division and joint ventures or other collaborative  arrangements  involving more
than one Division to develop new  products  and services  jointly and with third
parties. Such transactions shall be subject to the following conditions:

         (i)  Research  and/or  development  performed  by one  Division for the
              benefit of another  Division  will be charged to the  Division for
              which work is  performed  on a cost  basis.  Such  costs  shall be
              allocated   in  the  manner   described   above   under   "Expense
              Allocation",  and the Division  performing  the research  will not
              recognize revenue as a result of performing such research.

         (ii) Corporate and general and administrative services will be provided
              by each Division to the other Division(s) requesting such services
              on a cost basis and such costs  shall be  allocated  in the manner
              described above under "Expense Allocation."

         (iii)Other than  research,  corporate  and general  and  administrative
              services,   Interdivision  transactions  shall  be  on  terms  and
              conditions that would be obtainable in transactions  negotiated at
              arm's length with unaffiliated third parties.

         (iv) Any  Interdivision  transaction  (a) to be  performed on terms and
              conditions   that   deviate   from  the   policies  set  forth  in
              subparagraphs (i), (ii) or (iii) above and (b) that is material to
              the other  participating  Divisions  will require  approval by the
              Board,  which approval shall include a determination  by the Board
              that the transaction is fair and reasonable to such  participating
              Division  and to  holders of the Common  Stock  representing  such
              Division.

         (v)  If a Division (the "Purchasing  Division") requires  any  product
              or service from which  another Division  (the "Selling  Division")
              derives  revenues  from sales to third  parties (a  "Commercial
              Product or  Service"),  the  Purchasing  Division  may  solicit
              from the  Selling  Division a bid to provide  such  Commercial
              Product or Service in addition  to any bids  solicited  by the
              Purchasing Division from third  parties.  Unless the Board
              determines  that the bid of the Selling  Division is fair and
              reasonable  to the  Selling  and  Purchasing  Divisions  and to
              holders of Common  Stock representing  the Selling and Purchasing
              Divisions and that the Purchasing  Division must accept the
              Selling  Division's  bid,  the  Purchasing  Division  may  accept
              any bid  deemed  to offer the most favorable terms and  conditions
              for  providing  the  Commercial Product or  Service  sought by the
              Purchasing Division.

         (vi) Loans may be made from time to time  between  the  Divisions.  Any
              such loan of $1 million or less will  mature  within 18 months and
              interest will accrue at the best  borrowing  rate available to the
              Company for a loan of like type and duration.  Amounts borrowed in
              excess of $1 million  will  require  approval of the Board,  which
              approval  shall  include a  determination  by the  Board  that the
              material  terms of such  loan,  including  the  interest  rate and
              maturity  date,  are fair  and  reasonable  to each  participating
              Division and to holders of the Common Stock representing each such
              Division. Any such loans made by


<PAGE>


         (vii)Agouron  Pharmaceuticals  to  the  Oncology  Division  may  be  in
              addition to or in lieu of amounts available under the Equity Line.

         ACCESS TO TECHNOLOGY AND KNOW-HOW.  Each Division will have free access
to all  technology  and  know-how  of the  Company  that may be  useful  in such
Division's business, subject to any obligations or limitations applicable to the
Company.

     DISPOSITION OF ONCOLOGY DIVISION  DESIGNATED  SHARES. The Oncology Division
Designated   Shares  may  be(a)  issued  upon  the  exercise  or  conversion  of
outstanding  stock  options,  warrants or  convertible  securities  allocated to
Agouron  Pharmaceuticals,  (b) subject to the restrictions set forth below under
"Issuance  and Sale of  Additional  Shares of Common  Stock," sold for any valid
business  purpose or (c)  distributed  as a dividend to the holders of shares of
the Agouron  Pharmaceuticals  Stock,  all as determined from time to time by the
Board. See "--Oncology Division Designated Shares."

         On at least an annual basis,  Oncology Division  Designated Shares will
be distributed to the Agouron  Pharmaceuticals  shareholders  of record at times
generally  occurring  no  later  than  when  the  number  of  Oncology  Division
Designated  Shares  exceeds  15% of the total  outstanding  shares  of  Oncology
Division Stock.

         ISSUANCE AND SALE OF ADDITIONAL SHARES OF COMMON STOCK. When additional
shares of Common  Stock are issued and sold by the  Company,  the  Company  will
identify  the  number of such  shares  issued  and sold for the  account  of the
Division to which they  relate,  the  proceeds of which will be allocated to and
reflected in the financial  statements  of such  Division.  Notwithstanding  the
foregoing,  it is the Board's  current policy that the Company will not sell any
Oncology Division Designated Shares.

         OPEN   MARKET   PURCHASES   OF   SHARES  OF   COMMON   STOCK.   Agouron
Pharmaceuticals may make open market purchases of any series of its Common Stock
in accordance with applicable securities law requirements; provided, however, it
is the Board's  current policy that in no event shall any such purchases be made
if as an immediate  result  thereof the number of Oncology  Division  Designated
Shares  will  exceed  60% of the  number  of  shares  of the  Oncology  Division
outstanding   plus  such  number  of  Oncology   Division   Designated   Shares.
Notwithstanding the foregoing, within 90 days of any open market purchase of the
Common Stock representing the Oncology Division, Agouron Pharmaceuticals may not
exercise  the right  provided  under the  Restated  Articles to exchange  shares
representing such Division for cash and/or shares of the Agouron Pharmaceuticals
Stock.

         CAPITAL SPENDING.  It is anticipated that the Oncology Division will be
in the development  stage for at least several years and therefore will not have
annual cash flows  sufficient  to finance  its normal  annual  capital  spending
program.  Any  decision  by the Board to fund  capital  expenditures  or capital
investments  in excess of the cash flows of the  respective  Divisions  would be
made by the Board in the exercise of its good faith  business  judgment based on
all relevant  circumstances,  including the  financing  and investing  needs and
objectives of each Division, the availability and cost of alternative financing,
the   existence   of   alternative   investment    opportunities   for   Agouron
Pharmaceuticals  and the  Oncology  Division,  and the  Board's  analysis of the
desirability of making such investment or acquisition.

         FIDUCIARY   AND   MANAGEMENT    RESPONSIBILITIES.    Because    Agouron
Pharmaceuticals  and the Oncology  Division will continue to be part of a single
company, the Board and management will have the same fiduciary duties to holders
of the Agouron  Pharmaceuticals  Stock and the Oncology Division Stock that they
currently  have to the holders of the Existing  Common Stock.  Under  California
law, a director or a member of management  will be deemed to have  satisfied his
or her fiduciary duties to the Company and its shareholders if he or she acts in
a manner which he or she  believes in good faith to be in the best  interests of
the Company and with the care, including reasonable inquiry,  that an ordinarily
prudent person in a like position  would  exercise under similar  circumstances.
The  Board and the Chief  Executive  Officer  of the  Company,  in  establishing
policies  with regard to  intracompany  matters such as  allocations  of assets,
liabilities,  debt, corporate overhead,  taxes, interest and other matters, will
consider various factors and information  which could benefit or cause detriment
to the  shareholders  of the respective  Divisions and will make  determinations
designed to be in the best interests of the Company.


<PAGE>



         Because the  Divisional  Stock Proposal will result in no change in the
corporate structure of the Company,  Peter Johnson,  the Company's President and
Chief Executive Officer,  will have the same duties and responsibilities for the
management  of the  Company's  assets  and  businesses  which  comprise  Agouron
Pharmaceuticals and the Oncology Division following the Effective Date as he did
prior  thereto.  The  Company's  senior  staff  officers  will  continue  to  be
responsible  for the same designated  functions in both Agouron  Pharmaceuticals
and the Oncology  Division as they were prior to the Effective  Date.  The costs
attributable  to their  functions  will be allocated  as  discussed  above under
"Corporate Overhead."

         While it is the intent of directors to remain impartial notwithstanding
their equity  ownership  interests in Agouron  Pharmaceuticals  and the Oncology
Division,  because of the anticipated  differences in trading values between the
two securities,  the actual value of the shares of Agouron Pharmaceuticals Stock
and Oncology Division Stock held by directors initially will vary significantly.
See "Risk Factors - Risks Related to the  Divisional  Stock Proposal - Fiduciary
Duties of the Board; No Definitive Precedent Under California Law."

         BOARD REVIEW OF CORPORATE  OPPORTUNITIES  AND OTHER MATTERS.  The Board
will also  review  any matter  which  involves  the  allocation  of a  corporate
opportunity  of the Company to either  Agouron  Pharmaceuticals  or the Oncology
Division.   In  accordance   with  California  law,  the  Board  will  make  its
determination  with  regard  to  the  allocation  of  any  such  opportunity  in
accordance with their good faith business  judgment of the best interests of the
Company. Among the factors that the Board may consider in making such allocation
is whether a particular  corporate  opportunity  is  principally  related to the
business  of Agouron  Pharmaceuticals  or the  Oncology  Division,  whether  one
Division,  because of its managerial or operational  expertise,  would be better
positioned  to  undertake  the  corporate   opportunity,   existing  contractual
agreements  and  restrictions,  and other  matters.  The Board will also  review
allocations  between the Divisions of significant  tax benefits or charges,  the
write-off of significant assets, the allocation of significant liabilities,  and
any  actions  which  would  significantly  affect the  Divisions'  access to the
Company's credit.

         COMPETITION BETWEEN DIVISIONS. Agouron Pharmaceuticals and the Oncology
Division will not compete in each other's  principal  business.  It is currently
contemplated  that certain products  developed by the Oncology  Division will be
marketed by Agouron  Pharmaceuticals  and co-marketed by the Oncology  Division.
The Oncology Division will receive a royalty on the net sales of such product in
certain  countries  and profits  from the sale of such  products in the U.S. and
Canada will be shared in  proportion  to each  Divisions  co-promotion  efforts.
Other products, at the sole discretion of the Oncology Division, may be marketed
exclusively  by  the  Oncology   Division  or  in  collaboration   with  Agouron
Pharmaceuticals   or   a   non-affiliated   third   party   collaborator.    See
"--Commercialization  of Products" and  "--Revenue  Allocation."  Alternatively,
certain products may be marketed by collaborators of the Company.

DESCRIPTION OF CAPITAL STOCK

         The following  description is qualified in its entirety by reference to
Annex II to this Proxy  Statement,  which contains the full text of the Restated
Articles.

GENERAL
   
         The Company's Articles currently provide that the Company is authorized
to issue two classes of shares,  designated common and preferred,  respectively.
75,000,000  shares of Common Stock are  authorized  for issuance,  and 2,000,000
shares of Preferred Stock are currently authorized for issuance,  of which 2,000
shares  have been  designated  Series B  Participating  Preferred  Stock.  As of
October 19,  1998,  31,282,508  shares of Existing  Common Stock were issued and
outstanding and no shares of Preferred Stock were issued and outstanding.
    
         If  the  Divisional   Stock  Proposal  is  approved  by  the  Company's
shareholders  and  implemented by the Board,  the  authorized  Common Stock will
consist of 150,000,000  shares of which  75,000,000 will initially be designated
Agouron  Pharmaceuticals Stock, 25,000,000 will initially be designated Oncology
Division Stock and 50,000,000  will initially be  undesignated  Common Stock. In
the  aggregate,  the number of authorized  shares of Common Stock would increase
from  75,000,000  to  150,000,000.  The  Agouron  Pharmaceuticals  Stock and the
Oncology Division


<PAGE>


Stock will have the voting powers,  qualifications  and rights  described below.
The number of shares,  rights,  preferences,  privileges and restrictions of any
future  designated series of Common Stock will be determined by the Board at the
time of such  series'  designation.  The Board will also be able to  increase or
decrease  (but not below the number of shares  then  outstanding)  the number of
shares  of  an  existing   series  of  Common  Stock  without  the  approval  of
shareholders.

         In connection with the Divisional Stock Proposal,  the Articles will be
amended to designate a new Series C  Participating  Preferred Stock as "Series C
Participating  Preferred Stock," no par value, consisting of 100,000 shares (the
"Series C  Participating  Preferred  Stock"),  to increase the number of already
designated  Series B Participating  Preferred Stock from 2,000 shares to 200,000
shares,  and to amend  certain  provisions  of the already  designated  Series B
Participating  Preferred Stock. The Series C Participating  Preferred Stock will
have substantially the same rights, preferences,  privileges and restrictions as
the Series B Participating  Preferred Stock.  These  amendments  relating to the
Participating  Preferred  Stock will be necessary as a result of the  Divisional
Stock Proposal and its effect on the Company's Rights Agreement. See "Proposal 2
- - The Divisional Stock Proposal - Restated Rights Agreement."

  VOTING RIGHTS

         Currently,  holders of Existing Common Stock have one vote per share on
all matters  submitted to  shareholders.  In addition,  holders of any series of
Preferred  Stock would have the right to vote as a separate  voting  group under
the California Corporations Code in certain circumstances. The Restated Articles
will  provide  that the holders of all series of Common  Stock and any series of
Preferred  Stock  outstanding  at the  time of such  vote and  entitled  to vote
together  with the holders of Common Stock will vote together as a single voting
group on all matters as to which common  shareholders  generally are entitled to
vote other  than a matter  with  respect  to which the Common  Stock or a series
thereof or any series of Preferred Stock would be entitled to vote as a separate
voting  group.  On all matters as to which all series of Common  Stock will vote
together  as a single  voting  group:  (i)  each  outstanding  share of  Agouron
Pharmaceuticals  Stock  will have one  vote,  and (ii)  each  share of  Oncology
Division  Stock will have a number of votes  (including  a fraction of one vote)
equal to the ratio of the weighted average market capitalization of the Oncology
Division Stock and the Agouron  Pharmaceuticals Stock to be initially determined
on the earlier of the 90th day following commencement of trading of the Oncology
Division Stock or the record date  established  for the first meeting or consent
of shareholders  following  implementation of the Divisional Stock Proposal. The
initial vote so established  shall remain unchanged until June 30, 2000. On July
1, 2000, and on each July 1 thereafter,  the number of votes to which each share
of Oncology  Division Stock is entitled will be adjusted to reflect the ratio of
the weighted average market  capitalization  of the Oncology  Division Stock and
the Agouron  Pharmaceuticals  Stock on such date, so that the  resulting  voting
percentage  of each Division will be  proportionate  to its market value.  If no
shares of Agouron  Pharmaceuticals  Stock are outstanding on such date, then all
other series of the Company's Common Stock  outstanding on such date will have a
number of votes such that each share of the series of Common  Stock that has the
highest  market  capitalization  on such date (the "Base  Series") will have one
vote, and each share of each other series of outstanding  Common Stock will have
the number of votes determined according to the immediately  preceding sentence,
treating, for such purposes the Base Series as the Agouron Pharmaceuticals Stock
in such sentence. See "Restated Articles" (Annex II).

         The voting rights of the Oncology  Division Stock will be appropriately
adjusted so as to avoid dilution in the aggregate voting rights of any series of
Common Stock in the event the  outstanding  shares of any series are  subdivided
(by stock split,  reclassification  or  otherwise) or combined (by reverse stock
split, reclassification or otherwise), or in the event of the issuance of shares
of any  series as a  dividend  or a  distribution  to  holders of shares of such
series.  If shares of only one  series of Common  Stock are  outstanding,  or if
shares of any series of Common Stock are entitled to vote separately as a class,
each share of that series would have one vote.

         If the Divisional  Stock Proposal is approved by the  shareholders  and
implemented  thereafter,  the Company  will set forth the number of  outstanding
shares of each series of Common Stock in its Annual and Quarterly  Reports filed
pursuant to the Exchange  Act, and will  disclose in any proxy  statement  for a
shareholder meeting the number of outstanding shares and per share voting rights
of each such series of Common Stock.



<PAGE>


         The  relative  voting  rights of each  series of Common  Stock  will be
adjusted from time to time as described  above so that a holder's  voting rights
will more closely reflect the market value of such holder's equity investment in
the Company.  Adjustments in the relative voting rights of each series of Common
Stock could (i) influence an investor  interested in acquiring and maintaining a
fixed  percentage of the voting power of the Company to acquire such  percentage
of all series of Common Stock,  and would (ii) limit the ability of investors in
one series to acquire for the same consideration  relatively more or fewer votes
per share than investors in the other series.  To the extent the relative market
values  of each  series of Common  Stock  change  between  any  adjustments,  an
investor  in one  series of Common  Stock may  acquire  relatively  more or less
voting power for the same  consideration when compared with investors in another
series of Common Stock.

         Following  implementation  of the Divisional Stock Proposal,  under the
current  California  Corporations  Code, the holders of Agouron  Pharmaceuticals
Stock and Oncology  Division Stock will vote together as a single class,  except
as to certain  amendments  to the  Restated  Articles  that  adversely  affect a
particular  series in a different manner than other shares of the same class, in
which case a separate vote by the holders of the particular class affected would
also be required.  Accordingly, if a separate vote on a matter by the holders of
either Agouron  Pharmaceuticals Stock or Oncology Division Stock is not required
under the  California  Corporations  Code or by stock market  rules,  and if the
Board does not require a separate vote, the series,  if any, that is entitled to
more than the number of votes  required  to  approve  such  matter  will be in a
position  to control  the  outcome  of such vote even if the  matter  involves a
divergence  or  conflict  of  the  interests  of  the  holders  of  the  Agouron
Pharmaceuticals  Stock and the Oncology  Division  Stock.  Under the  California
Corporations Code, approval of actions requiring a separate class or series vote
will require the approval of the holders of a majority of the outstanding shares
of each such class or series, voting separately.  Most other matters (other than
the election of directors  whereby  directors who receive the highest  number of
votes are  elected)  will be  approved if the  affirmative  votes  constitute  a
majority of the votes cast by the holders of the Agouron  Pharmaceuticals  Stock
and the Oncology  Division Stock,  voting  together as a single class,  provided
that the  affirmatively  voted shares also constitute at least a majority of the
required  quorum.  Because  the  holders of Agouron  Pharmaceuticals  Stock will
initially  have  more than the  number of votes  required  to  approve  any such
matters  requiring  only the  approval  of a majority  of the votes  cast,  such
holders  would be in a  position  to control  the  outcome of the vote on such a
matter.   See  "Risk   Factors  -  Risks   Related  to  the   Divisional   Stock
Proposal--Limited   Separate   Voting  Rights;   Variable   Voting  Rights"  and
"--Decisions That Affect Fair Market Values Can Affect Shareholder Rights."

  LIQUIDATION RIGHTS
   
         In the event of a voluntary or involuntary dissolution,  liquidation or
winding up of the affairs of the  Company,  after the Company has  satisfied  or
made provision for its debts and  obligations  and for payment to the holders of
shares of any series or class of capital  stock  having  preferential  rights to
receive  distributions  of the net  assets of the  Company,  the  holders of the
Common  Stock are  entitled  to receive the net assets,  if any,  remaining  for
distribution  to common  shareholders  on a per share basis in proportion to the
respective per share liquidation units of such class.  Shareholders will have no
direct  claim  against  any  particular  assets  of  the  Company  or any of its
subsidiaries.  Each share of Agouron  Pharmaceuticals  Stock has 100 liquidation
units and each share of Oncology Division Stock will have 25 liquidation  units.
The  liquidation  units of the  Oncology  Division  Stock will be  appropriately
adjusted so as to avoid  dilution  in the  aggregate  liquidation  rights of any
series in the event the  outstanding  shares of any  series are  subdivided  (by
stock split, reclassification or otherwise) or combined (by reverse stock split,
reclassification or otherwise), or in the event of the issuance of shares of any
series as a dividend or a distribution to holders of shares of that series,  but
will not otherwise be adjusted. A merger or business  combination  involving the
Company or a sale of all or substantially  all of the assets of the Company will
not be treated as a liquidation.
    
  DIVIDEND RIGHTS

         The Company has never paid any cash  dividends on shares of its capital
stock.  The Company  currently  intends to retain its earnings to finance future
growth and, therefore, does not anticipate paying any cash dividend on any class
of Common Stock in the foreseeable future.



<PAGE>


         Dividends or other distributions on the Agouron  Pharmaceuticals  Stock
and the  Oncology  Division  Stock will be subject  to the same  limitations  as
dividends  or other  distributions  on the  Existing  Common  Stock.  Under  the
California Corporations Code, no dividends or other distributions may be made to
shareholders,  unless made from retained  earnings or, if after giving effect to
such dividends or other  distributions,  the Company's  assets would be at least
equal to 1 1/4 times its liabilities;  and, subject to certain  exceptions,  the
current  assets  of  the  Company  would  be  at  least  equal  to  its  current
liabilities.

         Dividends or other distributions on the Agouron  Pharmaceuticals  Stock
and the Oncology Division Stock will be further limited by the Restated Articles
to an amount not in excess of Agouron Pharmaceuticals  Available Dividend Amount
and the Oncology Division Available Dividend Amount, respectively.

         The  "Agouron   Pharmaceuticals   Available  Dividend  Amount"  or  the
"Oncology  Division Available Dividend Amount," on any date, means any amount in
excess of the amount  legally  available for payment of dividends  determined in
accordance  with  California  law  applied  if  such  Division  were a  separate
corporation  (such  amount  with  respect to a  Division  is  referred  to as an
"Available Dividend Amount").

         In addition, the amount legally available for payment of dividends will
be determined on the basis of the entire  Company,  and not just the  respective
Divisions. Consequently,  dividend or other distribution payments on the Agouron
Pharmaceuticals Stock and the Oncology Division Stock could be precluded because
of the available  limits under the  California  Corporations  Code,  even though
there may exist an  Available  Dividend  Amount  with  respect  to the  relevant
Division. There can be no assurance that an Available Dividend Amount will exist
with  respect  to either  Division.  See "Risk  Factors - Risks  Related  to the
Divisional  Stock  Proposal - Potential  Divergence  of  Interests;  No Specific
Procedures for Resolution - No Assurance of Payment of Dividends."

         Subject to the prior payment of distributions on any outstanding shares
of Preferred Stock and the foregoing limitations, the Board will be able, in its
sole discretion, to declare and pay dividends or other distributions exclusively
on the Agouron Pharmaceuticals Stock, exclusively on the Oncology Division Stock
or on both, in equal or unequal amounts, notwithstanding the amount of dividends
or other distributions previously declared on each series, the respective voting
or liquidation rights of each series or any other factor.

  GENERAL REDEMPTION AND CONVERSION PROVISIONS

         The Company's  Articles  currently do not provide,  and the  Divisional
Stock Proposal does not provide,  for either mandatory or optional conversion or
redemption  of  the  Agouron  Pharmaceuticals  Stock.  If the  Divisional  Stock
Proposal is approved  the  Restated  Articles  will  provide  that the  Oncology
Division  Stock may be  exchanged  for any  combination  of cash and/or  Agouron
Pharmaceuticals Stock upon the terms described below. The Company cannot predict
the impact on the market  prices for each series of Common  Stock of its ability
to effect such exchanges.

         OPTIONAL  REDEMPTION  AND/OR  CONVERSION.  The  Board  may at any  time
determine to exchange all or part of the outstanding shares of Oncology Division
Stock for any combination of cash and/or Agouron  Pharmaceuticals Stock having a
Fair  Market  Value  equal to 125% of the  Fair  Market  Value  of the  Oncology
Division  Stock,  such Fair Market Value being  determined by the trading prices
during a specified period prior to the first public  announcement by the Company
of such exchange.

         The foregoing  provision  allows the Company the  flexibility to redeem
all  outstanding  shares of the Oncology  Division  Stock and leave  outstanding
classes of Common Stock that would, collectively,  represent the residual equity
interest in the Company.  The optional exchange could be exercised at any future
time if the Board  determined  that,  under the  facts  and  circumstances  then
existing,  a  particular  series  of  Common  Stock  was no  longer  in the best
interests of all of the Company's shareholders.  Such exchange may be completed,
however,  at a time  that is  disadvantageous  to the  holders  of the  Oncology
Division Stock.

         The right of the Board to exchange all  outstanding  shares of Oncology
Division Stock for any combination of cash and/or Agouron  Pharmaceuticals Stock
having  a Fair  Market  Value  equal  to 125% of the  Fair  Market  Value of the
Oncology  Division  Stock does not  preclude  the Board from  making an offer to
exchange such shares on terms


<PAGE>


other than those  provided in the Restated  Articles.  Although any  alternative
offer would be subject to  acceptance  by holders of the shares to be exchanged,
such offer  could be made on terms less  favorable  than those  provided  in the
Restated  Articles.  See "Risk Factors - Risks Related to the  Divisional  Stock
Proposal  Potential   Divergence  of  Interests;   No  Specific  Procedures  for
Resolution - Optional Exchange of Oncology Division Stock."

         In the event Agouron  Pharmaceuticals  Stock is not publicly  traded at
the time of a conversion of the Oncology  Division Stock,  the Board may convert
the Oncology  Division  Stock into fully paid and  nonassessable  shares of such
other publicly  traded class or series of common stock as has the largest market
capitalization at the time of the conversion.

         MANDATORY   CONVERSION   AND/OR   REDEMPTION.   In  the  event  of  the
disposition,  in one  transaction  or a series of related  transactions,  by the
Company of all or  substantially  all of the properties and assets  allocated to
the Oncology  Division (other than in connection with the sale by the Company of
all or substantially all of the Company's  properties and assets) to any person,
entity or group, other than (i) a wholly owned subsidiary of the Company or (ii)
any entity formed at the direction of the Company in connection  with  obtaining
financing for the programs or products of the Oncology Division, as the case may
be, the Company on or prior to the first  business  day  following  the 90th day
following  consummation  of such  disposition  will be required to exchange each
outstanding  share of the Oncology  Division  Stock for any  combination of cash
and/or Agouron Pharmaceuticals Stock having a Fair Market Value equal to 125% of
the Fair  Market  Value of the  Oncology  Division  Stock as  determined  by the
trading  prices  during a specified  period  prior to the  consummation  of such
disposition.  Consequently,  holders of  Oncology  Division  Stock may receive a
greater or lesser  premium for their  shares  than any  premium  paid by a third
party  buyer of the  assets of the  Oncology  Division.  In  addition,  any such
exchange  for shares of Agouron  Pharmaceuticals  Stock  could be made at a time
when the Oncology  Division  Stock may be considered to be  undervalued  and the
Agouron  Pharmaceuticals  Stock may be  considered to be  overvalued.  See "Risk
Factors - Risks Related to the Divisional Stock Proposal - Potential  Divergence
of Interests;  No Specific  Procedures  for Resolution - Disposition of Division
Assets."

         The  Fair  Market  Values  of the  Agouron  Pharmaceuticals  Stock  and
Oncology Division Stock could be affected by many factors, including the results
of operations and financial condition of the Company and each Division,  trading
volume, share issuances and repurchases, general economic and market conditions,
and  decisions   regarding   allocations   between  the  Divisions.   See  "Risk
Factors--Risks Related to the Divisional Stock  Proposal--Decisions  That Affect
Fair Market Values Can Affect Shareholder Rights."

ONCOLOGY DIVISION DESIGNATED SHARES

         Oncology  Division  Designated Shares are authorized shares of Oncology
Division  Stock  that are not  issued  and  outstanding,  but which  the  Board,
pursuant to the Company's management and allocation  policies,  may from time to
time issue,  or otherwise  distribute  without  allocating the proceeds or other
benefits of such issuance,  sale or distribution to the Oncology  Division.  The
shares of Oncology Division Stock that are issuable with respect to the Oncology
Division  Designated  Shares are not  outstanding  shares of  Oncology  Division
Stock, are not eligible to receive dividends and cannot be voted by the Company.

         The number of Oncology  Division  Designated  Shares will  initially be
zero but from time to time will be:

         (a)  increased by a number  equal to the quotient  obtained by dividing
(i) the aggregate  amount of all advances made under the Equity Line by (ii) the
Fair Market Value of the Oncology Division Stock on the date of each exchange;

         (b)  decreased  (but to not less than zero) by the number of any shares
of Oncology  Division Stock issued by the Company as a dividend or  distribution
or  by   reclassification,   exchange  or   otherwise   to  holders  of  Agouron
Pharmaceuticals Stock;

         (c) adjusted as appropriate to reflect  subdivisions (by stock split or
otherwise)  and  combinations  (by  reverse  stock  split or  otherwise)  of the
Oncology Division Stock and dividends or distributions of shares of



<PAGE>


Oncology  Division  Stock to  holders  of  Oncology  Division  Stock  and  other
reclassifications of Oncology Division Stock.

INCREASE IN AUTHORIZED COMMON STOCK

         The Articles  currently  authorize the issuance of 75,000,000 shares of
Existing  Common Stock. In connection  with the Divisional  Stock Proposal,  the
Articles  will be  amended  to  increase  the  number of shares of Common  Stock
authorized  for issuance will increase to 150,000,000  and to designate  Agouron
Pharmaceuticals  Stock initially consisting of 75,000,000  authorized shares and
Oncology Division Stock initially  consisting of 25,000,000  authorized  shares.
50,000,000  authorized  shares will initially be  undesignated  shares of Common
Stock. In addition, the Board from time to time can issue one or more additional
series  or  additional  shares  of  Agouron  Pharmaceuticals  Stock or  Oncology
Division  Stock.  Additionally,  the Board would be  authorized to determine the
number of shares of each new series and all  rights and  privileges  of each new
series, including dividend rights,  conversion or redemption provisions,  rights
upon  liquidation  or merger,  and voting rights and to increase or decrease the
number of shares in any  existing  series.  Under  the  existing  Articles,  the
issuance of a new class or series of common stock, such as the Oncology Division
Stock,  would require  shareholder  approval.  The increase in authorized shares
provides  the Board with a means to act  quickly  and  definitively  to complete
strategic transactions such as acquisitions or to further divide the business of
the Company into  additional  divisions  without the need to obtain  shareholder
approval  unless deemed  advisable by the Board or required by  applicable  law,
regulation or stock market requirements.

         The increase in authorized  shares of Common Stock will be used in part
to implement the various aspects of the Divisional Stock Proposal.  Further,  as
described  under  "-  Description  of  Capital  Stock--General   Redemption  and
Conversion Provisions," the Board has the right to convert the Oncology Division
Stock into  Agouron  Pharmaceuticals  Stock at a 25%  premium to the Fair Market
Value of the  Oncology  Division  Stock at any  time,  or in  connection  with a
disposition  of all or  substantially  all properties and assets of the Oncology
Division.  The Board may also pay a share dividend in one series of Common Stock
on such series of Common Stock,  or declare a stock split.  The number of shares
issuable in a conversion  will,  therefore,  vary based on the  relative  market
values of the two series of Common Stock and the number of outstanding shares of
the Oncology Division Stock to be converted. The Board believes that an increase
in the number of  authorized  shares of Common Stock at this time is in the best
interests of the Company in order to have  available the number of shares needed
for a future conversion,  share dividend, stock split or a corporate opportunity
if such a transaction is determined to be in the best interests of the Company.
   
         If the  Divisional  Stock  Proposal  is  implemented,  and based on the
number of  outstanding  shares of the  Existing  Common  Stock as of October 19,
1998: (i) the number of issued and outstanding shares of Agouron Pharmaceuticals
Stock,  Oncology  Division  Stock  and the  undesignated  Common  Stock  will be
31,282,508,  15,641,254 and zero, respectively;  (ii) the number of unissued and
reserved  shares of Agouron  Pharmaceuticals  Stock and Oncology  Division Stock
under the Company's  Stock Plans will be 11,574,100 and 5,787,050  respectively;
and  (iii)  the   number  of   unissued   and   unreserved   shares  of  Agouron
Pharmaceuticals Stock, Oncology Division Stock and the undesignated Common Stock
will be 32,143,392, 3,571,696 and 50,000,000 shares, respectively.
    
         Other than the  Reclassification  of the Existing Common Stock pursuant
to the  Divisional  Stock  Proposal  and the  issuance of shares of Common Stock
pursuant to the Company's  employee  benefit  plans,  the Company has no present
intention  or  agreement  with respect to the issuance for any purpose of any of
the  shares  of  Common  Stock  that  will be  authorized  for  issuance  if the
Divisional Stock Proposal is approved by the shareholders.  The Board,  however,
has considered and may in the future consider the creation of additional  series
of stock that would track the  performance  of the other lines of the  Company's
business.

DETERMINATIONS BY THE BOARD

         If the Divisional  Stock Proposal is approved by the  shareholders  and
implemented  by the Board,  any  determinations  made in good faith by the Board
under any provision described under "- Description of Capital


<PAGE>


Stock," and any  determinations  with  respect to any  Division or the rights of
holders of shares of any series of Common  Stock,  will be final and  binding on
all shareholders of the Company.

DIVIDEND POLICY

         Agouron  has never  paid any cash  dividends  on shares of its  capital
stock. Agouron currently intends to retain its earnings to finance future growth
and,  therefore,  does not anticipate  paying any cash dividend on any series of
Common Stock in the foreseeable future.

         The Board  does not  currently  intend to  change  the  above-described
dividend  policy but  reserves  the right to do so at any time,  or from time to
time,  based  on its  review  of the  financial  performance  of the  respective
Division  and of  the  Company  as a  whole.  Future  dividends  on the  Agouron
Pharmaceuticals  Stock and Oncology  Division Stock will be payable when, as and
if  declared  by the  Board out of all funds of the  Company  legally  available
therefor. See "- Description of Capital Stock - Dividends."

NASDAQ NATIONAL MARKET LISTING

         The Existing Common Stock is traded on the Nasdaq National Market under
the symbol AGPH. There has been no prior market for the Agouron  Pharmaceuticals
Stock or the Oncology  Division  Stock.  Application  will be made to The Nasdaq
Stock  Market,  Inc.  to  redesignate  the  Existing  Common  Stock  as  Agouron
Pharmaceuticals  Stock,  to be quoted on the Nasdaq  National  Market  under the
symbol AGPH, and for the quotation of the Oncology  Division Stock on the Nasdaq
National Market under a separate symbol to be determined.  The Company is unable
to predict to what extent a public  market  will  develop for shares of Oncology
Division  Stock or the  prices at which the  shares of  Agouron  Pharmaceuticals
Stock or Oncology Division Stock will trade in such market or otherwise.

EXCHANGE PROCEDURES

         Upon the implementation of the Divisional Stock Proposal,  the Existing
Common Stock share certificates (the "Existing  Certificates") will be deemed to
represent shares of Agouron Pharmaceuticals Stock. Following the Effective Date,
at such time as is  reasonably  determined  by the Board,  holders  of  Existing
Common Stock as of the Effective Date will be mailed  certificates  representing
shares of Oncology Division Stock.  Shareholders  should not mail their Existing
Certificates  to either the Company or its transfer agent in connection with the
Divisional  Stock  Proposal.  New  certificates  representing  shares of Agouron
Pharmaceuticals  Stock will be issued in replacement of Existing Certificates as
such certificates are received and canceled by the transfer agent.

STOCK TRANSFER AGENT AND REGISTRAR

         ChaseMellon  Shareholder  Services,   L.L.C.   ("ChaseMellon")  is  the
transfer  agent and registrar for the Existing  Common Stock.  If the Divisional
Stock  Proposal is approved by the  shareholders  and  implemented by the Board,
ChaseMellon will be selected as the transfer agent and registrar for the Agouron
Pharmaceuticals Stock and the Oncology Division Stock.

FINANCIAL ADVISOR

         PaineWebber is acting as financial  advisor providing general financial
advisory  services  to the  Company  in  connection  with the  Divisional  Stock
Proposal.  The Company has agreed to pay  PaineWebber  a fee of $750,000 for its
services  including  the providing of  consultation  to the Board on the initial
estimated  fair market  value of the  Oncology  Division.  The Company  also has
agreed to  reimburse  PaineWebber  for certain of its  reasonable  out-of-pocket
expenses and has agreed to indemnify  PaineWebber  against certain  liabilities,
including liabilities under the Securities Act.

NO DISSENTERS' RIGHTS

         Under the  California  Corporations  Code,  holders of Existing  Common
Stock do not  have  dissenters'  rights  with  regard  to the  Divisional  Stock
Proposal.


<PAGE>


MATERIAL FEDERAL INCOME TAX CONSIDERATIONS

         The following discussion  summarizes the material United States federal
income tax  consequences  of the Divisional  Stock  Proposal.  The discussion is
based on the Internal  Revenue Code of 1986, as amended (the  "Code"),  Treasury
Department regulations, published positions of the IRS, and court decisions, all
of which are subject to change. In particular,  Congress could enact legislation
affecting  the  treatment of stock with  characteristics  similar to the Agouron
Pharmaceuticals  Stock and Oncology  Division  Stock or the Treasury  Department
could issue  regulations,  including  regulations  issued  pursuant to its broad
authority  under Section  337(d) of the Code,  which could change current law or
adversely effect existing interpretations of current law. Any such change, which
may or may not be retroactive,  could alter the tax  consequences to the Company
or the shareholders of the Company discussed herein.

TAX IMPLICATIONS TO SHAREHOLDERS OF THE RECLASSIFICATION

         This discussion is based on certain  assumptions  regarding the factual
circumstances  that will  exist at the time of the  Reclassification,  including
certain  representations  made to or to be made by the Company.  This discussion
addresses  only those  shareholders  who hold their  Existing  Common Stock as a
capital  asset within the meaning of Section  1221 of the Code,  and is included
for general  information  only. It does not discuss all aspects of United States
federal  income  taxation  that may be relevant to a particular  shareholder  in
light of such  shareholder's  personal  tax  circumstances  and may not apply to
certain types of shareholders who may be subject to special  treatment under the
federal income tax laws, such as insurance  companies,  corporations  subject to
the  alternative  minimum  tax,  banks,  dealers  in  securities  or  tax-exempt
organizations,  persons that hold  Existing  Common Stock as part of a straddle,
hedging or conversion transaction,  persons whose functional currency is not the
U.S. dollar,  shareholders who for United States federal income tax purposes are
foreign  corporations,  foreign  partnerships,  nonresident  alien  individuals,
foreign estates or foreign trusts or to  shareholders  who acquired their stocks
pursuant to the exercise of employee stock options or otherwise as compensation.
In  addition,  this  discussion  does not address  the effect of any  applicable
state, local or foreign laws or any federal tax laws other than those pertaining
to  the  income  tax.  EACH  SHAREHOLDER  OF THE  COMPANY  SHOULD  CONSULT  SUCH
SHAREHOLDER'S  OWN TAX ADVISOR AS TO THE  APPLICATION  OF THE FEDERAL INCOME TAX
LAWS TO SUCH SHAREHOLDER'S PARTICULAR SITUATION, AS WELL AS TO THE APPLICABILITY
AND EFFECT OF ANY STATE,  LOCAL,  OR FOREIGN TAX LAWS TO WHICH SUCH  SHAREHOLDER
MAY BE SUBJECT.

         In the  opinion of  Pillsbury  Madison & Sutro LLP,  tax counsel to the
Company, for United States federal income tax purposes: (i) the Reclassification
will constitute a recapitalization within the meaning of Section 368(a)(1)(E) of
the Code, (ii) the Agouron Pharmaceuticals Stock and the Oncology Division Stock
will be treated for federal  income tax purposes as Common Stock of the Company,
(iii) except with respect to cash paid in lieu of fractional shares, if any, the
holders of the Divisional Stock will not recognize  income,  gain or loss in and
as a result of the  Reclassification,  (iv) the Divisional Stock received in the
Reclassification  will not  constitute  Section 306 stock  within the meaning of
Section  306(c)  of  the  Code,  (v)  the  Divisional   Stock  received  in  the
Reclassification  will not constitute  nonqualified  preferred  stock within the
meaning of Section 351(g) of the Code and (vi) the amendment and  restatement of
the  Rights  Agreement  will  not  result  in  income,   gain  or  loss  to  the
shareholders.  As a result of such  treatment,  holders of Existing Common Stock
will take a tax basis in the Agouron Pharmaceuticals Stock and Oncology Division
Stock equal to their tax basis  prior to the  Reclassification  in the  Existing
Common Stock (reduced by the amount  allocable to any fractional  share interest
for which  cash is  received),  with such tax basis  being  allocated  among the
Agouron Pharmaceuticals Stock and Oncology Division Stock in proportion to their
relative fair market values at the time of the  Reclassification.  Cash received
in lieu of  fractional  shares  will result in the  recognition  of gain or loss
equal  to the  difference,  if  any,  between  the  shareholder's  basis  in the
fractional  shares and the amount of cash received.  For U.S. federal income tax
purposes, a shareholder's  holding period for shares of Agouron  Pharmaceuticals
Stock and Oncology Division Stock received in the Reclassification  will include
such  shareholder's  holding  period for the  shares of  Existing  Common  Stock
surrendered therefor.

         The IRS  announced  in 1987  that it was  studying  and would not issue
advance  rulings  on the  classification  of stock that has  certain  voting and
liquidation  rights in an issuing  corporation  but the dividend rights of which
are  determined  by reference  to the  earnings of a  segregated  portion of the
issuing corporation's assets.  Although in 1995 the IRS withdrew such stock from
its list of matters under consideration, the IRS has reiterated that it will not
issue


<PAGE>


advance  rulings  regarding  such stock.  There are no court  decisions or other
authorities that bear directly on transactions similar to the  Reclassification.
It is possible,  therefore, that the IRS could assert that the Oncology Division
Stock or the Agouron Pharmaceuticals Stock or both represent property other than
stock of  Agouron  ("Other  Property").  If such  stocks  were  treated as Other
Property,  the  Company  would  recognize  a  significant  taxable  gain  on the
Reclassification  in an amount  equal to the excess of the fair market  value of
such Other  Property  over its  federal  income tax basis to the  Company or its
subsidiaries  allocable to such Other Property.  In addition,  the Company could
lose the ability to file its federal income tax returns on a consolidated basis.
As a result,  the tax losses  expected to be incurred by the  Oncology  Division
could  not  offset  the  taxable  income   expected  to  be  earned  by  Agouron
Pharmaceuticals  and any  amounts  paid or  deemed  paid to the  Company  by the
Oncology  Division or Agouron  Pharmaceuticals  could be taxable to the Company.
Furthermore,   the   receipt  of   Oncology   Division   Stock  or  the  Agouron
Pharmaceuticals  Stock by a  shareholder  of the  Company  might be treated as a
fully taxable dividend to such shareholder in an amount equal to the fair market
value of such stock  (subject,  in the case of  shareholders of the Company that
are corporations,  to any applicable  dividends received  deduction) or might be
treated as a distribution in complete  liquidation of the Company, in which case
shareholders  of the Company  would have gain or loss with respect to the shares
held in the Company immediately before the Reclassification. As indicated above,
however,  the Company has  received an opinion from tax counsel that the Agouron
Pharmaceuticals  Stock and the  Oncology  Division  Stock  will be  treated  for
federal income tax purposes as common stock of the Company.

         It is also possible that the IRS could assert, in the alternative, that
the  Oncology  Division  Stock  or the  Agouron  Pharmaceuticals  Stock  or both
represent  preferred stock (rather than Common Stock) of the Company for federal
income  tax  purposes.  In order to  support  such an  assertion  the IRS  would
generally  have to  conclude  that such stock is  limited  and  preferred  as to
dividends  and does not  participate  significantly  in corporate  growth.  As a
result of such a  conclusion,  the IRS could  further  assert that the  Oncology
Division  Stock  or  the  Agouron   Pharmaceuticals  Stock  or  both  should  be
characterized   as   "nonqualified   preferred  stock"  or  Section  306  stock.
Nonqualified  preferred  stock that is received by a  shareholder  in connection
with transactions intended to qualify as tax-free  reorganizations,  such as the
Reclassification,  will be treated  as taxable  Other  Property  rather  than as
tax-free stock  consideration  and  accordingly,  gain,  but not loss,  would be
recognized by the  shareholder.  If the  Divisional  Stocks were instead,  or in
addition,  treated as Section 306 stock, a shareholder could recognize  ordinary
income on the taxable sale or exchange of such stock and dividend  income on the
redemption  of such stock.  As  mentioned  above,  the  Company has  received an
opinion from tax counsel that the Agouron Pharmaceuticals Stock and the Oncology
Division Stock will not constitute  nonqualified  preferred stock or Section 306
stock.

         Certain  non-corporate  holders of Oncology  Division  Stock or Agouron
Pharmaceuticals Stock might be subject to backup withholding at a rate of 31% on
the payment of dividends on such stock.  Backup  withholding  will apply only if
the  shareholder  (i) fails to furnish his,  her or its Taxpayer  Identification
Number  ("TIN"),  (ii)  furnishes an incorrect TIN, (iii) is notified by the IRS
that he,  she or it has  failed  properly  to report  payments  of  interest  or
dividends,  or  (iv)  under  certain  circumstances,  fails  to  certify,  under
penalties of perjury, that he, she or it has furnished a correct TIN and has not
been notified by the IRS that he, she or it is subject to backup withholding for
failure to report payments of interest or dividends. Shareholders should consult
their tax advisors  regarding  their  qualifications  for a tax  exemption  from
backup  withholding  and  the  procedure  for  obtaining  such an  exemption  if
applicable.  The amount of any backup  withholding from a payment to a holder of
Oncology  Division Stock or Agouron  Pharmaceuticals  Stock will be allowed as a
credit against such  shareholder's  federal income tax liability and may entitle
such  shareholder  to a  refund,  provided  that  the  required  information  is
furnished to the IRS.

         Shareholders should consult their own tax advisors as to the particular
federal  income  tax  consequences  to them of the  Reclassification,  as to the
foreign, state, local and other tax consequences thereof, and as to the federal,
state,  local and foreign tax  consequences of the holding of Oncology  Division
Stock and Agouron Pharmaceuticals Stock.

TAX IMPLICATIONS OF POSSIBLE DISTRIBUTION OF ONCOLOGY DIVISION DESIGNATED SHARES

         In the future, the Company may distribute  Oncology Division Designated
Shares to holders of Agouron Pharmaceuticals Stock (a "Distribution").


<PAGE>



         As set forth  above,  it is  possible  that the IRS may claim  that the
Oncology Division Stock represents  property other than stock of the Company (or
alternatively  that the  Oncology  Division  Stock  should be  characterized  as
preferred  stock of the Company  rather than common  stock of the  Company.)  In
either  case,  holders  of  Agouron  Pharmaceuticals  Stock  could be subject to
taxation  with  respect to a  Distribution.  However,  as indicated  above,  the
Company has received an opinion from its tax counsel that the Oncology  Division
Stock will be treated as common stock of the Company for United  States  federal
income tax purposes.

         If,  in  accordance  with the  opinion  of tax  counsel,  the  Oncology
Division  Stock  is  characterized  as  common  stock  of the  Company,  the tax
consequences  of a Distribution  will depend upon the facts existing at the time
of such Distribution.  In general, a Distribution  characterized as common stock
of the Company will only be subject to taxation if the Distribution, when viewed
in connection with certain other  distributions made by the Company with respect
to other  classes of its stock  (including  the  outstanding  Oncology  Division
Stock) is  determined  to have the effect of (i) the receipt of property  (other
than stock of the  Company)  by other  stockholders  and (ii) an increase in the
proportionate  interest in the assets or earnings  and profits of the Company by
holders of Agouron  Pharmaceuticals  Stock (a "disproportionate  distribution").
Under current Treasury  regulations,  the receipt of cash or other property that
occurs  more  than 36  months  following,  or that is made  more  than 36 months
before,  a distribution (or series of  distributions)  of stock will be presumed
not to be a  disproportionate  distribution  unless the receipt of cash or other
property and the stock distribution are made pursuant to a plan. However, unless
more  than 36  months  have  elapsed  between  a  distribution  of cash or other
property and a  Distribution,  the  distribution  of cash or other  property may
cause a Distribution to be a  disproportionate  distribution  that is subject to
taxation.

EACH  SHAREHOLDER  OF THE COMPANY  SHOULD  CONSULT  SUCH  SHAREHOLDER'S  OWN TAX
ADVISOR  AS TO THE TAX  CONSEQUENCES  OF A  DISTRIBUTION  OF  ONCOLOGY  DIVISION
DESIGNATED SHARES.

UNITED STATES TAX CONSEQUENCES TO NON-U.S. SHAREHOLDERS

         Each Non-U.S.  Holder should  consult a tax advisor with respect to the
United States federal tax  consequences  of acquiring,  holding and disposing of
Oncology  Division Stock, as well as any tax  consequences  that may arise under
the laws of any foreign, state, local or other taxing jurisdiction.

AMENDMENT OF STOCK PLANS
   
         If the Divisional Stock Proposal is approved and implemented, the Board
or its delegates,  pursuant to applicable  provisions of the Company's  existing
stock option plans and Employee  Stock  Purchase Plan  (collectively  the "Stock
Plans"), will determine  appropriate  adjustments to outstanding options granted
under the provisions of such Stock Plans to take into account the implementation
of the Divisional  Stock  Proposal.  Under these  adjustments  each  outstanding
option to purchase Existing Common Stock will automatically be converted into an
option to purchase the number of shares of Agouron  Pharmaceuticals  Stock equal
to the  number of shares of  Existing  Common  Stock  previously  covered by the
outstanding  option plus an option to purchase  the number of shares of Oncology
Division  Stock equal to  one-half  of the number of shares of  Existing  Common
Stock previously covered by the outstanding option. The aggregate exercise price
of the  outstanding  option to purchase  Existing Common Stock will be allocated
between  the  option  covering  Agouron  Pharmaceuticals  Stock  and the  option
covering Oncology Division Stock in a ratio to be determined by the Board or its
delegates.
    
         In the event the Divisional Stock Proposal is approved and implemented,
the Stock Plans will be amended as of the Effective  Date to clarify that grants
made  after the  Effective  Date may be made  with  respect  to  either  Agouron
Pharmaceuticals  Stock or  Oncology  Division  Stock or both  (and/or  any other
series of  outstanding  Common Stock of the Company),  in the same manner and to
the same extent as permitted with respect to the Existing Common Stock. Although
the  Stock  Plan  language  authorizing   adjustments  to  shares  reserved  and
outstanding  awards and stock purchase rights implicitly permits the use of more
than one series of Common Stock for awards and stock  purchase  rights under the
Stock Plans, the Board believes that it is desirable to amend the Stock Plans to
explicitly  provide that shares of any series of Common Stock are  available for
awards. For the text of the


<PAGE>


1996 Stock Option Plan and the Employee  Stock  Purchase  Plan as proposed to be
amended, see Annexes VI and VII, respectively.

         In determining  whether  awards of options or stock purchase  rights to
purchase  Agouron   Pharmaceuticals  Stock  or  Oncology  Division  Stock  or  a
combination  thereof  are to be made to  specific  employees,  the  Board or its
delegates may consider,  among other things,  the Division to which the employee
in question provides services.  The Company also anticipates,  however, that the
Board or its delegates will consider that employees  should be rewarded based on
the  success  of the  Company  as a whole and that a policy of  granting  awards
solely in respect of the Common  Stock  relating to the  Division  for which the
employee  provides services may be  counterproductive  to the overall success of
the Company.  In addition,  because of the  complementary  nature of much of the
businesses of Agouron  Pharmaceuticals  and the Oncology  Division,  the Company
anticipates that services performed in respect of one Division may have at least
an indirect  effect upon the operations of the other  Division.  Therefore,  the
Company  anticipates  that the Board or its delegates could decide that in order
to provide the maximum  incentive to employees  regarding the overall success of
the Company,  it may be appropriate to grant awards  consisting of securities in
respect of both Divisions to employees performing services for one Division.  If
the Board or its  delegates  elects  to grant  awards  to  individual  employees
consisting of stock  options or rights to purchase both Agouron  Pharmaceuticals
Stock and Oncology Division Stock, the allocation between the two will be at the
discretion of the Board or its delegates.

RESTATEMENT OF RIGHTS AGREEMENT
   
         Pursuant to the Rights Agreement (the "Rights  Agreement")  between the
Company and  ChaseMellon  Shareholder  Services,  L.L.C.,  as Rights  Agent (the
"Rights  Agent"),  the  Company  issued a dividend  on  November  7, 1996 of one
preferred  stock  purchase  right on each share of Common Stock (a "Common Stock
Right").  If the  shareholders  approve the Divisional  Stock Proposal and it is
implemented by the Board,  the Rights  Agreement will be amended and restated to
reflect  the change in the capital  structure  of the Company and the Board will
declare a distribution to the holders of Oncology  Division Stock of a preferred
stock purchase right (an "Oncology Stock Right") for each  outstanding  share of
Oncology  Division  Stock.  The Rights  Agreement,  as amended and restated (the
"Restated  Rights  Agreement"),  will provide (i) for the  redesignation of each
Common  Stock  Right as an  Agouron  Pharmaceuticals  Stock  Purchase  Right (an
"Agouron Stock Right"), (ii) for a two-for-one split of the Agouron Stock Rights
(reflecting the  two-for-one  split of the Common Stock in August 1997), so that
each share of Agouron  Pharmaceuticals  Stock will have one Agouron  Stock Right
associated  therewith,  (iii) that each  Agouron  Stock  Right,  when it becomes
exercisable, will entitle the registered holder to purchase from the Company one
one-ten thousandth of a share of Series B Participating  Preferred Stock, no par
value  (the  "Series B  Shares"),  at a  purchase  price of  $0.001,  subject to
adjustment,   and  (iv)  that  each  Oncology  Stock  Right,   when  it  becomes
exercisable, will entitle the registered holder to purchase from the Company one
one-ten thousandth of a share of Series C Participating  Preferred Stock, no par
value  (the  "Series C  Shares"),  at a  purchase  price of  $0.001,  subject to
adjustment. The Agouron Stock Rights and the Oncology Stock Rights are sometimes
hereinafter referred to together as the "Rights."
    
         The Restated Rights Agreement will provide that, initially, the Agouron
Stock Rights and the Oncology Stock Rights will be evidenced by the certificates
representing  shares of  Agouron  Pharmaceuticals  Stock and  Oncology  Division
Stock,  respectively,  and no separate Rights  certificates will be distributed.
Agouron   Pharmaceuticals  Stock  and  Oncology  Division  Stock  are  sometimes
hereinafter referred to together as the "Voting Stock." The Rights will separate
from the Voting Stock (referred to as a  "Distribution  Date") upon the earliest
of (i) a public  announcement that a person or group of affiliated or associated
persons  (collectively,   a  "Person")  has  acquired  beneficial  ownership  of
securities  having  15% or more of the  total  voting  power of all  outstanding
Common Stock (i.e.,  15% or more of the total voting power of the Voting  Stock)
(such a person being hereinafter  referred to as an "Acquiring  Person") or (ii)
ten days (unless such date is extended by the Board)  following the commencement
of (or a public announcement of an intention to make) a tender offer or exchange
offer which would result in any Person becoming an Acquiring  Person.  Until the
Distribution  Date, the Agouron Stock Rights will be  transferred  with and only
with  Agouron  Pharmaceuticals  Stock,  and the  Oncology  Stock  Rights will be
transferred  with and only with  Oncology  Division  Stock.  For purposes of the
Restated  Rights  Agreement,  the total voting power of the Voting Stock will be
determined  based upon the voting  rights of  holders of  outstanding  shares of
Agouron Pharmaceuticals


<PAGE>


Stock and Oncology  Division Stock in effect at the time of any such
determination.  See "- Description of Capital Stock - Voting Rights."

         The Rights will not be  exercisable  until the  Distribution  Date. The
Rights will expire on the earliest of (i) November 21, 2006,  (ii)  consummation
of a merger  transaction  with a Person who acquired  Voting Stock pursuant to a
Permitted  Offer (as defined below) and is offering in the merger the same price
per  share  and form of  consideration  paid in the  Permitted  Offer,  or (iii)
redemption or exchange of the Rights by the Company as described below.

         In the event that,  after the first date of public  announcement by the
Company or an  Acquiring  Person that an Acquiring  Person has become such,  the
Company  is  involved  in a merger  or other  business  combination  transaction
(whether or not the Company is the surviving  corporation) or 50% or more of the
Company's  assets or earning power are sold (in one  transaction  or a series of
transactions),  proper  provision  will be made so that  each  holder of a Right
(other than an Acquiring Person) will thereafter have the right to receive, upon
the  exercise  thereof at the then  current  exercise  price of the Right,  that
number of shares of  Agouron  Pharmaceuticals  Stock,  in the case of an Agouron
Stock  Right,  and Oncology  Division  Stock,  in the case of an Oncology  Stock
Right, in the event that the Company is the surviving corporation of a merger or
consolidation,  or that  number of shares of the common  stock of the  acquiring
company  (or,  in the  event  there is more  than  one  acquiring  company,  the
acquiring  company receiving the greatest portion of the assets or earning power
transferred), which at the time of such transaction would have a market value of
two times the exercise price of the Right (such right being hereinafter referred
to as the  "Merger  Right").  In the event that a Person  becomes  an  Acquiring
Person (unless  pursuant to a tender offer or exchange offer for all outstanding
shares of Voting Stock at a price and on terms  determined  prior to the date of
the first acceptance of payment for any of such shares by at least a majority of
the  members  of the  Board  who are not  officers  of the  Company  and are not
Acquiring  Persons  or  affiliates  or  associates  thereof  to be in  the  best
interests  of the Company and its  shareholders  (a  "Permitted  Offer")),  then
proper  provision  will be made so that each holder of an Agouron Stock Right or
an Oncology  Stock Right will, for a 60-day period  (subject to extension  under
certain circumstances) thereafter,  have the right to receive upon exercise that
number of shares of Agouron Pharmaceuticals Stock or Oncology Division Stock, as
the case may be,  having a market value of two times the  exercise  price of the
Right (such right being hereinafter  referred to as the  "Subscription  Right"),
although  the Company may take  action (if deemed  appropriate  by the Board) to
provide  substitute  consideration  for Voting Stock  (including cash (which may
entail a reduction  in the  exercise  price of the  Rights),  securities  of the
Company  (including a Voting Stock equivalent such as fractional Series B Shares
or Series C Shares) or other assets (or any combination  thereof)  (collectively
hereinafter referred to as "Substitute  Consideration")),  and the Company shall
take such action if insufficient  shares of Voting Stock are available to permit
the  exercise  of the  Rights.  The holder of a Right will  continue to have the
Merger  Right  whether or not such  holder  exercises  the  Subscription  Right.
Notwithstanding  the foregoing,  upon the occurrence of any of the events giving
rise to the  exercisability  of the Merger Right or the Subscription  Right, any
Rights  that are or were at any time  after the  Distribution  Date  owned by an
Acquiring Person will immediately become null and void.
   
         At any time  prior to the  earliest  to occur of a Person  becoming  an
Acquiring  Person or the  expiration  of the Rights,  the Company may redeem the
Rights in whole,  but not in part,  at a price of $0.001 and $0.001 per  Agouron
Stock Right and Oncology  Stock Right,  respectively  (in each case  hereinafter
referred to as the "Redemption Price"), which redemption shall be effective upon
action of the Board.  Additionally,  the Company may thereafter  redeem the then
outstanding  Rights in whole,  but not in part, at the  Redemption  Price (a) if
such  redemption  is  incidental  to a  merger  or  other  business  combination
transaction or series of transactions involving the Company but not involving an
Acquiring  Person or certain  related  persons or (b)  following an event giving
rise to, and the expiration of the exercise period for, the  Subscription  Right
if and for as long as no Person is then an Acquiring  Person  (e.g.,  the Person
initially triggering the Subscription Right has reduced its beneficial ownership
of the  Company's  securities  so that such  Person  is no  longer an  Acquiring
Person).  The redemption of the Rights described in the preceding  sentence will
be  effective  only  as  of  such  time  when  the  Subscription  Right  is  not
exercisable,  and in certain  events only after 10 business  days' prior notice.
Upon the effective date of the  redemption of the Rights,  the right to exercise
the Rights will  terminate  and the only right of the holders of the Rights will
be to receive the Redemption Price.
    


<PAGE>


         The Restated Rights Agreement will provide that,  subject to applicable
law, the Board may, at any time after a Person becomes an Acquiring  Person (but
not after the  acquisition by such Person of beneficial  ownership of securities
having 50% or more of the total voting power of all  outstanding  Common Stock),
exchange  all or part of the then  outstanding  and  exercisable  Agouron  Stock
Rights and Oncology  Stock Rights (except for Rights which have become void) for
shares of Agouron  Pharmaceuticals Stock or Oncology Division Stock, as the case
may be,  equivalent  to one share of Agouron  Pharmaceuticals  Stock per Agouron
Stock Right and one share of Oncology  Division  Stock per Oncology  Stock Right
(subject to adjustment) or, alternatively, for Substitute Consideration.

         Prior  to the  Distribution  Date,  the  terms of the  Restated  Rights
Agreement  may be amended by the Board without the consent of the holders of the
Rights.  After the Distribution Date, the terms of the Restated Rights Agreement
may be amended by the Board in any manner  which the Company may deem  necessary
or desirable  and which will not  adversely  affect the  interests of the Rights
holders.

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

         In addition to the  amendment  to the Articles in  connection  with the
Divisional  Stock Proposal,  the Articles will be further amended to provide for
the potential  effects of the Restated  Rights  Agreement in conformity with the
California Corporations Code.  Specifically,  inasmuch as the Rights may provide
for different or disparate  treatment  among holders of the Rights in accordance
with  criteria  selected  by the Board in  connection  with the  creation of the
Rights  (which  criteria is set forth in the  Restated  Rights  Agreement),  the
Articles, as amended, will include specific provisions permitting such potential
treatment.

         A copy of the form of the Restated Rights Agreement (which includes, as
Exhibit B, the form of Rights  Certificate for Agouron Stock Rights and Oncology
Stock  Rights)  is  being  filed  with  the  Commission  as an  exhibit  to  the
Registration Statement to which this Proxy Statement relates and is incorporated
herein by reference.  An initial version of the Rights  Agreement and an amended
version of the Rights Agreement were included,  respectively, as Exhibits to the
Company's  Registration  Statement  on Form 8-A and the  Company's  amended Form
8-A/A  (filed with the  Commission  on November 8, 1996 and  December  20, 1996,
respectively),  and are incorporated  herein by reference.  A copy of the Rights
Agreement  is available  free of charge from the Rights Agent and,  following an
implementation  of the Divisional Stock Proposal,  a copy of the Restated Rights
Agreement  would be so available.  The foregoing  description of the Rights is a
summary  only and is  qualified  in its  entirety by  reference  to the Restated
Rights Agreement and the Rights Agreement.

ANTI-TAKEOVER CONSIDERATIONS

         The following  information is provided with respect to certain  matters
that could be viewed as having the effect of  discouraging  an attempt to obtain
control of the Company.

         The Articles provide that the Board has the authority,  without further
action by the  shareholders,  to issue from time to time the Preferred  Stock in
one or more  series  and to fix the  number  of  shares,  designations,  rights,
preferences,  privileges  and  restrictions  thereof.  The rights,  preferences,
privileges and  restrictions  of different  series of Preferred Stock may differ
with respect to dividend rates,  amounts payable on liquidation,  voting rights,
conversion rights,  redemption  provisions,  sinking fund provisions,  and other
matters.

         If the  Divisional  Stock  Proposal is approved  and  implemented,  the
Restated Articles will provide that the Board has the authority, without further
action by the shareholders, to issue from time to time shares of a new series of
Common Stock and to fix the number of shares, designations, rights, preferences,
privileges  and  restrictions  thereof or to increase or decrease  the number of
shares  of  any  existing  series.  The  rights,  preferences,   privileges  and
restrictions  of  different  series of Common  Stock may differ with  respect to
dividend  rates,  amounts  payable on  liquidation,  voting  rights,  conversion
rights, redemption provisions, and other matters.

          Although  the Board  has no  present  intention  of doing so, it could
issue shares of Preferred  Stock or of a new or existing  series of Common Stock
that could, depending on the terms of such stock, make more difficult or


<PAGE>


discourage  an  attempt to obtain  control of the  Company by means of a merger,
tender offer,  proxy contest or other means. Such shares could be used to create
voting or other impediments or to discourage  persons seeking to gain control of
the Company and could also be privately placed with purchasers  favorable to the
Board in opposing such action. In addition, the Board could authorize holders of
a series of Common  Stock or  Preferred  Stock to vote  either  separately  as a
class, or with the holders of the Company's currently  outstanding Common Stock,
on any  merger,  sale  or  exchange  of  assets  by  the  Company  or any  other
extraordinary  corporate  transaction.  The  mere  existence  of the  additional
authorized  shares could have the effect of  discouraging  unsolicited  takeover
attempts.  The  issuance of new shares also could have a dilutive  effect on the
voting  power of existing  holders of Common Stock and on earnings per share and
could be used to dilute  the stock  ownership  of a person or entity  seeking to
obtain  control  of the  Company  should the Board  consider  the action of such
entity or person not to be in the best  interests  of the  shareholders  and the
Company.  To the  extent  that  potential  takeovers  are  thereby  discouraged,
shareholders  may not have the  opportunity to dispose of all or a part of their
stock at a price that may be higher than that prevailing in the market.


<PAGE>


                          PROPOSAL 3 - AMENDMENT OF THE
                             1996 STOCK OPTION PLAN

     DESCRIPTION OF THE 1996 STOCK OPTION PLAN

     THE  ESSENTIAL  FEATURES OF THE RESTATED 1996 STOCK OPTION PLAN (THE "STOCK
OPTION PLAN") ARE OUTLINED BELOW.  FOR A COMPLETE  UNDERSTANDING OF THE TERMS OF
THE STOCK  OPTION  PLAN,  AS IT IS PROPOSED TO BE AMENDED,  SEE ANNEX VI,  WHICH
REFLECTS  AMENDMENTS THAT WILL BE MADE IF THE DIVISIONAL STOCK PROPOSAL AND THIS
PROPOSAL 3 ARE APPROVED BY THE SHAREHOLDERS. IF THE DIVISIONAL STOCK PROPOSAL IS
NOT APPROVED BY THE SHAREHOLDERS BUT PROPOSAL 3 IS APPROVED, THEN THE 1996 STOCK
OPTION PLAN WILL BE AMENDED TO INCREASE THE NUMBER OF SHARES OF EXISTING  COMMON
STOCK  RESERVED FOR ISSUANCE  THEREUNDER BY 1,000,000  SHARES BUT NOT TO REFLECT
THE DIVISIONAL STOCK PROPOSAL REVISIONS.

         The  purpose  of  the  Stock  Option  Plan  is to  encourage  officers,
directors, employees and consultants of the Company to acquire or increase their
proprietary  interest  in the  success  of the  Company  and to  continue  their
affiliation  with  the  Company.   Eligible  employees  may  be  granted  either
"incentive  stock options" or  "non-statutory  stock options" to purchase Common
Stock under the Stock  Option  Plan.  Subject to certain  conditions,  officers,
directors and  consultants  who are not employees may be granted  "non-statutory
stock  options"  under the Stock  Option Plan.  An incentive  stock option is an
option which  qualifies for certain  favorable  income tax  treatment  under the
Internal Revenue Code. A non-statutory stock option is an option which is not an
incentive stock option for federal income tax purposes.
   
         As of  October  19,  1998,  under the Stock  Option  Plan,  there  were
outstanding  options to purchase 2,786,091 shares of Existing Common Stock under
the  Stock  Option  Plan (of which  options  to  purchase  707,527  shares  were
exercisable).  The Company has five additional  stock option plans: (1) the 1985
Stock  Option  Plan (the "1985  Plan")  under which as of October 19, 1998 there
were outstanding  options to purchase 83,375 shares of Existing Common Stock (of
which options to purchase  79,542 shares were  exercisable);  (2) the 1990 Stock
Option  Plan (the "1990  Plan")  under  which as of October  19, 1998 there were
outstanding  options to purchase  4,743,406  shares of Existing Common Stock (of
which options to purchase 3,450,318 shares were exercisable); (3) the 1998 Stock
Option  Plan (the "1998  Plan")  under  which as of October  19, 1998 there were
outstanding  options to purchase  1,320,378  shares of Existing Common Stock (of
which no options were  exercisable)  and (4) the two Alanex Plans under which as
of October 19, 1998, there were  outstanding  options to purchase 173,533 shares
of  Existing  Common  Stock (of which  options to  purchase  97,350  shares were
exercisable).  At October 19,  1998,  stock  options to purchase an aggregate of
2,187,284  shares  remained  available for issuance under the Stock Option Plan,
including  1,000,000  shares  approved  by the Board on August  6,  1998,  stock
options to purchase an aggregate of 8,050 shares remained available for issuance
under the 1985 Plan,  stock  options to purchase an aggregate  of 92,361  shares
remained  available  for  issuance  under the 1990  Plan,  and stock  options to
purchase an aggregate of 179,622  shares  remained  available for issuance under
the 1998 Plan. No stock options  remain  available for issuance under the Alanex
Plans.
    
         The Board  believes  that the  Company's  stock  option  programs  have
created  significant  incentives  for its  employees,  officers,  directors  and
consultants.  The Board  considers  it important  for the future  success of the
Company to  continue  to grant stock  options on a basis  comparable  with those
granted by other  companies with which it competes in attracting,  retaining and
motivating  qualified  personnel.  On  August 6,  1998,  the  Board  adopted  an
amendment  to the Stock  Option  Plan,  to  increase  by  1,000,000  shares  the
aggregate  number of shares of Common Stock  available  for  issuance  under the
Stock Option Plan. The Board has also approved,  in connection  with and subject
to approval and implementation of the Divisional Stock Proposal, an amendment to
the Stock  Option  Plan to  conform  the Plan to the  changes  in the  Company's
capital  structure being made by the Divisional  Stock  Proposal.  See "Proposal
2--The Divisional Stock Proposal--Amendment of Stock Plans."

         The total number of shares  available  under the Stock Option Plan, the
number of shares subject to outstanding options and the exercise price per share
of  outstanding  options will be subject to  adjustment  upon the  occurrence of
stock dividends,  recapitalizations,  consolidations, stock splits, combinations
or exchanges of shares of stock or other increases or decreases in the number of
shares of the Company's  Common Stock effected  without receipt of consideration
by the Company,  in order to preclude the  dilution or  enlargement  of benefits
under the Stock


<PAGE>


Option Plan.  The Board may also make such  equitable  adjustments  to the Stock
Option Plan and outstanding options as it deems appropriate in order to preclude
the  dilution  or  enlargement  of  benefits  under the Stock  Option  Plan upon
exchange of all of the  outstanding  Common Stock of the Company for a different
class or series of capital  stock or the  separation  of assets of the  Company,
including a spin-off or other  distribution of stock or property by the Company.
If any option  under the Stock  Option Plan  terminates  or expires,  the shares
allocable to the  unexercised  portion of the option will again be available for
purposes of the Stock Option Plan. In certain  circumstances,  where an optionee
uses stock to exercise an option, only the net shares issued to the optionee are
counted against the number of shares issued under the Stock Option Plan. Certain
stock issuances which are later forfeited by the optionee do not count as grants
under the Stock Option Plan.

         A dissolution or liquidation of the Company,  a merger or consolidation
in which the Company is not the surviving corporation, a reverse merger in which
the  Company  is the  surviving  corporation  but  the  Company's  Common  Stock
outstanding  immediately  preceding  the  merger is  converted  by virtue of the
merger into other property,  or other capital  reorganization in which more than
fifty percent (50%) of the Company's Common Stock is exchanged, shall cause each
outstanding  option to terminate,  provided  that each  optionee  shall have the
right  immediately  prior to the occurrence of such event to exercise his or her
option in whole or in part;  however,  the exercise date of outstanding  options
shall not be accelerated  by such event if and to the extent:  (i) the option in
connection with such event is either to be assumed by the successor  corporation
or parent thereof or to be replaced with a comparable  option to purchase shares
of the capital stock of the successor corporation or parent thereof; or (ii) the
option is to be replaced by a comparable cash incentive program of the successor
corporation  based  on the  value  of the  option  on the  date of  such  event.
Notwithstanding  the preceding,  if within one year from the date of such event,
an  employee's  employment  is  involuntarily  terminated,  then the  employee's
outstanding stock options, if any, shall become immediately exercisable.

ADMINISTRATION OF THE STOCK OPTION PLAN

         The Stock  Option Plan is  administered  by the Board,  except that the
Board may delegate  all or any part of its  authority  to  administer  the Stock
Option Plan with  respect to any group or groups of persons  eligible to receive
options to such persons or committee as the Board may  determine.  The Board has
currently  delegated  to a  committee,  composed  of  certain  of the  Company's
executive  officers,  the  authority  to  administer  the Stock Option Plan with
respect to persons  who are  neither  officers  nor  directors  of the  Company.
Further  references herein to the administration of the Stock Option Plan by the
Board  refer  to the  Board  or its  delegates,  unless  the  context  otherwise
indicates.  Whether or not the Board has delegated administrative authority, the
Board has final power to determine all  questions of policy or  expediency  that
may arise in the administration of the Stock Option Plan.

         The  Board  has the  power  to make  all  determinations  necessary  or
advisable for the  administration  of the Stock Option Plan.  The Board also has
the final  power to construe  and  interpret  the Plans and the options  granted
under it. The Board determines,  within the limits of the Stock Option Plan, the
persons to whom and the time or times at which  options  shall be  granted,  the
type of options to be granted (whether  incentive stock options or non-statutory
stock options),  the number of shares to be subject to each option, the duration
of each option, the option price and the time or times within which,  during the
term of option, all or any portion of an option becomes  exercisable  ("vests").
If the Divisional Stock Proposal is approved and  implemented,  the Board or its
delegates  shall be entitled to  determine  as of the grant date,  the series of
Common Stock from which shares will be issued on exercise of a specific  option.
The  Company's  current form of stock option  agreement  provides that an option
vests  over a two,  three or four year  period.  In the event  that an  employee
terminates his or her employment  with the Company,  unless the Board  otherwise
elects, the then nonvested portion of his or her option is forfeited. Subject to
the terms and  conditions  of the Stock  Option  Plan,  the Board may  modify an
outstanding  option (including  lowering the option price or changing  incentive
stock options into  non-statutory  stock options),  change the vesting schedule,
extend or renew  outstanding  options  granted  under the Stock  Option  Plan or
accept the  surrender  of  outstanding  options  (to the  extent not  previously
exercised) and authorize the granting of new options in  substitution  therefor.
The Board may permit an option to be exercised  before it is vested,  subject to
repurchase rights which terminate on a vesting schedule identical to the vesting
schedule  of the  option.  The Board may also  establish  other  limitations  or
restrictions upon exercise of options.


<PAGE>



GRANT AND EXERCISE OF INCENTIVE STOCK OPTIONS AND NON-STATUTORY STOCK OPTIONS

         All  employees of the Company are eligible to receive  incentive  stock
options and non-statutory  stock options under the Stock Option Plan. Subject to
certain conditions,  officers,  directors and consultants of the Company who are
not  employees  are  eligible  to receive  non-statutory  stock  options but not
incentive  stock  options.  To the extent  required by Section 162(m) to qualify
future  compensation  as  "performance  based,"  options to  purchase  more than
750,000 shares may not be granted in a fiscal year to any individual participant
in the Stock Option Plan.

         Incentive  stock  options under the Stock Option Plan may be granted by
the Board at any time prior to August 6, 2008.  Options  shall be  evidenced  by
agreements  in such  form  as the  Board  shall  from  time  to time  determine,
consistent  with the terms of the Stock Option  Plan.  The price per share under
each  incentive  stock  option must be at least 100% of the fair market value of
the Common Stock on the date the option is granted.  The Board can set any price
it wishes for shares granted under  non-statutory  stock options.  The price for
shares may be paid in any combination of cash, by cashier's or certified  check,
personal check  acceptable to the Company,  shares of the Company's Common Stock
(including  previously owned Common Stock or Common Stock issuable in connection
with the  exercise) or "built-in  gain" in any options  which are  terminated as
part of such  exercise.  The  Board may take such  steps it deems  necessary  to
facilitate the payment of the option price. However, payment of the option price
must  be in  such  form as the  Board  determines  and  the  Board  may  require
satisfaction  of any rules or conditions it deems  necessary in connection  with
the  payment  of the  option  price or on  account  of any  assistance  given an
optionee to facilitate such payment. The aggregate fair market value (determined
as of the time the option is granted) of stock with  respect to which  incentive
stock  options  are  exercisable  for the  first  time by an  employee  during a
calendar year can not exceed $100,000.

        Except as otherwise provided in the option agreement between the Company
and the optionee,  each option expires on the date set forth in such  agreement.
The term of each  incentive  stock option cannot be more than ten years from the
date on which the option is granted.

        To the extent  required by Internal  Revenue Code  Section 422,  options
granted under the Stock Option Plan may not be transferred other than by will or
the laws of descent and  distribution  and may be exercised  during the holder's
lifetime  only  by the  holder.  However,  non-statutory  stock  options  can be
transferred  to a trust for the  benefit  of the  optionee,  or  members  of his
family.

AMENDMENT AND TERMINATION

         The Board may at any time revise, amend, suspend or terminate the Stock
Option Plan.  No  amendment  shall,  without the  approval of the  shareholders,
change the number of shares for which  incentive  stock  options  may be granted
under the Stock Option Plan, reduce the price per share at which incentive stock
options may be offered under the Stock Option Plan below 100% of the fair market
value on the date of grant, or modify the eligibility requirements for the class
of employees eligible to receive incentive stock options.

TAX WITHHOLDING

         Optionees  are  required to pay the Company  cash for the amount of the
tax liability incurred by the optionee in connection with the exercise of his or
her option.  However, the Board may in its sole discretion permit an optionee to
reimburse the Company for such tax  liability by the actual or imputed  delivery
to the Company of shares of its Common Stock.

FEDERAL INCOME TAX CONSEQUENCES

         The principal tax  consequences  of the grant and exercise of incentive
stock options and  non-statutory  stock options under current  provisions of the
federal income tax laws may be summarized as follows:



<PAGE>


         INCENTIVE  STOCK OPTIONS.  The grant of an incentive  stock option does
not produce  taxable income for the employee or a tax deduction for the Company.
Upon exercise of an incentive stock option,  the excess of the fair market value
of the shares  acquired over the amount paid by the employee for the shares will
be an item of tax  preference  to the  employee,  which  may be  subject  to the
alternative  minimum tax for the taxable year of exercise.  If no disposition of
the stock is made within two years from the date of grant of the incentive stock
option nor within one year after the transfer of the shares to the employee, the
employee  will not  realize  ordinary  income  as a result of the  exercise  and
subsequent sale of the incentive stock option.  Any gain or loss realized on the
ultimate  sale of the shares  must be  reported  by the  employee  as  long-term
capital gain or loss.  The Company is not entitled to any  deduction as a result
of the exercise of the incentive stock option.

         If the employee  disposes of the shares within the two-year or one-year
periods  referred to above, the excess of the fair market value of the shares at
the time of exercise (or the proceeds of  disposition,  if less) over the amount
paid by the employee for the shares will at that time be taxable to the employee
as ordinary income.  The same amount will be deductible by the Company,  subject
to the general rules relating to the reasonableness of compensation.  The excess
(if any) of the proceeds of disposition over the fair market value of the shares
on the date of exercise must be reported by the employee as a long-term  capital
gain if the  shares  have been held for more than one year,  or as a  short-term
capital  gain if the shares  have been held for one year or less.  If no gain is
realized,  there will be no ordinary  income and any loss will be  long-term  or
short-term capital loss.

         NON-STATUTORY STOCK OPTIONS.  The grant of a non-statutory stock option
under the Stock Option Plan does not produce  taxable income for the optionee or
a tax deduction for the Company.  Except as described below,  upon exercise of a
non-statutory  stock  option,  the excess of the fair market value of the shares
acquired over the amount paid by the optionee will be taxable to the optionee as
ordinary income.

         The Company will be entitled to a deduction  for income tax purposes in
an amount  equal to the ordinary  income  taxable to the optionee in the year in
which such ordinary income is recognized. Any additional profit or loss realized
by an optionee on  disposition  of the shares will not result in any  additional
tax deduction to the Company.

         Similar  rules  apply  if  the  Company  permits  the  exercise  of  an
"unvested"  option  with the issued  stock being  subject to certain  repurchase
rights or other substantial risks of forfeiture.

        USING STOCK TO EXERCISE OPTIONS. Special rules apply if an optionee uses
already  owned stock of the Company to pay all or part of the exercise  price of
an incentive or  non-statutory  stock option.  The use of already owned stock to
pay all or part of the exercise price of a non-statutory stock option permits an
optionee  to defer the date when the gain on the  surrendered  shares  which are
used to pay the exercise  price of the option is  recognized  for tax  purposes.
That is, using  already  owned shares to exercise a  non-statutory  stock option
permits an optionee to finance the exercise of the option without paying current
tax on the unrealized appreciation in value of the surrendered shares. An option
exercise  using  already  owned stock is treated as a "tax-free  exchange"  with
respect to that number of shares  received on the option  exercise  which equals
the number of shares  surrendered.  The optionee's  basis in these shares is the
same as his or her  basis  in the  shares  surrendered  , and the  capital  gain
holding period on such shares runs without  interruption  from the date when the
surrendered shares were acquired. Any additional shares received by the optionee
on the exercise will trigger  ordinary  income taxation equal to the fair market
value of the additional  shares over the  consideration  paid by the optionee in
connection with the exercise.  The optionee's basis in the additional  shares is
equal to their fair market value on the date the shares were  received,  and the
capital gain holding  period on such shares  commences on that date.  Similarly,
the use of  previously  owned stock to pay the  exercise  price of an  incentive
stock  option  permits  an  employee  to defer  tax  recognition  of gain on the
surrendered  shares.  However,  if an employee  pays all or part of the exercise
price of an incentive stock option by surrendering stock previously  acquired in
the exercise of any other incentive  stock option and such  previously  acquired
stock has not been held for the statutory holding period,  then the surrender of
such  stock  to  exercise  the  incentive  stock  option  will be  treated  as a
disqualifying  disposition  of the prior  incentive  stock  option  with the tax
consequences  described above.  Furthermore,  complex tax rules apply concerning
the use of shares to exercise an incentive stock option,  especially with regard
to an employee's basis in the shares received on the exercise.



<PAGE>


ACCOUNTING TREATMENT

         Under the present financial accounting rules, neither the grant nor the
exercise of options  issued to employees at fair market value will result in any
charge to the  Company's  earnings.  However,  the  Company  will be required to
calculate  the  "fair  value"  of all  option  grants  at the time of grant  and
disclose  such value on a pro-forma  basis.  The grant of options with  exercise
prices less than the fair  market  value of the shares at the time of grant will
result in a  compensation  expense equal to the discount from market at the time
of grant.  The Company  will have to report such  expense pro rata as the shares
underlying the option become exercisable.  Accordingly,  the grant of discounted
options  under the  Stock  Option  Plan  would  result  in a charge to  reported
earnings.  In all events,  the number of dilutive options  outstanding under the
Stock  Option  Plan  will be a factor  in  determining  the  Company's  reported
earnings per share.

REQUIRED VOTE

         Approval  by the  holders of a majority  of the shares of the  Existing
Common Stock  represented and voting at the Meeting on this matter (which shares
constitute  at least a  majority  of the  required  quorum for the  Meeting)  is
required for the adoption of this proposal.

     THE BOARD RECOMMENDS THAT YOU VOTE FOR THE APPROVAL OF THIS PROPOSAL, WHICH
IS SET FORTH AS ITEM 3 ON THE PROXY CARD.


<PAGE>


                          PROPOSAL 4 - AMENDMENT OF THE
           AGOURON PHARMACEUTICALS, INC. EMPLOYEE STOCK PURCHASE PLAN

         DESCRIPTION OF THE EMPLOYEE STOCK PURCHASE PLAN

         THE ESSENTIAL  FEATURES OF THE RESTATED  EMPLOYEE  STOCK  PURCHASE PLAN
(THE "ESPP") ARE OUTLINED BELOW.  FOR A COMPLETE  UNDERSTANDING  OF THE TERMS OF
THE  ESPP AS IT IS  PROPOSED  TO BE  AMENDED,  SEE  ANNEX  VII,  WHICH  REFLECTS
AMENDMENTS THAT WILL BE MADE IF THE DIVISIONAL  STOCK PROPOSAL AND THIS PROPOSAL
4 ARE APPROVED BY THE  SHAREHOLDERS.  IF THE  DIVISIONAL  STOCK  PROPOSAL IS NOT
APPROVED BY THE SHAREHOLDERS  BUT PROPOSAL 4 IS APPROVED,  THEN THE ESPP WILL BE
AMENDED TO INCREASE THE NUMBER OF SHARES OF EXISTING  COMMON STOCK AVAILABLE FOR
PURCHASE  THEREUNDER BY 200,000 SHARES BUT NOT TO REFLECT THE  DIVISIONAL  STOCK
PROPOSAL REVISIONS.
   
         As of  October  19,  1998,  a total of 131,156  shares of Common  Stock
remain available for purchase under the ESPP. Any full-time employee is eligible
to participate in the ESPP after he or she has been continuously employed by the
Company for three consecutive months. Eligible employees may elect to contribute
up to 15% of their total  compensation  during each offering period,  subject to
certain  statutory  limits.  Additionally,  each  employee  is only  entitled to
purchase up to a maximum of 3,000 shares of Common Stock during any one year. On
the last day of the offering  period or such other  date(s)  during the offering
period  which the Board has chosen  prior to the  commencement  of the  offering
period  (Purchase  Date) the Company  will apply the amount  contributed  by the
participant to purchase whole shares of Common Stock. Shares of Common Stock are
purchased  for  eighty-five  percent (85%) of the lower of the fair market value
per share of Common  Stock on (i) the first day of the  offering  period or (ii)
the Purchase Date. All expenses  incurred in connection with the  implementation
and administration of the ESPP are paid by the Company. The ESPP is administered
by the Board; provided,  however, that the Board may delegate all or any part of
its authority to administer  the ESPP.  Termination of employment for any reason
shall be treated as an automatic withdrawal by the participant from the ESPP.
    
         The Board has the right to amend,  suspend or terminate the ESPP at any
time  and  without  notice;  provided,  no  participant's  existing  rights  are
adversely  affected  thereby  and except  that any  amendment  to  increase  the
aggregate number of shares available under the ESPP shall be subject to approval
by a vote of the shareholders of the Company.

         On August 6, 1998,  the Board  adopted an amendment to the ESPP subject
to the approval of the Company's  shareholders to increase by 200,000 shares the
aggregate  number of shares available for purchase under the ESPP. The Board has
also approved,  in connection with and subject to approval and implementation of
the  Divisional  Stock  Proposal,  the amendment and  restatement of the ESPP to
conform the ESPP to the changes in the Company's capital structure being made by
the  Divisional   Stock  Proposal.   See  "Proposal   2--The   Divisional  Stock
Proposal--Amendment of Stock Plans."

CERTAIN FEDERAL INCOME TAX INFORMATION

         The ESPP, and the right of participants  to make purchases  thereunder,
is  intended to qualify  under the  provisions  of  Sections  421 and 423 of the
Internal  Revenue Code. Under these  provisions,  no income will be taxable to a
participant  at the time of grant of the  option or  purchase  of  shares.  Upon
disposition of the shares,  the participant will generally be subject to tax. If
the shares have been held by the  participant  for more than two years after the
first day of the offering  period and more than one year after the purchase date
of the  shares,  the  lesser of (a) the excess of the fair  market  value of the
shares at the time of such  disposition  over the  purchase  price of the shares
subject to option,  or (b) the excess of the fair market  value of the shares on
the first day of the  offering  period  over the  deemed  purchase  price of the
shares subject to option,  will be treated as ordinary  income,  and any further
gain upon such  disposition  will be treated as capital  gain. If the shares are
disposed of before the expiration of the holding periods  described  above,  the
excess of the fair market  value of the shares on the date of purchase  over the
purchase price will be treated as ordinary income,  and any further gain or loss
on such disposition will be capital gain or loss. Different rules may apply with
respect to optionee's  subject to Section 16(b) of the Exchange Act. The Company
is not entitled to a deduction for amounts  taxable to a participant,  except to
the extent of ordinary  income  reported by  participants  upon  disposition  of
shares prior to the expiration of the holding periods described above.


<PAGE>



        The foregoing is only a summary of the United States  federal income tax
consequences of the ESPP to participants and the Company and does not purport to
be  complete.  Reference  should  be made to the  applicable  provisions  of the
Internal Revenue Code. In addition,  the foregoing  summary does not discuss the
income tax  consequences of a participant's  death or the income tax laws of any
municipality, state or foreign country in which the participant may reside.

REQUIRED VOTE

         Approval  by the  holders of a majority  of the shares of the  Existing
Common Stock  represented and voting at the Meeting on this matter (which shares
constitute  at least a  majority  of the  required  quorum for the  Meeting)  is
required for the adoption of this proposal.

     THE BOARD RECOMMENDS THAT YOU VOTE FOR THE APPROVAL OF THIS PROPOSAL, WHICH
IS SET FORTH AS ITEM 4 ON THE PROXY CARD.


<PAGE>


                                   PROPOSAL 5
              RATIFICATION OF SELECTION OF INDEPENDENT ACCOUNTANTS

         The  Board  has  selected  the  firm of  PricewaterhouseCoopers  LLP as
independent  accountants  for the  Company  for the fiscal  year ending June 30,
1999, it being intended that such selection  would be proposed for  ratification
by the affirmative vote of a majority of the shares of the Existing Common Stock
represented and voting at the Meeting on this matter (which shares constitute at
least a majority of the required quorum for the Meeting). One or more members of
PricewaterhouseCoopers LLP are expected to be present at the Meeting and will be
available to respond to questions and make a statement if they desire to do so.

         THE  BOARD  RECOMMENDS  THAT  YOU  VOTE  FOR  THE  RATIFICATION  OF THE
SELECTION  OF  PRICEWATERHOUSECOOPERS  LLP,  WHICH IS SET FORTH AS ITEM 5 ON THE
PROXY CARD.



<PAGE>


          SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
   
         The  following  table sets forth  information  as of October  19,  1998
relating to the  beneficial  ownership of the Existing  Common Stock by (i) each
person known by the Company to beneficially  own more than 5% of the outstanding
shares of the Company's  Common  Stock,  (ii) each  director,  (iii) each of the
executive  officers named in the Summary  Compensation Table below, and (iv) all
executive officers and directors as a group.
<TABLE>
<CAPTION>

                                                                                  Beneficial Ownership(1)
                                                                          Number of                 Percentage of
         Beneficial Owner                                                 Shares(9)                    Total
<S>                                                                    <C>                             <C>    
     Wellington Management Co.                                         5,196,000                        16.61%
         75 State Street, Boston, MA 02109
     T. Rowe Price                                                     2,420,000                         7.74%
         100 E. Pratt St., Baltimore, MD 21202
     Peter Johnson(2)                                                    706,533                         2.22%
     Gary E. Friedman(2) Family Trust(8)                                 294,123                         *
     John N. Abelson(2)(3)(6)                                            102,943                         *
     Patricia M. Cloherty(2)                                              27,659                         *
     A. E. Cohen(2)                                                       73,333                         *
     Michael E. Herman(2)(4)                                              83,333                         *
     Irving S. Johnson(2)                                                 41,933                         *
     Antonie T. Knoppers(2)                                               51,533                         *
     Melvin I. Simon(2)(3) and Linda F. Simon Living Trust(5)            122,843                         *
     Marvin R. Brown                                                     194,995                         *
     Barry D. Quart                                                      152,481                         *
     R. Kent Snyder(7)                                                   175,035                         *
All executive officers and directors as a group (19 persons)           2,706,671                         8.14%

    
</TABLE>

*    less than 1%.
(1)  Unless otherwise  indicated,  the persons named in the above table exercise
     sole voting and investment  powers with respect to all shares  beneficially
     owned by them, subject to applicable community property laws. The number of
     shares  beneficially owned includes the following number of shares issuable
     upon  exercise of stock options  exercisable  within 60 days of October 19,
     1998: Mr.  Johnson,  596,923 shares;  Mr.  Friedman,  241,599  shares;  Dr.
     Abelson,  33,333 shares;  Ms. Cloherty,  13,333 shares;  Mr. Cohen,  43,333
     shares;  Mr.  Herman,  39,333  shares;  Dr.  Johnson,  15,833  shares;  Dr.
     Knoppers,  43,333  shares;  Dr. Simon,  33,333  shares;  Dr. Brown,  23,077
     shares;  Dr. Quart,  117,266 shares;  Mr. Snyder,  168,932 shares;  and all
     executive officers and directors as a group, 1,952,280 shares.
(2) Director.
(3)  Does not include 1,106,000 shares held by The Agouron  Institute,  of which
     Drs. Abelson and Simon are directors.  As directors,  they share voting and
     investment powers as to the shares held by The Agouron Institute.
(4)  Includes 20,000 shares held by the Herman Family Trading Company,  a family
     partnership of which Mr. Herman is the general partner,  10,000 shares held
     by Vail  Fishing  Partners in which Mr.  Herman has a 50%  general  partner
     interest  and  2,000  shares  held by Mrs.  Herman,  of  which  Mr.  Herman
     disclaims any beneficial ownership.
(5) Shared voting and investment power.
(6)  Includes  2,350  shares  held by Dr.  Abelson  as  custodian  for his minor
     children, of which Dr. Abelson disclaims any beneficial ownership.
(7)  Includes 800 shares held by immediate  family members,  of which Mr. Snyder
     disclaims any beneficial ownership.
(8)  Includes 5,408 shares held by wife as custodian for minor children of which
     Mr. Friedman disclaims any beneficial ownership.
(9)  Adjusted  to reflect  the  two-for-one  stock  split in the form of a stock
     dividend in August 1997.

<PAGE>


                             EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS

         Non-employee  members of the Board  receive  cash  compensation  in the
amount of $250 per Board meeting for their  services as Board  members,  and are
eligible  for  reimbursement  of their  expenses  incurred  to attend  each such
meeting in accordance with Company policy. In addition to meeting fees,  certain
non-employee   directors  received  consulting  fees  during  fiscal  1998.  For
scientific consultation, Dr. Abelson received $30,040; Dr. Knoppers, $6,000; Dr.
Johnson,  $18,750 and Dr. Simon,  $26,900. For special  consultation  concerning
corporate development issues, Mr. Cohen received $18,250 and Mr. Herman received
$750.

COMPENSATION OF EXECUTIVE OFFICERS

         The  following  table sets  forth the  aggregate  compensation  paid or
accrued by the Company to the Chief Executive Officer and to the four other most
highly  compensated   executive  officers  whose  annual  compensation  exceeded
$100,000  for the  fiscal  year  ended June 30,  1998  (collectively  the "named
executive  officers")  for service  during the fiscal years ended June 30, 1998,
1997 and 1996:

                           Summary Compensation Table
<TABLE>
<CAPTION>

                                                                                    Long-Term
                                                                                  Compensation
        Name                              Annual Compensation                        Awards(2)
     Principal                                                                        Stock             All Other
     Position                     Year        Salary(1)         Bonus                Options          Compensation(3)
<S>                              <C>          <C>            <C>                     <C>                <C>       

Peter Johnson                    1998       $ 395,000        $ 230,000                40,000            $ 2,998
President and Chief              1997         330,000          165,000               100,000              2,250
Executive Officer                1996         285,000          100,000               180,000              1,647

Marvin R. Brown(4)               1998         230,000           65,000                10,000              2,400
Vice President,                  1997          23,523                0                     0                  0
President of Alanex              1996              --               --                    --                 --

Gary E. Friedman                 1998         212,500          100,000                17,000             11,232
Corporate Vice President,        1997         195,000           70,000                26,000              2,250
General Counsel                  1996         175,500           50,000                50,000              1,589

Barry D. Quart(5)                1998         230,000          125,000                21,000              2,713
Senior Vice President,           1997         180,000          115,500(5)             44,000              2,953
Regulatory Affairs               1996         165,000           70,500(5)             72,000             16,587

R. Kent Snyder(5)                1998         230,000          150,000                21,000              3,050
Senior Vice President,           1997         200,000          102,000(5)             44,000              2,250
Commercial Affairs               1996         178,500           62,200(5)             64,000              1,777

</TABLE>

(1)  Includes  amounts  deferred out of compensation  under the Company's 401(k)
     Plan otherwise payable in cash during each fiscal year.
(2)  The Company has made no restricted stock awards,  has not granted any stock
     appreciation rights and has no other long-term incentive plans.
(3)      (a)  During  1998,  the  Company  made  matching  contributions  to the
         Company's 401(k) Plan in the following  amounts:  Mr. Johnson,  $2,998;
         Dr. Brown, $2,400; Mr. Friedman, $3,063; Dr. Quart, $2,713; and Mr.
         Snyder $3,050.
     (b) During  1997,  the Company made  matching  contributions  to the
         Company's  401(k) Plan in the  following amounts:  Mr. Johnson, $2,250;
         Mr. Friedman $2,250; Dr. Quart, $2,953; and Mr. Snyder, $2,250.
     (c) During 1996, the Company made matching  contributions  to the Company's
         401(k)  Plan  in  the  following  amounts:  Mr.  Johnson,  $1,647;  Mr.
         Friedman, $1,589; Dr. Quart, $1,959; and Mr. Snyder, $1,777.
     (d) During 1996, the Company  reimbursed Dr. Quart for relocation  costs in
         the amount of $14,628.
     (e) During 1998, Mr.  Friedman sold accrued but unused vacation back to the
         Company in the amount of $8,169.
(4)  Dr. Brown joined the Company in May 1997 with the acquisition of Alanex
     Corporation.
(5)  For  Dr.  Quart  and  Mr.  Snyder,  a  portion  of  the  bonus  amount  was
     subsequently used to partially repay their outstanding relocation loans.
     These loans were paid in full on June 30, 1997.


<PAGE>



         The  following  table sets forth  certain  information  with respect to
individual  grants of stock  options  made during the fiscal year ended June 30,
1998, to each of the named executive officers:

                          Option Grants in Fiscal 1998
<TABLE>
<CAPTION>

                                                                                     Potential Realizable Value at
                                                                                       Assumed Annual Rates of
                                                                                       Stock Price Appreciation
                                        Individual Grants                                   for Option Term(2)_
                                            % of Total
                                              Options
                                            Granted to
                                             Employees
                                 Options     in Fiscal     Exercise    Expiration
    Name                        Granted(1)     Year         Price        Date             5%                10%
<S>                            <C>             <C>        <C>            <C>             <C>          <C>

Peter Johnson                  30,145#         2.70%      $30.4375       6/29/08         $577,035     $1,462,320
                                9,855*         0.88        30.4375       6/29/08          188,644        478,061
  


Marvin R. Brown                   145#         0.01        30.4375       6/29/08            2,776          7,034
                                9,855*         0.88        30.4375       6/29/08          188,644        478,061



Gary E. Friedman                7,145#         0.64        30.4375       6/29/08          136,769        346,601
                                9,855*         0.88        30.4375       6/29/08          188,644        478,061



Barry D. Quart                 11,145#         1.00        30.4375       6/29/08          213,337        540,639
                                9,855*         0.88        30.4375       6/29/08          188,644        478,061


R. Kent Snyder                 11,145#         1.00        30.4375       6/29/08          213,337        540,639
                                9,855*         0.88        30.4375       6/29/08          188,644        478,061

</TABLE>

(1)  During  fiscal 1998,  the Agouron  Stock Option Plan ("Plan") for executive
     officers and directors was administered by the Board. The Board, based upon
     the recommendation of the Directors Compensation Committee,  determines the
     number  of  shares  to be  granted  and the  term of  such  grants  to each
     executive  officer and  director.  The options  granted in fiscal 1998 were
     either incentive stock options(*) or non-statutory  stock options(#),  have
     exercise prices equal to the fair market values on the date of grant,  vest
     over a period of three  years and have a term of ten  years.  Upon  certain
     corporate  events  as  defined  in the Plan  which  result  in a change  of
     control,  the exercise date of all  outstanding  options for all employees,
     including executive officers, may be accelerated. The Plan also permits the
     Company to assist an  employee  in using a  so-called  "cashless"  exercise
     procedure to pay the option exercise price.
(2)  Potential  realizable  value is based on an assumption that the stock price
     of the  Common  Stock  appreciates  at the annual  rate  shown  (compounded
     annually) from the date of grant until the end of the ten year option term.
     These numbers are calculated based on the  requirements  promulgated by the
     Securities  and  Exchange  Commission  and do  not  reflect  the  Company's
     estimate of future stock price  growth.  Any such growth would  benefit all
     shareholders.


<PAGE>



         The following table sets forth certain information with respect to each
exercise of stock options during the fiscal year ended June 30, 1998, by each of
the named  executive  officers and the number and value of  unexercised  options
held by such named executive officers as of June 30, 1998:

                         Option Exercises in Fiscal 1998
                      And Value of Options at June 30, 1998
<TABLE>
<CAPTION>

                                                             Number of Unexercised          Value of Unexercised
                                                                  Options at              In-the-Money Options at
                           Shares                              June 30, 1998(2)              June 30, 1998(1)
                         Acquired on         Value
      Name                 Exercise        Realized       Exercisable  Unexercisable     Exercisable  Unexercisable
<S>                       <C>            <C>               <C>           <C>           <C>             <C>

Peter Johnson             125,000        $5,692,095        596,923       205,767       $ 11,290,804    $ 1,312,900

Marvin R. Brown             2,500            85,744         17,845        17,325            538,428        221,014

Gary E. Friedman            1,000            24,188        241,599        61,001          4,988,364        348,337

Barry D. Quart             32,000         1,233,037        133,266        89,334          1,982,900        513,000

R. Kent Snyder             12,500           406,045        168,932        81,668          2,983,727        392,673

</TABLE>


     (1) Value  calculated  as market  value of Company  stock on June 30, 1998,
minus exercise price  multiplied by the number of shares 
     (2) Adjusted to reflect
the two-for-one stock split in the form of a stock dividend in August 1997.


<PAGE>


COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION(1)

OVERVIEW AND PHILOSOPHY

         The Directors  Compensation  Committee  (the  "Committee")  is composed
entirely of outside  directors  and is  responsible  for  developing  and making
recommendations   to  the  Board  with  respect  to  the   Company's   executive
compensation  policies and practices,  including the establishment of the annual
total compensation for the chief executive officer (the "CEO") and all executive
officers.  The Committee has available to it an outside compensation  consultant
and  access to  independent  compensation  data.  The Board is  responsible  for
approving and implementing the  compensation  recommendations  of the Committee.
The  recommendations  made by the  Committee  to the Board have  generally  been
approved without any significant modification.

         The objectives of the Company's executive  compensation  program are to
attract,  retain  and  motivate  highly  qualified  executive  personnel.  These
objectives  are  satisfied  through  the  use of  three  principal  compensation
elements: base salary, cash bonus payments and stock options.

BASE SALARY

         Base salary  levels for the Company's  executive  officers are based on
the concept of pay for  performance  and are  competitively  set relative to the
compensation of other executives in the biotechnology industry. Extensive salary
survey data is  available on the industry  (notably,  the annual  "Biotechnology
Compensation and Benefits Survey" conducted by Radford  Associates and Alexander
& Alexander  Consulting  Group) and is utilized by the Committee in establishing
annual base salaries. In determining base salaries, the Committee also considers
corporate  performance  and progress in the immediately  preceding  fiscal year,
individual experience and performance, specific issues which are relevant to the
Company  and  general  economic  conditions.  The base salary of the CEO and all
other executive officers is reviewed annually. During fiscal year 1998, the base
salaries paid to the executive officers other than the CEO approximated the 75th
percentile of the above-noted industry survey data.

BONUS PAYMENTS

         Annual cash bonus payments are discretionary.  Bonus payments,  if any,
to executive  officers,  including the CEO, are based on two principal  factors:
corporate  performance as compared to the Company's  annual goals and objectives
and  individual  performance  relative to corporate  performance  and individual
goals and objectives.

         Bonus   payments  in  1998  were   generally  in   recognition  of  the
satisfaction  of  several  significant  corporate  objectives  during  the year,
including  the  establishment  of  the  Company's  first  product,   VIRACEPT(R)
(nelfinavir  mesylate) as the market  leader among all HIV protease  inhibitors,
the  in-licensing  of  three  development  stage  compounds  to  supplement  the
Company's  internal  R&D  pipeline,   the  continued  preclinical  and  clinical
development of the Company's  cancer and anti-viral  agents and the satisfaction
of all significant financial targets for fiscal 1998.

         Bonus payment recommendations for executive officers other than the CEO
are  initiated  by the  CEO  and  submitted  to the  Committee  for  review  and
subsequent  submission to the Board. Bonus payment  recommendations  for the CEO
are initiated by the Committee and submitted to the Board.

         Total  base  salary  and any  bonus  payments  are  compared  to "total
compensation" of peers as reported by the previously noted industry survey. Such
total  compensation for the executive officers of the Company is at or above the
averages of such data,  which reflects the Committee's  belief that the relative
levels of corporate performance during the period were also above average.

(1)  The material in this report is not soliciting material, is not deemed filed
     with the SEC,  and is not  incorporated  by  reference in any filing of the
     Company  under  the  Securities  Act of 1933  (the  "Securities  Act"),  as
     amended,  or the Securities  Exchange Act of 1934 (the "Exchange  Act"), as
     amended,  whether made before or after the date of this Proxy Statement and
     irrespective of any general incorporation language in such filing.


<PAGE>


STOCK OPTIONS

         To conserve its cash resources,  the Company places special emphasis on
equity-based  incentives to attract,  retain and motivate  executive officers as
well as other  employees.  Under the Company's  stock option  plans,  grants are
generally  priced at the fair  market  value on the date of  grant,  vest over a
period of three or four years and have a term of ten  years.  Grants are made to
all  employees  on their date of hire based on salary  level and  position.  All
employees,   including   executive   officers,   are  eligible  for  subsequent,
discretionary grants which are generally based on either individual or corporate
performance.  It is the  Committee's  intent that the interests of the Company's
shareholders  and the executive  officers be closely  aligned through the use of
stock options.  Option grants  recommended by the Committee are submitted to the
Board for  approval.  Based on recent  peer-company  proxy data  compiled by the
Company,  the level of option grants to each  executive  officer in 1998 remains
competitive,  and the  resultant  total  option  position  as a percent of total
shares outstanding represents  approximately the 70th to 90th percentile of such
positions.

CHIEF EXECUTIVE OFFICER COMPENSATION

         During  1998,  Mr.  Johnson's  base  salary  of  $395,000  was based on
individual  and  corporate  performance,  and  approximated  the  average of the
updated industry data for base salaries of CEOs.

         During 1998, Mr. Johnson was awarded a bonus of $230,000 in recognition
of the satisfaction of several significant corporate  objectives,  including the
establishment  of  VIRACEPT(R)  as the number one HIV protease  inhibitor in the
United States with product sales in the United States of $358 million for fiscal
1998.   The  Committee   believes  that  Mr.  Johnson  has  made  a  significant
contribution during 1998 in enhancing shareholder value and establishing a sound
base for the continued  enhancement of shareholder  value through his managerial
and entrepreneurial efforts.

         The  stock  options  awarded  to Mr.  Johnson  during  fiscal  1998 are
competitive  and  consistent  with the purpose of the stock  option  plans.  The
resultant  total  option  position  as a  percent  of total  shares  outstanding
represents approximately the 75th percentile for peer CEO positions.

EXECUTIVE COMPENSATION DEDUCTION LIMITATIONS

         In 1993, Section 162(m) of the Internal Revenue Code ("Section 162(m)")
was enacted which disallows the deductibility by the Company of any compensation
over $1 million  per year paid to each of the chief  executive  officer  and the
four  other  most  highly  compensated   executive   officers,   unless  certain
performance-based   compensation  criteria  are  satisfied.   While  it  is  the
Committee's firm belief and intent that  compensation  from base salary and cash
bonus  payments will not approach the annual  Section  162(m)  limitation in the
foreseeable future, additional "compensation" from the exercise of option grants
pursuant  to the  Company's  stock  option  plans  could  result  in the  annual
limitation being exceeded. Accordingly, the Company's 1990 and 1996 Stock Option
Plans contain certain provisions which exempt  compensation  resulting from such
option exercises from the $1 million limitation.  The Committee will continue to
monitor all forms of compensation  to its executive  officers to ensure that the
Company may maximize the tax benefits of such compensation.

Directors Compensation Committee

     Michael E. Herman, Chairman
     John N. Abelson, Ph.D.
     A. E. Cohen


<PAGE>



DIRECTORS COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

     The  Directors  Compensation  Committee  is composed  exclusively  of three
outside  directors:  Mr. Herman,  Mr. Cohen and Dr. Abelson.  The Company is not
aware of any Committee interlocks.

PERFORMANCE MEASUREMENT COMPARISON(1)

         The chart set forth below shows the value of an  investment  of $100 on
June 30, 1993 in the Existing Common Stock,  The Nasdaq Stock Market Index (U.S.
Companies) ("Nasdaq Market (US)") and the Nasdaq  Pharmaceuticals Index ("Nasdaq
Pharmaceuticals").  The total  returns  assume the  reinvestment  of  dividends,
although cash dividends have not been declared on the Existing Common Stock. The
Existing Common Stock is traded on The Nasdaq Stock Market and is a component of
both  the  Nasdaq  Market  (US)  and  the  Nasdaq   Pharmaceuticals  Index.  The
comparisons in the chart are required by the Securities and Exchange  Commission
and  are  not  intended  to  forecast  or be an  indicator  of  possible  future
performance of the Company's Common Stock.


                                (OBJECT OMITTED)


                         6/30/93  6/30/94  6/30/95  6/30/96  6/30/97  6/30/98

Agouron Common Stock     $100.00  $112.50  $236.26  $390.00  $808.76  $606.20
Nasdaq Market (US)        100.00   100.96   134.77   173.03   210.38   277.69
Masdaq Pharmaceuticals    100.00    83.65   111.03   163.50   166.34   170.68

(1)  This section is not "soliciting material," is not deemed filed with the
     Securities and Exchange Commission and is not to be incorporated by
     reference in any filing of the Company under the Securities Act or the
     Exchange Act.
  
<PAGE>
                              CERTAIN TRANSACTIONS

         All  transactions  with affiliates have been and will continue to be on
terms no less favorable to the Company than could be obtained from  unaffiliated
parties.  Furthermore, all transactions with affiliates and any loans to Company
officers,  affiliates  or  shareholders  must be  approved  by a majority of the
disinterested directors.

         As permitted by  California  law,  the  Articles of  Incorporation  and
bylaws of the Company currently provide for the limitation of director liability
for monetary  damages for breach of duty to the Company and for  indemnification
of agents  (including  officers and directors) to the fullest  extent  permitted
under the  California  General  Corporation  Law.  The Company has entered  into
Indemnification Agreements with all of its directors and officers. Additionally,
the Company has in effect a directors and officers  liability  insurance  policy
which insures  directors  and officers of the Company  against loss arising from
claims made against them due to wrongful  acts while acting in their  individual
and collective capacities as directors and officers.

                       SUBMISSION OF SHAREHOLDER PROPOSALS
   
         To be considered  for inclusion in the  Company's  proxy  statement and
form of  proxy  for its 1999  Annual  Meeting  of  Shareholders,  a  shareholder
proposal must be received at the principal  executive offices of the Company not
later  than  August  18,  1999.  If a  shareholder  wishes  to  have a  proposal
considered  at the 1999 Annual  Meeting  but does not seek to have the  proposal
included in the  Company's  proxy  statement and form of proxy for that meeting,
and if the  shareholder  does not notify the Company of the proposal by November
1, 1999,  then the  persons  appointed  as proxies by  management  may use their
discretionary  voting  authority  to vote on the  proposal  when the proposal is
considered at the 1999 Annual Meeting, even though there is no discussion of the
proposal  in the  proxy  statement  for that  meeting.  It is  recommended  that
shareholders  submitting  proposals  or notices of  proposal  direct them to the
Secretary of the Company and utilize Certified Mail-Return Receipt Requested.
    
                                  LEGAL MATTERS

         Certain  legal  matters  with  respect to the  validity  of the Agouron
Pharmaceuticals  Stock and the Oncology  Division  Stock and with respect to the
matters set forth under  "Proposal  2--The  Divisional  Stock  Proposal--Certain
Federal  Income  Tax  Considerations"  will be passed  upon for the  Company  by
Pillsbury Madison & Sutro LLP, San Diego, California.

                                     EXPERTS
   
         The  financial  statements as of June 30, 1997 and 1998 and for each of
the three  years in the  period  ended  June 30,  1998  included  in this  Proxy
Statement/Prospectus  and the financial  statements  incorporated  in this Proxy
Statement/Prospectus by reference to the Annual Report on Form 10-K for the year
ended June 30, 1998 have been so included  and  incorporated  in reliance on the
report of  PricewaterhouseCoopers  LLP,  independent  accountants,  given on the
authority of said firm as experts in auditing and accounting.
    
                                  OTHER MATTERS

         The Company's  Annual Report to Shareholders  for the fiscal year ended
June 30, 1998 accompanies this Proxy Statement.

         Section  16(a) of the Exchange Act  requires  the  Company's  executive
officers and directors,  and persons who own more than 10% of a registered class
of the Company's equity securities,  to file reports of ownership and changes in
ownership with the Commission and The Nasdaq Stock Market.  Executive  officers,
directors  and  greater  than  10%   shareholders  are  required  by  Commission
regulation  to furnish the Company  with copies of all Section  16(a) forms they
file.  Based  solely on review of the  copies  of such  forms  furnished  to the
Company, or written  representations that no Forms 5 were required,  the Company
believes that, during the applicable  reporting period ending June 30, 1998, all
Section  16(a)  filing  requirements   applicable  to  its  executive  officers,
directors and greater than 10% beneficial owners were satisfied.


<PAGE>




         The Company's  Board does not know of any other matters to be presented
at the  Meeting.  However,  if any other  business is properly  presented at the
Meeting for action,  the persons  named in the enclosed  form of Proxy will vote
such Proxy according to their best judgment on such matters.


BY ORDER OF THE BOARD OF DIRECTORS


   
Gary E. Friedman, Secretary
November 12, 1998
    

<PAGE>




                                   ANNEX INDEX

         Annex I - Index of Defined Terms

         Annex II - Proposed Restated Articles of Incorporation
   
         Annex III - Agouron Pharmaceuticals, Inc
                  Management's Discussion and Analysis of Financial Condition
                  Consolidated Financial Statements

         Annex IV - Agouron Pharmaceuticals
                  Description of Business
                  Management's Discussion and Analysis of Financial Condition
                  Combined Financial Statements

         Annex V - Agouron Oncology Division
                  Description of Business
                  Management's Discussion and Analysis of Financial Condition
                  Combined Financial Statements

         Annex VI - Amended and Restated Agouron Stock Option Plan

         Annex VII - Amended and Restated Employee Stock Purchase Plan
    
<PAGE>




                                     ANNEX I

                             Index of Defined Terms
   
1985 Plan.....................................................................66
1990 Plan.....................................................................66
1998 Plan.....................................................................66
Acquiring Person..............................................................62
Agouron........................................................................1
Agouron Pharmaceuticals Stock..................................................1
Agouron Pharmaceuticals Available Dividend Amount.............................55
Agouron Stock Right...........................................................62
Articles of Incorporation......................................................5
Available Dividend Amount.....................................................27
Board..........................................................................1
California Corporations Code..................................................13
ChaseMellon...................................................................58
Code..........................................................................59
Commercial Product or Service.................................................50
Commission.....................................................................2
Common Stock...................................................................1
Common Stock Right............................................................62
Company........................................................................1
Convertible Securities..................................................Annex II
Designated Shares.............................................................25
Distribution Date.............................................................62
Division.......................................................................8
Divisional Stock...............................................................4
Divisional Stock Proposal......................................................1
Divisional Stocks..............................................................2
Effective Date.................................................................6
Equity Line...................................................................28
ESPP..........................................................................71
Exchange Act...................................................................2
Existing Certificates.........................................................58
Existing Common Stock..........................................................1
Fair Market Value.............................................................16
FDA...........................................................................31
GART..........................................................................10
GMP...........................................................................32
GnRH..........................................................................10
HMOs..........................................................................35
Interdivision Transactions....................................................50
IRS...........................................................................13
Meeting........................................................................1
Merger Right..................................................................63
MMPs..........................................................................10
Nasdaq Market (US)............................................................80
Nasdaq National Market.........................................................1
Nasdaq Pharmaceuticals........................................................80
Oncology Division Stock........................................................1
    

<PAGE>



   
Oncology Stock Right..........................................................62
Other Property................................................................60
PaineWebber...................................................................11
PARP..........................................................................10
Permitted Offer...............................................................63
Plan..........................................................................76
Preferred Stock...............................................................14
PricewaterhouseCoopers LLP.....................................................9
Proxy Statement................................................................1
Purchase Date.................................................................71
Purchasing Division...........................................................50
Reclassification..............................................................42
Record Date....................................................................8
Redemption Price..............................................................63
Registration Statement.........................................................2
Restated Articles ............................................................14
Restated Rights Agreement.....................................................62
Rights........................................................................62
Rights Agent..................................................................62
Rights Agreement..............................................................62
Securities Act.................................................................2
Selling Division..............................................................50
Series B Shares...............................................................62
Series C Shares...............................................................62
Series B Participating Preferred Stock..................................Annex II
Series C Participating Preferred Stock..................................Annex II
Shareholder Rights Plan.......................................................30
Stock Option Plan.............................................................66
Stock Plans...................................................................61
Subscription Right............................................................63
TIN...........................................................................60
VEGF..........................................................................10
Voting Stock..................................................................62

    
<PAGE>



                                    ANNEX II

                                    RESTATED


                            ARTICLES OF INCORPORATION

                                       OF

                          AGOURON PHARMACEUTICALS, INC.


Peter Johnson and Gary E. Friedman certify that:

         1. They are the President  and  Secretary,  respectively,  of 
AGOURON  PHARMACEUTICALS,  INC. a California corporation ("Corporation").

         2. The articles of  incorporation  of the  Corporation  are amended and
restated to read as follows:

                                    ARTICLE I

         The name of the Corporation is Agouron Pharmaceuticals, Inc.

                                   ARTICLE II

         The  purpose  of the  Corporation  is to  engage in any  lawful  act or
activity for which a Corporation may be organized under the General  Corporation
Law of California other than the banking business, the trust company business or
the practice of a  profession  permitted to be  incorporated  by the  California
Corporations Code.

                                   ARTICLE III

         A. CLASSES OF STOCK. The Corporation is authorized to issue two classes
of shares to be designated  Common Stock  ("Common  Stock") and Preferred  Stock
("Preferred Stock"),  respectively.  The total number of shares of capital stock
that the  Corporation  is authorized to issue is one hundred  fifty-two  million
(152,000,000).  The total number of shares of Common Stock the Corporation shall
have  authority to issue is one hundred fifty million  (150,000,000).  The total
number of shares of  Preferred  Stock the  Corporation  shall have  authority to
issue is two million (2,000,000). Certain capitalized terms used in this Article
III shall have the meanings set forth in Section E.6.

         B.       DESIGNATIONS AND AMOUNTS.

         1. COMMON STOCK. Seventy-five million (75,000,000) shares of the Common
Stock  are  designated   "Agouron   Pharmaceuticals   Common  Stock"   ("Agouron
Pharmaceuticals  Stock")  and  twenty-five  million  (25,000,000)  shares of the
Common Stock are designated  "Agouron Oncology Division Common Stock" ("Oncology
Division  Stock")*.  The Board of  Directors of the  Corporation  (the "Board of
Directors") is expressly  authorized to divide undesignated shares of the Common
Stock into any number of series, and to fix the designation and number of shares
of each such series.  The Board of Directors may determine and alter the rights,
preferences,  privileges and restrictions granted to and imposed upon any wholly
unissued  series  of  Common  Stock as  shall be  stated  and  expressed  in the
resolution or  resolutions  adopted by the Board of Directors  providing for the
issue of such shares and as may be permitted by the General  Corporation  Law of
California. The Board of Directors (within the limits

- --------------
* The designated  name "Agouron  Oncology  Division Stock" is subject to change.
The exact name of the series of Common Stock will be  determined  by the Company
prior to the Effective Date.


<PAGE>



and restrictions stated herein or within any resolution adopted by it originally
fixing the number of shares of any series) may  increase or decrease  the number
of shares of any series  (including  the Agouron  Pharmaceuticals  Stock and the
Oncology Division Stock);  provided, that no decrease shall reduce the number of
shares of such series to a number less than that of the shares then  outstanding
plus the number of shares issuable upon exercise of outstanding rights,  options
or  warrants  or  upon  conversion  of  outstanding  securities  issued  by  the
Corporation.

         Upon the effectiveness of these Restated Articles of Incorporation (the
"Effective Date"), and without any further action on the part of the Corporation
or its shareholders,  each share of the Corporation's  outstanding  Common Stock
shall  automatically  be  reclassified  as one share of Agouron  Pharmaceuticals
Stock and 0.5 share of Oncology  Division Stock,  each being a share of a series
of a single  class of Common  Stock.  For  purposes of this Article III, (i) the
Agouron   Pharmaceuticals   Stock,   when  issued,   shall  be  fully  paid  and
nonassessable   and  shall  be   considered   issued  in   respect   of  Agouron
Pharmaceuticals  (defined  below),  and (ii)the  Oncology  Division Stock,  when
issued,  shall be fully paid and nonassessable and shall be considered issued in
respect of the Oncology Division (defined below).

         2.  PREFERRED  STOCK.  Two  Hundred  Thousand  (200,000)  shares of the
Preferred Stock are designated "Series B Participating  Preferred Stock" and Two
Hundred Thousand  (200,000) shares of the Preferred Stock are designated "Series
C Participating Preferred Stock." The Board of Directors is expressly authorized
to divide  undesignated shares of the Preferred Stock into any number of series,
and to fix the designation  and number of shares of each such series.  The Board
of Directors  may determine and alter the rights,  preferences,  privileges  and
restrictions granted to and imposed upon any wholly unissued series of Preferred
Stock as shall be stated and expressed in the resolution or resolutions  adopted
by the Board of Directors  providing  for the issue of such shares and as may be
permitted by the General  Corporation Law of California.  The Board of Directors
(within  the  limits and  restrictions  stated  herein or within any  resolution
adopted by it originally fixing the number of shares of any series) may increase
or  decrease  the  number  of  shares  of any  series  (including  the  Series B
Participating  Preferred Stock and the Series C Participating  Preferred Stock);
provided, that no decrease shall reduce the number of shares of such series to a
number less than that of the shares then  outstanding  plus the number of shares
issuable  upon  exercise  of  outstanding  rights,  options or  warrants or upon
conversion of outstanding securities issued by the Corporation.

         C. AGOURON PHARMACEUTICALS STOCK. The rights, preferences,  privileges,
restrictions and other matters relating to the Agouron Pharmaceuticals Stock are
as follows:

         1.  DIVIDENDS  AND  DISTRIBUTIONS.  Subject to the express terms of any
outstanding  series of Preferred Stock,  dividends may be declared and paid upon
Agouron Pharmaceuticals Stock, in such amounts and at such times as the Board of
Directors may determine,  only out of the lesser of (a) funds of the Corporation
legally  available  therefor  and  (b)  the  Agouron  Pharmaceuticals  Available
Dividend Amount (as defined below).

         2. VOTING RIGHTS. The holders of Agouron  Pharmaceuticals Stock, voting
together  with the  holders of shares of all other  series of Common  Stock as a
single  class of  stock,  shall  have the  right  to vote  for the  election  of
directors  and on all other  matters  requiring  action by the  shareholders  or
submitted to the shareholders  for action,  except as otherwise set forth in the
terms of any  outstanding  series of Preferred  Stock or as may be determined by
the Board of Directors in  establishing  any series of Common or Preferred Stock
or as may  otherwise be required by law.  Each share of Agouron  Pharmaceuticals
Stock shall entitle the holder thereof to one vote.

         3.  LIQUIDATION,  DISSOLUTION  OR WINDING  UP.  Upon any  voluntary  or
involuntary  liquidation,  dissolution  or  winding up of the  Corporation,  the
rights of the holders of Agouron Pharmaceuticals Stock shall be as follows:

                  (a) After the  Corporation has satisfied or made provision for
its debts and  obligations  and for the  payment to the holders of shares of any
class  or  series  of  capital  stock  having  preferential  rights  to  receive
distributions  of the net assets of the  Corporation  (including any accumulated
and unpaid  dividends),  the holders of Agouron  Pharmaceuticals  Stock shall be
entitled  to  receive  the  net  assets  of  the   Corporation   remaining   for
distribution,  on a per share basis in proportion to the respective  liquidation
units  per  share  of  all  series  of  Common  Stock.  Each  share  of  Agouron
Pharmaceuticals Stock shall have one hundred (100) liquidation units.


<PAGE>




                  (b) For  the  purposes  of  Section  C.3.(a),  any  merger  or
business   combination   involving  the  Corporation  or  any  sale  of  all  or
substantially  all of the  assets of the  Corporation  shall not be treated as a
liquidation.

         D.  ONCOLOGY  DIVISION  STOCK.  The  rights,  preferences,  privileges,
restrictions  and other matters  relating to the Oncology  Division Stock are as
follows:

         1.  DIVIDENDS  AND  DISTRIBUTIONS.  Subject to the express terms of any
outstanding  series of Preferred Stock,  dividends may be declared and paid upon
the Oncology  Division  Stock, in such amounts and at such times as the Board of
Directors may determine,  only out of the lesser of (a) funds of the Corporation
legally  available  therefor and (b) the Oncology  Division  Available  Dividend
Amount (as defined below).

         2.  VOTING  RIGHTS.  The  holders of Oncology  Division  Stock,  voting
together  with the  holders of shares of all other  series of Common  Stock as a
single  class of  stock,  shall  have the  right  to vote  for the  election  of
directors  and on all other  matters  requiring  action by the  shareholders  or
submitted to the shareholders  for action,  except as otherwise set forth in the
terms of any  outstanding  series of Preferred  Stock or as may be determined by
the Board of Directors in  establishing  any series of Common or Preferred Stock
or as may  otherwise be required by law. Each share of Oncology  Division  Stock
shall subject to Section E.3.  below  entitle the holder  thereof to a number of
votes  (including a fraction of one vote) equal to the quotient  (expressed as a
decimal and rounded to the nearest  three decimal  places)  obtained by dividing
(i) the number of Total  Oncology  Division  Votes  (defined  below) by (ii) the
number of outstanding  shares of Oncology Division Stock on the date which shall
be the earlier of (x) the 90th day following the first day the Oncology Division
Stock commences  trading on a national  securities  exchange or the Nasdaq Stock
Market or (y) the record date for determining shareholders entitled to notice of
or to vote at the first meeting of shareholders (or to give consent to corporate
action) following the Effective Date. The number of votes so determined to which
the holder of each share of Oncology  Division  Stock  shall be  entitled  shall
remain fixed through June 30, 2000. On July 1, 2000 and on each July 1 every two
years  thereafter,  the  number  of votes to which the  holder of each  share of
Oncology  Division  Stock shall be entitled  shall be adjusted and fixed for the
immediately  succeeding  two-year  period to equal the quotient  (expressed as a
decimal and rounded to the nearest  three decimal  places)  obtained by dividing
(i) the  number  of  Total  Oncology  Division  Votes  by  (ii)  the  number  of
outstanding shares of Oncology Division Stock on each such date. If no shares of
Agouron  Pharmaceuticals  Stock are  outstanding  on such  date,  then all other
series of voting  Common Stock  outstanding  on such date shall have a number of
votes such that each share of the series of  outstanding  Common  Stock that has
the  largest  Market  Capitalization  (defined  below) on such  date (the  "Base
Series")  shall have one vote and each share of each other series of outstanding
Common  Stock  shall  have the  number  of  votes  determined  according  to the
immediately preceding sentence,  treating,  for such purpose, the Base Series as
the  Agouron  Pharmaceuticals  Stock in such  sentence.  Moreover,  if shares of
Oncology  Division  Stock are entitled to vote  separately  as a class as to any
matter,  each share of  Oncology  Division  Stock shall have one vote as to such
matter.

         3.  LIQUIDATION,  DISSOLUTION  OR WINDING  UP.  Upon any  voluntary  or
involuntary  liquidation,  dissolution  or  winding up of the  Corporation,  the
rights of the holders of Oncology Division Stock shall be as follows:
   
                  (a) After the  Corporation has satisfied or made provision for
its debts and  obligations  and for the  payment to the holders of shares of any
class  or  series  of  capital  stock  having  preferential  rights  to  receive
distributions  of the net assets of the  Corporation  (including any accumulated
and unpaid dividends),  the holders of Oncology Division Stock shall be entitled
to receive the net assets of the Corporation  remaining for  distribution,  on a
per share basis in proportion to the respective  liquidation  units per share of
all series of Common Stock. Each share of Oncology Division Stock shall, subject
to Section E.3. below, have 25 liquidation units.
    
                  (b) For purposes of paragraph  (a) of this Section  D.3.,  any
merger or business  combination  involving the Corporation or any sale of all or
substantially  all of the  assets of the  Corporation  shall not be treated as a
liquidation.

         4.  CONVERSION  OR  REDEMPTION OF ONCOLOGY  DIVISION  STOCK.  Shares of
Oncology  Division Stock are subject to conversion  and/or  redemption  upon the
terms and conditions set forth below:


<PAGE>




                  (a) OPTIONAL CONVERSION AND/OR REDEMPTION OF ONCOLOGY DIVISION
STOCK.  The  Board  of  Directors  may at any  time  declare  that  each  of the
outstanding  shares of Oncology  Division Stock shall, on an "Exchange Date" set
forth in a notice to holders of  Oncology  Division  Stock  pursuant  to Section
E.1.(a),  (i) be converted to a number of fully paid and nonassessable shares of
Agouron  Pharmaceuticals  Stock  (calculated to the nearest five decimal places)
equal to (1) 125% of the Fair Market Value  (defined  below) of one share of the
Oncology  Division  Stock (the  "Exchange  Amount")  as of the date of the first
public  announcement by the  Corporation of such  conversion (the  "Announcement
Date")   divided  by  (2)  the  Fair  Market  Value  of  one  share  of  Agouron
Pharmaceuticals  Stock as of such Announcement Date or (ii) be redeemed for cash
equal to the Exchange  Amount,  provided that there are funds of the Corporation
legally  available  therefor,  or (iii) be  converted  into and redeemed for any
combination  of Agouron  Pharmaceuticals  Stock and cash  equal to the  Exchange
Amount as determined by the Board of Directors.

                  (b)  MANDATORY   CONVERSION   AND/OR  REDEMPTION  OF  ONCOLOGY
DIVISION  STOCK.  In  the  event  of the  Disposition  (defined  below),  in one
transaction or a series of related  transactions,  by the  Corporation of all or
substantially  all  of the  properties  and  assets  allocated  to the  Oncology
Division  (other than in connection  with the  Disposition by the Corporation of
all or  substantially  all of its properties and assets in one  transaction or a
series of related  transactions) to any person,  entity or group (other than (x)
any entity in which the  Corporation,  directly or  indirectly,  owns all of the
equity  interest or (y) any entity formed at the direction of the Corporation in
connection with obtaining financing for the programs or products of the Oncology
Division),  the  Corporation  shall, on or prior to the first Business Day after
the  90th  day  following  the  consummation  of  such  Disposition,   for  each
outstanding  share of Oncology Division Stock (i) convert such share to a number
of  fully  paid  and  nonassessable  shares  of  Agouron  Pharmaceuticals  Stock
(calculated to the nearest five decimal places) equal to (1) the Exchange Amount
as of the  consummation  date  of such  Disposition  (the  "Consummation  Date")
divided by (2) the Fair  Market  Value of one share of  Agouron  Pharmaceuticals
Stock as of such Consummation  Date, or (ii) redeem such share for cash equal to
the Exchange  Amount,  provided that there are funds of the Corporation  legally
available  therefor,  or (iii) convert such share into and redeem such share for
any combination of Agouron  Pharmaceuticals Stock and cash equal to the Exchange
Amount as determined by the Board of Directors.  For purposes of this  paragraph
(b):

                           (1)      "substantially  all of the  properties  and
assets  allocated  to the  Oncology Division"  shall mean a portion of the  
properties  and assets  allocated to the Oncology  Division that represents at 
least 80% of the  then-current  fair value (as determined by the Board of 
Directors) of the properties and assets allocated to the Oncology Division; and

                           (2)      in the case of a Disposition  of  properties
and assets in a series of related transactions,  such  Disposition shall not be
deemed to have been  consummated until the consummation of the last of such 
transactions.

                  (c) Notwithstanding the foregoing  provisions of paragraph (a)
of this Section D.4., the Corporation  shall convert Oncology  Division Stock to
Agouron  Pharmaceuticals  Stock as  provided  in  paragraph  (a) only if (i) the
Corporation is a Listed Corporation both at the time of the original issuance of
Oncology  Division  Stock  and at the time of the  conversion  and (ii)  Agouron
Pharmaceuticals Stock is then Publicly Traded. If Agouron  Pharmaceuticals Stock
is not  Publicly  Traded and shares of another  class or series of Common  Stock
(other than  Oncology  Division  Stock) are then Publicly  Traded,  the Board of
Directors may convert Oncology  Division Stock into fully paid and nonassessable
shares of such other class or series of Common  Stock as has the largest  Market
Capitalization  as of the  close of  business  on the  trading  day  immediately
preceding the date of the notice to holders of Oncology  Division Stock required
by Section E.1.(a).

         E.       GENERAL PROVISIONS REGARDING THE COMMON STOCK.

         1. GENERAL CONVERSION PROVISIONS. In the event of any conversion of any
series  of  Common   Stock  (the   "Exchange   Stock")  for  shares  of  Agouron
Pharmaceuticals   Stock   pursuant  to  the  provisions  of  these  Articles  of
Incorporation (or for shares of another class or series of Common Stock pursuant
to the last sentence of Section  D.4.(c) in which event all reference to Agouron
Pharmaceutical Stock in this Section E.1. shall be deemed to refer to such other
class or series of Common Stock), the following provisions shall apply:


<PAGE>




                  (a) The  Corporation  shall  cause to be given to each  record
holder of shares  of the  Exchange  Stock a notice  stating  (i) that  shares of
Exchange Stock shall be converted to shares of Agouron Pharmaceuticals Stock, or
redeemed for cash, or a combination  thereof,  as the case may be, (ii) the date
on which the exchange shall become  effective (the "Exchange  Date"),  (iii) the
number of shares of  Agouron  Pharmaceuticals  Stock,  the amount of cash or the
combination  thereof to be received by such holder with respect to each share of
the Exchange Stock held by such holder,  including details as to the calculation
thereof and (iv) the place or places where  certificates  for shares of Exchange
Stock,  properly  endorsed or assigned for transfer,  are to be surrendered  for
delivery of certificates for shares of Agouron  Pharmaceuticals Stock or cash or
a combination  thereof  (unless the Corporation  shall waive such  requirement).
Such notice shall be sent by first-class mail, postage prepaid, not less than 30
nor more than 60 days  prior to the  Exchange  Date to each  holder of shares of
Exchange  Stock at such  holder's  address  as the  same  appears  on the  stock
transfer  books of the  Corporation.  Neither the failure to mail such notice to
any  particular  holder of shares of Exchange Stock nor any defect therein shall
affect the  sufficiency  thereof  with  respect to any other holder of shares of
Exchange Stock.

                  (b) The Corporation  shall not be required to issue or deliver
fractional  shares of Agouron  Pharmaceuticals  Stock to any holder of shares of
Exchange  Stock  upon any such  conversion.  If more than one share of  Exchange
Stock  shall  be held by the  same  holder  of  record,  the  Corporation  shall
aggregate  the number of shares of Agouron  Pharmaceuticals  Stock that shall be
issuable to such holder upon any such conversion.  If the total number of shares
of  Agouron  Pharmaceuticals  Stock to be so issued  to any  holder of record of
shares of Exchange Stock includes a fraction,  the  Corporation  shall,  if such
fraction  is not issued or  delivered  to such  holder,  either  arrange for the
disposition  of such  fraction  by or on  behalf  of such  holder or pay to such
holder the cash value of such fraction,  based upon the Fair Market Value of the
Agouron Pharmaceuticals Stock on the Exchange Date.

                  (c) No adjustments in respect of dividends  shall be made upon
the conversion of any shares of Exchange Stock;  provided,  however, that if the
Exchange Date shall be subsequent to the record date for determining  holders of
Exchange  Stock  entitled  to the  payment of a dividend  or other  distribution
thereon or with respect thereto,  the holders of shares of Exchange Stock at the
close of business on such record date shall be entitled to receive the  dividend
or other distribution  payable on or with respect to such shares on the date set
for payment of such dividend or other distribution, notwithstanding the exchange
of such shares.

                  (d)  Before any holder of shares of  Exchange  Stock  shall be
entitled to receive certificates  representing shares of Agouron Pharmaceuticals
Stock or cash or a  combination  thereof  to be  received  by such  holder  with
respect to the  conversion of such shares of Exchange  Stock,  such holder shall
surrender at such place as the Corporation  shall specify  certificates for such
shares of Exchange Stock, properly endorsed or assigned for transfer (unless the
Corporation  shall  waive such  requirement).  The  Corporation  will as soon as
practicable  after such surrender of  certificates  representing  such shares of
Exchange  Stock  deliver to the person for whose account such shares of Exchange
Stock  were so  surrendered,  or to the  nominee  or  nominees  of such  person,
certificates  representing the number of shares of Agouron Pharmaceuticals Stock
or cash or a  combination  thereof to which such  person  shall be  entitled  as
aforesaid,  together with any fractional  share payment  contemplated by Section
E.1.(b).

                  (e) From and after the Exchange  Date,  all rights of a holder
of shares of Exchange Stock shall cease except for the right,  upon surrender of
the  certificates  representing  such  shares  of  Exchange  Stock,  to  receive
certificates  representing shares of Agouron  Pharmaceuticals Stock or cash or a
combination thereof,  together with any fractional share payment contemplated by
Section  E.1.(b) and rights to  dividends  as provided  in Section  E.1.(c).  No
holder of a certificate that immediately  prior to the Exchange Date represented
shares of Exchange  Stock  shall be  entitled  to receive any  dividend or other
distribution with respect to the Agouron  Pharmaceuticals  Stock to be issued in
exchange  until  surrender of such holder's  certificate  for a  certificate  or
certificates  representing shares of Agouron  Pharmaceuticals  Stock (unless the
Corporation shall waive such requirement).  Upon such surrender,  there shall be
paid to the holder the amount of any dividends or other  distributions  (without
interest)  which had become  payable  with  respect  to a record  date after the
Exchange Date,  but that were not paid by reason of the foregoing,  with respect
to the  number of shares of Agouron  Pharmaceuticals  Stock  represented  by the
certificate  or  certificates  issued  upon such  surrender.  From and after the
Exchange  Date,  the  Corporation  shall,  however,  be  entitled  to treat  the
certificates  for Exchange Stock that have not yet been surrendered for exchange
as evidencing the ownership of the


<PAGE>



number of  shares  of  Agouron  Pharmaceuticals  Stock  for which the  shares of
Exchange  Stock  represented  by such  certificates  shall have been  converted,
notwithstanding the failure to surrender such certificates.

                  (f) The Corporation will pay any and all documentary, stamp or
similar  issue or transfer  taxes that may be payable in respect of the issue or
delivery of any shares of Agouron  Pharmaceuticals  Stock in exchange for shares
of Exchange  Stock pursuant  hereto.  The  Corporation  shall not,  however,  be
required to pay any tax that may be payable in respect of any transfer  involved
in the issue and delivery of any shares of Agouron  Pharmaceuticals Stock issued
in exchange  in a name other than that in which the shares of Exchange  Stock so
exchanged were registered and no such issue or delivery shall be made unless and
until the person requesting such issue has paid to the Corporation the amount of
any such tax, or has established to the  satisfaction  of the  Corporation  that
such tax has been paid or that no such tax is due.

                  (g) After the  Exchange  Date,  any  share of  Exchange  Stock
issued upon conversion or exercise of any Convertible  Security  (defined below)
shall,  immediately  upon issuance  pursuant to such  conversion or exercise and
without  any notice or any other  action on the part of the  Corporation  or its
Board of Directors or the holder of such share of Exchange  Stock,  be exchanged
for the number of shares of Agouron Pharmaceuticals Stock or cash or combination
thereof  (together with any payments in lieu of fractional  shares or dividends,
if any) that a holder of such  Convertible  Security would have been entitled to
receive  pursuant  to the  terms of such  Convertible  Security  had such  terms
provided  that the  conversion  privilege  in  effect  immediately  prior to any
conversion by the  Corporation of any shares of Exchange Stock for shares of any
other capital stock of the  Corporation  would be adjusted so that the holder of
any such  Convertible  Security  thereafter  surrendered for conversion would be
entitled to receive the number of shares of capital stock of the  Corporation he
or she would have owned  immediately  following such action had such Convertible
Security been converted  immediately prior to such exchange;  provided,  however
the  foregoing  provisions  shall  not  apply  to  the  extent  that  equivalent
adjustments  are otherwise made pursuant to the  provisions of such  Convertible
Security.

         2.  DISCRIMINATION  BETWEEN  SERIES OF  COMMON  STOCK.  Subject  to the
provisions of each series of Common Stock  regarding the payment of dividends on
such series of Common Stock, the Board of Directors may, in its sole discretion,
declare and pay  dividends  exclusively  on any series of Common  Stock,  or all
series, in equal or unequal amounts,  notwithstanding  the amounts available for
the payment of dividends on any series,  the respective  voting and  liquidation
rights of each series, the amounts of prior dividends declared on each series or
any other factor.

         3.   ADJUSTMENTS   RELATIVE   TO   VOTING   RIGHTS   AND   LIQUIDATION.
Notwithstanding  any other provision herein to the contrary,  if at any time the
Corporation shall in any manner subdivide (by stock split,  reclassification  or
otherwise)  or combine (by reverse stock split,  reclassification  or otherwise)
the outstanding  shares of any series of Common Stock, or pay a dividend or make
a  distribution  in shares of any  series of  Common  Stock to  holders  of such
series,  the per share voting rights and the liquidation units of each series of
Common Stock other than the Agouron Pharmaceuticals Stock shall be appropriately
adjusted so as to avoid dilution in the aggregate voting and liquidation  rights
of any series; provided, however, that the issuance by the Corporation of shares
of any series of Common  Stock  (whether  by a  dividend  or  otherwise)  to the
holders  of any other  series  of Common  Stock  shall  not  require  adjustment
pursuant to this paragraph.

         4. RANK.  All series of Common  Stock shall rank junior with respect to
the payment of  dividends  and the  distribution  of assets to all series of the
Preferred  Stock  that  specifically  provide  that they shall rank prior to the
Common Stock. Nothing herein shall preclude the Board of Directors from creating
any series of  Preferred  Stock  ranking on a parity with or prior to the Common
Stock as to any rights or preferences (including without limitation, the payment
of dividends or the distribution of assets).

         5.  FRACTIONAL  SHARES.  Any  series of  Common  Stock may be issued in
fractions  of a share which shall  entitle the  holder,  in  proportion  to such
holder's  fractional  shares,  to exercise  voting  rights,  receive  dividends,
participate  in  distributions  and to have the  benefit of all other  rights of
holders of such series of Common Stock.



<PAGE>



         6.  DEFINITIONS.  As used  in  these  Articles  of  Incorporation,  the
following  terms shall have the  following  meanings  (with terms defined in the
singular  having  comparable  meaning  when used in the plural and vice  versa),
unless another definition is provided or the context otherwise requires:

                  (a) "Agouron  Pharmaceuticals"  shall mean,  at any time,  the
Corporation's interest in (i) all of the businesses,  products or development or
research programs in which the Corporation or any of its subsidiaries (or any of
their  predecessors  or  successors)  is  or  has  been  engaged,   directly  or
indirectly,  other than those  allocated to any business unit of the Corporation
represented  by a series of Common Stock other than the Agouron  Pharmaceuticals
Stock;  and (ii) all assets and  liabilities  of the  Corporation  to the extent
allocated to any such businesses,  products or development or research  programs
in accordance with generally accepted accounting principles consistently applied
for all of the  Corporation's  business units.  From and after the date on which
all of the  outstanding  shares of any series of Common Stock are  exchanged for
shares of Agouron  Pharmaceuticals  Stock, cash or a combination thereof, all of
the  businesses,   products,   development  or  research  programs,  assets  and
liabilities  of the  business  unit  represented  by such series of Common Stock
shall be included in Agouron  Pharmaceuticals.  Agouron Pharmaceuticals shall be
represented by the Agouron Pharmaceuticals Stock.

                  (b) "Agouron  Pharmaceuticals  Available  Dividend Amount," on
any date,  shall mean the amount legally  available for the payment of dividends
determined in accordance with the California General  Corporation Law applied as
if Agouron Pharmaceuticals were a separate corporation.

                  (c)  "Business  Day"  shall  mean each  weekday  other  than a
national  holiday  observed by any  national  securities  exchange or The Nasdaq
Stock Market.

                  (d)  "Convertible   Securities"   shall  mean  any  securities
(including  employee stock options) of the Corporation that are convertible into
or evidence the right to purchase any shares of any series of Common Stock.

                  (e) "Disposition" shall mean the sale, transfer, assignment or
other  disposition  (whether by merger,  consolidation,  sale or contribution of
assets or stock or otherwise) of any properties or assets, other than by pledge,
hypothecation or grant of any security interest in such properties or assets.

                  (f) "Fair  Market  Value" as to shares of any  series of stock
shall as of any date  mean the  average  Market  Value of one  share  for the 20
consecutive  trading days commencing on the 30th trading day prior to such date.
The  "Market  Value" for any  trading day shall mean the average of the high and
low  selling  prices  per share on such day (or if there was no  trading of such
shares on that day, on the next  preceding  day on which there was such trading)
(i) as reported by The Nasdaq Stock  Market or a similar  source  selected  from
time to time by the  Corporation  for the  purpose or (ii) if the shares of such
series of stock  become  listed or admitted to trading on a national  securities
exchange, as reported on the prevailing composite tape reporting transactions on
such national securities exchange or, if such composite tape shall not be in use
or shall not report  transactions  in such  shares,  the  reported  sales prices
regular way on the principal national  securities  exchange on which such shares
are  listed or  admitted  to trading  (which  shall be the  national  securities
exchange on which the greatest number of shares of such series of stock has been
traded during such  consecutive  trading days).  In the event such Market Values
are  unavailable,  Fair  Market  Value  shall  be  determined  by the  Board  of
Directors.

                  (g) "Listed  Corporation"  shall mean (i) a  corporation  with
outstanding  shares listed on the New York Stock  Exchange or the American Stock
Exchange, (ii) a corporation with outstanding securities designated as qualified
for trading as a national market system security on the National  Association of
Securities Dealers Automatic  Quotation System (or any successor national market
system) if the corporation has at least 800 holders of its equity  securities as
of  the  record  date  of  the  corporation's  most  recent  annual  meeting  of
shareholders   or  (iii)  a  corporation   meeting  the  definition  of  "Listed
Corporation"  under Section 301.5 of the California  Corporations  Code (as such
Section 301.5 may be amended from time to time).

                  (h) "Market  Capitalization"  shall mean,  with respect to any
series of Common Stock as of any date of  determination,  the product of (i) the
Fair  Market  Value of one  share of such  series  as of such  date and (ii) the
number of shares of such series issued and outstanding as of such date.



<PAGE>



                  (i)  "Oncology   Division"*  shall  mean,  at  any  time,  the
Corporation's interest in (i) the following businesses, products, or development
or research programs: (A) the clinical program developing  anti-angiogenic agent
AG3340,  (B) the clinical program developing  anti-angiogenic  agent AG3433, (C)
the clinical program developing  anti-angiogenic  agent AG2034, (D) the clinical
program  developing  anti-angiogenic  agent  AG2037,  (E) the  research  program
developing cdk Inhibitor,  (F) the research program  developing GnRH Antagonist,
(G)  the  research  program  developing  PARP,  and  (H)  the  research  program
developing VEGF Inhibitor; (ii) all assets and liabilities of the Corporation to
the extent allocated to any such businesses, products or development or research
programs  in  accordance   with   generally   accepted   accounting   principles
consistently applied for all of the Corporation's business units; and (iii) such
businesses,  products,  or  development  or research  programs  developed in, or
acquired by the Corporation for, the Oncology Division after the Effective Date,
in each case as determined by the Board of Directors;  PROVIDED,  HOWEVER, that,
from and after any  Disposition  or transfer to Agouron  Pharmaceuticals  of any
business,  product,  development or research program, assets or properties,  the
Oncology  Division  shall no longer include the business,  product,  development
program,  research program,  assets or properties so disposed of or transferred.
The Oncology Division shall be represented by the Oncology Division Stock.

                  (j)  "Oncology  Division  Available  Dividend  Amount," on any
date,  shall mean the amount  legally  available  for the  payment of  dividends
determined in accordance with the California General  Corporation Law applied as
if the Oncology Division were a separate corporation.

                  (k)  "Publicly  Traded"  shall  mean any  security  listed  or
qualified  for trading on a stock  exchange or market  system  described  in the
foregoing definition of Listed Corporation.

                  (l) "Total Oncology Division Votes" on any date shall mean the
number of votes  equal to the product of (i) the number of Total Votes minus the
number of shares of outstanding  Agouron  Pharmaceuticals  Stock, times (ii) the
quotient obtained by dividing (A) the Market Capitalization of Oncology Division
Stock, by (B) the sum of the Market Capitalization of all series of Common Stock
other than Agouron Pharmaceuticals Stock.

                  (m)  "Total  Votes" on any date shall mean the number of votes
obtained  by  dividing  (i)  the  number  of   outstanding   shares  of  Agouron
Pharmaceuticals  Stock, by (ii) the quotient obtained by dividing (A) the Market
Capitalization  of Agouron  Pharmaceuticals  Stock, by (B) the sum of the Market
Capitalization of all series of Common Stock.

         7.  DETERMINATIONS BY THE BOARD OF DIRECTORS.  Any determinations  with
respect to any division of the  Corporation  for purposes of this Article III or
the  rights  of  holders  of any  series of  Common  Stock  made by the Board of
Directors of the  Corporation in good faith pursuant to or in furtherance of any
provision of these Articles of Incorporation  relating to the Common Stock shall
be final and binding on all stockholders of the Corporation.

         F. SERIES B PARTICIPATING  PREFERRED  STOCK.  The rights,  preferences,
privileges,   restrictions   and  other   matters   relating  to  the  Series  B
Participating Preferred Stock are as follows:

- -----------
* The designated  name "Agouron  Oncology  Division Stock" is subject to change.
The exact name of the series of Common Stock will be  determined  by the Company
prior to the Effective Date.



<PAGE>




         1.       DIVIDENDS AND DISTRIBUTIONS.

                  (a) Subject to the prior and superior rights of the holders of
any shares of any series of Preferred  Stock  ranking  prior and superior to the
shares of Series B Participating Preferred Stock with respect to dividends,  the
holders of shares of Series B Participating Preferred Stock in preference to the
holders of shares of Common Stock and any other junior stock,  shall be entitled
to receive,  when,  as and if declared  by the Board of  Directors  out of funds
legally  available for the purpose,  quarterly  dividends payable in cash on the
first day of March,  June,  September  and December in each year (each such date
being referred to herein as a "Quarterly Dividend Payment Date"),  commencing on
the first Quarterly Dividend Payment Date after the first issuance of a share or
fraction of a share of Series B  Participating  Preferred Stock in an amount per
share  (rounded to the nearest  cent) equal to the greater of (i) $100 per share
of Series B Participating  Preferred Stock, or (ii) subject to the provision for
adjustment hereinafter set forth, 10,000 times the aggregate per share amount of
all cash dividends,  and 10,000 times the aggregate per share amount (payable in
kind) of all  non-cash  dividends or other  distributions  other than a dividend
payable  in shares of  Agouron  Pharmaceuticals  Stock or a  subdivision  of the
outstanding  shares of Agouron  Pharmaceuticals  Stock (by  reclassification  or
otherwise),  declared on the Agouron Pharmaceuticals Stock since the immediately
preceding  Quarterly  Dividend  Payment  Date,  or,  with  respect  to the first
Quarterly  Dividend  Payment  Date,  since  the first  issuance  of any share or
fraction of a share of Series B Participating  Preferred Stock. In the event the
Corporation  shall at any time after the Effective Date (A) declare any dividend
on Agouron  Pharmaceuticals  Stock payable in shares of Agouron  Pharmaceuticals
Stock,  (B)  subdivide  the  outstanding  Agouron  Pharmaceuticals  Stock or (C)
combine the outstanding Agouron  Pharmaceuticals  Stock into a smaller number of
shares, by reclassification  or otherwise,  then in each such case the amount to
which holders of shares of Series B Participating  Preferred Stock were entitled
immediately  prior to such event  under  clause (ii) of the  preceding  sentence
shall be adjusted by  multiplying  such amount by a fraction  the  numerator  of
which is the  number of  shares of  Agouron  Pharmaceuticals  Stock  outstanding
immediately  after  such  event and the  denominator  of which is the  number of
shares of Agouron  Pharmaceuticals Stock that were outstanding immediately prior
to such event.

                  (b) The  Corporation  shall declare a dividend or distribution
on the Series B Participating Preferred Stock as provided in paragraph (a) above
immediately  after  it  declares  a  dividend  or  distribution  on the  Agouron
Pharmaceuticals  Stock  (other  than a  dividend  payable  in shares of  Agouron
Pharmaceuticals  Stock); provided that, in the event no dividend or distribution
shall have been declared on the Agouron  Pharmaceuticals Stock during the period
between any Quarterly  Dividend  Payment Date and the next subsequent  Quarterly
Dividend   Payment  Date,  a  dividend  of  $100  per  share  on  the  Series  B
Participating  Preferred Stock shall  nevertheless be payable on such subsequent
Quarterly Dividend Payment Date.

                  (c)  Dividends  shall  begin to accrue  and be  cumulative  on
outstanding shares of Series B Participating  Preferred Stock from the Quarterly
Dividend Payment Date next preceding the date of issue of a share or fraction of
a share of Series B  Participating  Preferred  Stock unless the date of issue of
such shares is prior to the record date for the first Quarterly Dividend Payment
Date, in which case dividends on such shares shall begin to accrue from the date
of such issue, or unless the date of issue is a Quarterly  Dividend Payment Date
or is a date after the record date for the determination of holders of shares of
Series B Participating  Preferred Stock entitled to receive a quarterly dividend
and before such Quarterly  Dividend Payment Date, in either of which events such
dividends shall begin to accrue and be cumulative  from such Quarterly  Dividend
Payment Date.  Accrued but unpaid  dividends shall not bear interest.  Dividends
paid on the shares of Series B  Participating  Preferred Stock in an amount less
than the total amount of such  dividends at the time accrued and payable on such
shares  shall be  allocated  pro rata on a  share-by-share  basis among all such
shares at the time outstanding. The Board of Directors may fix a record date for
the determination of holders of shares of Series B Participating Preferred Stock
entitled to receive  payment of a dividend  or  distribution  declared  thereon,
which record date shall be no more than thirty (30) days prior to the date fixed
for the payment thereof.



<PAGE>



         2.  VOTING  RIGHTS.  The  holders  of shares of Series B  Participating
Preferred Stock shall have the following voting rights:

                  (a) Subject to the provision for  adjustment  hereinafter  set
forth,  each share of Series B  Participating  Preferred Stock shall entitle the
holder  thereof  to  10,000  votes  on all  matters  submitted  to a vote of the
shareholders of the Corporation.  In the event the Corporation shall at any time
after the  Effective  Date (i) declare any  dividend on Agouron  Pharmaceuticals
Stock payable in shares of Agouron  Pharmaceuticals  Stock,  (ii)  subdivide the
outstanding  Agouron  Pharmaceuticals  Stock into a greater  number of shares or
(iii)  combine  the  outstanding  Agouron  Pharmaceuticals  Stock into a smaller
number of shares, by reclassification  or otherwise,  then in each such case the
number of votes per share to which  holders of shares of Series B  Participating
Preferred Stock were entitled  immediately prior to such event shall be adjusted
by multiplying such number by a fraction the numerator of which is the number of
shares of Agouron Pharmaceuticals Stock outstanding immediately after such event
and the denominator of which is the number of shares of Agouron  Pharmaceuticals
Stock outstanding immediately prior to such event.

                  (b) Except as otherwise provided herein or by law, the holders
of shares of Series B Participating  Preferred Stock, the Series C Participating
Preferred  Stock and all series of Common Stock shall vote together as one class
on all matters submitted to a vote of shareholders of the Corporation.

                  (c) Except as set forth  herein or as  otherwise  required  by
law,  holders of Series B  Participating  Preferred  Stock shall have no special
voting rights and their consent shall not be required (except to the extent they
are  entitled  to vote with  holders of Common  Stock as set forth  herein)  for
taking any corporate action.

         3.       CERTAIN RESTRICTIONS.

                  (a)  Whenever  quarterly   dividends  or  other  dividends  or
distributions payable on the Series B Participating  Preferred Stock as provided
in Section  F.1.  are in  arrears,  thereafter  and until all accrued and unpaid
dividends  and  distributions,  whether or not  declared,  on shares of Series B
Participating  Preferred  Stock  outstanding  shall have been paid in full,  the
Corporation shall not:

                  (i) declare or pay dividends on, make any other  distributions
         on, or redeem or purchase or otherwise  acquire for  consideration  any
         shares  of  stock  ranking  junior  (either  as to  dividends  or  upon
         liquidation,  dissolution or winding up) to the Series B  Participating
         Preferred Stock;

                  (ii)   declare  or  pay   dividends   on  or  make  any  other
         distributions  on any shares of stock ranking on a parity (either as to
         dividends  or upon  liquidation,  dissolution  or winding  up) with the
         Series B Participating Preferred Stock except dividends paid ratably on
         the Series B Participating Preferred Stock and all such parity stock on
         which  dividends  are payable or in arrears in  proportion to the total
         amounts to which the holders of all such shares are then entitled;

                  (iii)   redeem  or   purchase   or   otherwise   acquire   for
         consideration  shares of any stock  ranking  on a parity  (either as to
         dividends  or upon  liquidation,  dissolution  or winding  up) with the
         Series B  Participating  Preferred  Stock provided that the Corporation
         may at any time  redeem,  purchase or otherwise  acquire  shares of any
         such  parity  stock  in  exchange  for  shares  of  any  stock  of  the
         Corporation ranking junior (either as to dividends or upon dissolution,
         liquidation  or  winding  up) to the Series B  Participating  Preferred
         Stock; or

                  (iv)  purchase  or  otherwise  acquire for  consideration  any
         shares of Series B Participating Preferred Stock or any shares of stock
         ranking on a parity  with the Series B  Participating  Preferred  Stock
         except in  accordance  with a  purchase  offer  made in  writing  or by
         publication (as determined by the Board of Directors) to all holders of
         such  shares  upon  such  terms  as  the  Board  of  Directors,   after
         consideration  of  the  respective  annual  dividend  rates  and  other
         relative rights and  preferences of the respective  series and classes,
         shall  determine  in good  faith  will  result  in fair  and  equitable
         treatment among the respective series or classes.



<PAGE>



                  (b) The  Corporation  shall not permit any  subsidiary  of the
Corporation  to purchase or otherwise  acquire for  consideration  any shares of
stock of the Corporation  unless the Corporation  could,  under paragraph (a) of
this Section F.3., purchase or otherwise acquire such shares at such time and in
such manner.

         4. REACQUIRED  SHARES.  Any shares of Series B Participating  Preferred
Stock  purchased  or  otherwise  acquired  by  the  Corporation  in  any  manner
whatsoever shall be retired and canceled promptly after the acquisition thereof.
All such shares shall upon their  cancellation  become  authorized  but unissued
shares  of  Preferred  Stock  and may be  reissued  as part of a new  series  of
Preferred  Stock to be  created by  resolution  or  resolutions  of the Board of
Directors,  subject to the  conditions  and  restrictions  on issuance set forth
herein.

         5.       LIQUIDATION, DISSOLUTION OR WINDING UP.

                  (a) Upon any liquidation (voluntary or otherwise), dissolution
or winding up of the Corporation,  no distribution  shall be made to the holders
of shares of stock ranking junior  (either as to dividends or upon  liquidation,
dissolution  or winding up) to Series B  Participating  Preferred  Stock unless,
prior thereto,  the holders of shares of Series B Participating  Preferred Stock
shall  have   received  per  share,   the  greater  of  $10,000  or  10,000  (as
appropriately  adjusted  as set forth in  paragraph  (c) below to  reflect  such
events as stock splits, stock dividends and recapitalization with respect to the
Agouron  Pharmaceuticals  Stock (the  "Series B Adjustment  Number"))  times the
payment to be made per share of Agouron  Pharmaceuticals  Stock,  plus an amount
equal to accrued and unpaid dividends and distributions thereon,  whether or not
declared, to the date of such payment (the "Series B Liquidation Preference").

                  (b) In the event there are not sufficient  assets available to
permit  payment  in  full  of  the  Series  B  Liquidation  Preference  and  the
liquidation  preferences of all other series of Preferred  Stock,  if any, which
rank on a parity  with the  Series B  Participating  Preferred  Stock  then such
remaining  assets  shall be  distributed  ratably to the  holders of such parity
shares in proportion to their respective liquidation preferences.

                  (c) In the event the  Corporation  shall at any time after the
Effective Date (i) declare any dividend on Agouron Pharmaceuticals Stock payable
in shares of Agouron  Pharmaceuticals  Stock,  (ii)  subdivide  the  outstanding
Agouron   Pharmaceuticals  Stock,  or  (iii)  combine  the  outstanding  Agouron
Pharmaceuticals  Stock into a smaller number of shares, by  reclassification  or
otherwise,  then in each  such  case the  Series B  Adjustment  Number in effect
immediately  prior to such event shall be adjusted by multiplying  such Series B
Adjustment  Number by a fraction the  numerator of which is the number of shares
of Agouron  Pharmaceuticals  Stock outstanding  immediately after such event and
the  denominator  of which is the  number of shares of  Agouron  Pharmaceuticals
Stock that were outstanding immediately prior to such event.

         6. CONSOLIDATION, MERGER, ETC. In case the Corporation shall enter into
any consolidation,  merger, combination or other transaction in which the shares
of Agouron  Pharmaceuticals  Stock are exchanged for or changed into other stock
or securities,  cash and/or any other property, then in any such case the shares
of Series B  Participating  Preferred  Stock shall at the same time be similarly
exchanged  or changed  in an amount  per share  (subject  to the  provision  for
adjustment  hereinafter set forth) equal to 10,000 times the aggregate amount of
stock, securities, cash and/or any other property (payable in kind), as the case
may be, into which or for which each share of Agouron  Pharmaceuticals  Stock is
changed or exchanged.  In the event the Corporation  shall at any time after the
Effective Date (a) declare any dividend on Agouron Pharmaceuticals Stock payable
in shares of  Agouron  Pharmaceuticals  Stock,  (b)  subdivide  the  outstanding
Agouron   Pharmaceuticals   Stock  or  (c)  combine  the   outstanding   Agouron
Pharmaceuticals  Stock into a smaller  number of shares,  then in each such case
the amount set forth in the  preceding  sentence with respect to the exchange or
change of shares of Series B Participating  Preferred Stock shall be adjusted by
multiplying  such amount by a fraction  the  numerator of which is the number of
shares of Agouron Pharmaceuticals Stock outstanding immediately after such event
and the denominator of which is the number of shares of Agouron  Pharmaceuticals
Stock that are outstanding immediately prior to such event.

         7.  REDEMPTION.  The shares of Series B  Participating  Preferred Stock
shall not be redeemable.



<PAGE>



         8. RANKING. The Series B Participating  Preferred Stock shall rank on a
parity with the Series C  Participating  Preferred Stock and junior to all other
series of the  Corporation's  Preferred Stock as to the payment of dividends and
the  distribution  of assets,  unless the terms of any such series shall provide
otherwise.

         9.  AMENDMENT.  The  Articles  of  Incorporation  and the Bylaws of the
Corporation  shall not be further  amended in any manner which would  materially
alter or change  the  powers,  preferences  or  special  rights of the  Series B
Participating  Preferred  Stock  so as to  affect  them  adversely  without  the
affirmative  vote of the holders of at least  sixty-six and  two-thirds  percent
(66-2/3%) of the outstanding  shares of Series B  Participating  Preferred Stock
voting separately as a class.

         10. FRACTIONAL  SHARES.  Series B Participating  Preferred Stock may be
issued in fractions of a share which shall entitle the holder,  in proportion to
such holder's  fractional shares, to exercise voting rights,  receive dividends,
participate  in  distributions  and to have the  benefit of all other  rights of
holders of Series B Participating Preferred Stock.

         G. SERIES C PARTICIPATING  PREFERRED  STOCK.  The rights,  preferences,
privileges,   restrictions   and  other   matters   relating  to  the  Series  C
Participating Preferred Stock are as follows:

         1.       DIVIDENDS AND DISTRIBUTIONS.

                  (a) Subject to the prior and superior rights of the holders of
any shares of any series of Preferred  Stock  ranking  prior and superior to the
shares of Series C Participating Preferred Stock with respect to dividends,  the
holders of shares of Series C Participating Preferred Stock in preference to the
holders of shares of Common Stock and any other junior stock,  shall be entitled
to receive,  when,  as and if declared  by the Board of  Directors  out of funds
legally  available for the purpose,  quarterly  dividends payable in cash on the
first day of March,  June,  September  and December in each year (each such date
being referred to herein as a "Quarterly Dividend Payment Date"),  commencing on
the first Quarterly Dividend Payment Date after the first issuance of a share or
fraction of a share of Series C  Participating  Preferred Stock in an amount per
share  (rounded to the nearest  cent) equal to the greater of (i) $100 per share
of Series C Participating  Preferred Stock, or (ii) subject to the provision for
adjustment hereinafter set forth, 10,000 times the aggregate per share amount of
all cash dividends,  and 10,000 times the aggregate per share amount (payable in
kind) of all  non-cash  dividends or other  distributions  other than a dividend
payable in shares of Oncology Division Stock or a subdivision of the outstanding
shares of Oncology Division Stock (by  reclassification or otherwise),  declared
on the  Oncology  Division  Stock,  since the  immediately  preceding  Quarterly
Dividend Payment Date, or, with respect to the first Quarterly  Dividend Payment
Date since the first  issuance  of any share or  fraction of a share of Series C
Participating  Preferred  Stock. In the event the Corporation  shall at any time
after the  Effective  Date (A) declare any dividend on Oncology  Division  Stock
payable in shares of Oncology  Division  Stock,  (B) subdivide  the  outstanding
Oncology  Division Stock or (C) combine the outstanding  Oncology Division Stock
into a smaller number of shares, by reclassification or otherwise,  then in each
such case the  amount  to which  holders  of  shares  of Series C  Participating
Preferred Stock were entitled  immediately prior to such event under clause (ii)
of the  preceding  sentence  shall be adjusted by  multiplying  such amount by a
fraction  the  numerator  of which is the number of shares of Oncology  Division
Stock  outstanding  immediately after such event and the denominator of which is
the  number  of  shares  of  Oncology   Division  Stock  that  were  outstanding
immediately prior to such event.

                  (b) The  Corporation  shall declare a dividend or distribution
on the Series C Participating Preferred Stock as provided in paragraph (a) above
immediately  after it  declares  a  dividend  or  distribution  on the  Oncology
Division  Stock  (other than a dividend  payable in shares of Oncology  Division
Stock);  provided that, in the event no dividend or distribution shall have been
declared on the Oncology  Division Stock during the period between any Quarterly
Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a
dividend of $100 per share on the Series C  Participating  Preferred Stock shall
nevertheless be payable on such subsequent Quarterly Dividend Payment Date.



<PAGE>



                  (c)  Dividends  shall  begin to accrue  and be  cumulative  on
outstanding shares of Series C Participating  Preferred Stock from the Quarterly
Dividend Payment Date next preceding the date of issue of a share or fraction of
a share of Series C  Participating  Preferred  Stock unless the date of issue of
such shares is prior to the record date for the first Quarterly Dividend Payment
Date, in which case dividends on such shares shall begin to accrue from the date
of such issue, or unless the date of issue is a Quarterly  Dividend Payment Date
or is a date after the record date for the determination of holders of shares of
Series C Participating  Preferred Stock entitled to receive a quarterly dividend
and before such Quarterly  Dividend Payment Date, in either of which events such
dividends shall begin to accrue and be cumulative  from such Quarterly  Dividend
Payment Date.  Accrued but unpaid  dividends shall not bear interest.  Dividends
paid on the shares of Series C  Participating  Preferred Stock in an amount less
than the total amount of such  dividends at the time accrued and payable on such
shares  shall be  allocated  pro rata on a  share-by-share  basis among all such
shares at the time outstanding. The Board of Directors may fix a record date for
the determination of holders of shares of Series C Participating Preferred Stock
entitled to receive  payment of a dividend  or  distribution  declared  thereon,
which record date shall be no more than thirty (30) days prior to the date fixed
for the payment thereof.

         2.  VOTING  RIGHTS.  The  holders  of shares of Series C  Participating
Preferred Stock shall have the following voting rights:

                  (a) Subject to the provision for  adjustment  hereinafter  set
forth,  each share of Series C  Participating  Preferred Stock shall entitle the
holder  thereof  to  10,000  votes  on all  matters  submitted  to a vote of the
shareholders of the Corporation.  In the event the Corporation shall at any time
after the  Effective  Date (i) declare any dividend on Oncology  Division  Stock
payable in shares of Oncology  Division  Stock,  (ii) subdivide the  outstanding
Oncology  Division  Stock into a greater  number of shares or (iii)  combine the
outstanding  Oncology  Division  Stock  into a  smaller  number  of  shares,  by
reclassification  or  otherwise,  then in each such case the number of votes per
share to which holders of shares of Series C Participating  Preferred Stock were
entitled  immediately  prior to such event shall be adjusted by multiplying such
number by a fraction the  numerator of which is the number of shares of Oncology
Division Stock  outstanding  immediately after such event and the denominator of
which is the number of shares of Oncology Division Stock outstanding immediately
prior to such event.

                  (b) Except as otherwise provided herein or by law, the holders
of shares of Series C Participating  Preferred Stock, the Series B Participating
Preferred  Stock and all series of Common Stock shall vote together as one class
on all matters submitted to a vote of shareholders of the Corporation.

                  (c) Except as set forth  herein or as  otherwise  required  by
law,  holders of Series C  Participating  Preferred  Stock shall have no special
voting rights and their consent shall not be required (except to the extent they
are  entitled  to vote with  holders of Common  Stock as set forth  herein)  for
taking any corporate action.

         3.       CERTAIN RESTRICTIONS.

                  (a)  Whenever  quarterly   dividends  or  other  dividends  or
distributions payable on the Series C Participating  Preferred Stock as provided
in Section  G.1.  are in  arrears,  thereafter  and until all accrued and unpaid
dividends  and  distributions,  whether or not  declared,  on shares of Series C
Participating  Preferred  Stock  outstanding  shall have been paid in full,  the
Corporation shall not:

                  (i) declare or pay dividends on, make any other  distributions
         on, or redeem or purchase or otherwise  acquire for  consideration  any
         shares  of  stock  ranking  junior  (either  as to  dividends  or  upon
         liquidation,  dissolution or winding up) to the Series C  Participating
         Preferred Stock;

                  (ii)   declare  or  pay   dividends   on  or  make  any  other
         distributions  on any shares of stock ranking on a parity (either as to
         dividends  or upon  liquidation,  dissolution  or winding  up) with the
         Series C Participating  Preferred Stock,  except dividends paid ratably
         on the Series C Participating Preferred Stock and all such parity stock
         on which dividends are payable or in arrears in proportion to the total
         amounts to which the holders of all such shares are then entitled;



<PAGE>



                  (iii)   redeem  or   purchase   or   otherwise   acquire   for
         consideration  shares of any stock  ranking  on a parity  (either as to
         dividends  or upon  liquidation,  dissolution  or winding  up) with the
         Series C Participating  Preferred Stock,  provided that the Corporation
         may at any time  redeem,  purchase or otherwise  acquire  shares of any
         such  parity  stock  in  exchange  for  shares  of  any  stock  of  the
         Corporation ranking junior (either as to dividends or upon dissolution,
         liquidation  or  winding  up) to the Series C  Participating  Preferred
         Stock; or

                  (iv)  purchase  or  otherwise  acquire for  consideration  any
         shares of Series C Participating Preferred Stock or any shares of stock
         ranking on a parity with the Series C  Participating  Preferred  Stock,
         except in  accordance  with a  purchase  offer  made in  writing  or by
         publication (as determined by the Board of Directors) to all holders of
         such  shares  upon  such  terms  as  the  Board  of  Directors,   after
         consideration  of  the  respective  annual  dividend  rates  and  other
         relative rights and  preferences of the respective  series and classes,
         shall  determine  in good  faith  will  result  in fair  and  equitable
         treatment among the respective series or classes.

                  (b) The  Corporation  shall not permit any  subsidiary  of the
Corporation  to purchase or otherwise  acquire for  consideration  any shares of
stock of the Corporation  unless the Corporation  could,  under paragraph (a) of
this Section G.3., purchase or otherwise acquire such shares at such time and in
such manner.

         4. REACQUIRED  SHARES.  Any shares of Series C Participating  Preferred
Stock  purchased  or  otherwise  acquired  by  the  Corporation  in  any  manner
whatsoever shall be retired and canceled promptly after the acquisition thereof.
All such shares shall upon their  cancellation  become  authorized  but unissued
shares  of  Preferred  Stock  and may be  reissued  as part of a new  series  of
Preferred  Stock to be  created by  resolution  or  resolutions  of the Board of
Directors,  subject to the  conditions  and  restrictions  on issuance set forth
herein.

         5.       LIQUIDATION, DISSOLUTION OR WINDING UP.

                  (a) Upon any liquidation (voluntary or otherwise), dissolution
or winding up of the Corporation,  no distribution  shall be made to the holders
of shares of stock ranking junior  (either as to dividends or upon  liquidation,
dissolution  or winding up) to Series C  Participating  Preferred  Stock unless,
prior thereto,  the holders of shares of Series C Participating  Preferred Stock
shall  have   received  per  share,   the  greater  of  $10,000  or  10,000  (as
appropriately  adjusted  as set forth in  paragraph  (c) below to  reflect  such
events as stock splits, stock dividends and recapitalization with respect to the
Oncology Division Stock (the "Series C Adjustment Amount")) times the payment to
be made per share of Oncology  Division  Stock,  plus an amount equal to accrued
and unpaid dividends and distributions thereon,  whether or not declared, to the
date of such payment (the "Series C Liquidation Preference").

                  (b) In the event there are not sufficient  assets available to
permit  payment  in  full  of  the  Series  C  Liquidation  Preference  and  the
liquidation  preferences of all other series of Preferred  Stock,  if any, which
rank on a parity  with the  Series C  Participating  Preferred  Stock  then such
remaining  assets  shall be  distributed  ratably to the  holders of such parity
shares in proportion to their respective liquidation preferences.

                  (c) In the event the  Corporation  shall at any time after the
Effective  Date (i) declare any dividend on Oncology  Division  Stock payable in
shares of Oncology  Division  Stock,  (ii)  subdivide the  outstanding  Oncology
Division Stock, or (iii) combine the outstanding  Oncology Division Stock into a
smaller number of shares, by  reclassification  or otherwise,  then in each such
case the Series C Adjustment  Number in effect  immediately  prior to such event
shall be adjusted by multiplying  such Series C Adjustment  Number by a fraction
the  numerator  of which is the  number  of shares of  Oncology  Division  Stock
outstanding  immediately  after such event and the  denominator  of which is the
number of shares of Oncology  Division Stock that were  outstanding  immediately
prior to such event.

         6. CONSOLIDATION, MERGER, ETC. In case the Corporation shall enter into
any consolidation,  merger, combination or other transaction in which the shares
of Oncology  Division  Stock are  exchanged  for or changed  into other stock or
securities,  cash and/or any other property, then in any such case the shares of
Series C  Participating  Preferred  Stock  shall at the same  time be  similarly
exchanged or changed in an amount per share (subject to the


<PAGE>



provision  for  adjustment  hereinafter  set  forth)  equal to 10,000  times the
aggregate amount of stock,  securities,  cash and/or any other property (payable
in kind),  as the case may be,  into which or for which  each share of  Oncology
Division Stock is changed or exchanged.  In the event the  Corporation  shall at
any time after the Effective Date (a) declare any dividend on Oncology  Division
Stock  payable  in  shares  of  Oncology   Division  Stock,  (b)  subdivide  the
outstanding  Oncology  Division  Stock or (c) combine the  outstanding  Oncology
Division  Stock  into a  smaller  number of  shares,  then in each such case the
amount set forth in the  preceding  sentence  with  respect to the  exchange  or
change of shares of Series C Participating  Preferred Stock shall be adjusted by
multiplying  such amount by a fraction  the  numerator of which is the number of
shares of Oncology Division Stock  outstanding  immediately after such event and
the denominator of which is the number of shares of Oncology Division Stock.

         7.  REDEMPTION.  The shares of Series C  Participating  Preferred Stock
shall not be redeemable.

         8. RANKING. The Series C Participating  Preferred Stock shall rank on a
parity with the Series B  Participating  Preferred Stock and junior to all other
series of the  Corporation's  Preferred Stock as to the payment of dividends and
the  distribution  of assets,  unless the terms of any such series shall provide
otherwise.

         9.  AMENDMENT.  The  Articles  of  Incorporation  and the Bylaws of the
Corporation  shall not be further  amended in any manner which would  materially
alter or change  the  powers,  preferences  or  special  rights of the  Series C
Participating  Preferred  Stock  so as to  affect  them  adversely  without  the
affirmative  vote of the holders of at least  sixty-six and  two-thirds  percent
(66-2/3%) of the outstanding  shares of Series C  Participating  Preferred Stock
voting separately as a class.

         10. FRACTIONAL  SHARES.  Series C Participating  Preferred Stock may be
issued in fractions of a share which shall entitle the holder,  in proportion to
such holder's  fractional shares, to exercise voting rights,  receive dividends,
participate  in  distributions  and to have the  benefit of all other  rights of
holders of Series C Participating Preferred Stock.

                                   ARTICLE IV

         Without limiting its rights under the California Corporations Code, the
Board of  Directors  is hereby  authorized  to create and issue,  by dividend or
otherwise and whether or not in connection  with the issuance and sale of any of
its stock or other securities or property,  rights entitling the holders thereof
to purchase  from the  Corporation  shares of stock or other  securities  of the
Corporation or any other corporation  ("Rights") which Rights may be attached to
and trade with the shares of Common  Stock or any  series of Common  Stock.  The
Rights may provide for different or  discriminatory  treatment among the holders
of the Rights in accordance with criteria  selected by the Board of Directors in
connection  with the  creation of the  Rights,  which  criteria  may include the
number of shares of Common  Stock or any series of Common Stock held by a holder
of Rights,  the  percentage  of the  outstanding  shares of Common  Stock or any
series of Common Stock held by a holder of Rights or the voting power based upon
ownership  of Common  Stock or any  series of Common  Stock  held by a holder of
Rights.

                                    ARTICLE V

         The  liability  of directors of the  Corporation  for monetary  damages
shall be eliminated to the fullest extent permissible under California law.

                                   ARTICLE VI

         The Corporation is authorized to provide  indemnification of agents (as
defined in Section 317 of the California  Corporations  Code) for breach of duty
to the  Corporation  and its  shareholders  through bylaw  provisions or through
agreements  with agents,  or both,  in excess of the  indemnification  otherwise
permitted by Section 317 of the California  Corporations Code, subject to limits
on such  excess  indemnification  set  forth in  Section  204 of the  California
Corporations Code, to the fullest extent permissible under California law.

         3. The foregoing amendment and restatement of Articles of Incorporation
has been duly approved by the Board of Directors.



<PAGE>



         4. The amendments as included in the Restated Articles of Incorporation
were duly  approved by the required  vote of  shareholders  in  accordance  with
Section 902 of the California  Corporations  Code. The  Corporation has only one
class of shares  outstanding  and the total number of outstanding  shares of the
Corporation is _____________ shares of Common Stock. The number of shares voting
in favor of the amendments equaled or exceeded the vote required. The percentage
vote required was more than 50% of the outstanding shares of Common Stock.

         We further declare under penalty of perjury under the laws of the State
of  California  that the  matters  set  forth in this  Certificate  are true and
correct of our own knowledge and this declaration was executed on _____________,
1998, at San Diego, California.

         Dated:  ___________ __, 1998.         ________________________________
                                               Peter E. Johnson, President
                                               Agouron Pharmaceuticals, Inc.

                                        
                                               ________________________________
                                               Gary E. Friedman, Secretary
                                               Agouron Pharmaceuticals, Inc.



<PAGE>



                                    ANNEX III

                          AGOURON PHARMACEUTICALS, INC.
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                           AND RESULTS OF OPERATIONS

OVERVIEW

     This discussion contains  forward-looking  statements.  Such statements are
subject to certain risks and  uncertainties  which could cause actual results to
differ  materially  from those  projected.  See "Risk  Factors  Risks related to
Agouron   Pharmaceuticals   Division  and   Oncology   Division"  in  the  Proxy
Statement/Prospectus to which this Annex III is attached.  Readers are cautioned
not to place undue  reliance on these  forward-looking  statements,  which speak
only as of the date hereof.  The Company  undertakes  no  obligation to publicly
release the result of any revisions to these  forward-looking  statements  which
may be made to  reflect  events or  circumstances  after  the date  hereof or to
reflect the occurrence of unanticipated events.
   
     Agouron Pharmaceuticals, Inc (the "Company") is committed to the discovery,
development,  manufacturing  and  marketing of human  pharmaceuticals  targeting
cancer,  AIDS,  and  other  serious  diseases.  Operations  to  date  have  been
principally funded from the Company's  equity-derived  working capital,  various
collaborative   arrangements   and,  most   recently,   from  the  gross  margin
contribution of its first product,  VIRACEPT(R)  (nelfinavir mesylate).  The net
income  reported  in fiscal  year 1998 and the first  quarter of fiscal  1999 is
principally due to the  commercialization  of VIRACEPT while the Company's prior
net operating  losses reflect  primarily the result of its independent  research
and  substantial  investment  in the  clinical  and  commercial  development  of
VIRACEPT and certain anti-cancer compounds.

     In March 1997, the Company  received  clearance from the United States Food
and Drug  Administration  ("FDA") to market  VIRACEPT in the United States.  Due
principally to the increasing product  contribution from VIRACEPT sales, license
fees and royalties,  the Company  realized a net income of  $13,154,000  for the
fiscal  year ended June 30, 1998 and  $3,630,000  and  $6,890,000  for the three
month periods ended September 30, 1997 and 1998.

RESULTS OF OPERATIONS

YEARS ENDED JUNE 30, 1996, 1997 AND 1998
    
PRODUCT SALES

     Product  sales  for the  fiscal  years  ended  June 30,  1997 and 1998 were
approximately  $57,000,000 and  $409,300,000  which included sales in the United
States of $55,559,000 and $358,321,000,  respectively.  The Company  anticipates
that  VIRACEPT  sales in the United  States  will  approximate  $430,000,000  to
$440,000,000 for fiscal 1999.

CONTRACT REVENUES
   
     Collaborative  research and development  agreements with Japan Tobacco Inc.
("JT") and  Hoffman-La  Roche Inc.  and F.  Hoffman-La  Roche Ltd  (collectively
"HLR") accounted for  substantially  all of the Company's  contract revenues for
1996,  1997 and 1998.  The  increase in contract  revenues  from 1996 to 1997 of
approximately 59% was due principally to increased program activity and spending
on  the  JT   collaborations.   Total  contract   revenues  for  1998  decreased
approximately  40% from  1997 due  principally  to  decreased  VIRACEPT  program
spending  by  Agouron,  which  was  partially  funded by JT.  Additionally,  the
amortization  to revenue over a 24-month  period of JT's  $24,000,000  milestone
payment, which was received in August 1995, was completed in June 1997.
    
     In December 1997, the Company agreed to end its  collaboration  with HLR in
the field of  cancer.  As a result of the  termination  agreement,  Agouron  has
regained all rights to its anti-cancer  drugs previously within the scope of the
HLR collaboration.


<PAGE>



   
     The  Company  anticipates  that  contract  revenues  for  fiscal  1999 will
approximate $30,000,000 to $35,000,000.


LICENSE FEES AND ROYALTIES

     The Company's  license fees in 1996 were earned from HLR;  license fees and
royalties for 1997 and 1998 were principally  derived from F. Hoffmann-La  Roche
Ltd  ("Roche").  The 33%  decrease  from  1996 to  1997  is  principally  due to
$9,000,000  for initial  European  marketing  rights for VIRACEPT in 1997 versus
$15,000,000 for initial world-wide  development rights for two anti-cancer drugs
in 1996.  Total revenues for 1998 increased  approximately  83% from 1997 due to
European marketing approval for VIRACEPT.
    
     In January and March 1998,  VIRACEPT was  approved for  marketing in Europe
and Japan,  respectively.  Upon such approvals,  the Company realized as revenue
license  fees  totaling  $12,000,000.  In July 1997,  the Company and JT granted
Roche certain exclusive rights to VIRACEPT in several Asian countries.  For such
rights, the Company received a license fee of $2,000,000.

     Royalty revenues of  approximately  $3,852,000 have been recognized in 1998
based on estimated and actual Roche sales of VIRACEPT in its licensed territory.
The Company  anticipates  that license fees and  royalties  for fiscal 1999 will
range from $30,000,000 to $35,000,000.

COST OF PRODUCT SALES

     The  aggregate  cost of product  sales as a percentage of product sales was
approximately  43% and 42% for 1997 and 1998,  respectively.  Gross  margins  on
United States  commercial sales were  approximately  57% and 65% during 1997 and
1998, respectively.  The Company anticipates that gross margins on United States
commercial  sales will  improve as product  sales  volumes  increase and certain
manufacturing process and scale efficiencies are realized,  and will approximate
71% in 1999.  Aggregate  gross  margins will also be impacted by the size of the
Company's  patient  assistance  program  (which  provides free goods to indigent
individuals), the Company's manufacturing supply arrangement with Roche (whereby
Roche  has  the  right  to  either  purchase  product  at  Agouron's  cost  plus
contractually  determined  mark-ups or manufacture drug product for its own use,
subject to contractually determined fees to be paid to Agouron) and the level of
sales subject to Medicaid and other discounts or rebates in the United States.

RESEARCH AND DEVELOPMENT
   
     Research and development  ("R&D") spending  increased by approximately  52%
from  1996  to 1997  due  generally  to  increasing  average  R&D  staff  levels
(approximately  39%)  and  staff-related   expenditures  (including  occupancy),
increased  expenditures in support of human clinical trials,  an expanded access
program  associated  with VIRACEPT and the increased  expenditures  for clinical
trial activities  associated with AG3340 and other  anti-cancer  compounds.  R&D
spending  increased by  approximately  39% from 1997 to 1998 due to license fees
for three  development stage HIV products,  increasing  average R&D staff levels
(approximately  28%) and  staff-related  spending  (including  occupancy and the
addition  of Alanex  since  late  1997)  and  increased  expenditures  for human
clinical trial activities associated with the clinical development of certain of
the Company's  anti-cancer  compounds.  The Company  anticipates  that total R&D
expenses in fiscal 1999,  excluding  the impact of any license fees or milestone
expenses  in  either  1998  or  1999,   will  exceed  fiscal  1998  expenses  by
approximately 40%.
    

<PAGE>




SELLING, GENERAL AND ADMINISTRATIVE
   
     Selling,   general  and   administrative   ("SG&A")  expenses   represented
approximately  10% of total  operating  expenses  (excluding the cost of product
sales,  royalties and write-off of in-process technology purchased) in 1996, 23%
in 1997 and 28% in 1998.  Spending  increases from 1996 to 1997 were due chiefly
to increasing staff levels (approximately 214%) and staff-related  expenditures,
certain  premarketing  and advertising  and promotion costs  associated with the
launch of VIRACEPT in March 1997 and other costs associated with a growing sales
and marketing  infrastructure.  SG&A increased by approximately 76% from 1997 to
1998 due principally to a full year of expenses  associated with the sales force
and other marketing personnel.  The Company anticipates that total SG&A expenses
will increase by  approximately  40% in fiscal 1999 due to increasing  sales and
marketing activities and the support of VIRACEPT phase IV marketing studies.
    
ROYALTIES

     The Company's  obligation to share VIRACEPT profits with JT is reflected in
royalty  expense  for 1998 and  represents  approximately  19% of United  States
product sales. Royalties in fiscal 1997 were not significant.  It is anticipated
that  royalty  expense  for fiscal  1999 will  approximate  24% to 25% of United
States product sales.

WRITEOFF OF IN-PROCESS TECHNOLOGY PURCHASED
   
     In fiscal 1997,  the Company  acquired  Alanex  Corporation  ("Alanex"),  a
research  company  engaged in the discovery of drug leads through the high-speed
screening of diverse chemical  libraries  designed by computational  methods and
generated  by  combinatorial  chemistry.  Alanex  was  acquired  in  a  purchase
transaction  through the issuance of  approximately  2,000,000 shares of Agouron
common  stock  valued  at  approximately  $61,000,000.  Transaction  costs  were
approximately  $1,300,000.  In fiscal 1997, the Company  recorded a write-off of
$57,500,000  (or  92% of  the  purchase  price,  including  transaction  costs),
representing  the values  determined  by management  to be  attributable  to the
in-process  technology purchased.  Of the amount written off,  approximately 95%
was attributed to and supported by a discounted cash flow analysis of three drug
discovery programs which anticipated  revenues beginning in 2003.  Approximately
40% of the value was  attributed to a compound  with obesity and  cardiovascular
indications,  30% for compounds with depression and anxiety  indications and 25%
for a program to treat  endometriosis  and  sex-hormone  dependent  tumors.  The
Company believes that the allocations and aggregate values attributable to these
programs are  reasonable  and  appropriate  based on the  commercial  potential,
beginning  in 2003,  of these three drug  discovery  programs,  which remain the
subject of research or development  efforts.  The Company recorded $4,800,000 of
the purchase price as an asset,  attributed to Alanex's  technology and chemical
compound library, which is being amortized over the expected benefit periods. At
September 30, 1998, the asset balance was approximately $3,350,000.

INTEREST AND OTHER INCOME

     Interest  income  increased  by  approximately  23%  from  1996 to 1997 due
principally to a higher average investment  portfolio balance resulting from the
July 1996 public offering, receipt of $15,000,000 and $9,000,000,  respectively,
in license  fees from HLR (June 1996) and Roche  (January  1997),  significantly
increased  contract  funding from JT and HLR and the exercise of employee  stock
options.  Interest  income  increased  by 1% from  1997  to  1998.  The  Company
anticipates that, absent additional  revenue sources or a significant  change in
interest  rates,  fiscal 1999  interest  income will be less than that of fiscal
1998.
    

<PAGE>




INTEREST EXPENSE
   
     Interest expense  decreased from 1996 to 1997 by approximately 38% due to a
decreasing  level of debt  and  capital  lease  obligations  from  year to year.
Interest  expense  increased from 1997 to 1998 due to borrowings under a line of
credit  which  was  used  to  partially  fund  quarterly  royalties  paid  to JT
throughout the year.
    
INCOME TAX PROVISION (BENEFIT)

     The income tax  provision  in 1998 has been  computed  using an  effective,
combined  federal  and  state  rate of 40%.  The cash  obligation  of such  1998
provision has been mostly offset by the  utilization of its deferred tax assets.
Based on its 1998 pre-tax  profit and its estimates for future  taxable  income,
the Company  believes it is more  likely than not that its  deferred  tax assets
(comprised mostly of net operating loss carryforwards,  deductions  generated by
the exercise of stock options,  and research  credits) will be realized and has,
therefore,  recorded  the full tax  benefit  of its  deferred  tax  assets.  The
Company's accumulated net deferred tax assets totaled approximately  $55,900,000
and  $64,100,000  at June 30, 1997 and 1998.  The Company  anticipates  that its
effective  income  tax rate for fiscal  1999 will  range  from 10% to 15%.  Such
decrease from fiscal 1998 is attributed to greater expected  availability of R&D
tax credits due to the anticipated  increase in R&D spending and the anticipated
reduction in R&D contract revenues.

   
THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998

PRODUCT SALES

     Product sales for the three-month periods ended September 30, 1997 and 1998
were approximately  $79,502,000 and $133,870,000,  which included sales in North
America of $75,374,000 and $107,187,000, respectively.

CONTRACT REVENUES

     Collaborative research and development agreements with JT and HLR accounted
for  substantially  all of the Company's  contract  revenues for the three-month
periods  ended  September  30, 1997 and 1998.  Total  contract  revenues for the
three-month  periods decreased  approximately 40% due principally to termination
of the HLR collaboration in fiscal 1998.

LICENSE FEES AND ROYALTIES

     Royalty  revenues  of  approximately  $352,000  and  $4,925,000  have  been
recognized in the three-month periods ended September 30, 1997 and 1998 based on
estimated and actual Roche sales of VIRACEPT in its licensed territory.

COST OF PRODUCT SALES

     The  aggregate  cost of product  sales as a percentage of product sales was
approximately 43% for the three-month periods ended September 30, 1997 and 1998.
Gross margins on United States  commercial sales were  approximately 60% and 70%
for the three month periods ended September 30, 1997 and 1998.

RESEARCH AND DEVELOPMENT

     R&D spending  increased 39% from the three months ended  September 30, 1997
to the three months ended  September 30, 1998 due generally to costs  associated
with increasing average staff levels and staff related spending,  and increasing
expenses  associated  with the clinical  development of certain of the Company's
anti-cancer compounds.

    

<PAGE>


   
SELLING, GENERAL AND ADMINISTRATIVE

     SG&A costs have increased by 37% from the three months ended  September 30,
1997 to the three months ended  September 30, 1998 due principally to increasing
sales and marketing  activities  and the support of VIRACEPT  phase IV marketing
studies.

ROYALTIES

     The Company's  obligation to share VIRACEPT profits with JT is reflected in
royalty  expense for the three month periods  ended  September 30, 1997 and 1998
and represents approximately 18% and 24% of United States product sales.

INTEREST AND OTHER INCOME

     Interest income  decreased by 19% from the three months ended September 30,
1997 to the three months ended  September  30, 1998 due  principally  to a lower
average  investment  portfolio  balance  resulting from  increased  research and
development spending.

INTEREST EXPENSE

     Interest  expense  increased from the three months ended September 30, 1997
to the three months ended  September 30, 1998 due to borrowings  under a line of
credit which was used to support increased spending levels.

INCOME TAX PROVISION

     The  income tax  provision  for the first  quarter of fiscal  1999 has been
computed  using an effective,  combined  federal and state rate of 15%. The cash
obligation  of such  provision  has been  mostly  offset by the  utilization  of
deductions  generated by the exercise of stock options and/or the utilization of
deferred tax benefits  (comprised mostly of net operating loss carryforwards and
research tax credits).
    
YEAR 2000

     The Year 2000 issue  results from  computer  programs and systems that were
created  to  accept  only  two  digit  dates.  Such  systems  may not be able to
distinguish  20th century  dates from 21st century  dates.  This could result in
miscalculations  and system failures that could inhibit the Company's ability to
engage in normal business activities.

     The Company has  established  a Year 2000  project  team that is  currently
reviewing information technology ("IT") systems and non-IT systems that could be
affected by this issue. Additionally,  the Company has made initial contact with
all of its  significant  external  business  partners to determine the extent to
which the Company is  vulnerable  to their  failures and to ascertain  Year 2000
compliance and risk. The Company  estimates that the inventory and assessment of
IT systems,  non-IT systems, and material third parties will be completed by the
end of calendar 1998. The Company expects to complete remediation efforts by the
end of fiscal 1999, and to complete the validation  phase by the end of calendar
1999. At this time the Company has not initiated the  formulation of contingency
plans. The  determination of the necessity for contingency plans will be made by
the end of fiscal 1999.

     While the total cost to obtain  Year 2000  compliance  is not known at this
time,  the  Company  believes  such cost will not have a material  effect on the
Company's business,  financial position, or results of operation.  However, even
though the Company  expects to have obtained Year 2000  compliance  prior to the
Year 2000, the inability of the Company or its business  partners to remedy Year
2000 issues could have a significant impact on the Company's business, financial
position, or results of operation.



<PAGE>



LIQUIDITY AND CAPITAL RESOURCES
   
     Prior to  fiscal  1998,  the  Company  has  relied  principally  on  equity
financing  and  corporate  collaborations  to fund its  operations  and  capital
expenditures.  Beginning in fiscal 1998, the gross margins from commercial sales
of VIRACEPT  contributed  significantly to the Company's overall working capital
requirements.  Commercial  sales  of  VIRACEPT  resulted  in  gross  margins  of
approximately $32,370,000 and $236,654,000 for the years ended June 30, 1997 and
1998,  and  $45,429,000  and  $76,825,000  for the  three  month  periods  ended
September 30, 1997 and 1998.

     At June 30,  1998,  the Company had net  working  capital of  approximately
$127,728,000,  an  increase  of  $11,942,000  over  June  30,  1997  levels  due
principally to the Company's pre-tax profit of $21,924,000.  Individual  working
capital components  significantly  impacted by the commercialization of VIRACEPT
include trade accounts receivable (an increase of $18,416,000),  inventories (an
increase of  $44,906,000),  accounts  payable (an increase of  $15,560,000)  and
accrued  liabilities  (an  increase  of  $26,467,000,  primarily  due to accrued
royalties  payable  to  JT).  It  is  anticipated  that  these  working  capital
components and cash and short-term investments will continue to be significantly
impacted by  VIRACEPT  sales.  At June 30,  1998,  the  Company  had cash,  cash
equivalents and short-term investments of approximately $87,123,000.

     At September 30, 1998, the Company had net working capital of approximately
$138,533,000,  an  increase  of  $10,805,000  over  June  30,  1998  levels  due
principally to the Company's  pre-tax profit of $8,106,000.  Individual  working
capital components  significantly  impacted by the commercialization of VIRACEPT
include trade accounts  receivable (a decrease of  $1,829,000),  inventories (an
increase  of  $2,932,000),  accounts  payable (a decrease  of  $18,539,000)  and
accrued  liabilities  (an  increase  of  $1,391,000,  primarily  due to  accrued
royalties  payable  to  JT).  It  is  anticipated  that  these  working  capital
components and cash and short-term investments will continue to be significantly
impacted by VIRACEPT  sales.  At September 30, 1998, the Company had cash,  cash
equivalents and short-term investments of approximately $61,940,000. The Company
believes that its current capital resources,  existing  contractual  commitments
and  anticipated  VIRACEPT  product sales are sufficient to maintain its current
operations  through  fiscal 1999.  This belief is based on current  research and
clinical development plans,  anticipated working capital requirements associated
with  the  expanding  commercialization  of  VIRACEPT,  the  current  regulatory
environment,  historical  industry  experience in the development of therapeutic
drugs and general economic conditions.
    
     The Company believes that additional  financing may be required to meet the
planned operating needs after fiscal 1999 if significant and increasing positive
cash flows are not  generated  from  commercial  activities.  Such  needs  would
include the expenditure of substantial funds to continue and expand research and
development  activities,  conduct existing and planned  preclinical  studies and
human clinical trials and to support the increasing working capital requirements
of a  growing  commercial  infrastructure  including  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  securities.  If such  alternatives  are not
available,  the Company may be required to defer or restrict certain  commercial
activities,  delay  or  eliminate  expenditures  for  certain  of its  potential
products  under  development,  cancel  licenses from third parties or to license
third parties to commercialize  products or technologies  that the Company would
otherwise seek to develop or commercialize itself.
   
     During fiscal 1996, capital  expenditures  totaled $3,710,000 compared with
$14,727,000 and $33,086,000 during 1997 and 1998, of which $457,000,  $2,355,000
and $1,579,000 were financed through capital lease obligations. During the first
quarter of fiscal 1998 and 1999,  capital  expenditures  totaled  $3,942,000 and
$2,928,000,  of which $96,000 and $1,292,000 were financed through capital lease
obligations.  Capital  expenditures during 1999 are expected to be approximately
$18,000,000 to support  continued  product  commercialization,  development  and
research activities. The Company may utilize lease or debt financing for certain
expenditures if available on acceptable terms.

    

<PAGE>



AGOURON PHARMACEUTICALS, INC.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO FINANCIAL STATEMENTS

Report of Independent Accountants
   
Consolidated  Balance Sheet as of June 30, 1997, June 30, 1998 and September 30,
1998

Consolidated Statement of Income (Loss) for the years ended June 30, 1996,  1997
           and 1998 and for the three month periods ended September 30, 1997 and
           1998

Consolidated Statement of Stockholders'  Equity and Comprehensive  Income (Loss)
           for the years  ended June 30,  1996,  1997 and 1998 and for the three
           month periods ended September 30, 1997 and 1998

Consolidated Statement of Cash Flows for the years ended
           June 30, 1996,  1997 and 1998 and for the three month  periods  ended
           September 30, 1997 and 1998
    
Notes to Consolidated Financial Statements

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



<PAGE>



REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of Agouron Pharmaceuticals, Inc.
   
In our opinion,  the  accompanying  consolidated  balance  sheet and the related
consolidated   statements  of  income  (loss),   of  stockholders'   equity  and
comprehensive  income (loss) and of cash flows present  fairly,  in all material
respects,  the  financial  position  of Agouron  Pharmaceuticals,  Inc.  and its
subsidiaries at June 30, 1997 and 1998, and the results of their  operations and
their cash flows for each of the three years in the period  ended June 30, 1998,
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 an
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.
    

PricewaterhouseCoopers, LLP

San Diego, California
July 16, 1998


<PAGE>



AGOURON PHARMACEUTICALS, INC.
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
   
                                                                            JUNE 30,         September 30,
                                                                       1997           1998            1998
                                                                                               (unaudited)
ASSETS
<S>                                                           <C>            <C>            <C>    

Current assets:
     Cash and cash equivalents                                $      52,484  $      19,098   $      16,713
     Short-term investments                                          38,833         68,025          45,227
     Accounts receivable, net                                        31,375         51,341          51,755
     Inventories                                                     58,800        103,706         106,638
     Current deferred tax assets                                        500            564             564
     Other current assets                                             2,209          5,247           3,868
                                                              -------------  -------------   -------------

     Total current assets                                           184,201        247,981         224,765

Property and equipment, net                                          22,613         47,212          45,670

Deferred tax assets                                                  56,000         64,644          64,999

Purchased intangibles                                                 4,100          3,500           3,350
                                                              -------------  -------------   -------------

                                                              $     266,914  $     363,337   $     338,784
                                                               ============  =============   =============
LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
     Accounts payable                                         $      28,833  $      44,393   $      25,854
     Accrued liabilities                                              8,889         35,356          36,747
     Deferred revenue and advances                                   27,567         23,563          21,191
     Current deferred tax liabilities                                   600          1,139           1,621
     Loan payable and current portion of long-term debt               2,526         15,802             819
                                                              -------------  -------------   -------------

     Total current liabilities                                       68,415        120,253          86,232
                                                              -------------  -------------   -------------

Long-term liabilities:
     Long-term debt, less current portion                             5,940          5,892           6,242
     Accrued rent                                                     1,277          1,023             938
                                                              -------------  -------------   -------------

     Total long-term liabilities                                      7,217          6,915           7,180
                                                              -------------  -------------   -------------

Stockholders' equity:
     Common stock, no par value, 75,000,000 shares
         authorized, 29,429,920, 31,053,380, and
         31,246,645 shares issued and outstanding                   317,133        348,482         350,947
     Accumulated other comprehensive income                               0            384             232
     Accumulated deficit                                           (125,851)      (112,697)       (105,807)
                                                              -------------  -------------   -------------

     Total stockholders' equity                                     191,282        236,169         245,372
                                                              -------------  -------------   -------------

Commitments
                                                              $     266,914  $     363,337   $     338,784
                                                              =============  =============   =============
    
</TABLE>

See accompanying notes to consolidated financial statements.


<PAGE>



AGOURON PHARMACEUTICALS, INC.

CONSOLIDATED STATEMENT OF INCOME (LOSS)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
   

                                                                                       Three Months Ended
                                                       YEARS ENDED JUNE 30,                 SEPTEMBER 30,
                                                 1996         1997          1998         1997         1998
                                                                                    (unaudited) (unaudited)
<S>                                       <C>          <C>           <C>          <C>          <C>       

Revenues:
     Product sales                        $         0  $    56,969   $   409,298  $    79,502  $   133,870
     Contracts                                 40,955       65,094        38,855       10,003        6,017
     License fees and royalties                15,000       10,000        18,352        2,352        5,050
                                          -----------  -----------   -----------  -----------  -----------

                                               55,955      132,063       466,505       91,857      144,937
                                          -----------  -----------   -----------  -----------  -----------
Operating expenses:
     Cost of product sales                          0       24,599       172,644       34,073       57,045
     Research and development                  71,010      108,137       150,657       26,932       37,364
     Selling, general and administrative        8,082       32,941        58,012       12,546       17,142
     Royalties                                      0            0        68,423       13,376       25,893
     Write-off of in-process technology
     purchased                                      0       57,500             0            0            0
                                          -----------  -----------   -----------  -----------  -----------       
                                               79,092      223,177       449,736       86,927      137,444
                                          -----------  -----------   -----------  -----------  -----------

Operating income (loss)                       (23,137)     (91,114)       16,769        4,930        7,493
                                          -----------  -----------   -----------  -----------  -----------

Other income (expenses):
     Interest and other income                  4,776        5,873         5,907        1,281        1,036
     Interest expense                            (228)        (142)         (752)        (161)        (423)
                                          -----------  -----------   -----------  -----------  -----------

                                                4,548        5,731         5,155        1,120          613
                                          -----------  -----------   -----------  -----------  -----------

Income (loss) before income taxes             (18,589)     (85,383)       21,924        6,050        8,106

Income tax provision (benefit)                    934      (42,577)        8,770        2,420        1,216
                                          -----------  -----------   -----------  -----------  -----------

Net income (loss)                         $   (19,523) $   (42,806)  $    13,154  $     3,630  $     6,890
                                          ===========  ============  ===========  ===========  ===========

Earnings per share:
     Basic                                $      (.99) $     (1.59) $        .43  $       .12  $       .22
                                          ===========  ===========  ============  ===========  ===========
     Diluted                              $      (.99) $     (1.59) $        .40  $       .11  $       .21
                                          ===========  ===========  ============  ===========  ===========

Shares used in calculation of:
     Basic                                     19,688       26,946        30,571       29,964       31,127
     Diluted                                   19,688       26,946        33,214       33,158       33,179
    
</TABLE>

See accompanying notes to consolidated financial statements.


<PAGE>




AGOURON PHARMACEUTICALS, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
  AND COMPREHENSIVE INCOME (LOSS)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
     
                                                                    Accumulated
                                                                           Other
                                                 COMMON STOCK        Comprehensive    Accumulated
                                             SHARES         AMOUNT    INCOME (LOSS)      DEFICIT          TOTAL

STOCKHOLDERS' EQUITY:
<S>                                      <C>           <C>             <C>            <C>            <C>    

Balance at June 30, 1995                 14,718,564    $    76,113     $         0    $   (63,522)   $    12,591

   Stock issuances:
     Public sale                          6,000,000         78,579                             --         78,579
     Exercise of stock options              586,412          2,990                             --          2,990
     Exercise of stock warrants              90,000            283                             --            283
     Employee stock purchase plan            68,398            663                             --            663
   Net loss                                      --             --                        (19,523)       (19,523)
                                        -----------    -----------     -----------    -----------    -----------

Balance at June 30, 1996                 21,463,374        158,628               0        (83,045)        75,583

   Stock issuances:
     Public sale                          5,470,000         77,245                             --         77,245
     Acquisition of Alanex                1,444,236         61,051                             --         61,051
     Exercise of stock options              980,472          6,720                             --          6,720
     Employee stock purchase plan            71,838          1,389                             --          1,389
   Tax benefit of stock options exercised        --         12,100                             --         12,100
   Net loss                                      --             --                        (42,806)       (42,806)
                                        -----------    -----------     -----------    -----------    -----------

Balance at June 30, 1997                 29,429,920        317,133               0       (125,851)       191,282

   Stock issuances:
     Exercise of stock options            1,344,104         11,031                             --         11,031
     Exercise of stock warrants             169,522            680                             --            680
     Employee stock purchase plan           109,834          2,742                             --          2,742
   Tax benefit of stock options exercised        --         16,896                             --         16,896
   Unrealized gains (losses) on securities                                     384                           384
   Net income                                    --             --                         13,154         13,154
                                        -----------    -----------     -----------    -----------    -----------

Balance at June 30, 1998                 31,053,380        348,482             384       (112,697)       236,169

   Stock issuances:
     Exercise of stock options 
     (unaudited)                            193,265          1,805              --          1,805
   Tax benefit of stock options 
     exercised (unaudited)                                     660                                           660
   Unrealized gains (losses) on securities (unaudited)                        (152)                         (152)
   Net income (unaudited)                        --             --                          6,890          6,890
                                        -----------    -----------     -----------    -----------    -----------

Balance at September 30, 1998 
     (unaudited)                         31,246,645     $  350,947   $         232  $    (105,807) $     245,372
                                       ============    ===========     ===========    ===========    ===========
    
</TABLE>

<TABLE>
<CAPTION>
   
                                                                             Other
                                                                       Comprehensive          Net    Comprehensive
                                                                       INCOME (LOSS)  INCOME (LOSS)  INCOME (LOSS)
COMPREHENSIVE INCOME (LOSS):
<S>                                                                    <C>           <C>            <C>    

Year ended June 30,
     1996                                                              $        --   $    (19,523)  $    (19,523)         
     1997                                                                       --        (42,806)       (42,806)
     1998                                                                      384         13,154         13,538
Three months ended September 30 (unaudited),
     1997                                                                       --          3,630          3,630
     1998                                                                     (152)         6,890          6,738
    
</TABLE>

See accompanying notes to consolidated financial statements.


<PAGE>



AGOURON PHARMACEUTICALS, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
   
                                                                                        Three Months Ended
                                                       YEARS ENDED JUNE 30,                 SEPTEMBER 30,
                                                 1996         1997          1998         1997         1998
                                                                                    (unaudited) (unaudited)
<S>                                         <C>          <C>         <C>           <C>           <C>     

Cash flows from operating activities:
     Cash received from product sales,
       contracts, license fees 
       and royalties                        $  61,376    $ 116,692   $   442,484   $   81,701    $ 142,151
     Cash paid to suppliers, employees and
       service providers                      (73,738)    (195,890)     (446,863)     (77,401)    (152,857)
     Interest received                          4,776        5,873         5,958        1,281          991
     Interest paid                               (228)        (142)         (752)        (161)        (423)
                                          -----------  -----------   -----------  -----------  -----------

     Net cash provided (used) by
        operating activities                   (7,814)     (73,467)          827        5,420      (10,138)
                                          -----------  -----------   -----------  -----------  -----------

Cash flows from investing activities:
     Proceeds from maturities/sales of short-term
       investments                             59,686      127,501       147,292       21,818       29,529
     Purchases of short-term investments     (118,224)     (91,227)     (176,100)     (51,972)      (6,883)
     Purchase of  property and equipment       (3,252)     (12,372)      (31,507)      (3,846)      (1,636)
     Cost to acquire Alanex, net of cash
     acquired                                       0          608             0            0            0
                                          -----------  -----------   -----------  -----------  -----------
    
     Net cash provided (used) by 
     investing activities                     (61,790)      24,510       (60,315)     (34,000)      21,010
                                          -----------  -----------   -----------  -----------  -----------
    

Cash flows from financing activities:
     Net proceeds from issuance of
     common stock                              82,515       85,354        14,453        6,211        1,376
     Proceeds from credit line                      0            0        53,600            0        8,000
     Principal payments on credit line, long-term
       debt, and capital leases                  (818)        (364)      (41,951)        (237)     (22,633)
                                          -----------  -----------   -----------  -----------  -----------

     Net cash provided
     (used) by financing activitie             81,697       84,990        26,102        5,974      (13,257)
                                          -----------  -----------   -----------  -----------  -----------

Net increase (decrease) in cash 
and cash equivalents                           12,093       36,033       (33,386)     (22,606)      (2,385)
Cash and cash equivalents at
beginning of year                               4,358       16,451        52,484       52,484       19,098
                                          -----------  -----------   -----------  -----------  -----------

Cash and cash equivalents at end of year  $    16,451  $    52,484   $    19,098  $    29,878  $    16,713
                                          ===========  ===========   ===========  ===========  ===========

Reconciliation of net income 
     (loss) to net cash  provided  
     (used) by  operating activities:
     Net income (loss)                    $   (19,523) $   (42,806)  $    13,154  $     3,630  $     6,890
     Depreciation and amortization              2,411        3,910         9,087        1,893        3,328
     Write-off of in-process technology 
     purchased                                      0       57,500             0            0            0
     Provision (benefit) for deferred income taxes  0      (43,800)        8,727        2,420        1,216
     Net (increase) decrease in inventories         0      (58,547)      (44,906)         889       (2,932)
     Net (increase) decrease in accounts receivable
       and other current assets                (1,198)     (28,209)      (23,004)     (11,151)         965
     Net increase (decrease) in accounts payable,
       accrued liabilities, deferred revenue and
       advances, and other liabilities         10,496       38,485        37,769        7,739      (19,605)
                                          -----------  -----------   -----------  -----------  -----------

Net cash provided (used) by 
operating activities                      $   (7,814)  $   (73,467)  $       827  $     5,420  $   (10,138)
                                          ===========  ===========   ===========  ===========  ===========
    
</TABLE>

See accompanying notes to consolidated financial statements.



<PAGE>



AGOURON PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES

THE COMPANY

     Agouron  Pharmaceuticals,  Inc.  ("Agouron" or the "Company") was organized
and  incorporated  in  California  in  June  1984.   Agouron  is  an  integrated
pharmaceutical  company committed to the discovery,  development,  manufacturing
and  marketing of  innovative  therapeutic  products  engineered  to  inactivate
proteins which play key roles in cancer,  AIDS and other serious  diseases.  The
Company,  through  its  own  sales  and  marketing  organization,  is  currently
marketing in the United States its first drug, VIRACEPT(R) (nelfinavir mesylate)
for treatment of HIV  infection.  The Company is also  conducting  pivotal phase
II/III clinical trials for AG3340 for treatment of lung and prostate cancer.  In
addition,  Agouron is expected to initiate a phase II/III pivotal clinical trial
of REMUNE(TM) (AG1661),  an immune-based  therapeutic agent for treatment of HIV
infection  and AIDS  being  co-developed  by  Agouron  and The  Immune  Response
Corporation  ("IRC").  Further, the Company has a number of programs in progress
for discovery or development  of other new drugs in the fields of cancer,  viral
disease and other serious  diseases.  The Company is also using the  proprietary
core drug discovery technology of Alanex Corporation ("Alanex"),  a wholly-owned
subsidiary  of the  Company,  to  accelerate  the steps  necessary  to  discover
small-molecule  drug candidates,  from the initial  identification  of compounds
that exhibit activity against selected  biological targets to the progression of
these compounds to drug candidates for human clinical trials.

PRINCIPLES OF CONSOLIDATION

     The consolidated  financial  statements include the accounts of the Company
and its wholly-owned  subsidiaries.  All significant  intercompany  accounts and
transactions have been eliminated.

UNAUDITED INTERIM FINANCIAL INFORMATION
   
     The   consolidated   balance  sheet  as  of  September  30,  1998  and  the
consolidated  statements of income,  of stockholders'  equity and  comprehensive
income and of cash flows for the three month  periods  ended  September 30, 1997
and 1998 have been  prepared  by the  Company  and have not been  audited.  Such
financial  statements,  in the opinion of  management,  include all  adjustments
necessary for their fair  presentation  in conformity  with  generally  accepted
accounting  principles.  Certain information and footnote  disclosures have been
condensed or omitted  pursuant to the Securities and Exchange  Commission  rules
and regulations.  Interim results are not necessarily  indicative of results for
the full year.
    
ESTIMATES

     The  preparation  of financial  statements  in  conformity  with  generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that affect the reported amounts of assets,  liabilities,  revenues
and expenses and related disclosures as of the date of the financial statements.
Actual results could differ from such estimates.

CASH AND CASH EQUIVALENTS

     The Company  considers cash equivalents to be only those  investments which
are highly liquid,  readily  convertible to cash and which mature within 90 days
from date of purchase.


<PAGE>




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, and corporate
equity  securities.  The Company has classified  its  short-term  investments as
available-for-sale. Included in short-term investments at June 30, 1997 and June
30, 1998 is $588,000 and $1,262,000 of accrued interest receivable.

INVENTORIES

     Inventories  are stated at the lower of cost or market.  Cost is determined
using the  first-in,  first-out  method.  Inventories  consist of the  following
components at September 30, 1998 (unaudited):

         Raw materials and work in process                  $    98,520
         Finished goods                                           8,118
                                                            -----------
                                                            $   106,638

CONCENTRATION OF CREDIT AND MARKET 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
1996, 1997 or 1998.
    
FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

     The  Company  has  contract  manufacturing  operations  in Europe and Asia.
Accordingly,  the Company from  time-to-time  enters into  forward  contracts to
manage its exposure to fluctuations in foreign currency  exchange rates. At June
30, 1998, the Company had several forward contracts with maturities of less than
six  months  to  purchase  Japanese  Yen  for  approximately  $9,426,000.  These
contracts are  designated  and effective as hedges and,  accordingly,  gains and
losses are  recognized  in the same  period the  offsetting  gains and losses of
hedged transactions are realized and recognized.

PROPERTY AND EQUIPMENT

     Property and equipment is recorded at cost.  Depreciation is computed using
principally  the  straight-line  method over estimated  useful lives of three to
five years. Leasehold improvements are amortized over the life of the lease.

PURCHASED INTANGIBLES

     In  conjunction  with the 1997  acquisition  of  Alanex,  the  Company  has
recorded purchased intangibles (primarily drug discovery technology and chemical
compound  libraries)  which are being  amortized on a  straight-line  basis over
their estimated useful lives of seven years.

DEFERRED REVENUE AND ADVANCES
   
     At June 30, 1998,  approximately  $22,414,000  of cash received from JT has
been  classified  as  deferred  contract  revenue  and  advances.  Approximately
$21,452,000  of the  cash  received  from  JT  represents  JT's  advance  of the
Company's VIRACEPT  development  funding obligation which was completed in March
1998.  Such  amounts are to be repaid by the Company out of future  profits,  if
any,  generated  by sales of VIRACEPT in the United  States.  The balance of the
payments from JT are non-refundable and are being recognized as contract revenue
on a prospective basis generally as collaborative program expenses are incurred.
    

<PAGE>



PRODUCT SALES

     The Company ships VIRACEPT to wholesalers  throughout the United States and
recognizes  sales  revenue upon  shipment.  Sales are reported net of discounts,
rebates, chargebacks and product returns.
   
     Also   included  in  product  sales  are  sales  to  Roche  (at  cost  plus
contractually  determined  mark-ups) of clinical and commercial drug supplies to
be used by Roche in its licensed territory.  Such Roche sales were approximately
$1,441,000 and $50,979,000 for 1997 and 1998, and $4,128,000 and $26,683,000 for
the three month periods ended September 30, 1997 and 1998. The Company  receives
a royalty on Roche's subsequent commercial sales of such drug supplies.
    
CONTRACT REVENUES

     Contract revenues are earned and recognized  generally as contract research
costs are incurred  according to the  provisions of each  underlying  agreement.
Amounts  received in advance of  performance  are recorded as deferred  revenue.
Contract  milestone  payments are  recognized as revenues upon the completion of
the milestone event or requirement.

LICENSE FEES AND ROYALTIES

     License fees are  recognized as revenue when earned as generally  evidenced
by  certain  factors  including:  receipt  of  such  fees,  satisfaction  of any
performance obligations and the non-refundable nature of such fees.

     Royalty  revenues are  recognized  based on  estimated  and actual sales of
licensed products in licensed territories.

RESEARCH AND DEVELOPMENT COSTS

     Research and development costs are expensed in the period incurred.

INCOME TAX PROVISION (BENEFIT)

     The  Company  records a  provision  (benefit)  for income  taxes  using the
liability method.  Current income tax expense (benefit)  generally is the amount
of income taxes expected to be payable for the current year.  Deferred taxes are
recorded by applying  applicable tax rates to cumulative  temporary  differences
based on when and how they are expected to affect the tax return.

EARNINGS (LOSS) PER SHARE

     The Company  computes  earnings per share in accordance  with  Statement of
Financial  Accounting  Standards No. 128 "Earnings  Per Share".  Basic  earnings
(loss)  per share is based upon the  weighted  average  number of common  shares
outstanding during a period. Diluted earnings (loss) per share is based upon the
weighted  average number of common shares  outstanding and dilutive common stock
equivalents  during a period.  Common stock  equivalents  are options  under the
Company's  stock  option  plans  which are  included in the  earnings  per share
computation  under the treasury  stock method and common  shares  expected to be
issued under the Company's employee stock purchase plan.
   
     For 1996 and 1997, common stock equivalents of approximately  2,014,000 and
3,168,000  shares were not used to calculate  diluted  earnings (loss) per share
because of their anti-dilutive effect. Common stock equivalents of approximately
2,643,000  shares for 1998 were used to  calculate  diluted  earnings per share.
There  are no  reconciling  items in  calculating  the  numerator  for basic and
diluted earnings (loss) per share for any of the periods presented.

     Common stock  equivalents of  approximately  3,194,000 and 2,052,000 shares
for the three  month  periods  ended  September  30,  1997 and 1998 were used to
calculate diluted earnings per share.
    

<PAGE>




STOCK-BASED COMPENSATION PLANS

     The Company measures compensation expense for its stock-based  compensation
plans using the  intrinsic  method and  provides  pro-forma  disclosures  of net
income and earnings (loss) per share as if the fair value-based  method had been
applied in measuring compensation expense.

STATEMENT OF CASH FLOWS
   
     For purposes of cash  equivalents  the Statement of Cash Flows,  are highly
liquid  investments  purchased with an original maturity of ninety days or less.
Non-cash financing and investing  activities are comprised  primarily of capital
lease  obligations of $457,000,  $2,355,000 and $1,579,000 for 1996,  1997, 1998
and the acquisition of Alanex in 1997.

NEW ACCOUNTING STANDARDS

     In June 1997, the Financial  Accounting  Standards  Board  issued
Statement of Financial  Accounting  Standards No. 131 ("FAS 131"),  "Disclosures
about  Segments  of an  Enterprise  and  Related  Information,"  which  requires
additional disclosures to be adopted on June 30, 1999. FAS 131 requires that the
Company  report  financial  and  descriptive  information  about its  reportable
operating segments. The Company is evaluating the impact on its disclosures,  if
any.

     As of July 1, 1998, the Company adopted  Statement of Financial  Accounting
Standards  No.  130  ("FAS  130"),   "Reporting   Comprehensive  Income,"  which
establishes new rules for the reporting and display of comprehensive  income and
its components.  FAS 130 requires  unrealized  gains and losses on the Company's
available-for-sale  securities to be included in other comprehensive income. The
Company presents such  information in its statement of stockholders'  equity and
comprehensive income (loss).

    

<PAGE>



NOTE 2 -  SHORT-TERM INVESTMENTS

     The cost of the  Company's  investment  portfolio  by type of security  and
contractual maturity in the balance sheet is as follows:
<TABLE>
<CAPTION>
    
                                                                      JUNE 30,
                                                              1997                1998
         (Dollars in thousands)
<S>                                                <C>                 <C>    

         Type of security:
              Corporate debt                       $        24,401     $        46,023
              U.S. Treasury and agencies                    11,994              10,766
              Other interest-bearing                         2,438               9,462
              Corporate equity                                   0               1,774
                                                   ---------------     ---------------

                                                   $        38,833     $        68,025
                                                   ===============     ===============

              Contractual maturity:
              Maturing in less than twelve months  $        35,827     $        41,389
              Maturing between twelve and
                  thirty-two months                          3,006              26,636
                                                   ---------------     ---------------

                                                   $        38,833     $        68,025
                                                   ===============     ===============
</TABLE>


     The  cost  of  securities   sold,  if  any,  is  based  upon  the  specific
identification  method.  The net unrealized  holding gain on  available-for-sale
securities included as a separate component of stockholders'  equity at June 30,
1998 totaled $384,000. There were no material unrealized gains or losses nor any
material  differences  between the estimated fair values and costs of securities
in the investment  portfolio at June 30, 1998. Realized gains on the disposal of
available-for-sale  securities  during 1996  totaled  $22,000.  During 1997 such
gains and losses totaled  $12,000 and $4,000,  respectively.  During 1998,  such
gains and losses totaled $20,000 and $2,000, respectively.

    

<PAGE>



NOTE 3 - COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS
<TABLE>
<CAPTION>
   

                                                                            JUNE 30,
                                                                       1997          1998
(Dollars in thousands)
<S>                                                           <C>            <C>    

Accounts receivable, net:
     Trade                                                    $      26,055  $      44,471
     Contract                                                         4,668          2,451
     Royalties                                                            0          2,339
     Employee                                                           269            252
     Other                                                              383          1,828
                                                              -------------  -------------

                                                              $      31,375  $      51,341
                                                              =============  =============

Inventories:
     Raw materials and work in process                        $      57,883  $      95,517
     Finished goods                                                     917          8,189
                                                              -------------  -------------

                                                              $      58,800  $     103,706
                                                              =============  =============



Property and equipment, net:
     Scientific instrumentation                               $      16,614  $      26,869
     Leasehold improvements                                          10,804         25,135
     Computer equipment                                               8,892         15,619
     Furniture and fixtures                                           2,464          3,910
                                                              -------------  -------------

                                                                     38,774         71,533
     Less accumulated depreciation and amortization                 (16,161)       (24,321)
                                                              -------------  -------------

                                                              $      22,613  $      47,212
                                                              =============  =============

Accrued liabilities:
     Royalties                                                $           0  $      21,410
     License fees                                                         0          6,000
     Vacation                                                         1,932          2,955
     Clinical studies                                                 3,578          2,731
     Other                                                            3,379          2,260
                                                              -------------  -------------

                                                              $       8,889  $      35,356
                                                              =============  =============
    
</TABLE>



<PAGE>



NOTE 4 - SIGNIFICANT CONTRACT ARRANGEMENTS

JAPAN TOBACCO INC.

     In February 1994, the Company entered into a strategic  alliance with JT in
the  field of  anti-viral  drugs  for the  treatment  of  infections  caused  by
hepatitis C and the herpes  family of viruses.  In  December  1994,  the Company
added its anti-HIV drug, VIRACEPT, to the JT collaboration with the execution of
a world-wide  development and licensing agreement.  Agouron and JT share equally
the costs of further development of VIRACEPT.

     Currently,  Agouron has exclusive  commercial  rights to VIRACEPT (with the
right to sublicense) in North America and JT has exclusive  commercial rights to
VIRACEPT (with the right to  sublicense)  in parts of Japan.  The Company and JT
share profits and/or royalties equally from the world-wide  commercialization of
VIRACEPT.
   
     Under the  combined  terms of the JT  agreements,  the Company has incurred
costs of $46,969,000,  $71,825,000 and $51,898,000 and recognized  corresponding
contract  revenues of  $37,197,000,  $48,886,000  and  $17,359,000 for the years
ended June 30, 1996, 1997 and 1998.

ROCHE

     The Company and JT have granted Roche  certain  exclusive  royalty  bearing
marketing  rights to VIRACEPT  outside of North America and parts of Japan.  For
such  rights,  the Company has  received  (and  recognized  as revenue)  initial
license fees and  additional  product  approval  license fees.  The Company also
receives  royalties  based  either on Roche's  sales of VIRACEPT  or, in certain
circumstances,  Invirase(R) and Fortavase(R) (saquinavir),  Roche's HIV protease
inhibitors.  VIRACEPT  license fees and royalties from Roche totaled  $9,000,000
and $17,852,000 for the years ended June 30, 1997 and 1998.
    
HLR

     In June 1996,  Agouron  granted HLR  world-wide  development  rights in two
anti-cancer   drugs  and  agreed  to  collaborate  with  HLR  on  an  additional
early-stage  anti-cancer drug discovery program.  In return for such rights, HLR
paid  $15,000,000  in  initial  license  fees and  agreed to bear 80% of certain
future  development  costs and to provide annual research support to the Company
of $3,000,000.  In December 1997, Agouron and HLR agreed to end this anti-cancer
research and development collaboration.  The Company has regained all commercial
rights  to  the   anti-cancer   drugs   previously   within  the  scope  of  the
collaboration.
   
     Under  the terms of the  anti-cancer  agreements  with HLR which  have been
terminated,  the Company  incurred  costs of  $17,854,000  and  $23,486,000  and
recognized  corresponding  contract  revenues of $14,270,000 and $15,428,000 for
the years ended June 30, 1997 and 1998.
    
THE IMMUNE RESPONSE CORPORATION

     In June 1998, the Company  entered into a binding letter of intent with IRC
to  collaborate  on  final  development  and  commercialization  of  REMUNE,  an
immune-based  therapeutic  agent  discovered by IRC and currently the subject of
several  clinical  studies  including a large phase III clinical trial.  The two
companies intend to enter promptly into a definitive agreement and will endeavor
to complete development and registration of REMUNE in 1999. IRC will manufacture
commercial  supplies of REMUNE, and Agouron will have exclusive rights to market
REMUNE in North America,  Europe and certain other countries.  The two companies
will share  equally  all  profits  from the  commercialization  of REMUNE in the
licensed  territory.  Agouron paid an initial  $10,000,000 license fee to IRC in
June 1998 and also  purchased  118,256  newly  issued  common  shares of IRC for
$2,000,000.  The Company's  development funding obligation commences October 15,
1998 and, assuming ongoing successful development,  registration and approval of
REMUNE,  the Company may pay to IRC up to $53,000,000 in additional  development
and milestone  payments and  $12,000,000  in purchases of additional  IRC common
stock.


<PAGE>




SHIONOGI & CO., LTD.

     In June 1998,  the  Company  entered  into a binding  letter of intent with
Shionogi  & Co.,  Ltd.  ("Shionogi")  to develop  and  commercialize  AG1549,  a
second-generation  non-nucleoside reverse transcriptase  inhibitor ("NNRTI") for
the treatment of HIV infection.  Discovered by Shionogi, AG1549 is currently the
subject of several  clinical trials  evaluating its dose and its concomitant use
with other antiretroviral treatments.

     Agouron  has   exclusive   world-wide   rights  to  the   development   and
commercialization  of AG1549  except in Japan,  South Korea and Taiwan.  Agouron
paid an initial  $10,000,000 license fee in June 1998. Agouron may pay, assuming
ongoing successful development,  registration and approval of AG1549, additional
license  fees of up to  $30,000,000.  In  addition,  Agouron  will pay  Shionogi
royalties based on sales, if any, of AG1549.

JAPAN ENERGY CORPORATION

     In June 1998,  the Company  entered  into an  agreement  with Japan  Energy
Corporation  ("JE")  to  develop  and  commercialize  AG1776,  a novel  protease
inhibitor for the treatment of HIV infection.  Agouron has exclusive  world-wide
rights to the development and commercialization of AG1776 except in Japan, South
Korea,  North Korea and Taiwan;  JE will  manufacture  bulk  compound for use in
final drug product.  Agouron incurred an initial  $6,000,000 license fee in June
1998. Agouron may pay, assuming ongoing successful development, registration and
approval of AG1776,  additional license fees of up to $20,000,000.  In addition,
Agouron will pay JE royalties based on sales, if any, of AG1776.



<PAGE>



NOTE 5 - LONG-TERM DEBT

     Long-term debt and capital lease obligations are as follows:
<TABLE>
<CAPTION>
   

                                                                             JUNE 30,
                                                                       1997          1998
(Dollars in thousands)
<S>                                                          <C>             <C>   

Notespayable,  secured  with  personal  property and a  
     certificate  of deposit;
     interest at CD rate plus 1.5%,
     paid off in June 1998.                                   $         142  $           0

Capital leases with interest rates between 5.86% and 16.5%,
     maturing at various dates through June 2003.                     2,462          3,214

Line of credit, $20,000,000 secured; interest at bank reference
      rate or LIBOR plus 1.5%, expiring September 30, 1999.               0         15,000

Unsecured,  non-interest  bearing,  term  obligation; 
     face value of $4,500,000; iscounted  to an  8.95%  
     effective  rate,  includes  imputed  interest  of
     $548,000 ue June 28, 2001.                                       3,194          3,480

Term obligation for tenant improvements, interest
     at 11% per annum, payable in monthly installments,
     paid off in October 1997.                                        2,668              0
                                                              -------------  -------------

Total long-term debt and capital lease obligations                    8,466         21,694

Current portion                                                      (2,526)       (15,802)
                                                              -------------  -------------

                                                              $       5,940  $       5,892
                                                              =============  =============
    
</TABLE>

     Maturities of long-term debt,  excluding  capital  leases,  are as follows:
1999 - $15,000,000;  2000 - $0; and 2001 - $4,500,000,  less imputed interest of
$1,020,000.





<PAGE>



NOTE 6 - INCOME TAXES

(Dollars in thousands)

     The components of the provision (benefit) for income taxes are as follows:
   

                                                       YEARS ENDED JUNE 30,
                                                 1996         1997          1998

Current:
     Federal                              $         0  $         0   $         0
     State                                          1            1            43
     Foreign                                      933        1,222             0
                                          -----------  -----------   -----------
                                                  934        1,223            43
                                          -----------  -----------   -----------
Deferred:
     Federal                                        0      (37,800)        8,495
     State                                          0       (6,000)          232
     Foreign                                        0            0             0
                                          -----------  -----------   -----------
                                                    0      (43,800)        8,727
                                          -----------  -----------   -----------

                                          $       934  $   (42,577)  $     8,770
                                          ===========  ===========   ===========

     The income tax  reconciliation  from  income  (loss)  before  income  taxes
computed at the federal  statutory rate (34%) to the Company's actual income tax
provision is as follows:


                                                       YEARS ENDED JUNE 30,
                                                 1996         1997          1998

Tax at U.S. federal statutory rate        $    (6,320) $   (29,030)  $     7,454
State taxes, net of federal benefit                 1            1           181
Foreign taxes                                     933        1,222             0
Purchase accounting book/ tax basis
  differences                                       0       19,781             0
Change in valuation allowance                   6,245      (42,449)            0
Other                                              75          415         1,135
Adjustments to carryover amounts                    0        7,483             0
                                          -----------  -----------   -----------
                                          $       934  $   (42,577)  $     8,770
                                          ===========  ===========   ===========


     The Company's deferred tax assets and liabilities are as follows:


                                                      JUNE 30,
                                                 1997         1998
Book and tax depreciation/amortization
  differences                             $       831  $     5,891
Accrued liabilities                             1,363        1,951
Net operating loss carryforwards               49,348       51,281
Tax credits                                     5,676        6,956
Other                                          (1,318)      (2,010)
                                          -----------  -----------
                                               55,900       64,069
Valuation allowance                                 0            0
                                          -----------  -----------
Deferred taxes, net                       $    55,900  $    64,069
                                          ===========  ===========
    
     The Company has not recorded  current  provisions for United States federal
income taxes due to net operating losses for tax reporting purposes. At June 30,
1998, the Company had net operating loss carryforwards for federal tax reporting
purposes  of  approximately  $150,000,000  expiring  from 2000 to 2013.  The net
operating  loss  includes  the tax  benefit  related  to the  exercise  of stock
options,  which  benefit was  recorded  to common  stock.  The Company  also has
federal   research  and  development   credit   carryforwards  of  approximately
$4,800,000  at June 30,  1998.  The future  utilization  of net  operating  loss
carryforwards for federal income tax purposes may be impacted by the issuance of
additional equity securities.


<PAGE>




     Due to California's  partial conformity with federal  provisions  regarding
net operating loss and research and development credit  carryforwards,  and as a
result of the Company's use of certain state tax planning strategies,  for state
tax reporting  purposes at June 30, 1998,  the Company has no net operating loss
carryforwards  and  has  research  and  development   credit   carryforwards  of
approximately $2,200,000. Such credits do not expire.

     Based on its 1998  operating  results and its  estimates of future  taxable
income,  the Company  believes that it is more likely than not that its deferred
tax assets  (comprised  mostly of net operating loss  carryforwards and research
credits) will be realized and has therefore recorded the full tax benefit of its
deferred tax assets as of June 30, 1998.

     Foreign tax expense  represents  certain  withholding taxes associated with
collaboration payments from JT.



<PAGE>



NOTE 7 -  STOCKHOLDERS' EQUITY

STOCK OPTIONS

     The Company's stock option 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  others  may be at any  price  determined  by the  Board  of
Directors.  The  options  expire  not later  than ten years from the date of the
grant and generally become exercisable  ratably over a three or four year period
beginning one year from the grant date. In February 1998, the Board of Directors
adopted  the most  recent  plan  and  reserved  1,000,000  shares  for  issuance
thereunder.  At June 30, 1998, the Company had 1,898,556  shares of common stock
available  for future grant under its stock option plans.  The  following  table
summarizes stock option activity for fiscal 1996 through fiscal 1998:
<TABLE>
<CAPTION>

                                                                              SHARES                PRICES
<S>        <C>                                                             <C>        <C>           <C>    

           Outstanding June 30, 1995                                       5,171,384  $     .24-    $12.25
                Options granted                                            2,324,950      11.78-     23.00
                Options exercised                                           (586,412)      2.70-      9.19
                Options canceled                                             (81,208)      3.94-     19.57
                                                                           ---------

           Outstanding June 30, 1996                                       6,828,714       2.70-     23.00
                Alanex options assumed                                       378,084        .27-      3.98
                Options granted                                            2,798,500      15.19-     47.13
                Options exercised                                           (980,472)       .27-     22.19
                Options canceled                                            (205,536)      4.32-     36.35
                                                                           ---------

           Outstanding June 30, 1997                                       8,819,290        .27-     47.13
                Options granted                                            1,115,394      28.00-     55.13
                Options exercised                                         (1,344,104)       .27-     34.82
                Options canceled                                            (169,312)       .27-     55.13
                                                                           ---------

           Outstanding June 30, 1998                                       8,421,268        .27-   $ 55.13
                                                                           =========
</TABLE>


     The following  table  summarizes  information  concerning  outstanding  and
exercisable options as of June 30, 1998:
<TABLE>
<CAPTION>

                                              OPTIONS OUTSTANDING                         OPTIONS EXERCISABLE
                                   Number           Weighted         Weighted            Number         Weighted
                                 Outstanding        Average           Average           Exercisable     Average
          Ranges of Exercise        as of           Remaining        Exercise             as of         Exercise
          Prices                JUNE 30, 1998     LIFE (YEARS)         PRICE          JUNE 30, 1998       PRICE
                                -------------    --------------   ---------------     -------------  ----------
<S>       <C>                      <C>                     <C>    <C>                   <C>         <C>    

          Less than $20.00         3,601,287               6.14   $         8.70        2,810,426    $        7.47
          $20.00 to $40.00         3,276,381               8.25            27.18        1,149,617            23.74
          Greater than $40.00      1,543,600               8.99            42.56          370,058            41.26
                               -------------     --------------   --------------    -------------    -------------
                                   8,421,268               7.48   $        22.10        4,330,101    $       14.68
                               =============     ==============   ==============    =============    =============


</TABLE>







<PAGE>




     The Company  applies APB  Opinion  No. 25 and  related  Interpretations  in
accounting  for  its  plans.  Accordingly,  no  compensation  expense  has  been
recognized  for  its  stock  option  plans.  Had  compensation  expense  for the
Company's  stock option plans been  determined  based upon the fair value method
prescribed  under  FAS 123,  the  Company's  reported  results  would  have been
impacted as follows:

   
                                                   YEARS ENDED JUNE 30,
                                                 1996         1997         1998

Net income (loss)
     As reported                          $   (19,523) $   (42,806) $   13,154
     Compensation expense:
       Stock options                           (1,133)      (9,496)    (19,891)
       Employee stock purchase plan              (204)        (394)     (1,441)
                                          -----------  -----------   -----------
     Pro-forma                            $   (20,860) $   (52,696) $   (8,178)
                                          ===========  ===========  ============

Pro-forma earnings (loss) per share:
     Basic                                $      (1.06)$      (1.96)$      (.27)
     Diluted                              $      (1.06)$      (1.96)$      (.27)

     The  weighted-average  fair value of each option  grant is estimated on the
date of grant using the Black  Scholes  option-pricing  model with the following
weighted-average  assumptions  used  for  fiscal  years  1996,  1997  and  1998,
respectively: expected volatility of 50% each period; risk-free interest rate of
6.1% for 1996,  6.1% for 1997, and 5.7% for 1998; an average  expected life of 4
years for 1996,  4 years for 1997 and 3 years for 1998;  and no  dividends.  The
weighted  average fair value of stock option grants was $8.97 per share in 1996,
$15.25 per share in 1997, $16.57 per share in 1998.
    
     In connection with its 1997 acquisition of Alanex,  the Company assumed all
of the issued and  outstanding  options of Alanex  which  resulted in options to
purchase  an  aggregate  of  378,084  shares of the  Company's  common  stock at
exercise prices ranging from $.27 to $3.98 per share.

EMPLOYEE STOCK PURCHASE PLAN
   
     The Company  has a stock  purchase  plan in which  eligible  employees  may
purchase  shares of the Company's  common stock through  payroll  deductions.  A
total of 500,000  shares of common stock have been  reserved for issuance  under
the plan,  of which  131,156  shares  remain  available for purchase at June 30,
1998. Funds deducted from participating employees' salaries are used to purchase
common stock 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 1996, 12,262 shares
were issued at a price of $4.94 per share,  46,480 shares were issued at a price
of $9.99 per share and 9,656  shares were issued at a price of $14.29 per share.
During  1997,  9,730  shares were issued at a price of $14.29 per share,  47,036
shares were issued at a price of $17.37 per share and 15,072  shares were issued
at a price of $28.69 per share.  During  1998,  109,834  shares were issued at a
price of $24.97 per share.

     Under FAS 123,  pro-forma  compensation  expense equal to the fair value of
the purchase rights granted under the employee stock purchase plan was estimated
using the Black-Scholes model with the following  assumptions for 1996, 1997 and
1998:  an  expected  life of one year;  expected  volatility  of 50  percent;  a
risk-free interest rate of 5.6 percent;  and no dividends.  The weighted-average
fair value of purchase  rights  granted  was $3.47 per share in 1996,  $5.96 per
share in 1997 and $13.12 per share in 1998.
    
WARRANTS

     In connection with its 1997  acquisition of Alanex,  the Company assumed an
issued and outstanding warrant to purchase Alanex common stock. Accordingly,  at
June 30,  1997,  a warrant to purchase  an  aggregate  of 169,522  shares of the
Company's  common stock at an exercise price of $4.01 per share was outstanding.
In July 1997, the warrant was exercised in its entirety  generating net proceeds
to the Company of approximately $679,800.



<PAGE>



STOCKHOLDER RIGHTS PLAN

     In November 1996, the Company's  Board of Directors  declared a dividend of
one preferred stock purchase right ("Right") for each  outstanding  share of the
Company's  common stock held on the date (this  dividend now amounts to one half
of a Right  per  share of  common  stock  now  outstanding  as a  result  of the
two-for-one  split of common  stock in August  1997).  The Rights will expire 10
years after issuance,  and will be exercisable only if a person or group becomes
the beneficial owner of 15% or more of the common stock (such person or group, a
"15% holder") or commences a tender or exchange  offer which would result in the
offeror  beneficially  owning 15% or more of the common  stock.  Each Right will
entitle  stockholders  to buy one  one-ten  thousandth  of a share  of  Series B
Participating Preferred Stock of the Company at an exercise price of $500.00 per
share subject to certain anti-dilution adjustments.

     If a person or group  accumulates  15% or more of the  common  stock,  each
Right (other than Rights held by a 15% holder and certain related parties, which
will be voided) will be adjusted so that upon  exercise the holder will have the
right  to  receive  that  number  of  shares  of  common  stock  (or in  certain
circumstances,  a combination  of securities  and/or  assets)  having a value of
twice the  exercise  price of the Right.  In addition,  if following  the public
announcement  of the  existence  of a 15%  holder,  the Company is involved in a
merger or business  combination or a sale of 50% or more of the Company's assets
or earning power, each Right (other than Rights held by a 15% holder and certain
related parties,  which will be voided) will represent the right to purchase, at
the exercise price, common stock of the acquiring entity having a value of twice
the exercise price at the time. The Board of Directors will also have the right,
following the public  announcement  of the  existence of a 15% holder,  to cause
Rights  (other than Rights held by the 15% holder and certain  related  parties,
which will be voided) to be exchanged  for one share of common stock  (presently
at an exchange ratio of two shares of common stock for each Right).



<PAGE>



NOTE 8 - COMMITMENTS
   
     Certain  scientific  instrumentation,  computers  and other  equipment  are
subject to leases which are classified as capital  leases.  At June 30, 1997 and
June 30, 1998, $2,895,000 ($2,629,000,  net) and $4,331,000 ($3,408,000, net) of
such leased equipment are included in property and equipment.

     Rental  expenses   (principally  for  leased   facilities  under  long-term
operating  lease  commitments)  were  $2,548,000,  $3,509,000 and $5,031,000 for
1996, 1997 and 1998. Future minimum payments for capital and operating leases at
June 30, 1998 are as follows:
    

<TABLE>
<CAPTION>
   
                                                      CAPITAL LEASES               OPERATING LEASES
(Dollars in thousands)
<S>        <C>                                        <C>                           <C>   

                1999                                  $        819                  $        7,472
                2000                                           812                           5,507
                2001                                           818                           5,314
                2002                                           578                           3,943
                2003                                           243                           2,630
           Thereafter                                            0                           2,047
                                                      ------------                  --------------

           Total minimum lease payments                      3,270                  $       26,913
                                                                                    ==============
           Less amount representing interest                   (56)
                                                      -------------

           Obligations under capital leases           $      3,214
                                                      ============
    
</TABLE>

     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.



<PAGE>



NOTE 9 - ALANEX ACQUISITION

     In April 1997, the Company executed a merger  agreement with Alanex,  which
now operates as a wholly-owned subsidiary of Agouron. For all outstanding shares
of Alanex common stock and related options and warrants, approximately 2,000,000
shares of Agouron  common  stock were issued,  subject to certain  restrictions.
Such  shares had an  aggregate  fair  market  value on the  measurement  date of
approximately  $61,000,000 and transaction costs were approximately  $1,300,000.
Of the total purchase  price  (including  transaction  costs),  $57,500,000  was
allocated  (as more  fully  described  below) to certain  intangible  assets and
expensed as in-process technology and approximately  $4,800,000 was allocated to
certain tangible and intangible assets and capitalized.

     The  identifiable  intangibles of Alanex include  several drug research and
discovery programs, a proprietary drug discovery technology, a chemical compound
library and an assembled work force.  These intangibles were valued using either
a replacement cost approach (work force, library and proprietary  technology) or
an income approach (research programs). Values assigned to the chemical compound
library and proprietary drug discovery technology have been capitalized, as such
intangibles are of a general nature and may have a number of alternative  future
uses. Values assigned to the drug discovery programs have been expensed, as such
programs  are  pursuing  specific  drug  targets  or  chemical  compounds,   the
technological  feasibility of which having not been demonstrated,  and there may
be no  alternative  future uses for such  targets or chemical  compounds  if the
programs are ultimately less than successful.

     The Company's statement of income (loss) includes the results of operations
related to the  acquisition  since  April  1997.  The  following  are  unaudited
pro-forma  results of operations as if the transaction  had been  consummated on
July 1, 1995:

(In thousands except for per share amounts.)
<TABLE>
<CAPTION>
   
         Year ended June 30,                                               1996              1997
                                                                         (unaudited)       (unaudited)
<S>     <C>                                                            <C>             <C>    

         Revenues                                                      $      62,392    $     138,872
                                                                       =============    =============

         Net income (loss)                                             $     (19,421)   $      14,276
                                                                       =============    =============

         Earnings (loss) per share                                     $        (.92)   $         .51
                                                                       =============    =============
    
</TABLE>


<PAGE>



NOTE 10 - QUARTERLY FINANCIAL DATA (UNAUDITED)

(In thousands, except for
per share amounts)
<TABLE>
<CAPTION>

                                                                     QUARTER ENDED
                                         SEPTEMBER 30     DECEMBER 31         MARCH 31          JUNE 30
                                        -------------     -------------    -------------     ----------
<S>                                     <C>               <C>              <C>              <C>               
1997
Product sales                           $           0     $           0    $      13,401     $      43,568
Gross margin from product sales                     0                 0            7,378            24,992
Net loss                                      (14,447)          (12,556)          (4,999)          (10,804)
Earnings (loss) per share:
  Basic                                          (.57)            (.46)             (.18)             (.38)(1)
  Diluted                                        (.57)            (.46)             (.18)             (.38)(1)

1998
Product sales                           $      79,502     $      91,800    $     111,950     $     126,046
Gross margin from product sales                45,429            53,858           62,730            74,637
Net income (loss)                               3,630             4,922           13,525            (8,923)
Earnings (loss) per share:
  Basic                                           .12              . 16              . 44             (.29)(2)
  Diluted                                         .11              . 15              . 41             (.29)(2)
   
1999
Product sales                           $     133,870
Gross margin from product sales                76,825
Net income                                      6,890
Earnings per share:
  Basic                                           .22
  Diluted                                         .21
    
</TABLE>

(1)  During the fourth  quarter of 1997,  the Company  recorded a  write-off  of
     $57,500,000 ($2.03 per share) of in-process  technology associated with the
     acquisition of Alanex,  partially  offset by the realization of $43,800,000
     ($1.54 per share) of  deferred  tax assets  associated  with the  Company's
     expectation of future taxable income.

(2)  During the fourth quarter of 1998, the Company incurred  in-licensing 
     costs of $26,000,000  (tax-effected $.50 per share) for commercial rights
     to three development stage anti-HIV products.





<PAGE>



                                    ANNEX IV

                             AGOURON PHARMACEUTICALS
                             DESCRIPTION OF BUSINESS
GENERAL

     Agouron  Pharmaceuticals  ("Agouron  Pharmaceuticals")  is  a  division  of
Agouron   Pharmaceuticals,   Inc.   ("Agouron"   or  the   "Company").   Agouron
Pharmaceuticals  encompasses  all of the  activities of Agouron except for those
activities  related  to  the  research,  development  and  commercialization  of
oncology products. Such products are being pursued by the Oncology Division.

     Agouron Pharmaceuticals,  through its own sales and marketing organization,
is currently marketing in the United States the first drug developed by Agouron,
VIRACEPT(R)  (nelfinavir mesylate) for treatment of HIV infection.  In addition,
Agouron  Pharmaceuticals is expected to initiate a phase II/III pivotal clinical
trial of REMUNE(TM) (AG1661), an immune-based therapeutic agent for treatment of
HIV infection and AIDS being  co-developed  by Agouron  Pharmaceuticals  and The
Immune Response  Corporation  ("IRC").  Further,  Agouron  Pharmaceuticals has a
number of programs in progress for discovery or  development  of other new drugs
in the fields of viral disease, inflammatory disease and other serious diseases.
Agouron Pharmaceuticals  utilizes the proprietary core drug discovery technology
of Alanex  Corporation  ("Alanex"),  a  wholly-owned  subsidiary of Agouron,  to
accelerate the steps necessary to discover small molecule drug candidates.  Such
steps  include the initial  identification  of compounds  that exhibit  activity
against  selected  biological  targets to the  progression of these compounds to
drug candidates for human clinical trials.

     Agouron  Pharmaceuticals'  long-term goal is increasing  profitability from
the sale of drugs generated from its own drug discovery and development efforts,
and from  development  and  commercialization  of drugs  originated  outside  of
Agouron Pharmaceuticals.  To augment its technical capabilities,  to enhance the
likelihood of successful commercialization of its products and to offset some of
its operating  costs,  Agouron  Pharmaceuticals  has entered into  collaborative
research   and   development   arrangements   with  other   companies.   Agouron
Pharmaceuticals  has generally retained  significant  commercial rights in drugs
developed in its collaborative research and development programs funded in whole
or in part by other  companies.  Agouron  Pharmaceuticals  anticipates  that its
successfully  developed  products  will be  commercialized  both through its own
direct sales and  marketing  activities  in certain  pharmaceutical  markets and
through  manufacturing  and marketing  relationships  with other  pharmaceutical
companies.

NARRATIVE DESCRIPTION OF BUSINESS
   
     Agouron Pharmaceuticals is developing innovative drugs for treatment of HIV
infection and other serious diseases and has expended approximately $327,000,000
on  research  and  development  since its  inception,  excluding  a  $57,500,000
write-off for  in-process  technology  purchased in 1997 in the  acquisition  of
Alanex.
    
VIRACEPT

     In  March  1997,   Agouron  received  clearance  from  the  Food  and  Drug
Administration ("FDA") to market its first drug, VIRACEPT, a potent HIV protease
inhibitor  that  substantially  decreases  viral load and  increases  CD4+T cell
counts  when  used  in  combination   antiretroviral  drug  therapy.  An  orally
administered product, VIRACEPT is available in adult and pediatric formulations.
   
     VIRACEPT  sales in North America  totaled  $358,321,000  in fiscal 1998 and
$107,187,000  in the first  quarter  of  fiscal  1999.  Agouron  Pharmaceuticals
estimated that approximately 90,000 patients in the United States (approximately
150,000 in the world) were taking  VIRACEPT at the end of September  1998. It is
anticipated that continued  VIRACEPT sales will make a substantial  contribution
toward profitable financial results in the future.
    


<PAGE>


   
     Agouron  Pharmaceuticals  developed  VIRACEPT  in  collaboration  with  the
pharmaceutical  division of JT. Agouron  Pharmaceuticals  and Japan Tobacco Inc.
("JT").  Agouron  Pharmaceuticals and JT granted exclusive  commercial rights in
Europe,  Asia and certain other countries in the world to Hoffmann-La Roche Inc.
and F. Hoffmann-La  Roche Ltd ("Roche").  Agouron  Pharmaceuticals  and JT share
profits  and/or  royalties  equally  from  the  worldwide  commercialization  of
VIRACEPT.

     In January and March 1998,  VIRACEPT was  approved for  marketing in Europe
and Japan, respectively.  VIRACEPT license fees and royalties from Roche totaled
$17,852,000 in 1998 and $5,050,000 in the first quarter of fiscal 1999.
    
RESEARCH AND DEVELOPMENT PROGRAMS

     Agouron  Pharmaceuticals'  research and  development  programs focus on the
areas  of  AIDS  and  other  serious  diseases.  Agouron  Pharmaceuticals'  drug
discovery  programs  apply  Agouron's  core  technologies  of  three-dimensional
structure based drug design and high-throughput  screening of chemical libraries
generated by computation-directed combinatorial chemistry.

     The  following  table  outlines  the status of various  programs in Agouron
Pharmaceuticals' research and development portfolio.  Agouron Pharmaceuticals is
pursuing some of these programs independently, while others are being undertaken
in collaboration with other companies.
                                                                  RESEARCH
                                                                     AND
                                                                 DEVELOPMENT
PROGRAM                             INDICATION                      STAGE

VIRAL DISEASE

     VIRACEPT(1)                    HIV Infection                Approved
     REMUNE(2)                      HIV Infection                Phase II/III
     S-1153(3)                      HIV Infection                Phase I
     JE-2147(4)                     HIV Infection                Preclinical
     AG7088                         Common Cold                  Preclinical
     Hepatitis C agents(5)          Viral Diseases               Research
     HIV Integrase Inhibitors       HIV Infection                Research

OPHTHALMOLOGY

     AG3340                         Macular Degeneration         Phase II
     Other MMP Inhibitors           Macular Degeneration         Preclinical
     VEGF Inhibitors                Macular Degeneration         Research


(1)   In collaboration with Japan Tobacco, Inc.
(2)   In collaboration with The Immune Response Corporation.
(3)   In collaboration with Shionogi & Co., Ltd.
(4)   In collaboration with Japan Energy Corporation.
(5)   In collaboration with Japan Tobacco Inc.

VIRAL DISEASE

OVERVIEW

     The development of new drugs for the treatment of certain viral diseases is
an important scientific and commercial focus of Agouron Pharmaceuticals. Agouron
Pharmaceuticals  is presently  conducting  programs  aimed at  discovery  and/or
development of several classes of anti-viral  drugs that block viral  proteases,
enzymes required by

<PAGE>



several  families of pathogenic  viruses to carry out replication and infection.
Agouron   Pharmaceuticals'   anti-viral  drug  programs   include  HIV  protease
inhibitors  (VIRACEPT and JE-2147),  an  immune-based  therapeutic  (REMUNE),  a
non-nucleoside reverse transcriptase inhibitor (S-1153),  rhinovirus 3C protease
inhibitors,  and  hepatitis  C  protease  enzymes.  Agouron  Pharmaceuticals  is
developing certain of its anti-viral drugs either through  collaboration(s) with
JT, Roche, IRC, Shionogi & Co., Ltd. and Japan Energy Corporation.

HIV PROTEASE INHIBITOR: VIRACEPT

     HIV protease is an enzyme that performs an essential role in the infectious
cycle of HIV, and clinical  research has  demonstrated  that  inhibition  of the
protease  enzyme renders HIV unable to form new infectious  virus.  Today,  five
FDA-approved  HIV  protease  inhibitors   (including   VIRACEPT)  are  making  a
significant contribution in the management of HIV disease.

     VIRACEPT was cleared by the FDA for marketing in the United States in March
1997  pursuant  to the  FDA's  guidelines  for  accelerated  approval.  VIRACEPT
development  activities now include certain  additional  phase II/III studies to
facilitate  the full approval of the drug and certain phase IV studies  designed
to expand the utilization of the product.

IMMUNE-BASED THERAPEUTIC AGENT:  REMUNE (AG1661)

     An important  recent goal in treatment of HIV  infection is to combine such
highly active drugs as HIV protease  inhibitors,  capable of halting replication
of HIV, with agents capable of directly enhancing recovery of the immune system.
REMUNE is an immune-based  therapeutic agent, derived from HIV itself, which has
been  shown to  stimulate  the  immune  system to  respond  specifically  to HIV
infection and to produce the increases in substances such as chemokines that may
provide   protection  to  uninfected   cells.   Discovered  by  IRC,  REMUNE  is
administered  as an  intramuscular  injection  every three months,  and has been
well-tolerated in clinical trials to date.

     In May 1997,  enrollment  was  completed at 74 centers in the United States
for a pivotal phase III, clinical end-point trial in which  approximately  2,500
patients were randomized to receive  conventional  anti-retroviral  drug therapy
with or without  REMUNE.  This study is expected to be  completed in March 1999.
More than 250 patients  have been enrolled in two other  clinical  studies which
are evaluating the effect of REMUNE in combination with anti-retroviral drugs on
virologic  and  immunologic  markers  in adults.  A smaller  study of REMUNE for
treatment of HIV infection in children is in progress at the National Institutes
of Health.

     In  June  1998,  Agouron  and  IRC  began  a  collaboration  on  the  final
development and  commercialization  of REMUNE.  Agouron has exclusive  rights to
market REMUNE in North America,  Europe and certain other  countries,  while IRC
will  manufacture  commercial  supplies  of REMUNE.  Agouron  and IRC will share
equally  all  profits  from the  commercialization  of REMUNE  and the  licensed
territory.

NON-NUCLEOSIDE REVERSE TRANSCRIPTASE INHIBITOR (NNRTI): AG1549 (S-1153)

     AG1549 is a  second-generation  NNRTI for the  treatment of HIV  infection.
Discovered by Shionogi & Co., Ltd. ("Shionogi"), AG1549 is currently the subject
of several  clinical  trials  evaluating its dose and its  concomitant  use with
other antiretroviral treatments.  AG1549 is of high clinical interest because it
is ten times more  potent IN VITRO than  currently  approved  NNRTIs and because
AG1549 is fully active IN VITRO against HIV  containing  the most common genetic
mutation (at position 103) associated with resistance to other NNRTIs.

     Agouron  Pharmaceuticals  has  exclusive  rights  to  the  development  and
commercialization of AG1549, except in Japan, South Korea and Taiwan, subject to
the payment of royalties to Shionogi.



<PAGE>



HIV PROTEASE INHIBITOR:  AG1776 (JE-2147)

     AG1776  is a  protease  inhibitor  for  the  treatment  of  HIV  infection.
Preclinical  data indicate that AG1776,  discovered by Japan Energy  Corporation
("JE"),  works  synergistically  IN VITRO with other  protease  inhibitors.  The
compound has also exhibited activity against HIV mutations  commonly  associated
with resistance to other protease inhibitors.

     Agouron  Pharmaceuticals has exclusive world-wide rights to the development
and  commercialization  of AG1776 except in Japan,  South Korea, North Korea and
Taiwan,  subject to the payment of  royalties  to JE; JE will  manufacture  bulk
compound for use in final drug product.

RHINOVIRUS 3C PROTEASE INHIBITOR:  AG7088

     Rhinoviruses  are  believed  to be the single  most  frequent  cause of the
common  cold.  While  rhinovirus  infections  are a periodic  annoyance  to most
individuals,  they may produce more severe and prolonged symptoms in people with
chronic obstructive pulmonary disease,  such as asthma and emphysema.  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. Agouron-has
designed potent, selective rhinovirus 3C protease inhibitors,  including AG7088,
that are  currently  being  evaluated in  preclinical  pharmacological  studies.
Agouron  Pharmaceuticals  retains all commercial  rights in compounds  resulting
from this program.

HIV INTEGRASE INHIBITORS

     The drugs  currently  approved in the United  States for  treatment  of HIV
infection consist of reverse  transcriptase  inhibitors and protease  inhibitors
(including  VIRACEPT).  Another  mechanism  of  action  is  inhibition  of HIV-1
integrase, a key enzyme in catalyzing the integration of HIV into human cells.

     Agouron  scientists  believe  that  blocking  HIV  integrase  is  a  viable
therapeutic  strategy  that  will  abort  completion  of the viral  life  cycle,
preventing  infection of new,  uninfected target cells.  Scientists also believe
that HIV integrase is an  attractive  target,  because it is extremely  unlikely
that an HIV  integrase-specific  inhibitor  will  nonspecifically  inhibit other
eukaryotic enzymes.  This fact may possibly reduce the incidence of side effects
of an integrase inhibitor used to treat HIV infection.  Agouron  Pharmaceuticals
retains all commercial rights in compounds resulting from this program.

ANTI HEPATITIS C DRUGS

     The hepatitis C virus ("HCV") is a virus that causes illnesses ranging from
a mild flu-like  disease to  progressive  liver  disease,  cirrhosis and primary
liver  cancer.  The ability to treat  infection by HCV  represents a significant
unmet clinical need,  particularly in Asian countries.  HCV depends upon several
key protease enzyme for the production of new infectious virus.

     Agouron  Pharmaceuticals  scientists have initiated  programs to design new
classes of  anti-viral  drugs that block such  enzymes  and disrupt the HIV life
cycle.   Agouron   Pharmaceuticals   is  pursuing  this   research   program  in
collaboration with JT.

OPHTHALMOLOGY

OVERVIEW

     A hallmark of many serious retinal disorders,  such as age-related  macular
degeneration,  macular edema,  retinopathy  of  prematurity,  and  proliferative
diabetic retinopathy,  is an extensive proliferation of new blood vessels in the
retina  and  underlying  choroid.   This  process,   known  as  angiogenesis  or
neovascularization,  often leads to retinal  hemorrhage that results in the loss
of ganglion cells,  degeneration of the central optic nerve, and eventually loss
of  central  and/or  peripheral  vision.  The most  common  neovascular  retinal
disorder, namely age-related macular degeneration, has recently become a leading
cause of blindness in the elderly population in the industrialized world.


<PAGE>




     In common with other  tissues,  the growth of new blood vessels is mediated
by many  factors  including  various  members  of the  family of MMPs,  VEGF and
Fibroblast  Growth  Factors  ("FGF")  and their  respective  receptors  and some
members  of  the  integrin  family  of  receptors   involved  in  cell-cell  and
cell-matrix  interactions.  In ocular tissues,  the production of these factors,
receptors  and MMPs is increased by local  hypoxia,  the most notable  condition
believed  to  stimulate   retinal  and   subretinal   neovascularization.   Most
significantly,  in the ocular tissue of patients with any of the above mentioned
diseases,  elevated levels of growth factors,  integrins and MMPs (in particular
MMP-2 and MT-MMP-1) were consistently identified.

     Key  mediators  of  angiogenesis   have  been  associated  with  ophthalmic
disorders.  VEGF and basic FGF are strongly  implicated as causative  angiogenic
agents in a variety of  studies.  In ocular  tissues,  the  production  of these
growth factors is increased by hypoxia,  the most notable condition  believed to
stimulate  retinal  angiogenesis.  Most  significantly,  in patients  undergoing
surgery,  high levels of VEGF in ocular fluid were found associated with macular
degeneration,  active  diabetic  retinopathy,  central vein  occlusion and other
disorders.

     Current studies in the area of  ophthalmology  involve an assessment of the
impact that inhibitors of MMPs might have on therapeutic practice and in meeting
medical  needs in these  areas.  Agouron  Pharmaceuticals  is in  animal  models
conducting  a  series  of  proof-of-principle  pre-clinical  studies  of  ocular
diseases with the MMP inhibitor  AG3340 in preparation  for the  commencement of
human  clinical  studies.  Agouron  Pharmaceuticals  has  recently  demonstrated
significant  accumulation  of AG3340 in the  vitreous  humor of rats and monkeys
following oral dosing.

     Likewise,  it is anticipated  that when suitable  inhibitors of VEGF become
available,  they will be tested in the existing ocular angiogenesis models prior
to  selection   of  a  lead   compound   for   clinical   development.   Agouron
Pharmaceuticals  retains all commercial rights in compounds  resulting from this
program.

BUSINESS RELATIONSHIPS/RESEARCH AND DEVELOPMENT AGREEMENTS

     Agouron  Pharmaceuticals has funded its research and development  primarily
from  working  capital  generated  from both private and public sales of Agouron
Pharmaceuticals   equity,   collaborative   arrangements   and   the   financial
contribution  resulting  from  product  sales.  Agouron  Pharmaceuticals  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 February 1994, Agouron Pharmaceuticals entered into a strategic alliance
with JT in the field of anti-viral drugs for the treatment of infections  caused
by hepatitis C and the herpes family of viruses.  In December  1994, the Company
added its anti-drug,  VIRACEPT,  to the JT collaboration with the execution of a
world-wide development and licensing agreement.  Agouron  Pharmaceuticals and JT
share equally the costs of further development of VIRACEPT.

     Currently,  Agouron  Pharmaceuticals  has  exclusive  commercial  rights to
VIRACEPT  (with the right to  sublicense)  in North America and JT has exclusive
commercial rights to VIRACEPT (with the right to sublicense) in certain parts of
Japan.  Agouron  Pharmaceuticals  and JT share profits and/or royalties  equally
from the world-wide commercialization of VIRACEPT.

ROCHE

     Agouron Pharmaceuticals and JT have granted Roche certain exclusive royalty
bearing  marketing  rights to  VIRACEPT  outside of North  America  and parts of
Japan.  Further,  Agouron  Pharmaceuticals  receives  royalties  based either on
Roche's  sales  of  VIRACEPT  or,  in  certain  circumstances,  Invirase(R)  and
Fortavase(R) (saquinavir),  Roche's HIV protease inhibitors. Roche has the right
to  manufacture  VIRACEPT  for  its own use and is  expected  to  commence  such
manufacturing in calendar 1999.


<PAGE>




IMMUNE RESPONSE

     In June 1998,  Agouron  Pharmaceuticals  entered  into a binding  letter of
intent with IRC to collaborate on final  development  and  commercialization  of
REMUNE,  an immune-based  therapeutic  agent discovered by IRC and currently the
subject of several clinical studies  including a large phase III clinical trial.
The two companies intend to enter promptly into a definitive  agreement and will
endeavor to complete  development  and  registration of REMUNE in 1999. IRC will
manufacture commercial supplies of REMUNE, and Agouron Pharmaceuticals will have
exclusive  rights to market  REMUNE in North  America,  Europe and certain other
countries.   The  two   companies   will  share   equally   all   profits   from
commercialization of REMUNE and the licensed territory.  Agouron Pharmaceuticals
paid an initial  $10,000,000  license fee to IRC in June 1998 and also purchased
118,256   newly   issued   common   shares  of  IRC  for   $2,000,000.   Agouron
Pharmaceuticals may pay, assuming ongoing successful  development,  registration
and approval of REMUNE,  to IRC up to $53,000,000 in additional  development and
milestone payments and $12,000,000 in purchases of IRC common stock.

SHIONOGI & CO., LTD.

     In June 1998,  Agouron  Pharmaceuticals  entered  into a binding  letter of
intent with Shionogi to develop and  commercialize  AG1549, a  second-generation
NNRTI for the  treatment of HIV  infection.  Discovered  by Shionogi,  AG1549 is
currently the subject of several  clinical  trials  evaluating  its dose and its
concomitant use with other antiretroviral treatments. AG1549 is of high clinical
interest  because it is ten times more potent IN VITRO than such other NNRTIs as
nevirapine  (Viramune(R)) and delavirdine  (Rescriptor(R)) and because AG1549 is
fully active IN VITRO against HIV containing  the most common  genetic  mutation
(at  position  103)  associated  with  resistance  to  other  NNRTIs,  including
efavirenz (Sustiva(TM)).

     Agouron  Pharmaceuticals  has  exclusive  rights  to  the  development  and
commercialization  of AG1549  except in Japan,  South Korea and Taiwan.  Agouron
Pharmaceuticals paid an initial $10,000,00 license fee to Shionogi in June 1998.
Agouron  Pharmaceuticals  may  pay,  assuming  ongoing  successful  development,
registration  and  approval  of  AG1549,   additional  license  fees  of  up  to
$30,000,000.  In addition,  Agouron  Pharmaceuticals will pay Shionogi royalties
based on sales, if any, of AG1549.

JAPAN ENERGY CORPORATION

     In June 1998, Agouron Pharmaceuticals entered into a license agreement with
JE to develop and  commercialize  AG1776,  a novel  protease  inhibitor  for the
treatment of HIV infection. Preclinical data indicate that AG1776, discovered by
JE, works synergistically IN VITRO with other protease inhibitors.  The compound
has  also  exhibited  activity  against  mutations   commonly   associated  with
resistance to other protease inhibitors.

     Agouron  Pharmaceuticals has exclusive world-wide rights to the development
and  commercialization  of AG1776 except in Japan,  South Korea, North Korea and
Taiwan;  JE will manufacture bulk compound for use in final drug product Agouron
Pharmaceuticals incurred an initial $6,000,000 license fee in June 1998. Agouron
Pharmaceuticals may incur, assuming ongoing successful development, registration
and  approval  of  AG1776,  additional  license  fees of up to  $20,000,000.  In
addition,  Agouron Pharmaceuticals will pay JE royalties based on sales, if any,
of AG1776.

MANUFACTURING

     Agouron  Pharmaceuticals   utilizes  worldwide  contract  manufacturing  to
produce VIRACEPT.  Agouron Pharmaceuticals  procures and transfers raw materials
to contracted  bulk drug  producers,  sends the converted bulk drug to finishing
facilities and moves finished goods into a distribution  center.  Product supply
and associated  raw materials  have been  available in sufficient  quantities to
meet business  needs. In order to accommodate  anticipated  sales volume growth,
capacity expansion efforts are being pursued.  Agouron  Pharmaceuticals  will be
dependent  upon its  contract  manufacturers  to comply with good  manufacturing
practices  and to meet its  production  requirements.  There can be no assurance
that Agouron Pharmaceuticals' contract manufacturers will timely deliver

<PAGE>



sufficient  quantities  of Agouron  Pharmaceuticals'  products  or that  Agouron
Pharmaceuticals would be able to find substitute manufacturers, if necessary.

MARKETING

     Agouron  Pharmaceuticals  distributes VIRACEPT in the United States through
wholesalers.  Sales  volumes in the United  States are  influenced by underlying
demand and wholesale inventory management practices.

     VIRACEPT  is covered by  Medicaid  programs in all states and is covered by
virtually all state AIDS Drug Assistance Programs ("ADAPs"). Currently, VIRACEPT
is paid for predominately by Medicaid,  private insurance and ADAPs. The Company
offers a patient  assistance  program  based upon  medical need for patients who
have no other means of coverage.

     Outside of the United States and Canada,  VIRACEPT is marketed on behalf of
Agouron  Pharmaceuticals  and JT by Roche.  Agouron  Pharmaceuticals  receives a
royalty on Roche's worldwide sales of VIRACEPT.

     Agouron  Pharmaceuticals' sales and marketing efforts utilize a field sales
organization which focuses primarily on office- and  hospital-based  physicians,
including key medical thought leaders. Additionally, Agouron Pharmaceuticals has
obtained market access and availability for its products in part by establishing
relationships   within  key  market  segments,   including  health   maintenance
organizations, third-party payers and governmental agencies.

HUMAN RESOURCES

     As of October 19, 1998, the Company had approximately  1,000 employees.  Of
these it is anticipated that  approximately 800 full time staff equivalents will
be directly engaged in the conduct of the Agouron Pharmaceuticals business.



<PAGE>



AGOURON PHARMACEUTICALS, A DIVISION OF AGOURON PHARMACEUTICALS, INC.

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

OVERVIEW
   
     This discussion contains  forward-looking  statements.  Such statements are
subject to certain risks and  uncertainties  which could cause actual results to
differ  materially from those  projected.  See "Risk Factors -- Risks related to
Agouron   Pharmaceuticals   Division  and   Oncology   Division"  in  the  Proxy
Statement/Prospectus  to which this Annex IV is attached.  Readers are cautioned
not to place undue reliance on these forward-looking statements which speak only
as of the date hereof.  The Company undertakes no obligation to publicly release
the result of any  revisions to these  forward-looking  statements  which may be
made to reflect events or circumstances  after the date hereof or to reflect the
occurrence of unanticipated events.

     Agouron Pharmaceuticals ("Agouron  Pharmaceuticals" or "AP"), a division of
Agouron  Pharmaceuticals,  Inc. (the  "Company") is committed to the  discovery,
development, manufacturing and marketing of human pharmaceuticals targeting AIDS
and other serious diseases. Operations to date have been principally funded from
the Company's equity-derived working capital, various collaborative arrangements
and,   most   recently,   from  the  gross   margin   contribution   of  Agouron
Pharmaceuticals'  first  product,  VIRACEPT(R)  (nelfinavir  mesylate).  The net
income  reported  in fiscal  1998  and  in the first quarter of fiscal  1999 is
principally   due  to  the   commercialization   of   VIRACEPT   while   Agouron
Pharmaceuticals'  prior net operating losses reflect primarily the result of its
independent  research and substantial  investment in the clinical and commercial
development of VIRACEPT.

     In March 1997, Agouron  Pharmaceuticals  received clearance from the United
States  Food and Drug  Administration  ("FDA") to market  VIRACEPT in the United
States.  Due principally to the increasing  product  contribution  from VIRACEPT
sales, license fees and royalties, Agouron Pharmaceuticals realized a net income
of  $37,387,000  for the fiscal year ended June 30,  1998,  and  $8,649,000  and
$19,477,000 for the three month periods ended September 30, 1997 and 1998.

RESULTS OF OPERATIONS

YEARS ENDED JUNE 30, 1996, 1997 AND 1998
    
PRODUCT SALES

     Product  sales  for the  fiscal  years  ended  June 30,  1997 and 1998 were
approximately  $57,000,000 and  $409,300,000  which included sales in the United
States of $55,559,000 and $358,321,000,  respectively.  Agouron  Pharmaceuticals
anticipates   that  VIRACEPT  sales  in  the  United  States  will   approximate
$430,000,000 to $440,000,000 for fiscal 1999.

CONTRACT REVENUES
   
     Collaborative  research and development  agreements with Japan Tobacco Inc.
("JT")  accounted for  substantially  all of Agouron  Pharmaceuticals'  contract
revenues for 1996, 1997 and 1998. Total contract  revenues for 1997 increased by
approximately  31% due principally to increased program activity and spending on
the JT  collaborations.  The decrease in contract  revenues from 1997 to 1998 of
approximately 53% was due principally to decreased  VIRACEPT program spending by
Agouron  Pharmaceuticals,  which was partially funded by JT.  Additionally,  the
amortization  to revenue  over a 24 month period of JT's  $24,000,000  milestone
payment,  which was received in August 1995, was completed in June 1997. Agouron
Pharmaceuticals   anticipates  that  contract  revenues  for  fiscal  1999  will
approximate $30,000,000 to $35,000,000.
    



<PAGE>




LICENSE FEES AND ROYALTIES
   
     Agouron  Pharmaceuticals  license fees and royalties for 1997 and 1998 were
principally  derived from F. Hoffmann-La Roche Ltd ("Roche").  The increase from
1996 to 1997 is  principally  due to the receipt  $9,000,000 in 1997 for initial
European  marketing  rights for  VIRACEPT.  Total  revenues  for 1998  increased
approximately 84% from 1997 due to European marketing approval for VIRACEPT.
    
     In January and March 1998,  VIRACEPT was  approved for  marketing in Europe
and Japan, respectively.  Upon such approvals,  Agouron Pharmaceuticals realized
as  revenue   license  fees  totaling   $12,000,000.   In  July  1997,   Agouron
Pharmaceuticals  and JT granted  Roche certain  exclusive  rights to VIRACEPT in
several Asian countries.  For such rights,  Agouron  Pharmaceuticals  received a
license fee of $2,000,000.

     Royalty revenues of  approximately  $3,852,000 have been recognized in 1998
based on estimated and actual Roche sales of VIRACEPT in its licensed territory.
Agouron  Pharmaceuticals  anticipates that license fees and royalties for fiscal
1999 will range from $30,000,000 to $35,000,000.

COST OF PRODUCT SALES

     The  aggregate  cost of product  sales as a percentage of product sales was
approximately  43% and 42% for 1997 and 1998,  respectively.  Gross  margins  on
United States  commercial sales were  approximately  57% and 65% during 1997 and
1998,  respectively.  Agouron Pharmaceuticals  anticipates that gross margins on
United States  commercial  sales will improve as product sales volumes  increase
and certain manufacturing process and scale efficiencies are realized,  and will
approximate  71% in 1999.  Aggregate  gross margins will also be impacted by the
size of Agouron Pharmaceuticals' patient assistance program (which provides free
goods to indigent individuals),  Agouron  Pharmaceuticals'  manufacturing supply
agreement with Roche (whereby Roche has the right to either purchase  product at
Agouron   Pharmaceuticals'  cost  plus  contractually   determined  mark-ups  or
manufacture drug product for its own use,  subject to  contractually  determined
fees to be paid to Agouron  Pharmaceuticals)  and the level of sales  subject to
Medicaid and other discounts or rebates in the United States.

RESEARCH AND DEVELOPMENT
   
     Research and development  ("R&D") spending  increased by approximately  51%
from 1996 to 1997 due principally to increased  expenditures in support of human
clinical  trials and an expanded access program  associated  with VIRACEPT.  R&D
spending  increased by  approximately  39% from 1997 to 1998 due to license fees
for three  development  stage HIV products and the addition of Alanex since late
1997.  Agouron  Pharmaceuticals  anticipates  that total R&D  expenses in fiscal
1999,  excluding the impact of any license fees or milestone  expenses in either
1998 or 1999, will exceed fiscal 1998 expenses by approximately 40%.
    
SELLING, GENERAL AND ADMINISTRATIVE

     Selling,   general  and   administrative   ("SG&A")  expenses   represented
approximately  10% of total  operating  expenses  (excluding the cost of product
sales,  royalties and write-off of in-process technology purchased) in 1996, 28%
in 1997 and 33% in 1998.  Spending  increases from 1996 to 1997 were due chiefly
to increasing staff levels (approximately 214%) and staff-related  expenditures,
certain  premarketing  and advertising  and promotion costs  associated with the
launch of VIRACEPT in March 1997 and other costs associated with a growing sales
and marketing  infrastructure.  SG&A increased by approximately 77% from 1997 to
1998 due principally to a full year of expenses  associated with the sales force
and other marketing personnel.  Agouron  Pharmaceuticals  anticipates that total
SG&A  expenses  will  increase  by  approximately  40%  in  fiscal  1999  due to
increasing  sales and marketing  activities and the support of VIRACEPT phase IV
marketing studies.


<PAGE>



ROYALTIES

     Agouron  Pharmaceuticals'  obligation to share VIRACEPT  profits with JT is
reflected in royalty expense for 1998 and represents approximately 19% of United
States  product  sales.  Royalties  in fiscal 1997 were not  significant.  It is
anticipated  that royalty expense for fiscal 1999 will approximate 24% to 25% of
United States product sales.

WRITE-OFF OF IN-PROCESS TECHNOLOGY PURCHASED

     In fiscal 1997,  the Company  acquired  Alanex  Corporation  ("Alanex"),  a
research  company  engaged in the discovery of drug leads through the high-speed
screening of diverse chemical  libraries  designed by computational  methods and
generated  by  combinatorial  chemistry.  Alanex  was  acquired  in  a  purchase
transaction  through the issuance of  approximately  2,000,000 shares of Agouron
common  stock  valued  at  approximately  $61,000,000.  Transaction  costs  were
approximately  $1,300,000.  In fiscal 1997, the Company  recorded a write-off of
$57,500,000  (or  92% of  the  purchase  price,  including  transaction  costs),
representing  the values  determined  by management  to be  attributable  to the
in-process  technology purchased.  Of the amount written off,  approximately 95%
was attributed to and supported by a discounted cash flow analysis of three drug
discovery programs which anticipated  revenues beginning in 2003.  Approximately
40% of the value was  attributed to a compound  with obesity and  cardiovascular
indications,  30% for compounds with depression and anxiety  indications and 25%
for a program to treat  endometriosis  and  sex-hormone  dependent  tumors.  The
Company believes that the allocations and aggregate values attributable to these
programs are  reasonable  and  appropriate  based on the  commercial  potential,
beginning  in 2003,  of these three drug  discovery  programs,  which remain the
subject of research or development  efforts.  The Company recorded $4,800,000 of
the purchase price as an asset,  attributed to Alanex's  technology and chemical
compound library, which is being amortized over the expected benefit periods. At
September 30, 1998, the asset balance was approximately $3,350,000.

INTEREST AND OTHER INCOME

     Interest  income  increased  by  approximately  23%  from  1996 to 1997 due
principally to a higher average investment  portfolio balance resulting from the
July 1996 public  offering,  receipt of  $9,000,000  in license  fees from Roche
(January  1997),  significantly  increased  contract  funding  from  JT and  the
exercise of employee stock options. Interest income increased by 1% from 1997 to
1998.  Agouron  Pharmaceuticals  anticipates  that,  absent  additional  revenue
sources or a significant  change in interest rates,  fiscal 1999 interest income
will be less than that of fiscal 1998.

INTEREST EXPENSE

     Interest expense  decreased in 1997 from 1996 by approximately 38% due to a
decreasing  level of debt  and  capital  lease  obligations  from  year to year.
Interest  expense  increased in 1998 from 1997 due to borrowings under a line of
credit  which  was  used  to  partially  fund  quarterly  royalties  paid  to JT
throughout the year.

INCOME TAX PROVISION, NET OF TAX BENEFITS

     The income tax  provision  in 1998 has been  computed  using an  effective,
combined  federal  and  state  rate of 36%.  The cash  obligation  of such  1998
provision  has been mostly  offset by the  utilization  of deferred  tax assets.
Based on its 1998 pre-tax  profit and its estimates for future  taxable  income,
Agouron  Pharmaceuticals  believes it is more likely than not that its  deferred
tax assets  (comprised  mostly of net operating loss  carryforwards,  deductions
generated  by the  exercise of stock  options,  and  research  credits)  will be
realized and has,  therefore,  recorded the full tax benefit of its deferred tax
assets.  Agouron  Pharmaceuticals'  accumulated  net deferred tax assets totaled
approximately  $55,900,000  and  $64,100,000 at June 30, 1997 and 1998.  Agouron
Pharmaceuticals  anticipates  that its effective income tax rate for fiscal 1999
will be less than 10%.  Such  decrease from fiscal 1998 is attributed to greater
expected  availability of R&D tax credits due to the anticipated increase in R&D
spending  plus  the  anticipated  reduction  in R&D  contract  revenues  and the
utilization of tax losses from Oncology Division ("Oncology  Division" or "OD"),
a division of the Company.



<PAGE>


   
THREE MONTHS ENDED  SEPTEMBER 30, 1997 AND 1998

PRODUCT SALES

     Product sales for the three-month periods ended September 30, 1997 and 1998
were approximately  $79,502,000 and $133,870,000,  which included sales in North
America of $75,374,000 and $107,187,000, respectively.

CONTRACT REVENUES

     Collaborative  research and  development  agreements  with JT accounted for
substantially all of the Company's contract revenues for the three-month periods
ended September 30, 1997 and 1998.  Total contract  revenues for the three-month
periods decreased  approximately 13% due principally to decreased JT development
contract revenues.

LICENSE FEES AND ROYALTIES

     Royalty  revenues  of  approximately  $352,000  and  $4,925,000  have  been
recognized in the three-month periods ended September 30, 1997 and 1998 based on
estimated and actual Roche sales of VIRACEPT in its licensed territory.

COST OF PRODUCT SALES

     The  aggregate  cost of product  sales as a percentage of product sales was
approximately 43% for the three-month periods ended September 30, 1997 and 1998.
Gross margins on United States  commercial sales were  approximately 60% and 70%
for the three month periods ended September 30, 1997 and 1998.

RESEARCH AND DEVELOPMENT

     R&D spending  increased 30% from the three months ended  September 30, 1997
to the three months ended  September 30, 1998 due generally to costs  associated
with increasing average staff levels and staff related spending.

SELLING, GENERAL AND ADMINISTRATIVE

     SG&A costs have increased by 40% from the three months ended  September 30,
1997 to the three months ended  September 30, 1998 due principally to increasing
sales and marketing  activities  and the support of VIRACEPT  phase IV marketing
studies.

ROYALTIES

     Agouron  Pharmaceuticals'  obligation to share VIRACEPT  profits with JT is
reflected in royalty  expense for the  three-month  periods ended  September 30,
1997 and 1998 and represents 18% and 24% of United States product sales.

INTEREST AND OTHER INCOME

     Interest income  decreased by 19% from the three months ended September 30,
1997 to the three months ended  September  30, 1998 due  principally  to a lower
average  investment  portfolio  balance  resulting from  increased  research and
development spending.

INTEREST EXPENSE

     Interest  expense  increased from the three months ended September 30, 1997
to the three months ended  September 30, 1998 due to borrowings  under a line of
credit which was used to support increased spending levels.
    

<PAGE>



   
INCOME TAX PROVISION, NET OF TAX BENEFITS

     The income tax  provision for the first quarter of fiscal 1998 was computed
using an  effective,  combined  federal  and state  rate of 22%.  The income tax
provision  for the first  quarter  of  fiscal  1999 has been  computed  using an
effective,  combined federal and state rate of 6%. The decrease is attributed to
greater utilization of tax losses from Oncology Division.
    
YEAR 2000

     The Year 2000 issue  results from  computer  programs and systems that were
created  to  accept  only  two  digit  dates.  Such  systems  may not be able to
distinguish  20th century  dates from 21st century  dates.  This could result in
miscalculations  and system failures that could inhibit the Company's ability to
engage in normal business activities.

     The Company has  established  a Year 2000  project  team that is  currently
reviewing information technology ("IT") systems and non-IT systems that could be
affected by this issue. Additionally,  the Company has made initial contact with
all of its  significant  external  business  partners to determine the extent to
which the Company is  vulnerable  to their  failures and to ascertain  Year 2000
compliance and risk. The Company  estimates that the inventory and assessment of
IT systems,  non-IT systems, and material third parties will be completed by the
end of calendar 1998. The Company expects to complete remediation efforts by the
end of fiscal 1999, and to complete the validation  phase by the end of calendar
1999. At this time the Company has not initiated the  formulation of contingency
plans. The  determination of the necessity for contingency plans will be made by
the end of fiscal 1999.

     While the total cost to obtain  Year 2000  compliance  is not known at this
time,  the  Company  believes  such cost will not have a material  effect on the
Company's business,  financial position, or results of operation.  However, even
though the Company  expects to have obtained Year 2000  compliance  prior to the
Year 2000, the inability of the Company or its business  partners to remedy Year
2000 issues could have a significant impact on the Company's business, financial
position, or results of operation.

LIQUIDITY AND CAPITAL RESOURCES

     Prior to fiscal 1998, Agouron Pharmaceuticals has relied principally on the
Company's equity financings and corporate  collaborations to fund its operations
and  capital  expenditures.  Beginning  in fiscal  1998,  the gross  margin from
commercial   sales   of   VIRACEPT   contributed    significantly   to   Agouron
Pharmaceuticals'  overall  working  capital  requirements.  Commercial  sales of
VIRACEPT resulted in gross margins of $32,370,000 and $236,654,000 for the years
ended June 30, 1997 and 1998, and approximately  $45,429,000 and $76,825,000 for
the three month periods ended September 30, 1997 and 1998.

     At June 30,  1998,  Agouron  Pharmaceuticals  had net  working  capital  of
approximately $125,933,000, an increase of $11,565,000 over June 30, 1997 levels
due  principally  to Agouron  Pharmaceuticals'  pre-tax  profit of  $46,157,000,
partially  offset by  $24,610,000 of funding for Oncology  Division.  Individual
working capital components  significantly  impacted by the  commercialization of
VIRACEPT  include  trade  accounts  receivable  (an  increase  of  $18,416,000),
inventories  (an  increase of  $44,906,000),  accounts  payable (an  increase of
$15,560,000) and accrued liabilities (an increase of $25,829,000,  primarily due
to  accrued  royalties  payable to JT).  It is  anticipated  that these  working
capital  components  and cash and  short-term  investments  will  continue to be
significantly  impacted as VIRACEPT sales  increase.  At June 30, 1998,  Agouron
Pharmaceuticals  had  cash,  cash  equivalents  and  short-term  investments  of
approximately $87,123,000.

     At September 30, 1998, Agouron  Pharmaceuticals  had net working capital of
approximately $138,702,000, an increase of $12,769,000 over June 30, 1998 levels
due  principally  to Agouron  Pharmaceuticals'  pre-tax  profit of  $20,693,000,
partially  offset by  $10,623,000 of funding for Oncology  Division.  Individual
working capital components  significantly  impacted by the  commercialization of
VIRACEPT   include  trade  accounts   receivable  (a  decrease  of  $1,829,000),
inventories  (an  increase  of  $2,932,000),  accounts  payable (a  decrease  of
$18,539,000) and accrued liabilities (an increase of $472,000,  primarily due to
accrued  royalties  payable to JT). It is anticipated that these working capital
components and cash and short-term investments will continue to be significantly
impacted as

<PAGE>



VIRACEPT sales  increase.  At September 30, 1998,  Agouron  Pharmaceuticals  had
cash, cash equivalents and short-term investments of approximately  $61,940,000.
Agouron  Pharmaceuticals  believes that its current capital resources,  existing
contractual  commitments and anticipated VIRACEPT product sales contribution are
sufficient to maintain its current  operations  and to provide for the operating
requirements of Oncology  Division  through fiscal 1999. This belief is based on
current research and clinical  development plans of Agouron  Pharmaceuticals and
Oncology Division,  anticipated working capital requirements associated with the
expanding  commercialization  of VIRACEPT,  the current regulatory  environment,
historical  industry  experience in the  development  of  therapeutic  drugs and
general economic conditions.  The equity of Agouron  Pharmaceuticals is a series
of the Common Stock of the Company and is therefore  subject to the  liabilities
and operations of the other division(s) of the Company.




<PAGE>




AGOURON PHARMACEUTICALS, A DIVISION OF AGOURON PHARMACEUTICALS, INC.

INDEX TO FINANCIAL STATEMENTS


Report of Independent Accountants
   
Combined Balance Sheet as of June 30, 1997, June 30, 1998 and September 30, 1998

Combined   Statement of Income  (Loss) for the years ended June 30, 1996,  1997,
           1998 and for the three month  periods  ended  September  30, 1997 and
           1998

Combined   Statement of Division Equity and Comprehensive  Income (Loss) for the
           years  ended  June 30,  1996,  1997 and 1998 and for the three  month
           periods ended September 30, 1997 and 1998

Combined Statement of Cash Flows for the years ended
           June 30,  1996,  1997,  1998 and for the three  month  periods  ended
           September 30, 1997 and 1998
    
Notes to Combined Financial Statements

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



<PAGE>



REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of Agouron Pharmaceuticals, Inc.
   
In our opinion, the accompanying combined balance sheet and the related combined
statements of income (loss), of division equity and comprehensive  income (loss)
and of cash flows  present  fairly,  in all  material  respects,  the  financial
position of Agouron  Pharmaceuticals  (a  division  of Agouron  Pharmaceuticals,
Inc.) at June 30, 1997 and 1998,  and the results of its operations and its cash
flows  for each of the  three  years in the  period  ended  June  30,  1998,  in
conformity  with  generally  accepted  accounting  principles.  These  financial
statements are the responsibility of the management of Agouron  Pharmaceuticals,
Inc.; 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.
    
As  described  above  and more  fully  described  in Note 1 to  these  financial
statements,  Agouron  Pharmaceuticals is a division of Agouron  Pharmaceuticals,
Inc.; accordingly,  the combined financial statements of Agouron Pharmaceuticals
should be read in conjunction with the audited consolidated financial statements
of Agouron Pharmaceuticals, Inc.


PricewaterhouseCoopers LLP

San Diego, California
August 10, 1998

<PAGE>




AGOURON PHARMACEUTICALS, A DIVISION OF AGOURON PHARMACEUTICALS, INC.

COMBINED BALANCE SHEET
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
   

                                                                             JUNE 30,        September 30,
                                                                       1997           1998            1998
                                                                                               (unaudited)
ASSETS
<S>                                                           <C>            <C>             <C>          

Current assets:
     Cash and cash equivalents                                $      52,484  $      19,098   $      16,713
     Short-term investments                                          38,833         68,025          45,227
     Accounts receivable, net                                        26,707         49,703          50,117
     Inventories                                                     58,800        103,706         106,638
     Current deferred tax assets                                        500            564             564
     Other current assets                                             2,209          4,202           3,868
                                                              -------------  -------------   -------------

     Total current assets                                           179,533        245,298         223,127

Property and equipment, net                                          22,613         47,212          45,670

Deferred tax assets                                                  56,000         64,644          64,999

Purchased intangibles                                                 4,100          3,500           3,350
                                                              -------------  -------------   -------------

                                                              $     262,246  $     360,654   $     337,146
                                                              =============  =============   =============
LIABILITIES AND DIVISION EQUITY

Current liabilities:
     Accounts payable                                         $      28,833  $      44,393   $      25,854
     Accrued liabilities                                              8,639         34,468          34,940
     Deferred revenue and advances                                   24,567         23,563          21,191
     Current deferred tax liabilities                                   600          1,139           1,621
     Loan payable and current portion of long-term debt               2,526         15,802             819
                                                              -------------  -------------   -------------

     Total current liabilities                                       65,165        119,365          84,425
                                                              -------------  -------------   -------------

Long-term liabilities:
     Long-term debt, less current portion                             5,940          5,892           6,242
     Accrued rent                                                     1,277          1,023             938
                                                              -------------  -------------   -------------

     Total long-term liabilities                                      7,217          6,915           7,180
                                                              -------------  -------------   -------------

Division equity                                                     189,864        234,374         245,541
                                                              -------------  -------------   -------------

Commitments

                                                              $     262,246  $     360,654   $     337,146
                                                              =============  =============   =============
    
</TABLE>

See accompanying notes to combined financial statements.


<PAGE>



AGOURON PHARMACEUTICALS, A DIVISION OF AGOURON PHARMACEUTICALS, INC.

COMBINED STATEMENT OF INCOME (LOSS)
(IN THOUSANDS)
<TABLE>
<CAPTION>
   

                                                                                        Three Months Ended
                                                       YEARS ENDED JUNE 30,                SEPTEMBER 30,
                                                 1996         1997          1998         1997         1998
                                                                                  (unaudited)  (unaudited)
<S>                                       <C>              <C>       <C>          <C>         <C>   

Revenues:
     Product sales                        $         0  $    56,969   $   409,298  $    79,502  $   133,870
     Contracts                                 37,942       49,824        23,427        6,905        6,017
     License fees and royalties                     0       10,000        18,352        2,352        5,050
                                          -----------  -----------   -----------  -----------  -----------

                                               37,942      116,793       451,077       88,759      144,937
                                          -----------  -----------   -----------  -----------  -----------
Operating expenses:
     Cost of product sales                          0       24,599       172,644       34,073       57,045
     Research and development                  53,763       81,293       113,132       19,595       25,437
     Selling, general and administrative        6,142       31,653        55,876       11,766       16,482
     Royalties                                      0            0        68,423       13,376       25,893
     Write-off of in-process technology purchased   0       57,500             0            0            0
                                          -----------  -----------   -----------  -----------  -----------

                                               59,905      195,045       410,075       78,810      124,857
                                          -----------  -----------   -----------  -----------  -----------

Operating income (loss)                       (21,963)     (78,252)       41,002        9,949       20,080
                                          -----------  -----------   -----------  -----------  -----------

Other income (expenses):
     Interest and other income                  4,776        5,873         5,907        1,281        1,036
     Interest expense                            (228)        (142)         (752)        (161)        (423)
                                          -----------  -----------   -----------  -----------  -----------

                                                4,548        5,731         5,155        1,120          613
                                          -----------  -----------   -----------  -----------  -----------

Income (loss) before income taxes             (17,415)     (72,521)       46,157       11,069       20,693

Income tax provision (benefit)                    934      (38,287)       16,793        4,427        6,901
                                          -----------  -----------   -----------  -----------  -----------

Net income (loss)                             (18,349)     (34,234)       29,364        6,642       13,792

Tax benefit allocated from Oncology Division        0        4,290        8,023         2,007        5,685
                                          -----------  -----------   -----------  -----------  -----------          

Net income (loss) attributable to 
     AP stock                             $   (18,349) $   (29,944)  $   37,387   $     8,649  $    19,477
                                          ===========  ===========   ===========  ===========  ===========          
    
</TABLE>


See accompanying notes to combined financial statements.


<PAGE>



AGOURON PHARMACEUTICALS, A DIVISION OF AGOURON PHARMACEUTICALS, INC.

COMBINED STATEMENT OF DIVISION EQUITY AND COMPREHENSIVE INCOME (LOSS)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>

                                                                     Accumulated
                                                                           Other
                                                                   Comprehensive      Accumulated
                                                       OTHER       INCOME (LOSS)          DEFICIT          TOTAL
DIVISION EQUITY:
<S>                                              <C>            <C>                 <C>              <C>    

Balance at June 30, 1995                         $    16,203    $             --    $      (1,809)   $    14,394

   Equity contribution from
     Agouron Pharmaceuticals, Inc.                    82,515                  --               --         82,515
   Equity contribution to Oncology
     Division                                         (1,751)                 --               --         (1,751)
   Net Loss                                                0                   0          (18,349)       (18,349)
                                                 -----------    ----------------    -------------    -----------

Balance at June 30, 1996                              96,967                  --          (20,158)        76,809

   Equity contribution from
     Agouron Pharmaceuticals, Inc.                   146,405                  --               --        146,405
   Tax benefit of stock options exercised             12,100                  --               --
12,100
   Equity contribution to Oncology
     Division                                        (15,506)                 --               --        (15,506)
   Net loss                                               --                  --          (34,234)       (34,234)
   Tax benefit allocated from Oncology
     Division                                              0                   0            4,290          4,290
                                                 -----------    ----------------    -------------    -----------
Balance at June 30, 1997                             239,966                  --          (50,102)       189,864

   Equity contribution from
     Agouron Pharmaceuticals, Inc.                    14,453                  --               --         14,453
   Tax benefit of stock options exercised             16,896                  --               --         16,896
   Unrealized gains (losses) on securities                --                 384               --            384
   Equity contribution to Oncology  Division         (24,610)                 --               --        (24,610)
   Net income                                                                 --           29,364         29,364
   Tax benefit allocated from Oncology
     Division                                                                               8,023          8,023
                                                 -----------    ----------------    -------------    -----------
   
Balance at June 30, 1998                             246,705                 384          (12,715)       234,374

   Equity contribution from
     Agouron Pharmaceuticals, Inc. (unaudited)         1,805                  --               --          1,805
   Tax benefit of stock options exercised (unaudited)    660                  --               --            660
   Unrealized gains (losses) on securities (unaudited)    --                (152)              --           (152)
   Equity contribution to Oncology  Division 
     (unaudited)                                     (10,623)                 --               --        (10,623)
   Net income (unaudited)                                                     --           13,792         13,792
   Tax benefit allocated from Oncology
     Division (unaudited)                                  0                                5,685          5,685
                                                 -----------    ----------------    -------------    -----------

Balance at September 30, 1998 (unaudited)        $   238,547    $            232    $       6,762    $   245,541
                                                 ===========    ================    =============    ===========
</TABLE>

<TABLE>
<CAPTION>

                                                                           Other
                                                                   Comprehensive              Net    Comprehensive
                                                                   INCOME (LOSS)    INCOME (LOSS)    INCOME (LOSS)
COMPREHENSIVE INCOME (LOSS)
   ATTRIBUTABLE TO AP STOCK:
<S>                                                             <C>                 <C>              <C>    

Year ended June 30,
   1996                                                         $             --    $     (18,349)   $   (18,349)
   1997                                                                       --          (29,944)       (29,944)
   1998                                                                      384           37,387         37,771
Three months ended September 30 (unaudited),
   1997                                                                       --            8,649          8,649
   1998                                                                     (152)          19,477         19,325
    
</TABLE>

See accompanying notes to combined financial statements.


<PAGE>



AGOURON PHARMACEUTICALS, A DIVISION OF AGOURON PHARMACEUTICALS, INC.

COMBINED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
   

                                                                                       Three Months Ended
                                                       YEARS ENDED JUNE 30,                 SEPTEMBER 30,
                                                 1996         1997          1998         1997         1998
                                                                                  (unaudited)  (unaudited)
<S>                                         <C>          <C>         <C>           <C>           <C>    

Cash flows from operating activities:
     Cash received from product sales,
       contracts, license fees and 
       royalties                            $  43,911    $ 103,090   $   427,026   $   74,536    $ 142,151
     Cash paid to suppliers, employees and
       service providers                      (54,522)    (166,782)     (406,795)     (69,284)    (142,234)
     Interest received                          4,776        5,873         5,958        1,281          991
     Interest paid                               (228)        (142)         (752)        (161)        (423)
                                          -----------  -----------   -----------  -----------  -----------

     Net cash provided (used) by
          operating activities                 (6,063)     (57,961)       25,437        6,372          485
                                          -----------  -----------   -----------  -----------  -----------

Cash flows from investing activities:
     Proceeds from maturities/sales of short-term
       investments                             59,686      127,501       147,292       21,818       29,529
     Purchases of short-term investments     (118,224)     (91,227)     (176,100)     (51,972)      (6,883)
     Purchase of  property and equipment       (3,252)     (12,372)      (31,507)      (3,846)      (1,636)
     Cost to acquire Alanex, 
          net of cash acquired                      0          608             0            0            0  
                                          -----------  -----------   -----------  -----------  -----------
         

     Net cash provided (used) by 
          investing activities                (61,790)      24,510       (60,315)     (34,000)      21,010    
                                          -----------  -----------   -----------  -----------  -----------           

Cash flows from financing activities:
     Net proceeds from issuance of 
          common stock                         82,515       85,354        14,453        6,211        1,376
     Proceeds from credit line                      0            0        53,600            0        8,000
     Principal payments on credit line, long-term
       debt, and capital leases                  (818)        (364)      (41,951)        (237)     (22,633)
     Equity contribution to Oncology Division  (1,751)     (15,506)      (24,610)        (952)     (10,623)
                                                     


     Net cash provided (used) by
          financing activitie                  79,946       69,484         1,492       (5,022)     (23,880)


Net increase (decrease) in cash 
     and cash equivalents                      12,093       36,033       (33,386)     (22,606)      (2,385)
Cash and cash equivalents at
     beginning of year                          4,358       16,451        52,484       52,484       19,098
                                          ===========  ===========   ===========  ===========  ===========

Cash and cash equivalents at end of year  $    16,451  $    52,484   $    19,098  $    29,878  $    16,713
                                          ===========  ===========   ===========  ===========  ===========
Reconciliation  of net income 
     (loss) to net cash  provided 
     (used) by operating activities:
     Net income (loss) attributable to
      AP stock                            $  (18,349)  $   (28,944)  $    37,387  $     8,649  $    19,477
     Depreciation and amortization             2,411         3,910         9,087        1,893        3,328
     Write-off of in-process technology purchased  0        57,500             0            0            0
     Provision (benefit) for deferred income taxes 0       (40,510)       16,750        4,427        6,743
     Tax benefit allocated from Oncology Division  0        (4,290)       (8,023)      (2,007)      (5,685)
     Net (increase) decrease in inventories        0       (58,547)      (44,906)         889       (2,932)
     Net (increase) decrease in accounts receivable
       and other current assets               (1,198)      (23,541)      (24,989)     (15,039)         (80)
     Net increase (decrease) in accounts payable,
       accrued liabilities, deferred revenue and
       advances, and other liabilities        11,073        36,461        40,131        7,560      (20,366)
                                         -----------   -----------   -----------  -----------  -----------
Net cash provided (used) by
     operating activities                 $   (6,063) $    (57,961)  $    25,437  $     6,372   $      485
                                          ==========   ===========   ===========  ===========  ===========
               
</TABLE>
See accompanying notes to combined financial statements.




<PAGE>



AGOURON PHARMACEUTICALS, A DIVISION OF AGOURON PHARMACEUTICALS, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS

NOTE 1 - THE DIVISION AND ITS SIGNIFICANT ACCOUNTING POLICIES

THE DIVISION

     Agouron Pharmaceuticals  ("Agouron  Pharmaceuticals" or "AP") is a division
of  Agouron  Pharmaceuticals,  Inc.  (the  "Company")  which was  organized  and
incorporated  in  California  in  June  1984.  Agouron   Pharmaceuticals  is  an
integrated  pharmaceutical  company  committed  to the  discovery,  development,
manufacturing  and marketing of innovative  therapeutic  products  engineered to
inactivate  proteins  which play key roles in AIDS and other  serious  diseases.
Agouron  Pharmaceuticals,  through its own sales and marketing organization,  is
currently marketing in the United States its first drug, VIRACEPT(R) (nelfinavir
mesylate) for treatment of HIV infection.  In addition,  Agouron Pharmaceuticals
is expected to initiate a phase  II/III  pivotal  clinical  trial of  REMUNE(TM)
(AG1661),  aN immune-based  therapeutic agent for treatment of HIV infection and
AIDS being  co-developed  by  Agouron  Pharmaceuticals  and The Immune  Response
Corporation ("IRC").  Further,  Agouron Pharmaceuticals has a number of programs
in progress  for  discovery or  development  of other new drugs in the fields of
viral disease and other serious diseases.  Agouron Pharmaceuticals is also using
the proprietary core drug discovery technology of Alanex Corporation ("Alanex"),
a wholly-owned  subsidiary of the Company,  to accelerate the steps necessary to
discover  small molecule drug  candidates,  from the initial  identification  of
compounds  that exhibit  activity  against  selected  biological  targets to the
progression of these compounds to drug candidates for human clinical trials.

FINANCIAL STATEMENTS AND ALLOCATION MATTERS

     As a matter of policy, the Company manages the financial  activities of its
divisions  on a  centralized  basis.  These  financial  activities  include  the
investment of surplus cash, the issuance, repayment and repurchase of short-term
and long-term debt and the issuance and  repurchase of common stock.  During the
three years ended June 30, 1998,  the Company  attributed  all of its short-term
and long-term debt to AP based upon the specific  purpose for which the debt was
incurred and the cash flow requirements of AP. Accordingly, all of the Company's
interest  expense has been allocated to AP. The Company  believes this method of
allocation to be equitable and reasonable.

     Agouron  Pharmaceuticals'   financial  statements  have  been  prepared  in
accordance  with generally  accepted  accounting  principles and, taken together
with the Company's other division,  comprise all of the accounts included in the
corresponding  consolidated  financial  statements of the Company. The financial
statements  of  each  division  reflect  the  financial  condition,  results  of
operations  and cash flows of the  businesses  included  therein.  The  combined
financial  statements  of Agouron  Pharmaceuticals  also include any accounts or
assets of the Company not specifically allocated to Oncology Division ("Oncology
Division"  or  "OD"),  a  division  of  the  Company.   The  equity  of  Agouron
Pharmaceuticals  is a series of the Common Stock of the Company and is therefore
subject  to the  liabilities  and  operations  of the other  division(s)  of the
Company.

PRINCIPLES OF COMBINATION

     The combined financial statements of AP include the accounts of the Company
and its  wholly-owned  subsidiaries  except  for  its  programs  in the  area of
oncology,  which are  reflected  separately  in  Oncology  Division's  financial
statements.  All significant  intercompany  accounts and transactions  have been
eliminated.



<PAGE>



UNAUDITED INTERIM FINANCIAL INFORMATION
   
     The   consolidated   balance  sheet  as  of  September  30,  1998  and  the
consolidated  statements of income, of division equity and comprehensive  income
and of cash flows for the three month periods ended  September 30, 1997 and 1998
have been  prepared  by the Company and have not been  audited.  Such  financial
statements, in the opinion of management,  include all adjustments necessary for
their  fair  presentation  in  conformity  with  generally  accepted  accounting
principles.  Certain information and footnote  disclosures  normally included in
financial  statements  prepared in accordance with generally accepted accounting
principles  have been  condensed  or  omitted  pursuant  to the  Securities  and
Exchange  Commission rules and regulations.  Interim results are not necessarily
indicative of results for the full year.
    
ESTIMATES

     The  preparation  of financial  statements  in  conformity  with  generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that affect the reported amounts of assets,  liabilities,  revenues
and expenses and related disclosures as of the date of the financial statements.
Actual results could differ from such estimates.

CASH AND CASH EQUIVALENTS

     Agouron  Pharmaceuticals  considers  cash  equivalents  to  be  only  those
investments  which are  highly  liquid,  readily  convertible  to cash and which
mature within 90 days from date of purchase.

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, and corporate
equity  securities.   Agouron  Pharmaceuticals  has  classified  its  short-term
investments as  available-for-sale.  Included in short-term  investments at June
30, 1997 and June 30,  1998 is  $588,000,  and  $1,262,000  of accrued  interest
receivable.

INVENTORIES
   
     Inventories  are stated at the lower of cost or market.  Cost is determined
using the  first-in,  first-out  method.  Inventories  consist of the  following
components at September 30, 1998 (unaudited):

         Raw materials and work in progress                 $    98,520
         Finished goods                                           8,118
                                                            -----------
                                                            $   106,638
                                                            ===========
CONCENTRATION OF CREDIT AND MARKET RISK

     Agouron  Pharmaceuticals  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.  Agouron  Pharmaceuticals  has not realized any material
losses from such investments in 1996, 1997 or 1998.
    

<PAGE>




FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

     Agouron Pharmaceuticals has contract manufacturing operations in Europe and
Asia. Accordingly, Agouron Pharmaceuticals from time-to-time enters into forward
contracts to manage its exposure to  fluctuations in foreign  currency  exchange
rates. At June 30, 1998, Agouron  Pharmaceuticals  had several forward contracts
with  maturities  of  less  than  six  months  to  purchase   Japanese  Yen  for
approximately $9,426,000. These contracts are designated and effective as hedges
and,  accordingly,  gains and  losses  are  recognized  in the same  period  the
offsetting gains and losses of hedged transactions are realized and recognized.

PROPERTY AND EQUIPMENT

     Property and equipment is recorded at cost.  Depreciation is computed using
principally  the  straight-line  method over estimated  useful lives of three to
five years. Leasehold improvements are amortized over the life of the lease.

PURCHASED INTANGIBLES

     In  conjunction  with the Company's  1997  acquisition  of Alanex,  Agouron
Pharmaceuticals  has recorded  purchased  intangibles  (primarily drug discovery
technology  and  chemical  compound  libraries)  which are being  amortized on a
straight-line basis over their estimated useful lives of seven years.

DEFERRED REVENUE AND ADVANCES

     At June 30, 1998,  approximately  $22,414,000  of cash received from JT has
been  classified  as  deferred  contract  revenue  and  advances.  Approximately
$21,452,000  of the cash  received  from JT  represents  JT's advance of Agouron
Pharmaceuticals'  VIRACEPT development funding obligation which was completed in
March  1998.  Such  amounts are to be repaid by Agouron  Pharmaceuticals  out of
future profits, if any, generated by sales of VIRACEPT in the United States. The
balance of the payments from JT are  non-refundable  and are being recognized as
contract  revenue on a  prospective  basis  generally as  collaborative  program
expenses are incurred.

PRODUCT SALES

     Agouron Pharmaceuticals ships VIRACEPT to wholesalers throughout the United
States and  recognizes  sales revenue upon  shipment.  Sales are reported net of
discounts, rebates, chargebacks and product returns.
   
     Also   included  in  product  sales  are  sales  to  Roche  (at  cost  plus
contractually  determined  mark-ups) of clinical and commercial drug supplies to
be used by Roche in its licensed territory.  Such Roche sales were approximately
$1,441,000 and $50,979,000 for 1997 and 1998, and $4,128,000 and $26,683,000 for
the  three  month   periods  ended   September   30,  1997  and  1998.   Agouron
Pharmaceuticals  receives a royalty on Roche's  subsequent  commercial  sales of
such drug supplies.
    
CONTRACT REVENUES

     Contract revenues are earned and recognized  generally as contract research
costs are incurred  according to the  provisions of each  underlying  agreement.
Amounts  received in advance of  performance  are recorded as deferred  revenue.
Contract  milestone  payments are  recognized as revenues upon the completion of
the milestone event or requirement.


<PAGE>




LICENSE FEES AND ROYALTIES

     License fees are  recognized as revenue when earned as generally  evidenced
by  certain  factors  including:  receipt  of  such  fees,  satisfaction  of any
performance obligations and the non-refundable nature of such fees.

     Royalty  revenues are  recognized  based on  estimated  and actual sales of
licensed products in licensed territories.

RESEARCH AND DEVELOPMENT COSTS

     Research and development costs are expensed in the period incurred.

INCOME TAX PROVISION (BENEFIT)

     Agouron  Pharmaceuticals  records a provision  (benefit)  for income  taxes
using the liability method.  Current income tax expense  (benefit)  generally is
the amount of income taxes expected to be payable for the current year. Deferred
taxes are  recorded by applying  applicable  tax rates to  cumulative  temporary
differences  based on when and how they are  expected  to affect the tax return.
Agouron  Pharmaceuticals is included in the consolidated U.S. federal income tax
return filed by the Company. Division management and allocation policies provide
that,  as of the end of any fiscal  quarter,  any  projected  annual tax benefit
attributable  to any division that cannot be utilized by such division to offset
or reduce its current or deferred  income tax expense  will be  allocated to the
other division(s) without any compensating  payment or allocation.  Accordingly,
all losses of Oncology  Division have been  utilized by Agouron  Pharmaceuticals
and no provision has been recorded by Oncology  Division for any fiscal  period.
As it is anticipated that all deferred tax assets of the Company at present will
be realized by Agouron  Pharmaceuticals,  all deferred tax assets of the Company
are   currently   recorded  on  the  books  of  Agouron   Pharmaceuticals.   The
realizability of deferred tax assets is determined at the level of the Company.

STATEMENT OF CASH FLOWS
   
     For purposes of the Statement of Cash Flows,  cash  equivalents  are highly
liquid  investments  purchased with an original maturity of ninety days or less.
Non-cash financing and investing  activities are comprised  primarily of capital
lease  obligations of $457,000,  $2,355,000 and $1,579,000 for 1996,  1997, 1998
and the Company's acquisition of Alanex in 1997.
    


<PAGE>



NOTE 2 - SHORT-TERM INVESTMENTS

     The  cost  of  Agouron  Pharmaceuticals'  investment  portfolio  by type of
security and contractual maturity in the balance sheet is as follows:
<TABLE>
<CAPTION>
   
                                                                      JUNE 30,
                                                              1997                1998

         (Dollars in thousands)
<S>           <C>                                  <C>                 <C>    

              Type of security:
              Corporate debt                       $        24,401     $        46,023
              U.S. Treasury and agencies                    11,994              10,766
              Other interest-bearing                         2,438               9,462
              Corporate equity                                   0               1,774
                                                   ---------------     ---------------
                                                   $        38,833     $        68,025
                                                   ===============     ===============
              Contractual maturity:
              Maturing in less than twelve months  $        35,827     $        41,389
              Maturing between twelve and
                  thirty-two months                          3,006              26,636
                                                   ---------------     ---------------

                                                   $        38,833     $        68,025
                                                   ===============     ===============
</TABLE>


     The  cost  of  securities   sold,  if  any,  is  based  upon  the  specific
identification  method.  The net unrealized  holding gain on  available-for-sale
securities included as a separate component of stockholders'  equity at June 30,
1998 totaled $384,000. There were no material unrealized gains or losses nor any
material  differences  between the estimated fair values and costs of securities
in the investment  portfolio at June 30, 1998. Realized gains on the disposal of
available-for-sale  securities  during 1996  totaled  $22,000.  During 1997 such
gains and losses totaled  $12,000 and $4,000,  respectively.  During 1998,  such
gains and losses totaled $20,000 and $2,000, respectively.
    

<PAGE>



NOTE 3 - COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS
<TABLE>
<CAPTION>
   
                                                                           JUNE 30,
                                                                      1997         1998
(Dollars in thousands)
<S>                                                           <C>            <C>    

Accounts receivable, net:
     Trade                                                    $      26,055  $      44,471
     Contract                                                             0            813
     Royalties                                                            0          2,339
     Employee                                                           269            252
     Other                                                              383          1,828
                                                              -------------  -------------

                                                              $      26,707  $      49,703
                                                              =============  =============
Inventories:
     Raw materials and work in process                        $      57,883  $      95,517
     Finished goods                                                     917          8,189
                                                              -------------  -------------

                                                              $      58,800  $     103,706
                                                              =============  =============
Property and equipment, net:
     Scientific instrumentation                               $      16,614  $      26,869
     Leasehold improvements                                          10,804         25,135
     Computer equipment                                               8,892         15,619
     Furniture and fixtures                                           2,464          3,910
                                                              -------------  -------------

                                                                     38,774         71,533
     Less accumulated depreciation and amortization                 (16,161)       (24,321)
                                                              -------------  -------------

                                                              $      22,613  $      47,212
                                                              =============  =============
Accrued liabilities:
     Royalties                                                $           0  $      21,410
     License fees                                                         0          6,000
     Vacation                                                         1,932          2,955
     Clinical studies                                                 3,328          1,843
     Other                                                            3,379          2,260
                                                              -------------  -------------

                                                              $       8,639  $      34,468
                                                              =============  =============
    
</TABLE>


<PAGE>



NOTE 4 - SIGNIFICANT CONTRACT ARRANGEMENTS

JAPAN TOBACCO INC.

     In February 1994, Agouron Pharmaceuticals entered into a strategic alliance
with JT in the field of anti-viral drugs for the treatment of infections  caused
by  hepatitis C and the herpes  family of viruses.  In  December  1994,  Agouron
Pharmaceuticals  added its anti-HIV drug, VIRACEPT, to the JT collaboration with
the  execution of a world-wide  development  and  licensing  agreement.  Agouron
Pharmaceuticals  and JT share  equally  the  costs  of  further  development  of
VIRACEPT.

     Currently,  Agouron  Pharmaceuticals  has  exclusive  commercial  rights to
VIRACEPT  (with the right to  sublicense)  in North America and JT has exclusive
commercial  rights to VIRACEPT (with the right to sublicense) in parts of Japan.
Agouron  Pharmaceuticals  and JT share profits and/or royalties equally from the
world-wide commercialization of VIRACEPT.
   
     Under the combined terms of the JT agreements,  Agouron Pharmaceuticals has
incurred  costs of  $46,969,000,  $71,825,000  and  $51,898,000  and  recognized
corresponding contract revenues of $37,197,000,  $48,886,000 and $17,359,000 for
the years ended June 30, 1996, 1997 and 1998.
    
ROCHE

     Agouron Pharmaceuticals and JT have granted Roche certain exclusive royalty
bearing  marketing  rights to  VIRACEPT  outside of North  America  and parts of
Japan. For such rights, Agouron  Pharmaceuticals has received (and recognized as
revenue)  initial  license fees and additional  product  approval  license fees.
Agouron Pharmaceuticals also receives royalties based either on Roche's sales of
VIRACEPT   or,  in   certain   circumstances,   Invirase(R)   and   Fortavase(R)
(saquinavir),  Roche's  HIV  protease  inhibitors.  VIRACEPT  license  fees  and
royalties frOM Roche totaled $9,000,000 and $17,852,000 for the years ended June
30, 1997 and 1998.

THE IMMUNE RESPONSE CORPORATION

     In June 1998,  Agouron  Pharmaceuticals  entered  into a binding  letter of
intent with The Immune  Response  Corporation  ("IRC") to  collaborate  on final
development and  commercialization of REMUNE, an immune-based  therapeutic agent
discovered  by IRC  and  currently  the  subject  of  several  clinical  studies
including a large phase III clinical  trial.  The two companies  intend to enter
promptly into a definitive  agreement and will endeavor to complete  development
and registration of REMUNE in 1999. IRC will manufacture  commercial supplies of
REMUNE, and Agouron  Pharmaceuticals will have exclusive rights to market REMUNE
in North  America,  Europe and certain other  countries.  The two companies will
share equally all profits from the  commercialization  of REMUNE in the licensed
territory.  Agouron  Pharmaceuticals  paid an initial $10,000,000 license fee to
IRC in June 1998 and also  purchased  118,256  newly issued common shares of IRC
for  $2,000,000.   Agouron   Pharmaceuticals'   development  funding  obligation
commences  October  15,  1998  and,  assuming  ongoing  successful  development,
registration and approval of REMUNE,  Agouron  Pharmaceuticals may pay to IRC up
to $53,000,000 in additional  development and milestone payments and $12,000,000
in purchases of additional IRC common stock.

SHIONOGI & CO., LTD.

     In June 1998,  Agouron  Pharmaceuticals  entered  into a binding  letter of
intent with  Shionogi & Co.,  Ltd.  ("Shionogi")  to develop  and  commercialize
AG1549,  a  second-generation  non-nucleoside  reverse  transcriptase  inhibitor
("NNRTI") for the treatment of HIV infection.  Discovered by Shionogi, AG1549 is
currently the subject of several  clinical  trials  evaluating  its dose and its
concomitant use with other antiretroviral treatments.


<PAGE>




     Agouron  Pharmaceuticals has exclusive world-wide rights to the development
and commercialization of AG1549 except in Japan, South Korea and Taiwan. Agouron
Pharmaceuticals  paid an initial  $10,000,000  license fee in June 1998. Agouron
Pharmaceuticals may pay, assuming ongoing successful  development,  registration
and  approval  of  AG1549,  additional  license  fees of up to  $30,000,000.  In
addition, Agouron Pharmaceuticals will pay Shionogi royalties based on sales, if
any, of AG1549.

JAPAN ENERGY CORPORATION

     In June 1998, Agouron  Pharmaceuticals entered into an agreement with Japan
Energy Corporation ("JE") to develop and commercialize  AG1776, a novel protease
inhibitor  for the  treatment  of HIV  infection.  Agouron  Pharmaceuticals  has
exclusive  world-wide rights to the development and  commercialization of AG1776
except in Japan,  South Korea,  North Korea and Taiwan; JE will manufacture bulk
compound  for use in final drug  product.  Agouron  Pharmaceuticals  incurred an
initial $6,000,000 license fee in June 1998.  Agouron  Pharmaceuticals  may pay,
assuming ongoing  successful  development,  registration and approval of AG1776,
additional   license  fees  of  up  to   $20,000,000.   In   addition,   Agouron
Pharmaceuticals will pay JE royalties based on sales, if any, of AG1776.


<PAGE>



NOTE 5 - LONG-TERM DEBT
<TABLE>
<CAPTION>
   
                                                                           JUNE 30,
                                                                      1997           1998

 (Dollars in thousands)
<S>     <C>    <C>    <C>    <C>    <C>    <C>

Notespayable,  secured  with  personal 
     property and a  certificate  of deposit;
     interest at CD rate plus 1.5%,
     paid off in June 1998.                                   $         142  $           0

Capital leases with interest rates between 5.86% and 16.5%,
     maturing at various dates through June 2003.                     2,462          3,214

Line of credit, $20,000,000 secured; interest at bank reference
      rate or LIBOR plus 1.5%, expiring September 30, 1999.               0         15,000

Unsecured,  non-interest  bearing,  term  obligation;  
     face value of $4,500,000; discounted  to an  8.95%  
     effective  rate,  includes  imputed  interest  of
     $548,000 due June 28, 2001.                                      3,194          3,480

Term obligation for tenant improvements, interest
     at 11% per annum, payable in monthly installments,
     paid off in October 1997.                                        2,668              0
                                                              -------------  -------------

Total long-term debt and capital lease obligations                    8,466         21,694

Current portion                                                      (2,526)       (15,802)
                                                              -------------  -------------

                                                              $       5,940  $       5,892
                                                              =============  =============
    
</TABLE>

     Maturities of long-term debt,  excluding  capital  leases,  are as follows:
1999 - $15,000,000;  2000- $0; and 2001 - $4,500,000,  less imputed  interest of
$1,020,000.



<PAGE>



NOTE 6 - INCOME TAXES

(Dollars in thousands)

     The components of the provision (benefit) for income taxes are as follows:
   
                                                   YEARS ENDED JUNE 30,
                                                 1996         1997          1998
Current:
     Federal                              $         0  $         0   $         0
     State                                          1            1            43
     Foreign                                      933        1,222             0
                                          -----------  -----------   -----------
                                                  934        1,223            43
                                          -----------  -----------   -----------
Deferred:
     Federal                                        0      (33,510)       16,518
     State                                          0       (6,000)          232
     Foreign                                        0            0             0
                                          -----------  -----------   -----------
                                                    0      (39,510)       16,750
                                          -----------  -----------   -----------
                                          $       934  $   (38,287)  $    16,793
                                          ===========  ===========-  ===========

     The income tax  reconciliation  from  income  (loss)  before  income  taxes
computed at the federal statutory rate (34%) to Agouron  Pharmaceuticals' actual
income tax provision is as follows:


                                                   YEARS ENDED JUNE 30,
                                                 1996         1997         1998

Tax at U.S. federal statutory rate        $    (5,921) $   (24,657)  $   15,693
State taxes, net of federal benefit                 1            1          181
Foreign taxes                                     933        1,222            0
Purchase accounting book/tax basis differences      0       19,781            0
Other                                           5,864      (42,449)           0
Other                                              57          332          919
Adjustments to carryover amounts                    0        7,483            0
                                          -----------  -----------   -----------
     Subtotal                                     934      (38,287)      16,793
Tax benefits to/from other division                 0       (4,290)      (8,023)
                                          -----------  -----------   -----------

                                          $       934  $   (42,577)  $    8,770
                                          ===========   ==========   ===========

     Agouron  Pharmaceuticals'  deferred  tax  assets  and  liabilities  are  as
follows:

                                                   JUNE 30,
                                                 1997         1998

Book and tax depreciation/amortization
  differences                             $       710  $     5,743
Accrued liabilities                             1,097        1,607
Net operating loss carryforwards               26,081       17,494
Tax credits                                     4,113        3,859
Allocated tax benefits to/from other divisions 25,798       39,062
Other                                          (1,899)      (3,696)
                                          -----------  -----------
                                               55,900       64,069
Valuation allowance                                 0            0
                                          -----------  -----------
Deferred taxes, net                       $    55,900  $    64,069
                                          ===========  ===========
    
     Agouron  Pharmaceuticals  has not recorded  current  provisions  for United
States  federal  income  taxes due to net  operating  losses  for tax  reporting
purposes. At June 30, 1998, Agouron  Pharmaceuticals had allocated net operating
loss   carryforwards  for  federal  tax  reporting   purposes  of  approximately
$150,000,000 expiring from 2000 to 2013. The net operating loss includes the tax
benefit related to the exercise of stock options,  which benefit was recorded to
common stock. Agouron  Pharmaceuticals also has federal research and development
credit  carryforwards of  approximately  $4,800,000 at June 30, 1998. The future
utilization of net operating loss  carryforwards for federal income tax purposes
may be impacted by the issuance of additional equity securities.



<PAGE>



     Due to California's  partial conformity with federal  provisions  regarding
net operating loss and research and development credit  carryforwards,  and as a
result of Agouron Pharmaceuticals' use of certain state tax planning strategies,
for state tax reporting purposes at June 30, 1998, Agouron  Pharmaceuticals  has
no net operating  loss  carryforwards  and has research and  development  credit
carryforwards of approximately $2,200,000. Such credits do not expire.

     Based on its 1998  operating  results and its  estimates of future  taxable
income,  Agouron  Pharmaceuticals  believes that it is more likely than not that
its deferred tax assets  (comprised  mostly of net operating loss  carryforwards
and research  credits) will be realized and has therefore  recorded the full tax
benefit of its deferred tax assets as of June 30, 1998.

     Foreign tax expense  represents  certain  withholding taxes associated with
collaboration payments from JT.



<PAGE>



NOTE 7 - DIVISION EQUITY

AP Stock

     AP Stock will  represent a separate  series of the Company  Common Stock if
the  Company's  Divisional  Stock  Proposal  is  approved  and  such  series  is
designated  by the Board.  Additional  AP Stock may be issued  from time to time
upon exercise of stock options or at the discretion of the Company's Board.

ONCOLOGY EQUITY LINE

     The Company Board has approved a $25,000,000  cash equity line from Agouron
Pharmaceuticals  to Oncology  Division.  The amounts drawn under the equity line
are expected to be  exchanged  into shares of Oncology  Division  Stock when the
maximum amount of the equity line is reached or as the Company's Board otherwise
determines. Such stock will be distributed to holders of AP Stock on at least an
annual basis. On a periodic  basis,  the Company will review the equity line for
modification,   extension  or  termination.  If  the  line  is  terminated,  the
outstanding  amount  will be repaid in cash or, at the  option of the  Company's
Board, be exchanged for Oncology Division Stock. All cash allocated from Agouron
Pharmaceuticals   to  Oncology   Division   has  been   recorded  as  an  equity
contribution.



<PAGE>



NOTE 8 - COMMITMENTS
   
     Certain  scientific  instrumentation,  computers  and other  equipment  are
subject to leases which are classified as capital  leases.  At June 30, 1997 and
June 30, 1998, $2,895,000 ($2,629,000,  net) and $4,331,000 ($3,408,000, net) of
such leased equipment are included in property and equipment.

     Rental  expenses   (principally  for  leased   facilities  under  long-term
operating  lease  commitments)  were  $2,548,000,  $3,509,000 and $5,031,000 for
1996, 1997 and 1998. Future minimum payments for capital and operating leases at
June 30, 1998 are as follows:
    

<TABLE>
<CAPTION>
   
                                                      CAPITAL LEASES               OPERATING LEASES
(Dollars in thousands)
<S>                                                   <C>                           <C>    

                1999                                  $        819                  $        7,472
                2000                                           812                           5,507
                2001                                           818                           5,314
                2002                                           578                           3,943
                2003                                           243                           2,630
           Thereafter                                            0                           2,047
                                                      ------------                  --------------

           Total minimum lease payments                      3,270                  $       26,913
                                                                                    ==============
           Less amount representing interest                   (56)
                                                      -------------

           Obligations under capital leases           $      3,214
                                                      ============
    
</TABLE>


     FUNDING FOR THE ONCOLOGY DIVISION

     The  development  of Oncology  Division  products will require  substantial
funds.  Agouron  Pharmaceuticals  intends  to fund the  operations  of  Oncology
Division  for the  foreseeable  future.  The  Company's  Board has  approved the
allocation of up to $25,000,000 in cash from Agouron Pharmaceuticals to Oncology
Division under an equity line which is expected to be exchanged for OD shares.

     OTHER

     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.


<PAGE>



NOTE 9 - ALANEX ACQUISITION

     In April 1997, the Company executed a merger  agreement with Alanex,  which
now operates as a wholly-owned  subsidiary of the Company.  For all  outstanding
shares of Alanex common stock and related  options and  warrants,  approximately
2,000,000 shares of the Company's  common stock were issued,  subject to certain
restrictions.  Such shares had an aggregate fair market value on the measurement
date of  approximately  $61,000,000  and  transaction  costs were  approximately
$1,300,000.   Of  the  total  purchase  price  (including   transaction  costs),
$57,500,000 was allocated (as more fully described below) to certain  intangible
assets and expensed as in-process  technology and  approximately  $4,800,000 was
allocated to certain tangible and intangible assets and capitalized.

     The  identifiable  intangibles of Alanex include  several drug research and
discovery programs, a proprietary drug discovery technology, a chemical compound
library and an assembled work force.  These intangibles were valued using either
a replacement cost approach (work force, library and proprietary  technology) or
an income approach (research programs). Values assigned to the chemical compound
library and proprietary drug discovery technology have been capitalized, as such
intangibles are of a general nature and may have a number of alternative  future
uses. Values assigned to the drug discovery programs have been expensed, as such
programs  are  pursuing  specific  drug  targets  or  chemical  compounds,   the
technological  feasibility of which having not been demonstrated,  and there may
be no  alternative  future uses for such  targets or chemical  compounds  if the
programs are ultimately less than successful.

     Agouron Pharmaceuticals' statement of income (loss) includes the results of
operations  related to the  acquisition  since April  1997.  The  following  are
unaudited  pro-forma  results  of  operations  as if the  transaction  had  been
consummated on July 1, 1995:

(In thousands)
   
         Year ended June 30,                          1996              1997
                                                   (unaudited)       (unaudited)

         Revenues                                 $     44,379    $      123,602
                                                  =============    =============

         Net income (loss) attributable
          to AP stock                             $     18,247)   $       27,138
                                                  =============    =============
    

<PAGE>



NOTE 10 - QUARTERLY FINANCIAL DATA (UNAUDITED)

(In thousands)
<TABLE>
<CAPTION>

                                                                      QUARTER ENDED
                                         SEPTEMBER 30     DECEMBER 31         MARCH 31          JUNE 30
                                        -------------     -------------    -------------     ----------
<S>                                     <C>               <C>              <C>               <C>   

1997
Product sales                           $           0     $           0    $      13,401     $      43,568
Gross margin from product sales                     0                 0            7,378            24,992
Net loss attributable to AP stock             (12,021)           (9,883)            (987)           (7,053) (1)

1998
Product sales                           $      79,502     $      91,800    $     111,950     $     126,046
Gross margin from product sales                45,429            53,858           62,730            74,637
Net income attributable to AP stock             8,649             7,758           19,758             1,222 (2)
   
1999
Product sales                           $     133,870
Gross margin from product sales                76,825
Net income attributable to AP stock            19,477
    
</TABLE>

(1)  During  the  fourth  quarter of 1997,  Agouron  Pharmaceuticals  recorded a
     write-off of  $57,500,000  of  in-process  technology  associated  with the
     acquisition of Alanex,  partially  offset by the realization of $43,800,000
     of deferred tax assets associated with Agouron Pharmaceuticals' expectation
     of future taxable income.

(2)  During  the  fourth  quarter  of  1998,  Agouron  Pharmaceuticals  incurred
     in-licensing costs of $26,000,000 (tax-effected $15,600,000) for commercial
     rights to three development stage anti-HIV products.


<PAGE>



NOTE 11 - RELATED PARTY TRANSACTIONS

OVERVIEW

     The Company allocates corporate general and administrative and research and
development  expenses  and income  taxes in  accordance  with  certain  policies
adopted  by the  Company's  Board of  Directors.  Such  policies  may be further
modified or rescinded by action of the Company  Board of Directors who may adopt
additional policies, without approval of Agouron Pharmaceuticals'  stockholders,
subject only to their fiduciary duty to such stockholders.

SHARED SERVICES

     Agouron  Pharmaceuticals  operates as a division of the Company with access
to the  Company's  personnel,  financial  resources,  facilities  and  extensive
capabilities in research and development,  manufacturing,  clinical  development
and  administration,  the costs of which are  allocated  to each  division  in a
reasonable  and  consistent  manner based on  utilization by the division of the
services to which such costs relate. Management believes that such allocation is
a reasonable estimate of such expenses.

ACCESS TO TECHNOLOGY AND KNOW-HOW

     Agouron  Pharmaceuticals  has free access to all technology and know-how of
the  Company  that may be useful,  subject  to any  obligations  or  limitations
applicable to the Company. The costs of developing this technology remain in the
business unit responsible for its development.







<PAGE>



                                     ANNEX V

                            AGOURON ONCOLOGY DIVISION
                             DESCRIPTION OF BUSINESS

GENERAL

     Since  the  incorporation  of  the  Company  in  June  1984,  the  oncology
department within Agouron,  now formed as the Oncology  Division,  has committed
itself  to  the   discovery,   development,   manufacturing   and  marketing  of
small-molecule  drugs engineered to inactivate  proteins which play key roles in
cancer.  Oncology Division is currently conducting pivotal phase II/III clinical
trials for AG3340 for treatment of lung and prostate cancer.  Further,  Oncology
Division has a number of programs in progress for  discovery or  development  of
other new drugs in the field of cancer.

RESEARCH AND DEVELOPMENT PROGRAMS

     Oncology Division's research and development  programs focusing on the area
of cancer applies the Company's core technologies of three-dimensional structure
based drug design and high-throughput  screening of chemical libraries generated
by computation-directed combinatorial chemistry.

     The  following  table  outlines  the  status  of  various  programs  in the
Company's  Oncology  Division  research  and  development  portfolio.   Oncology
Division is pursuing  some of these  programs  independently,  while  others are
being undertaken in collaboration with other companies.
                                                              RESEARCH
                                                                AND
                                                             DEVELOPMENT
PROGRAM                              INDICATION                 STAGE

CANCER
   
     AG3340                         Solid Tumors             Phase II/III
     AG3433                         Solid Tumors             Preclinical
     AG2034                         Solid Tumors             Phase I
     AG2037                         Solid Tumors             Preclinical
     cdk Inhibitors                 Solid Tumors             Research
     PARP Inhibitors(1)             Solid Tumors             Research
     VEGF Inhibitors                Solid Tumors             Research
     GnRH Antagonist                Hormone-Dependent 
                                      Solid Tumors           Research

(1)  In collaboration with Cancer Research Campaign Technology, Ltd.

    
<PAGE>



OVERVIEW

     The  development  of new drugs for treatment of cancer is a key  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.

     The Company's  Oncology  Division drug discovery and  development  programs
pursue inhibitors of the following enzymes:  matrix  metalloproteases  ("MMPs");
glycinamide ribonucleotide  formyltransferase ("GART"); cyclin dependent kinases
("cdk");  gonadotropin releasing hormone ("GnRH");  poly (ADP ribose) polymerase
("PARP"); and a receptor for vascular endothelial growth factor ("VEGF").
   
MMP INHIBITORS: AG3340 AND AG3433
    
     AG3340 is an orally delivered antiangiogenesis drug designed to inhibit the
growth,  invasion and metastasis of solid tumors by inactivating certain members
of a family of enzymes known as MMPs.  AG3340  selectively  inhibits  those MMPs
believed to be involved in tumor progression. A primary goal of clinical studies
of AG3340 is to determine  whether  this  distinctive  selectivity  results in a
favorable clinical profile of safety and efficacy.

     In fiscal 1998,  Oncology Division completed two phase I studies of AG3340.
In one phase I study,  AG3340  was  administered  orally  twice  daily  (BID) in
patients with advanced cancer, including lung, prostate,  kidney, and colorectal
cancers as well as sarcoma and melanoma.

     A separate phase I study found that AG3340 in combination with chemotherapy
was generally well tolerated among patients with advanced  prostate cancer whose
disease was resistant to hormonal therapies.

     In  preclinical  studies,  AG3340 has been  shown to inhibit  angiogenesis.
AG3340   was  also   found  to  be  a  potent   inhibitor   of  the   growth  of
chemotherapy-resistant  human  non-small cell lung cancer tumors in mice.  Here,
administration  of AG3340 resulted in a dose-dependent  decrease in tumor growth
by up to 65% as compared to controls.

     In May 1998,  Oncology  Division  initiated phase II/III clinical trials in
patients with advanced lung or prostate  cancer.  The Oncology  Division is also
conducting  preclinical research on a stable of third-generation MMP inhibitors,
including AG3433, which has even greater selectivity than for those MMPs related
to cancer.  Oncology  Division  presently retains rights to AG3340 and AG3433 in
the field of cancer.

GART INHIBITORS: AG2034 AND AG2037

     AG2034 is a potent, selective inhibitor of GART believed to be a key enzyme
in the  biochemical  pathway  through  which  tumor  cells  synthesize  purines,
essential components of DNA. With the exception of liver cells, all normal human
tissues  obtain  purines  through an  alternative  pathway  (the purine  salvage
pathway).  Oncology  Division  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. Oncology Division is completing dose-ranging
phase I clinical trials that will establish an appropriate dose for AG2034.

     AG2037 is a potent, selective inhibitor of GART believed to be a key enzyme
in the  biochemical  pathway  through  which  tumor  cells  synthesize  purines,
essential components of DNA. With the exception of liver cells, all normal human
tissues  obtain  purines  through 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.

     AG2037 was designed to have markedly reduced binding to the membrane folate
binding  protein  ("mFBP")  because tight binding to this receptor is one likely
source of the toxicity observed with lometrexol, the first molecule


<PAGE>



in this class to be tested  clinically by Eli Lilly and Company  (assays of mFBP
binding have been routine for compounds generated in this program). AG2037 shows
potent  inhibition  of GART  as a  monoglutamate  and  can be  polyglutamylated.
Because of its potent  weaker  binding to mFBP,  AG2037  access is restricted to
only those cells with reduced  folate  carrier.  Preclinical  studies have shown
that GART inhibitors are potentially scitotoxic (kill cells) to at least certain
cancer cell types with mutan p53 genes,  a common  genetic  abnormality in human
cancer.  Oncology  Division  retains  all  commercial  rights  to any  compounds
resulting from its GART inhibitor programs.
   
CDK  INHIBITORS

     Cdks are enzymes that play key roles in regulating the cell cycle.  Certain
members of this family of enzymes,  such as cdk4 and cdk2,  have been implicated
as drivers of cells from a normally quiescent phase to the highly  proliferative
phase  characteristic  of  malignancies  - particularly  in familial  melanomas,
esophageal  carcinomas  and  pancreatic  cancers.  Agouron  is engaged in a drug
discovery program aimed at the design of selective small-molecule drugs with the
potential  to  inhibit  the  activity  of such  cdks  and  therefore  block  the
transition of cancer cells into their  proliferative  phase.  Oncology  Division
retains all commercial rights to compounds resulting from this program.

PARP INHIBITORS
    
     PARP is an enzyme which is activated by DNA-strand  breaks and is important
in the  immediate  cellular  response  to DNA  damage.  The  activity of PARP is
involved  in  recruiting  repair  enzymes to the site of DNA damage so that cell
division can proceed faithfully.  Inhibition of PARP has profound effects on the
survival  of  cells  following  exposure  to  DNA-damaging  agents;  thus,  PARP
inhibitors may be useful in conjunction  with chemo- and radio- therapy to treat
tumors.  PARP inhibitors  discovered at Oncology Division have been confirmed as
chemopotentiating  agents in cells and preliminary  testing in tumors in animals
is underway.  Oncology  Division has  exclusive  commercial  rights in compounds
resulting  from this  program,  which are being  pursued in  collaboration  with
Cancer Research Campaign Technology, Ltd.

VEGF INHIBITORS

     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
VEGF,  which,  by  binding  to a  receptor  (known as kdr) on the cell  surface,
triggers  the  development  of growth  factor  of  endothelial  cells.  Oncology
Division is engaged in a program to design drugs that block the kdr receptor for
VEGF and, therefore, compromise the ability of tumors to carry out a key process
in angiogenesis.  Oncology  Division retains all commercial  rights to compounds
resulting from this program.

GNRH ANTAGONIST PROGRAM

     GnRH is a  decapeptide  that is  synthesized  in the brain and controls the
pituitary and gonadal hormones that regulate fertility.  (In women, this peptide
is  required  for  successful  ovulation  and,  in  men,  it  is  necessary  for
spermatogenesis.) Oncology Division, through the Company's Alanex subsidiary, is
currently  pursuing a program to discover  certain orally active  small-molecule
drugs  to  treat  two  areas  of  human  disease  that  depend  on GnRH  action:
endometriosis and sex-hormone  dependent  tumors.  Oncology Division retains all
commercial rights to compounds resulting from this program.



<PAGE>



BUSINESS RELATIONSHIPS/RESEARCH AND DEVELOPMENT AGREEMENTS

     Oncology  Division has funded its research and  development  primarily from
working capital  generated from both private and public sales of Agouron equity,
collaborative arrangements and the financial contribution resulting from product
sales.  Oncology  Division has an ongoing program of business  development which
may,  from time to time,  lead to the  establishment  of the  Oncology  Division
related corporate collaborations in addition to those noted below.

HLR

     In June 1996,  Oncology  Division  granted  Hoffman-La  Roche  Inc.  and F.
Hoffman-La Roche Ltd (collectively  "HLR") development rights in two anti-cancer
drugs  and  agreed  to  collaborate  with  HLR  on  an  additional   early-stage
anti-cancer  drug  discovery  program.  In  return  for  such  rights,  HLR paid
$15,000,000  in initial  license  fees and agreed to bear 80% of certain  future
development  costs and to provide  annual  research  support  to the  Company of
$3,000,000.  In  December  1997,  Oncology  Division  and HLR agreed to end this
anti-cancer  research  and  development  collaboration.  Oncology  Division  has
regained all rights to the anti-cancer  drugs previously within the scope of the
collaboration.

HUMAN RESOURCES
   
     As of October 19, 1998, the Company had approximately  1,000 employees.  It
is  anticipated  that  approximately  200 full time  staff  equivalents  will be
directly engaged in the conduct of the Oncology Division business.
    


<PAGE>



AGOURON ONCOLOGY DIVISION, A DIVISION OF AGOURON PHARMACEUTICALS, INC.

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

OVERVIEW

     This discussion contains  forward-looking  statements.  Such statements are
subject to certain risks and  uncertainties  which could cause actual results to
differ  materially from those  projected.  See "Risk Factors -- Risks related to
Agouron   Pharmaceuticals   Division  and   Oncology   Division"  in  the  Proxy
Statement/Prospectus  to which this Annex IV is attached.  Readers are cautioned
not to place undue reliance on these forward-looking statements which speak only
as of the date hereof.  The Company undertakes no obligation to publicly release
the result of any  revisions to these  forward-looking  statements  which may be
made to reflect events or circumstances  after the date hereof or to reflect the
occurrence of unanticipated events.
   
     Oncology  Division  ("Oncology  Division"  or "OD"),  a division of Agouron
Pharmaceuticals,  Inc.  (the  "Company")  is  committed  to  the  discovery  and
development of human pharmaceuticals  targeting cancer.  Operations to date have
been  principally  funded from the  Company's  working  capital and OD's various
collaborative arrangements. Net losses for the fiscal years ended June 30, 1996,
1997 and 1998 were $1,174,000,  $12,862,000 and  $24,233,000,  and for the three
month periods ended September 30, 1997 and 1998 were $5,019,000 and $12,587,000.
It is  anticipated  that net  operating  losses will  continue and will possibly
increase through at least the next two years.

RESULTS OF OPERATIONS

YEARS ENDED JUNE 30, 1996, 1997 AND 1998

CONTRACT AND LICENSE REVENUES

     Collaborative research and development agreements with Hoffman-LaRoche Inc.
and F. Hoffman-La Roche Ltd (collectively "HLR") accounted for substantially all
of Oncology  Division's  contract and license  revenues for 1996, 1997 and 1998.
Total contracts and license revenues  decreased from 1996 to 1997  approximately
15% due principally to the receipt of $15,000,000 in 1996 for initial world-wide
development  rights  for two  anti-cancer  drugs.  Total  contract  and  license
revenues increased approximately 1% from 1997 to 1998.
    
     In December 1997, the Company agreed to end its  collaboration  with HLR in
the field of cancer. As a result of termination,  Oncology Division has regained
all rights to its anti-cancer  drugs within the scope of the HLR  collaboration.
Oncology Division anticipates no contract revenues for fiscal 1999.

RESEARCH AND DEVELOPMENT EXPENSES
   
     Research and development  ("R&D") spending  increased by approximately  56%
from 1996 to 1997 and 40% from 1997 to 1998 due generally to increasing  average
R&D staff levels and staff-related  expenditures and increased  expenditures for
human clinical trial development  activities for certain anti-cancer  compounds.
Oncology Division anticipates that total R&D expenses in fiscal 1999 will exceed
fiscal 1998 expenses by approximately 30%.
    









<PAGE>



GENERAL AND ADMINISTRATIVE EXPENSES
   
     General and administrative  ("G&A") expenses represented  approximately 10%
of  total  operating  expenses  in 1996,  5% in 1997  and 5% in  1998.  Spending
decreases from 1996 to 1997 were due chiefly to concentrated  Company efforts to
complete  development  of  a  major  non-oncology   program.  G&A  increased  by
approximately  66% from 1997 to 1998 due  principally to increasing  development
efforts.  Oncology  Division  anticipates that total G&A expenses in fiscal 1999
will exceed fiscal 1998 expenses by approximately 30%.

THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998

CONTRACT AND LICENSE REVENUES

     Collaborative  research and development  agreements  with Hoffman-La  Roche
Inc.  and  F.  Hoffman-La   Roche  Ltd   (collectively   "HLR")   accounted  for
substantially all of Oncology  Division's  contract revenues for the three-month
period  ended  September  30,  1997.  There were no  contract  revenues  for the
three-month  period ended  September 30, 1998 due principally to the termination
of the HLR collaboration in fiscal 1998.

RESEARCH AND DEVELOPMENT EXPENSES

     R&D spending increased 63% from the quarter ended September 30, 1997 to the
quarter ended  September 30, 1998 due generally to increasing  average R&D staff
levels and  staff-related  expenditures  and  increased  expenditures  for human
clinical trial development activities for certain anti-cancer compounds.

GENERAL AND ADMINISTRATIVE EXPENSES

     G&A expenses  have  decreased by 15% from the quarter  ended  September 30,
1997 to the quarter  ended  September 30, 1998 due  principally  to a relatively
higher level of spending for the Company's non-oncology programs.
    
YEAR 2000

     The Year 2000 issue  results from  computer  programs and systems that were
created  to  accept  only  two  digit  dates.  Such  systems  may not be able to
distinguish  20th century  dates from 21st century  dates.  This could result in
miscalculations  and system failures that could inhibit the Company's ability to
engage in normal business activities.

     The Company has  established  a Year 2000  project  team that is  currently
reviewing information technology ("IT") systems and non-IT systems that could be
affected by this issue. Additionally,  the Company has made initial contact with
all of its  significant  external  business  partners to determine the extent to
which the Company is  vulnerable  to their  failures and to ascertain  Year 2000
compliance and risk. The Company  estimates that the inventory and assessment of
IT systems,  non-IT systems, and material third parties will be completed by the
end of calendar 1998. The Company expects to complete remediation efforts by the
end of fiscal 1999, and to complete the validation  phase by the end of calendar
1999. At this time the Company has not initiated the  formulation of contingency
plans. The  determination of the necessity for contingency plans will be made by
the end of fiscal 1999.

     While the total cost to obtain  Year 2000  compliance  is not known at this
time,  the  Company  believes  such cost will not have a material  effect on the
Company's business,  financial position, or results of operation.  However, even
though the Company  expects to have obtained Year 2000  compliance  prior to the
Year 2000, the inability of the Company or its business  partners to remedy Year
2000 issues could have a significant impact on the Company's business, financial
position, or results of operation.

LIQUIDITY AND CAPITAL RESOURCES
   
     Historically,  Oncology  Division has relied  principally on the Company to
fund  its  operations  and  capital  expenditures.  At June 30,  1998,  Oncology
Division had net working  capital of  approximately  $1,795,000,  an increase of
$377,000 over June 30, 1997 levels. At September 30, 1998, Oncology Division had
negative working


<PAGE>



capital of approximately  $169,000,  a decrease of $1,964,000 over June 30, 1998
levels.   The  development  of  the  Oncology  Division  products  will  require
substantial funds. Agouron Pharmaceuticals ("Agouron  Pharmaceuticals" or "AP"),
a division of the Company,  intends to fund the operations of Oncology  Division
for the foreseeable  future.  The Company's Board has approved the allocation of
up to  $25,000,000  in cash from Agouron  Pharmaceuticals  to Oncology  Division
under an equity line which is expected to be  exchanged  for  Oncology  Division
Stock.
    

      The  Company  believes  that  its  current  capital  resources,   existing
contractual  commitments and anticipated product sales contribution from Agouron
Pharmaceuticals are sufficient to maintain its current operations and to provide
for the operating  requirements of Oncology  Division  through fiscal 1999. This
belief is based on current research and clinical  development  plans of Oncology
Division and Agouron  Pharmaceuticals,  anticipated working capital requirements
associated  with expanding  product  commercialization,  the current  regulatory
environment,  historical  industry  experience in the development of therapeutic
drugs and general  economic  conditions.  The equity of  Oncology  Division is a
series of the  Common  Stock of the  Company  and is  therefore  subject  to the
liabilities and operations of the other division(s) of the Company.


<PAGE>



AGOURON ONCOLOGY DIVISION, A DIVISION OF AGOURON PHARMACEUTICALS, INC.

INDEX TO FINANCIAL STATEMENTS

Report of Independent Accountants
   
Combined Balance Sheet as of June 30, 1997, June 30, 1998 and September 30, 1998

Combined Statement of Operations for the years ended
           June 30, 1996,  1997 and 1998 and for the three month  periods  ended
           September 30, 1997 and 1998

Combined   Statement of Division Equity and Comprehensive  Income (Loss) for the
           years  ended  June 30,  1996,  1997 and 1998 and for the three  month
           periods ended September 30, 1997 and 1998

Combined Statement of Cash Flows for the years ended
           June 30, 1996,  1997 and 1998 and for the three month  periods  ended
           September 30, 1997 and 1998

Notes to Combined Financial Statements
    
     NOTE:  All schedules are omitted  because they are not  applicable,  or not
required, or because the  required  information  is  included  in the  combined
financial statements or notes thereto.



<PAGE>



REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of Agouron Pharmaceuticals, Inc.
   
In our opinion, the accompanying combined balance sheet and the related combined
statements of operations, of division equity and comprehensive income (loss) and
of cash flows present fairly, in all material  respects,  the financial position
of Agouron Oncology  Division (a division of Agouron  Pharmaceuticals,  Inc.) at
June 30, 1997 and 1998, and the results of its operations and its cash flows for
each of the three years in the period ended June 30, 1998,  in  conformity  with
generally accepted  accounting  principles.  These financial  statements are the
responsibility  of  the  management  of  Agouron   Pharmaceuticals,   Inc.;  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.

As  described  above  and more  fully  described  in Note 1 to  these  financial
statements,  Agouron Oncology Division is a division of Agouron Pharmaceuticals,
Inc.;  accordingly,  the  combined  financial  statements  of  Agouron  Oncology
Division should be read in conjunction with the audited  consolidated  financial
statements of Agouron Pharmaceuticals, Inc.
    

PricewaterhouseCoopers LLP

San Diego, California
August 10, 1998

<PAGE>



AGOURON ONCOLOGY DIVISION, A DIVISION OF AGOURON PHARMACEUTICALS, INC.

COMBINED BALANCE SHEET
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
   

                                                                              JUNE 30,      September 30,
                                                                       1997           1998           1998
                                                                                              (unaudited)
ASSETS
<S>                                                           <C>            <C>             <C>        

Current assets:
     Accounts receivable                                      $       4,668  $       1,638   $       1,638
     Other current assets                                                 0          1,045               0
                                                              -------------  -------------   -------------

                                                              $       4,668  $       2,683   $       1,638
                                                              =============  =============   =============
LIABILITIES AND DIVISION EQUITY

Current liabilities:
     Accrued liabilities                                      $         250  $         888   $       1,807
     Deferred revenue                                                 3,000              0               0
                                                              -------------  -------------   -------------

     Total current liabilities                                        3,250            888           1,807
                                                              -------------  -------------   -------------


Division equity                                                       1,418          1,795            (169)
                                                              -------------  -------------   --------------


Commitments

                                                              $       4,668  $       2,683   $       1,638
                                                              =============  =============   =============
    
</TABLE>

See accompanying notes to combined financial statements.



<PAGE>



AGOURON ONCOLOGY DIVISION, A DIVISION OF AGOURON PHARMACEUTICALS, INC.

COMBINED STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
   

                                                                                        Three Months Ended
                                                        YEARS ENDED JUNE 30,               SEPTEMBER 30,
                                                 1996         1997          1998         1997         1998
                                                                                  (unaudited)  (unaudited)
<S>                                       <C>          <C>           <C>          <C>          <C>        

Revenues:
     Contract & license                   $    18,013  $    15,270   $    15,428  $     3,098  $         0

Operating expenses:
     Research and development                  17,247       26,844        37,525        7,337       11,927
     General and administrative                 1,940        1,288         2,136          780          660
                                          -----------  -----------   -----------  -----------  -----------
                                               19,187       28,132        39,661        8,117       12,587
                                          -----------  -----------   -----------  -----------  -----------

Net loss                                  $    (1,174) $   (12,862)  $   (24,233) $    (5,019) $   (12,587)
                                          ===========  ===========   ===========  ===========  ===========
    
</TABLE>

See accompanying notes to combined financial statements.


<PAGE>



AGOURON ONCOLOGY DIVISION, A DIVISION OF AGOURON PHARMACEUTICALS, INC.

COMBINED STATEMENTS OF DIVISION EQUITY AND COMPREHENSIVE INCOME (LOSS)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>

                                                                                      Accumulated
                                                                             OTHER        DEFICIT          TOTAL
   
DIVISION EQUITY:
    
<S>                                                                    <C>            <C>            <C>    

Balance at June 30, 1995                                               $    59,910    $   (61,713)   $    (1,803)

   Equity contribution from Agouron Pharmaceuticals                          1,751                         1,751
   Net loss                                                                     --         (1,174)        (1,174)
                                                                       -----------    -----------    ------------

Balance at June 30, 1996                                                    61,661        (62,887)        (1,226)

   Equity contribution from Agouron Pharmaceuticals                         15,506                        15,506
   Net loss                                                                     --        (12,862)       (12,862)
                                                                       -----------    -----------    -----------

Balance at June 30, 1997                                                    77,167        (75,749)         1,418

   Equity contribution from Agouron Pharmaceuticals                         24,610                        24,610
   Net loss                                                                     --        (24,233)       (24,233)
                                                                       -----------    -----------    -----------

Balance at June 30, 1998                                                   101,777        (99,982)         1,795
   
   Equity contribution from Agouron Pharmaceuticals (unaudited)             10,623                        10,623
   Net loss (unaudited)                                                                   (12,587)       (12,587)
                                                                       -----------    -----------    -----------

Balance at September 30, 1998 (unaudited)                              $   112,400    $  (112,569)   $      (169)
                                                                       ===========    ===========    ============
</TABLE>
<TABLE>
<CAPTION>


                                                                             Other
                                                                       Comprehensive          Net    Comprehensive
                                                                               LOSS          LOSS             LOSS
COMPREHENSIVE INCOME (LOSS):
<S>                                                                    <C>            <C>            <C>    

Year ended June 30,
   1996                                                                $        --    $    (1,174)   $    (1,174)
   1997                                                                         --        (12,862)       (12,862)
   1998                                                                         --        (24,233)       (24,233)

Three months ended September 30 (unaudited),
   1997                                                                         --         (5,019)        (5,019)
   1998                                                                         --        (12,587)       (12,587)
    
</TABLE>

See accompanying notes to combined financial statements.


<PAGE>



AGOURON ONCOLOGY DIVISION, A DIVISION OF AGOURON PHARMACEUTICALS, INC.

COMBINED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
   
                                                                                        Three Months Ended
                                                        YEARS ENDED JUNE 30,               SEPTEMBER 30,
                                                 1996         1997          1998         1997         1998
                                                                                  (unaudited)  (unaudited)
<S>     <C>    <C>    <C>    <C>    <C>    <C>

Cash flows from operating activities:
   Cash received from contracts and licenses  $  17,465    $   13,602    $  15,458    $  7,165     $      0
   Cash paid to suppliers and service providers (19,216)      (29,108)     (40,068)     (8,117)     (10,623)
                                              ---------    ----------    ---------    --------     --------

   Net cash provided (used) by operating
     activities                                  (1,751)      (15,506)     (24,610)       (952)     (10,623)
                                              ---------    ----------    ---------    --------     --------

       

Cash flows from investing activities:

   Net cash provided (used) by investing 
     activities                                       0             0            0           0            0
                                              ---------    ----------    ---------    --------     --------

      

Cash flows from financing activities:
   Equity contribution from Agouron
     Pharmaceuticals                              1,751        15,506       24,610         952       10,623
                                              ---------    ----------    ---------    --------     --------

   Net cash provided (used) by financing 
     activities                                   1,751       15,506        24,610         952       10,623
                                              ---------   ----------     ---------    --------     --------


Net increase (decrease) in cash and cash 
     equivalents                                      0            0             0           0            0
Cash and cash equivalents at beginning of year        0            0             0           0            0
                                              ---------    ----------    ---------    --------     --------
      

Cash and cash equivalents at end of year    $         0  $         0   $         0  $         0  $         0
                                            ===========  ===========   ===========  ===========  ===========

Reconciliation of net loss to net cash 
   provided (used) by operating activities:
   Net loss                                 $    (1,174) $   (12,862)  $   (24,233) $    (5,019) $   (12,587)
   Net (increase) decrease in accounts
     receivable and other  current assets             0       (4,668)        1,985        3,888        1,045
   Net increase (decrease) in accrued liabilities
     and deferred revenue                          (577)       2,024        (2,362)         179          919
                                            -----------  -----------   -----------  -----------  -----------

Net cash provided (used) by
 operating activities                       $    (1,751) $   (15,506)  $   (24,610) $      (952) $   (10,623)
                                            ===========  ===========   ===========  ===========  ===========
    
</TABLE>

See accompanying notes to combined financial statements.



<PAGE>



AGOURON ONCOLOGY DIVISION, A DIVISION OF AGOURON PHARMACEUTICALS, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS

NOTE 1 - THE DIVISION AND ITS SIGNIFICANT ACCOUNTING POLICIES

THE DIVISION
   
     Agouron Oncology  Division  ("Oncology  Division" or "OD") is a division of
Agouron   Pharmaceuticals,   Inc.  (the  "Company")   which  was  organized  and
incorporated  in  California in June 1984.  Oncology  Division is engaged in the
discovery and  development  of  innovative  therapeutic  products  engineered to
inactivate proteins which play key roles in cancer.
    
FINANCIAL STATEMENTS AND ALLOCATION MATTERS

     As a matter of policy, the Company manages the financial  activities of its
divisions  on a  centralized  basis.  These  financial  activities  include  the
investment of surplus cash, the issuance, repayment and repurchase of short-term
and long-term debt and the issuance and  repurchase of common stock.  During the
three years ended June 30, 1998, the Company  attributed  none of its short-term
and long-term debt to OD based upon the specific  purpose for which the debt was
incurred  and  the  cash  flow  requirements  of OD.  Accordingly,  none  of the
Company's  interest  expense has been allocated to OD. The Company believes this
method of allocation to be equitable and reasonable.

     Oncology's Division's financial statements have been prepared in accordance
with  generally  accepted  accounting  principles  and,  taken together with the
Company's  other  division,  comprise  all  of  the  accounts  included  in  the
corresponding  consolidated  financial  statements of the Company. The financial
statements  of  each  division  reflect  the  financial  condition,  results  of
operations  and cash flows of the  businesses  included  therein.  The equity of
Oncology  Division  is a  series  of the  Common  Stock  of the  Company  and is
therefore  subject to the liabilities and operations of the other division(s) of
the Company.

PRINCIPLES OF COMBINATION

     The combined financial statements of Oncology Division include the accounts
for all of the Company's programs in the area of oncology.
   
UNAUDITED INTERIM FINANCIAL INFORMATION

     The   consolidated   balance  sheet  as  of  September  30,  1998  and  the
consolidated  statements of  operations,  of division  equity and  comprehensive
income (loss) and of cash flows for the three month periods ended  September 30,
1997 and 1998 have been prepared by the Company and have not been audited.  Such
financial  statements,  in the opinion of  management,  include all  adjustments
necessary for their fair  presentation  in conformity  with  generally  accepted
accounting  principles.  Certain information and footnote  disclosures  normally
included in financial  statements prepared in accordance with generally accepted
accounting  principles have been condensed or omitted pursuant to the Securities
and  Exchange  Commission  rules  and  regulations.   Interim  results  are  not
necessarily indicative of results for the full year.
    
ESTIMATES

     The  preparation  of financial  statements  in  conformity  with  generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that affect the reported amounts of assets,  liabilities,  revenues
and expenses and related disclosures as of the date of the financial statements.
Actual results could differ from such estimates.


<PAGE>




CONTRACT AND LICENSE REVENUES

     Contract revenues are earned and recognized  generally as contract research
costs are incurred  according to the  provisions of each  underlying  agreement.
Amounts  received in advance of  performance  are recorded as deferred  revenue.
Contract  milestone  payments are  recognized as revenues upon the completion of
the milestone event or requirement.

     License fees are  recognized as revenue when earned as generally  evidenced
by  certain  factors  including:  receipt  of  such  fees,  satisfaction  of any
performance obligations and the non-refundable nature of such fees.

RESEARCH AND DEVELOPMENT COSTS

     Research and development costs are expensed in the period incurred.

INCOME TAX PROVISION (BENEFIT)
   
     Oncology Division records a provision  (benefit) for income taxes using the
liability method.  Current income tax expense (benefit)  generally is the amount
of income taxes expected to be payable for the current year.  Deferred taxes are
recorded by applying  applicable tax rates to cumulative  temporary  differences
based on when and how they are  expected  to  affect  the tax  return.  Oncology
Division is included in the consolidated U.S. federal income tax return filed by
the Company. Division management and allocation policies provide that, as of the
end of any fiscal quarter,  any projected annual tax benefit attributable to any
division  that  cannot be  utilized  by such  division  to offset or reduce  its
current  or  deferred  income  tax  expense  will  be  allocated  to  the  other
division(s)  without any compensating  payment or allocation.  Accordingly,  all
losses of Oncology Division have been utilized by Agouron Pharmaceuticals and no
provision has been recorded by Oncology Division for any fiscal period. As it is
anticipated  that all  deferred  tax assets of the  Company  at present  will be
realized by Agouron Pharmaceuticals,  all deferred tax assets of the Company are
currently recorded on the books of Agouron Pharmaceuticals and none on the books
of Oncology Division.  The realizability of deferred tax assets is determined at
the level of the Company.
    
COMMITMENTS

     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.

NOTE 2 - SIGNIFICANT CONTRACT ARRANGEMENTS

     HLR

     In June 1996,  Oncology  Division  granted  Hoffman-La  Roche  Inc.  and F.
Hoffman-La Roche Ltd (collectively  "HLR") development rights in two anti-cancer
drugs  and  agreed  to  collaborate  with  HLR  on  an  additional   early-stage
anti-cancer  drug  discovery  program.  In  return  for  such  rights,  HLR paid
$15,000,000  in initial  license  fees and agreed to bear 80% of certain  future
development costs and to provide annual research support to Oncology Division of
$3,000,000.  In  December  1997,  Oncology  Division  and HLR agreed to end this
anti-cancer  research  and  development  collaboration.  Oncology  Division  has
regained all commercial  rights to the anti-cancer  drugs previously  within the
scope of the collaboration.
   
     Under  the terms of the  anti-cancer  agreements  with HLR which  have been
terminated,  Oncology  Division  incurred costs of $17,854,000  and  $23,486,000
recognized  corresponding  contract  revenues of $14,270,000 and $15,428,000 for
the years ended June 30, 1997 and 1998.
    


<PAGE>



NOTE 3 - RELATED PARTY TRANSACTIONS

OVERVIEW

     The Company allocates corporate general and administrative and research and
development  expenses  and income  taxes in  accordance  with  certain  policies
adopted  by the  Company's  Board of  Directors.  Such  policies  may be further
modified or rescinded  by action of the  Company's  Board of  Directors  who may
adopt additional policies, without approval of Oncology Division's stockholders,
subject only to their fiduciary duty to such stockholders.

SHARED SERVICES

     Oncology  Division operates as a division of the Company with access to the
Company's personnel, financial resources,  facilities and extensive capabilities
in  research  and   development,   manufacturing,   clinical   development   and
administration,  the  costs  of  which  are  allocated  to  each  division  in a
reasonable  and  consistent  manner based on  utilization by the division of the
services to which such costs relate. Management believes that such allocation is
a reasonable estimate of such expenses.

ACCESS TO TECHNOLOGY AND KNOW-HOW

     Oncology  Division  has free access to all  technology  and know-how of the
Company that may be useful, subject to any obligations or limitations applicable
to the Company.  The costs of developing this technology  remain in the business
unit responsible for its development.


<PAGE>




NOTE 4 - DIVISION EQUITY

OD STOCK

     OD Stock will represent a separate series of the Company's  Common Stock if
the  Company's  Divisional  Stock  Proposal  is  approved  and  such  series  is
designated  by the Board.  Additional  OD Stock may be issued  from time to time
upon exercise of stock options or at the discretion of the Company's Board.

EXCHANGE OF OD STOCK

     If OD Stock is issued,  Agouron  Pharmaceuticals  will have the right,  and
under certain circumstances,  the obligation, to exchange each outstanding share
of OD Stock  for cash or shares of AP Stock at a 25%  premium  over fair  market
value of OD Stock on the date of exchange.

ONCOLOGY EQUITY LINE

     The Company Board has approved a $25,000,000  cash equity line from Agouron
Pharmaceuticals  to Oncology  Division.  The amounts drawn under the equity line
bear interest at competitive  rates and are expected to be exchanged into shares
of Oncology Division Stock when the maximum amount of the equity line is reached
or as the Company's Board otherwise determines. On a periodic basis, the Company
will review the equity line for modification,  extension or termination.  If the
line is  terminated,  the  outstanding  amount will be repaid in cash or, at the
option of the Company's Board, be exchanged for Oncology Division Stock.


<PAGE>



                                    ANNEX VI

                            AGOURON STOCK OPTION PLAN
               (Adopted by the Board of Directors August 7, 1996)
                 (Approved by the Shareholders November 7, 1996)
               (Amended by the Board of Directors August 6, 1998)

1.       PURPOSE.

         This Agouron Stock Option Plan is intended to encourage Stock ownership
in Agouron  Pharmaceuticals,  Inc. by the  officers,  directors,  employees  and
consultants of the Company and its Affiliates in order to promote their interest
in the success of the Company and to encourage their continued affiliation.  All
options  granted  under this Agouron Stock Option Plan are intended to be either
(a) Incentive Stock Options or (b) Non-Statutory Stock Options.

2.       DEFINITIONS.

         As used herein, the following definitions shall apply:

         "Act" shall mean the  Securities  Exchange Act of 1934, as amended from
time to time.

         "Affiliate"   shall   mean  any   corporation   defined  as  a  "parent
corporation"  or a  "subsidiary  corporation"  by Code  Section  424(e) and (f),
respectively.

         "Agreement"  shall mean either an Incentive Stock Option Agreement or a
Non-Statutory  Stock  Option  Agreement,  embodying  the terms of the  agreement
between the Company and the Optionee with respect to Optionee's Option.

         "Board" shall mean the Board of Directors of the Company.

         "Code"  shall mean the Internal  Revenue Code of 1986,  as amended from
time to time.

         "Company" shall mean Agouron Pharmaceuticals, Inc., a California
corporation.

         "Consultant"  shall  mean any  person  who is placed  on the  Company's
Consultants List by the Board and who agrees in writing to be included thereon.

         "Disability" or "Disabled" shall mean the condition of being "disabled"
within the meaning of Section 422(c)(6) of the Code or any successor provision.

         "Director" shall mean an individual member of the Board.

         "Employee"  shall mean any  employee of the Company or its  Affiliates,
including those employees who are officers of the Company or its Affiliates.

         "ERISA" shall mean the Employee  Retirement  Income Security Act or the
rules thereunder, as amended from time to time.

         "Fair  Market  Value" of Stock on a given date shall mean an amount per
share as determined by the Board (or its delegates),  by applying any reasonable
valuation  method  determined  without regard to any  restriction,  other than a
restriction that by its terms will never lapse.  Notwithstanding  the preceding,
if the Stock is traded upon an established stock exchange, then the "Fair Market
Value" of Stock on a given date per share  shall be deemed to be the  average of
the highest  and lowest  selling  price per share of the Stock on the  principal
stock exchange on which the Stock is then trading or, if there was no trading of
the Stock on that day, on the next preceding day on which

<PAGE>



there was such  trading;  if the Stock is not traded upon an  established  stock
exchange but is quoted on a quotation  system,  the "Fair Market Value" of Stock
on  a  given  date  shall  be  deemed  to  be  the  mean   between  the  closing
representative  "bid"  and "ask"  prices  per share of the Stock on such date as
reported  by such  quotation  system or, if there was no trading of the Stock on
that day, on the next preceding day on which there was such trading.

         "Incentive  Stock Option" shall mean an option granted  pursuant to the
Plan which is designated by the Board (or its delegates) as an "Incentive  Stock
Option" and which  qualifies as an incentive  stock option under  Section 422 of
the Code or any successor provision.

         "Non-Statutory Stock Option" shall mean a stock option granted pursuant
to the Plan which is not an Incentive Stock Option.

         "Option"  shall refer to either or both an  Incentive  Stock  Option or
Non-Statutory Stock Option, as the context shall indicate.

         "Optionee"  shall mean the recipient of an Incentive  Stock Option or a
Non-Statutory Stock Option.

         "Option  Price"  shall  mean the price per share of Stock to be paid by
the Optionee upon exercise of the Option.

         "Option  Stock"  shall  mean the  total  number  of shares of Stock the
Optionee shall be entitled to purchase pursuant to the Agreement.

         "Plan" shall mean this Agouron  Stock Option Plan as amended from time 
to time.  This Plan was  previously referred to as the Agouron Pharmaceuticals, 
Inc. 1996 Stock Option Plan.

         "Reporting  Person"  shall mean an  Optionee  who is  required  to file
statements  relating to his or her  beneficial  ownership  of Stock with the SEC
pursuant to Section 16(a) of the Act.

         "Rule  16b-3"  shall  mean Rule 16b-3 (as  amended  from time to time),
promulgated by the SEC under the Act, and any successor thereto.

         "SEC" shall mean the Securities and Exchange Commission.

         "Stock"  shall  mean the no par  Common  Stock of the  Company,  or any
series thereof authorized by the Board.

3.       ADMINISTRATION.

         The Plan shall be administered by the Board;  provided,  however,  that
the Board may delegate all or any part of its authority to  administer  the Plan
in its entirety  or, with respect to any group or groups of persons  eligible to
receive  Options  hereunder,  to such persons or committee as the Board shall in
its sole discretion determine.  The Board and its delegates may adopt, amend and
rescind such rules and  regulations  for carrying out the Plan and  implementing
agreements  and  take  such  act  as  it  deems  proper.   The   interpretation,
construction  and application by the Board (or any individuals who are delegated
authority by the Board to  administer  the Plan or any of the  provisions of the
Plan)  or any  Option  granted  thereunder  shall be final  and  binding  on the
Company,  all  Optionees,  their legal  representatives,  and any person who may
acquire an Option  directly from an Optionee by permitted  transfer,  bequest or
inheritance.  Reference  to  administrative  acts by the Board in the Plan shall
also refer to acts by its  delegates,  unless the context  otherwise  indicates.
Whether or not the Board has delegated administrative authority, the Board shall
have the final power to determine all questions of policy or expediency that may
arise in administration of the Plan.



<PAGE>



4.       ELIGIBILITY.

         Only  Employees are eligible to receive  Incentive  Stock Options under
the Plan. Employees,  officers,  Directors and Consultants of the Company or its
Affiliates are eligible to receive Non-Statutory Stock Options under the Plan.

         No person shall be eligible to receive an Option for a larger number of
shares than is recommended for him or her by the Board (or its  delegates).  Any
Optionee  may hold  more  than one  Option  (whether  Incentive  Stock  Options,
Non-Statutory  Stock Options, or both), but only on the terms and conditions and
subject to the restrictions set forth herein.

         Incentive  Stock  Options  granted to an Employee who owns stock at the
time the Incentive Stock Option is granted,  representing  more than ten percent
(10%) of the total combined  voting power of all classes of stock of the Company
and its Affiliates, shall be granted at an Option Price at least one hundred ten
percent  (110%) of the Fair Market Value of the Stock at the time the  Incentive
Stock Option is granted. In determining  ownership of stock by an Employee,  the
attribution standards set forth in Code Section 424(d) shall be applicable.

5.       STOCK SUBJECT TO THE PLAN.

         Options granted under the Plan shall be for shares of any series of the
Company's  authorized but unissued or re-acquired Stock. The aggregate number of
shares of Stock that may be subject  to Options  pursuant  to the Plan shall not
exceed three million (3,000,000) shares. The number of shares available shall be
adjusted as provided in  Paragraph  6(j) below.  Stock  issued under other stock
option plans of the Company shall not be counted  against the maximum  number of
shares that can be issued under the Plan.

         In the event that any  outstanding  Option expires or is terminated for
any reason,  the shares of Stock  allocable to the  unexercised  portion of such
Option may again be subject to an Option under the Plan.

         If an  Optionee  pays all or part of any Option  Price  with  shares of
Stock,  the number of shares  deemed to be issued to the  Optionee  (and counted
against the maximum number of shares that can be issued under the Plan) shall be
the number of shares transferred to the Optionee by the Company, less the number
of shares transferred by the Optionee to the Company as payment. Stock issued on
the exercise of an Option that is forfeited in  accordance  with the  conditions
contained in the grant by the Optionee  after  issuance  shall be deemed to have
never been issued under the Plan and, accordingly,  shall not be counted against
the maximum number of shares that can be issued under the Plan.  Notwithstanding
the terms of the previous two sentences,  the maximum number of shares for which
Incentive  Stock  Options  may be issued  under the Plan shall be three  million
(3,000,000)  shares,  subject to adjustment as provided  under  Paragraph  6(j),
regardless of the fact that under the terms of the preceding sentences, a lesser
number of shares is deemed to be issued  pursuant to the  exercise of  Incentive
Stock Options.

6.       TERMS AND CONDITIONS OF OPTIONS.

         The  Board (or its  delegates)  shall  authorize  the  granting  of all
Options  under the Plan with such Options to be  evidenced  by  Incentive  Stock
Option Agreements or Non-Statutory Stock Option Agreements,  as the case may be.
Each Agreement shall be in such form as the Board may approve from time to time.
Each  Agreement  shall  comply  with and be subject to the  following  terms and
conditions:

         (A) TYPE OF OPTION; SERIES AND NUMBER OF SHARES. Each particular Option
         Agreement  shall  state  the type of  Options  to be  granted  (whether
         Incentive Stock Options or Non-Statutory Stock Options),  the series of
         Stock and the number of shares of Stock to which the  Option  pertains.
         Under no  circumstances  shall the  aggregate  Fair Market Value of the
         Stock (determined as of the time the Option is granted) with respect to
         which incentive stock options are exercisable for the first time by any
         Employee  during any calendar  year (under all  incentive  stock option
         plans of the Company and its Affiliates) exceed $100,000.



<PAGE>



         (B) OPTION PRICE.  Each  particular  Option  Agreement  shall state the
         Option Price.  The Option Price for an Incentive Stock Option shall not
         be less than one hundred  percent  (100%) of the Fair Market  Value per
         share of Stock on the date the Incentive  Stock Option is granted.  The
         Option  Price for a  Non-Statutory  Stock Option shall be the price per
         share of Stock set by the Board (or its delegates).

         (C) CERTIFICATE  LEGENDS.  Certificates  for shares of Stock issued and
         delivered to Reporting Persons on the date of exercise may be legended,
         as the Board deems  appropriate,  if required by the  provisions of any
         applicable rule or regulation.

         (D) MEDIUM AND TIME OF PAYMENT.  The  aggregate  Option  Price shall be
         payable  upon  the  exercise  of the  Option  and  shall be paid in any
         combination of:

                  (i)      United States cash currency;

                  (ii)     a cashier's or certified check to the order of the 
                           Company;

                  (iii)    a personal check acceptable to the Company;

                  (iv) to the extent permitted by the Board,  shares of Stock of
                  the  Company  (including   previously  owned  Stock  or  Stock
                  issuable in  connection  with the Option  exercise),  properly
                  endorsed to the  Company,  whose Fair Market Value on the date
                  of exercise  equals the  aggregate  Option Price of the Option
                  being exercised; or

                  (v) to the  extent  permitted  by the  Board,  the  Optionee's
                  entering into an agreement with the Company, whereby a portion
                  of  the  Optionee's  Options  are  terminated  and  where  the
                  "built-in  gain" on any Options that are terminated as part of
                  such agreement equals the aggregate Option Price of the Option
                  being  exercised.  "Built-in  gain"  means  the  excess of the
                  aggregate Fair Market Value of any Stock otherwise issuable on
                  exercise of a terminated  Option,  over the  aggregate  Option
                  Price otherwise due the Company on such exercise.

         The Board (or its delegates) may permit deemed or constructive transfer
         of  shares  in  lieu  of  actual  transfer  and  physical  delivery  of
         certificates.  Except to the extent  prohibited by applicable  law, the
         Board (or its delegates) may take any necessary or appropriate steps in
         order to  facilitate  the  payment of any such  Option  Price.  Without
         limiting  the  foregoing,  the Board (or its  delegates)  may cause the
         Company to loan the Option Price to the  Optionee or to guarantee  that
         any Stock to be issued will be delivered to a broker or lender in order
         to allow the  Optionee  to borrow the Option  Price.  The Board (or its
         delegates),   in  its  sole  and  exclusive  discretion,   may  require
         satisfaction  of any rules or conditions in connection  with payment of
         the Option Price at any  particular  time, in any  particular  form, or
         with the Company's assistance. If Stock used to pay any Option Price is
         subject to any prior  restrictions  imposed in connection with any plan
         of the Company  (including this Plan), an equal number of the shares of
         Stock  acquired  on  exercise  shall  be made  subject  to  such  prior
         restrictions  in addition to any further  restrictions  imposed on such
         Stock by the terms of the Optionee's Agreement or by the Plan.

         (E) DURATION OF OPTIONS.  Each particular  Option Agreement shall state
         the term of the Option;  provided,  however,  that all Incentive  Stock
         Options  granted  under this Plan shall  expire and not be  exercisable
         after the  expiration  of ten years  from the date  granted;  provided,
         further,  that any  Incentive  Stock Option  granted to an Employee who
         owns  stock  at  the  time  the  Incentive   Stock  Option  is  granted
         representing  more than ten percent (10%) of the total combined  voting
         power of all classes of stock of the Company and its  Affiliates  shall
         expire and not be  exercisable  after the expiration of five years from
         the date granted.  Non-Statutory  Stock Options shall expire and not be
         exercisable  after the date set by the Board (or its  delegates) in the
         particular Option Agreement, or on any later date subsequently approved
         by the Board (or its delegates).



<PAGE>



         (F)      EXERCISE OF OPTIONS.

                  (i) Each  particular  Option  Agreement  shall  state when the
                  Optionee's right to purchase Stock pursuant to the terms of an
                  Option  is  exercisable  in whole or in part.  Subject  to the
                  earlier  termination  of the right to exercise  the Options as
                  provided  under this Plan,  Options  shall be  exercisable  in
                  whole or in part as the Board,  (or its delegates) in its sole
                  and exclusive discretion, may provide in the particular Option
                  Agreement, as amended. The Board (or its delegates) may at any
                  time   increase   the   percentage   an  Option  is  otherwise
                  exercisable  under the terms of a particular Option Agreement.
                  The  Board,  (or its  delegates)  in its  sole  and  exclusive
                  discretion,  may permit the  issuance of Stock  underlying  an
                  Option prior to the date the Option is otherwise  exercisable,
                  provided  such  Stock is  subject to  repurchase  rights  that
                  expire  pro rata as the Option  would  otherwise  have  become
                  exercisable.

                  (ii) If the Optionee  does not exercise in any one year period
                  the full number of shares to which he or she is then  entitled
                  to exercise,  the  Optionee  may exercise  those shares in any
                  subsequent year during the term of the Option.

         (G)  TRANSFER OF OPTIONS.  An  attempted  non-permitted  transfer of an
Option shall be void.

         (H) DEATH OF OPTIONEE.  If the Optionee who is an Employee,  officer or
         Director of the Company or its  Affiliates  dies while in the employ or
         service of the  Company or its  Affiliates  or within a period of three
         months after termination of such employment or term of corporate office
         and before he or she has fully  exercised an Option,  the Option may be
         exercised,  regardless of the expiration  date stated in the particular
         Option  Agreement (to the extent that the Option was exercisable on the
         date of death  and had not  previously  been  exercised),  for one year
         after the date of the Optionee's  death. Such exercise may be made by a
         personal representative of the Optionee or by any person or persons who
         shall have acquired the Option directly from the Optionee by bequest or
         inheritance.  Notwithstanding the foregoing,  an Incentive Stock Option
         may not be exercised after ten years following the date of grant.

         (I)  TERMINATION OF EMPLOYMENT OR SERVICE OTHER THAN DEATH.  Subject to
         the provisions of Paragraph  6(h) above,  in the event that an Optionee
         who  is an  Employee,  officer  or  Director  of  the  Company  or  its
         Affiliates  shall cease to be employed by or perform  services  for the
         Company or its  Affiliates  prior to an Option's  expiration  date, the
         exercise of Option shall be subject to such  limitations on the periods
         of time during which the Option may be exercised as may be specified in
         the particular Option Agreement,  as amended,  between the Optionee and
         the  Company.   Notwithstanding  the  foregoing  (and  subject  to  the
         provisions of Paragraph 6(h) above), an Optionee who is Disabled on the
         date of  termination  of  employment  or term of  corporate  office may
         exercise  his  or her  Option,  to  the  extent  that  the  Option  was
         exercisable on the date of such termination and had not previously been
         exercised,  for one year from the date of such  termination;  provided,
         however,  that an Option may not be exercised after the expiration date
         set forth in the particular  Option Agreement,  as amended.  Whether an
         authorized  leave of absence or absence for  military  or  governmental
         service shall constitute  termination of employment for purposes of the
         Plan shall be determined by the Board (or its  delegates) in their sole
         and exclusive  discretion.  No provision of the Plan shall be construed
         so as to grant any  individual  the  right to  remain in the  employ or
         service of the  Company or its  Affiliates  for any period of  specific
         duration.

         (J)      RECAPITALIZATION/CORPORATE TRANSACTIONS.

                  (i) The  number  of  shares  issuable  under  the Plan and the
                  number and amount of the Option  Stock and the Option Price of
                  outstanding Options shall be proportionately  adjusted for any
                  increase or  decrease in the number of issued  shares of Stock
                  resulting from a subdivision or consolidation of shares of any
                  class or series,  or for the payment of a Stock  dividend,  or
                  any other increase or decrease in the number of such shares of
                  Stock affected without receipt of consideration by the Company
                  in order to preclude the dilution or  enlargement  of benefits
                  under the Plan.



<PAGE>



                  (ii) The Board, in its sole and exclusive discretion, may make
                  such  equitable   adjustments  to  the  Plan  and  outstanding
                  Options,  as it deems  appropriate  in order to  preclude  the
                  dilution  or  enlargement  of  benefits  under  the Plan  upon
                  exchange of all of the outstanding  Stock of the Company for a
                  different  class or series of capital stock or the  separation
                  of  assets  of the  Company,  including  a  spin-off  or other
                  distribution of Stock or property by the Company.

                  (iii) If the Company shall be the surviving corporation in any
                  merger or consolidation, each outstanding Option shall pertain
                  to and apply to the securities to which a holder of the number
                  of  shares  of  Option  Stock  would  have  been  entitled.  A
                  dissolution  or  liquidation  of the Company,  a merger (other
                  than a merger the principal  purpose of which is to change the
                  state of the  Company's  incorporation)  or  consolidation  in
                  which the Company is not the surviving corporation,  a reverse
                  merger in which the Company is the surviving  corporation  but
                  the Company's Common Stock outstanding  immediately  preceding
                  the merger is  converted  by virtue of the  merger  into other
                  property,  or other capital  reorganization in which more than
                  fifty percent (50%) of the Company's Common Stock is exchanged
                  shall cause each  outstanding  Option to terminate;  provided,
                  however,  that  immediately  prior to such event each Optionee
                  shall have the right to exercise his or her Option in whole or
                  in part,  unless the Option in  connection  with such event is
                  either to be assumed by the  successor  corporation  or parent
                  thereof,  or  to be  replaced  with  a  comparable  option  to
                  purchase   shares  of  the  capital  stock  of  the  successor
                  corporation or parent thereof, or the Option is to be replaced
                  by a  comparable  cash  incentive  program  of  the  successor
                  corporation  based on the  value of the  Option on the date of
                  such event. Notwithstanding the preceding, if, within one year
                  from the  date of such  event,  an  Employee's  employment  is
                  involuntarily  terminated,  then  the  Employee's  outstanding
                  Options,  if any, shall become  immediately  exercisable as of
                  the date of termination of employment.

                  (iv) All  adjustments  required  by the  preceding  paragraphs
                  shall  be  made  by the  Board,  whose  determination  in that
                  respect shall be final, binding and conclusive, provided, that
                  adjustments  shall  not be made in a  manner  that  causes  an
                  Incentive  Stock  Option to fail to  continue to qualify as an
                  "incentive  stock  option"  within the meaning of Code Section
                  422.

                  (v) Except as expressly  provided in this  Paragraph  6(j), an
                  Optionee shall have no rights by reason of any  subdivision or
                  consolidation  of shares of stock of any class or  series,  or
                  the payment of any stock  dividend,  or any other  increase in
                  the number of shares of stock of any class or series by reason
                  of  any  dissolution,   liquidation,   merger,  consolidation,
                  reorganization,  or separation of assets, and any issue by the
                  Company  of  shares  of  stock  of any  class  or  series,  or
                  securities  convertible  into  shares of stock of any class or
                  series,  shall not affect, and no adjustment by reason thereof
                  shall be made with  respect  to,  the  number or amount of the
                  Option Stock or the Option Price of outstanding Options.

                  (vi) The grant or  existence  of an Option shall not affect in
                  any way the right or power of the Company to make adjustments,
                  reclassifications,  reorganizations  or changes in its capital
                  or business  structure,  or to merge,  consolidate,  dissolve,
                  liquidate or sell, or transfer all or any part of its business
                  or assets.

         (K) RIGHTS AS A  SHAREHOLDER.  An  Optionee  shall not have rights as a
         shareholder  with respect to any shares  covered by an Option until the
         Option is  exercised  and  Optionee  has become a record  holder of the
         shares of Stock underlying the Option.  No adjustment shall be made for
         dividends  (ordinary or extraordinary,  whether in cash,  securities or
         other property) or  distributions  or other rights for which the record
         date is prior to the date the  Optionee  has become a record  holder of
         the  shares of Stock  underlying  the  Option,  except as  provided  in
         Paragraph 6(j) above.



<PAGE>



         (L)  MODIFICATION,  EXTENSION  AND RENEWAL OF  OPTIONS.  Subject to the
         terms and  conditions  of the Plan,  the Board (or its  delegates)  may
         modify (including lowering the Option Price or changing Incentive Stock
         Options into Non-Statutory Stock Options),  extend or renew outstanding
         Options  granted under the Plan, or accept the surrender of outstanding
         Options  under the Plan and/or  other stock option plans of the Company
         (to the extent not previously  exercised) and authorize the granting of
         new Options in substitution therefor. Notwithstanding the foregoing, no
         modification of an Option shall, without the consent of the Optionee or
         as otherwise  provided for in the Plan,  adversely affect any rights or
         obligations under any Option previously granted under the Plan.

         (M) INVESTMENT PURPOSE.  Each Option under the Plan shall be granted on
         the  condition  that  the  purchase  of Stock  thereunder  shall be for
         investment  purposes for the Optionee's own account and not with a view
         to resale or  distribution.  In the  event  the Stock  subject  to such
         Option is registered  under the Securities Act of 1933, as amended,  or
         in the event a resale of such Stock  without  such  registration  would
         otherwise be  permissible,  such condition  shall be inoperative if, in
         the opinion of counsel for the Company,  such condition is not required
         under  the  Securities  Act of  1933,  or  any  other  applicable  law,
         regulation or rule of any governmental agency.

         (N) TRANSFER AND EXERCISE OF OPTIONS.  The Board (or its delegates) may
         adopt,  amend and rescind such rules and  regulations  as the Board (or
         its delegates) may deem appropriate  concerning the  transferability or
         assignability of a particular Option; provided,  however, to the extent
         required by Code Section 422, each  Incentive  Stock Option shall state
         that it is not transferable or assignable by Optionee otherwise than by
         will or the  laws of  descent  and  distribution,  and that  during  an
         Optionee's  lifetime,  such Incentive Stock Option shall be exercisable
         only by the Optionee.

         (O) OTHER  PROVISIONS.  Each Option  Agreement  may contain  such other
         provisions,   including  without  limitation,   restrictions  upon  the
         exercise  or  transferability  of the  Option,  as the  Board  (or  its
         delegates) may deem  advisable.  Any Incentive  Stock Option  Agreement
         shall contain such  limitations and  restrictions  upon the exercise of
         the  Incentive  Stock  Option as shall be  necessary in order that such
         Incentive Stock Option shall be an "incentive  stock option" as defined
         in Code Section 422, or to conform to any change in the law.

         (P) WITHHOLDING  TAXES.  When the Company  becomes  required to collect
         federal and state income and  employment  taxes in connection  with the
         exercise  of  an  Option  ("withholding  taxes"),  the  Optionee  shall
         promptly  pay to the Company  the amount of such taxes in cash,  unless
         the Board (or its  delegates)  permits or  requires  payment in another
         form.  Subject to such conditions as it may require,  the Board, in its
         sole  discretion,  may allow an Optionee to  reimburse  the Company for
         payment of withholding  taxes with shares of Stock. If an Optionee is a
         Reporting  Person at the time of  exercise  and is given an election to
         pay any  withholding  taxes  with  Stock,  the  Board  shall  have sole
         discretion to approve or disapprove such election.

         (Q) LIMITATION ON GRANTS. The following limitation will apply to grants
         of Options under the Plan:  no Employee  will be granted  Options under
         the Plan to receive more than seven  hundred fifty  thousand  (750,000)
         shares of Stock in any one fiscal  year.  The  limitation  set forth in
         this Paragraph 6(q) is intended to satisfy the requirements  applicable
         to Options  intended  to qualify  as  "performance-based  compensation"
         within the  meaning of  Section  162(m) of the Code.  In the event that
         such limitation is not required to qualify Options as performance-based
         compensation, this limitation shall not apply under the Plan.

7.       TERM OF PLAN.

         Incentive  Stock Options may be granted  pursuant to the Plan from time
to time within a period of ten years from  August 6, 1998,  or the date the Plan
is approved by the shareholders of the Company, whichever is earlier.



<PAGE>



8.       AMENDMENT OF PLAN.

         With  respect to any shares at the time not  subject  to  Options,  the
Board may from time to time, insofar as permitted by law, suspend or discontinue
the Plan or revise or amend the Plan in any  respect  whatsoever,  except  that,
without approval of the shareholders, no such revision or amendment shall change
the number of shares for which Options may be granted under the Plan, change the
designation of the class of persons  eligible to receive Options under the Plan,
materially  increase  the  benefits  accruing to  Optionees  under the Plan,  or
decrease the price at which Incentive Stock Options may be granted. Furthermore,
without the  approval of the  shareholders,  the Plan may not, be amended in any
manner that will cause  Incentive  Stock Options issued under it to fail to meet
the  requirements  of "incentive  stock options" as defined in Code Section 422.
The Board may amend the Plan from time to time to the extent necessary to comply
with any applicable law, rule or other regulatory requirement.

9.       APPLICATION OF FUNDS.

         The proceeds received by the Company from the sale of Stock pursuant to
the exercise of an Option will be used for general corporate purposes.

10.      NO OBLIGATION TO EXERCISE OPTION.

         The granting of an Option shall impose no obligation  upon the Optionee
to exercise such Option.

11.      INDEMNIFICATION.

         In addition to such other rights of indemnification as they may have as
Directors, Employees or agents of the Company, the Directors (or any individuals
who are delegated  authority by the Board (or its  delegates) to administer  the
Plan)  shall  be  indemnified  by the  Company  against:  (i)  their  reasonable
expenses,  including  attorneys'  fees  actually  and  necessarily  incurred  in
connection with the defense of any action, suit or proceeding,  or in connection
with any appeal  therein,  to which they or any of them may be a party by reason
of any action  taken or failure to act under or in  connection  with the Plan or
any Option  granted  thereunder;  and (ii)  against all amounts  paid by them in
settlement  thereof  (provided such settlement is approved by independent  legal
counsel selected by the Company),  or paid by them in satisfaction of a judgment
in any such action, suit or proceeding, except in actions to matters as to which
it shall be adjudged in such action,  suit or  proceeding  that such Director or
individual is liable for  negligence or  misconduct  in the  performance  of his
duties;  this  indemnification  is expressly  conditioned  upon the  indemnified
party,  within ninety (90) days after  institution  of any such action,  suit or
proceeding, offering the Company in writing the opportunity, at its own expense,
to handle and defend the same.

12.      APPROVAL OF SHAREHOLDERS.

         The portions of the Plan dealing with Incentive Stock Options shall not
take effect unless approved by the  shareholders of the Company's  preferred (if
any) and Common  Stock,  which  approval  must occur within a period  commencing
twelve (12) months  before and ending twelve (12) months after the date the Plan
is  adopted by the Board.  Nothing in the Plan shall be  construed  to limit the
authority of the Company to exercise its corporate rights and powers,  including
the right of the Company to grant  non-statutory  options  for proper  corporate
purposes.

AGOURON PHARMACEUTICALS, INC.

By:      ______________________________ 
         Peter Johnson, President & CEO


<PAGE>




                                    ANNEX VII

                          AGOURON PHARMACEUTICALS, INC.
                          EMPLOYEE STOCK PURCHASE PLAN
                       (Last amended as of August 6, 1998)

1.       PURPOSE OF THE PLAN

         The  purpose  of the  Plan is to  provide  Eligible  Employees  with an
opportunity to increase their proprietary interest in the success of the Company
by  purchasing  Stock from the  Company on  favorable  terms and to pay for such
purchases  through  payroll  deductions.  The Plan is intended to qualify  under
Section 423 of the Internal Revenue Code of 1986, as amended.  The provisions of
the  Plan,   accordingly,   shall  be  construed  so  as  to  extend  and  limit
participation in a manner consistent with the requirements of Section 423.

2.       DEFINITIONS

         As used herein the following definitions shall apply:

         (a)  "Affiliate"  shall  mean  any  corporation  defined  as a  "parent
corporation"  or a  "subsidiary  corporation"  by Code  Section  425(e) and (f),
respectively.

         (b) "Board of Directors" or "Board" means the Board of Directors of the
Company, as constituted from time to time.

         (c) "Code" shall mean the Internal Revenue Code of 1986, as amended.

         (d)  "Company"  means  Agouron  Pharmaceuticals,   Inc.,  a  California
corporation.

         (e)  "Compensation"  means  the  base  compensation  paid  in cash to a
Participant  by a  Participating  Company,  including  salaries  and wages,  but
excluding bonuses, incentive compensation,  commissions, overtime pay, moving or
relocation  allowances,  car  allowances,  imputed income  attributable to cars,
taxable fringe benefits and similar items, all as determined by the Board.

         (f) "Eligible  Employee" means any employee of a Participating  Company
whose  customary  employment  is for more than five months per calendar year and
for more than 20 hours per week.

         (g) "Fair  Market  Value" of Stock on a given date shall mean an amount
per share as  determined  by the  Board  (or its  delegates),  by  applying  any
reasonable valuation method determined without regard to any restriction,  other
than a  restriction  that by its terms will  never  lapse.  Notwithstanding  the
preceding,  if the Stock is traded upon an established stock exchange,  then the
"Fair Market Value" of Stock on a given date per share shall be deemed to be the
average of the  highest and lowest  selling  price per share of the Stock on the
principal  stock exchange on which the Stock is then trading or, if there was no
trading of the Stock on that day, on the next  preceding  day on which there was
such trading;  if the Stock is not traded upon an established stock exchange but
is quoted on a quotation  system,  the "Fair  Market  Value" of Stock on a given
date shall be deemed to be the mean between the closing representative "bid" and
"ask"  prices per share of the Stock on such date as reported by such  quotation
system  or,  if there  was no  trading  of the  Stock on that  day,  on the next
preceding day on which there was such trading.

         (h) "Participant"  means an Eligible Employee who elects to participate
in the Plan, as provided in Section 4(b).

         (i)      "Participating Company" means the Company and any Affiliates.

         (j)  "Participation  Period" means a period during which  contributions
may be made toward the purchase of Stock under the Plan, as determined  pursuant
to Section 4(a).


<PAGE>



         (k) "Plan"  means this Agouron  Pharmaceuticals,  Inc.  Employee  Stock
Purchase Plan, as amended from time to time.

         (l) "Plan Account" means the account  established for each  Participant
pursuant to Section 8(a).

         (m) "Purchase Price" means the price at which Participants may purchase
Stock under the Plan, as determined pursuant to Section 8(b).

         (n) "Rule  16b-3"  shall mean Rule 16b-3 (as amended from time to time)
promulgated  by the SEC  under  the  Securities  Exchange  Act of  1934  and any
successor thereto.

         (o) "SEC" means the Securities and Exchange Commission.

         (p)  "Stock"  means the  Common  Stock of the  Company,  or any  series
thereof authorized by the Board.

3.       ADMINISTRATION OF THE PLAN

         (a) The Plan shall be  administered  by the Board;  provided,  however,
that the Board may delegate all or any part of its authority to  administer  the
Plan, in its entirety or with respect to any group or groups of persons eligible
to participate hereunder, to such persons or committee as the Board shall in its
sole  discretion  determine.  The Board and its delegates  may adopt,  amend and
rescind  such  forms,  rules  and  regulations  for  carrying  out the  Plan and
implementing   agreements   and  take  such  acts  as  it  deems   proper.   The
interpretation, construction and application by the Board or any individuals who
are  delegated  authority  by the  Board  to  administer  the Plan or any of the
provisions  of the Plan,  shall be final and  binding  on the  Company,  and all
persons and their legal representatives who have rights hereunder.  Reference to
administrative  acts by the Board in this Agreement  shall also refer to acts by
its delegates unless the context otherwise  indicates.  Whether or not the Board
has  delegated  administrative  activity,  the  Board  has the  final  power  to
determine all questions of policy or expediency that may arise in administration
of the Plan.

4.       ENROLLMENT AND PARTICIPATION

         (a) PARTICIPATION  PERIODS. While the Plan is in effect, there shall be
two twelve-month  Participation Periods in each calendar year, one commencing on
January 1 and  terminating  on the following  December 31 and one  commencing on
July 1 and  terminating on the following June 30;  provided,  however,  that the
Board shall have the right to alter the  duration of the  Participation  Periods
(including the  commencement  dates thereof)  prior to the  commencement  of the
Participation Period and to establish overlapping Participation Periods.

         (b) ENROLLMENT.  Any individual who, on the day preceding the first day
of a Participation Period, qualifies as an Eligible Employee may elect to become
a  Participant  in the Plan for  such  Participation  Period  by  executing  the
enrollment  form  prescribed for this purpose by the Board;  the enrollment form
shall specify the series of Stock to be purchased by the Eligible Employee.  The
enrollment  form shall be filed with the Company not later than the last working
day prior to the commencement of such Participation Period.

         (c) DURATION OF  PARTICIPATION.  Once  enrolled,  a  Participant  shall
continue to participate  in the Plan for each  succeeding  Participation  Period
until he or she discontinues contributions, withdraws from the Plan or ceases to
be an Eligible  Employee.  A Participant who  discontinues  contributions  under
Section  5(d) or withdraws  from the Plan under  Section 6(a) may again become a
Participant,  if he or she  then  is an  Eligible  Employee,  by  following  the
procedure described in subsection (b) above.

5.       EMPLOYEE CONTRIBUTIONS

         (a) FREQUENCY OF PAYROLL DEDUCTIONS.  A Participant may purchase shares
of  Stock  under  the  Plan  solely  by means  of  payroll  deductions.  Payroll
deductions,  as designated by the Participant  pursuant to subsection (b) below,
shall  commence  with the first  payday in the  Participation  Period  and shall
continue on each subsequent payday during participation in the Plan.


<PAGE>



         (b) AMOUNT OF PAYROLL DEDUCTIONS.  An Eligible Employee shall designate
on the  enrollment  form the portion of his or her  Compensation  that he or she
elects to have withheld for the purchase of Stock. Such portion shall be a whole
percentage  of the Eligible  Employee's  compensation,  but not less than 1% nor
more than 15%; provided,  however, that the Board shall have the right to change
the maximum  permissible  withholding  percentage prior to the commencement of a
Participation Period.

         (c) CHANGING  WITHHOLDING  RATE. If a Participant  wishes to change the
rate of payroll withholding, he or she may do so by filing a new enrollment form
with the Company not later than the last  working day prior to the  commencement
of  the  Participation  Period  for  which  such  change  is  to  be  effective.
Additionally,  a  Participant  may  decrease  the  rate  of his  or her  payroll
withholding once but not more than once during a Participation  Period by filing
a new enrollment  form;  the decrease in rate shall become  effective as soon as
reasonably practicable after such form has been received by the Company.

         (d)  DISCONTINUING  PAYROLL  DEDUCTIONS.  If a  Participant  wishes  to
discontinue employee contributions entirely, he or she may do so by filing a new
enrollment  form  at any  time.  Payroll  withholding  shall  cease  as  soon as
reasonably practicable after such form has been received by the Company. Amounts
credited  to a  Participant's  Plan  Account  prior  to his or her  election  to
discontinue contributions shall be used to purchase Stock in accordance with the
terms of Section 8(c).

6.       WITHDRAWAL FROM THE PLAN

         (a)  WITHDRAWAL.  A Participant  may elect to withdraw from the Plan by
filing the  prescribed  form with the Company at any time. As soon as reasonably
practicable  thereafter,  payroll  deductions  shall cease and the entire amount
then credited to the Participant's  Plan Account shall be refunded to him or her
in cash, without interest. No partial withdrawals shall be permitted.

         (b)  RE-ENROLLMENT  AFTER  WITHDRAWAL.  A  former  Participant  who has
withdrawn  from the Plan shall not be a Participant  until he or she  re-enrolls
for a subsequent Participation Period under Section 4(b).

7.       TERMINATION

         (a) TERMINATION OF EMPLOYMENT. Termination of employment as an Eligible
Employee  for any  reason,  including  death,  shall be treated as an  automatic
withdrawal from the Plan under Section 6(a).

         (b) DEATH. In the event of the Participant's death, the amount credited
to his or her Plan Account shall be paid to a  beneficiary  designated by him or
her for this purpose on the  prescribed  form or, if none, to the  Participant's
estate.

8.       PLAN ACCOUNTS AND PURCHASE OF SHARES

         (a) PLAN  ACCOUNTS.  The Company  shall  maintain a Plan Account on its
books in the name of each  Participant.  As of each  payday  in a  Participation
Period,  the  amount  deducted  from  the  Participant's  Compensation  shall be
credited to the  Participant's  Plan Account.  No interest  shall be credited to
Plan Accounts.

         (b) PURCHASE PRICE. The Purchase Price for each share of Stock shall be
the lower of (i) 85% of the Fair Market  Value of such share on the first day of
the  Participation  Period or (ii) 85% of the Fair Market Value of such share on
the last day in the  Participation  Period or the Alternative  Purchase Date, if
applicable.

         (c) ALTERNATIVE  PURCHASE DATE. The  Alternative  Purchase Date for the
Plan shall be (i) June 30 for the Participation  Period commencing January 1 and
terminating  the  following  December  31 and  (ii)  December  31 for  the  Plan
Participation  Period commencing July 1 and terminating the following June 30 or
such other date(s)  during the  Participation  Period which the Board has chosen
prior to the commencement of such Participation Period.



<PAGE>



         (d) NUMBER OF SHARES  PURCHASED.  As of the earlier of (i) the last day
of each  Participation  Period  or (ii)  the  Alternative  Purchase  Date,  each
Participant  shall be deemed to have  elected  to  purchase  the number of whole
shares of Stock  calculated in accordance  with this  subsection (d), unless the
Participant has previously  elected to withdraw from the Plan in accordance with
Section 6(a). The amount then in the Participant's Plan Account shall be divided
by the Purchase  Price,  and the number of whole  shares that  results  shall be
purchased from the Company with the funds in the Participant's Plan Account. The
foregoing notwithstanding,  no Participant shall purchase more than a maximum of
3,000 shares of Stock with respect to any one year period nor shares of Stock in
excess of the amounts set forth in Sections 9 and 13(a).  Proceeds from the sale
of Stock  pursuant to rights  granted  under the Plan shall  constitute  general
funds of the Company.

         (e)  AVAILABLE  SHARES  INSUFFICIENT.  In the event that the  aggregate
number of shares that all  Participants  elect to  purchase  on a purchase  date
exceeds the maximum  number of shares  remaining  available  for issuance  under
Section 13(a),  then the number of shares to which each  Participant is entitled
shall be determined by multiplying  the number of shares  available for issuance
by a  fraction,  the  numerator  of which is the  number  of  shares  that  such
Participant  has elected to purchase and the  denominator of which is the number
of shares that all Participants have elected to purchase.

         (f) ISSUANCE OF STOCK.  Certificates  representing the number of shares
of Stock purchased shall be issued as soon as reasonably practicable after their
purchase.  Shares may be registered in the name of the Participant or jointly in
the name of the Participant and his or her spouse as joint tenants with right of
survivorship  or as  community  property.  Alternatively,  the Board may, in its
discretion,  enter into an arrangement with a broker(s) pursuant to which shares
issued  under  the Plan are  issued in the name of the  broker  and held for the
accounts of Plan Participants.

         (g) TAX OBLIGATIONS. On the purchase date of the Stock, or when some or
all of the Stock issued under the Plan is disposed of, the Participant must make
adequate provision for federal, state, or other tax withholding obligations,  if
any, which arise upon the purchase or disposition of the Stock.  The Company may
withhold from a Participant's  Compensation the amount necessary for the Company
to meet  its  applicable  withholding  obligations,  including  any  withholding
required  to make  available  to the  Company  any tax  deductions  or  benefits
attributable to sale or early disposition of Stock by the Participant.

         (h) UNUSED CASH  BALANCES.  Any amount  remaining in the  Participant's
Plan Account that represents the Purchase Price for a fractional  share shall be
carried over in the  Participant's  Plan Account to the next purchase  date. Any
amount remaining in the Participant's  Plan Account that represents the Purchase
Price for whole shares which could not be purchased  under  subsection (d) above
shall be refunded to the Participant in cash, without interest.

9.       LIMITATIONS  ON STOCK OWNERSHIP

         Any other provision of the Plan  notwithstanding,  no Participant shall
be granted a right to purchase Stock under the Plan if:

         (a) Such Participant, immediately after his or her election to purchase
such Stock would own stock  possessing more than 5% of the total combined voting
power or value of all classes of stock of the Company or its Affiliates; or

         (b) Under the terms of the Plan, such Participant's  rights to purchase
Stock under this and all other  qualified  employee  stock purchase plans of the
Company or any  Affiliate  of the Company  would  accrue at a rate that  exceeds
$25,000 of the Fair Market Value of the Stock  (determined at the time when such
right is  granted)  for each  calendar  year for which  such  right or option is
outstanding at any time.

         Ownership of Stock shall be determined  after applying the  attribution
rules of  Section  424(d) of the Code.  For  purposes  of this  Section  9, each
Participant  shall be  considered to own any Stock that he or she has a right or
option to purchase under this or any other plan.



<PAGE>



10.      RIGHTS NOT TRANSFERABLE

         The  rights of any  Participant  under the Plan,  or any  Participant's
interest  in any Stock or moneys  to which he or she may be  entitled  under the
Plan,  shall not be  transferable  by voluntary or involuntary  assignment or by
operation  of law,  or in any  other  manner  other  than by will or the laws of
descent and  distribution.  If a Participant in any manner attempts to transfer,
assign or otherwise encumber his or her rights or interest under the Plan, other
than by will or the laws of  descent  and  distribution,  then such act shall be
treated  as an  election  by the  Participant  to  withdraw  from the Plan under
Section 6(a).

11.      NO RIGHTS AS AN EMPLOYEE

         Nothing in the Plan shall be  construed to give any person the right to
remain in the employ of a  Participating  Company.  Each  Participating  Company
reserves the right to terminate the  employment of any person at any time,  with
or without cause.

12.      NO RIGHTS AS A SHAREHOLDER

         A Participant shall have no rights as a Shareholder with respect to any
shares that he or she has  purchased,  or may have a right to purchase under the
Plan until the date of issuance of a stock certificate for such shares.

13.      STOCK OFFERED UNDER THE PLAN

         (a) AUTHORIZED  SHARES. As of October 28, 1998, the aggregate number of
shares of Stock  remaining  available for purchase under the Plan is __________,
including the 200,000 shares of Stock approved by the Shareholders on such date,
subject to adjustment pursuant to this Section 13.

         (b) ANTI-DILUTION ADJUSTMENTS.  The aggregate number of shares of Stock
offered under the Plan, the 3,000 share limitation described in Section 8(c) and
the price of shares  that any  Participant  has  elected  to  purchase  shall be
adjusted proportionately by the Board for any increase or decrease in the number
of outstanding  shares of Stock resulting from a subdivision or consolidation of
shares, the payment of a stock dividend,  any other increase or decrease in such
shares effected  without receipt or payment of  consideration  by the Company or
the distribution of the shares of a subsidiary to the Company's Shareholders.

         (c)  REORGANIZATIONS.  In the event of a dissolution  or liquidation of
the Company,  or a merger or consolidation to which the Company is a constituent
corporation,  the Plan shall terminate unless the plan of merger,  consolidation
or reorganization  provides  otherwise,  and all amounts that have been withheld
but not yet applied to  purchase  Stock  hereunder  shall be  refunded,  without
interest;  provided,  however,  that in  lieu  of  terminating  the  right  of a
Participant to purchase Stock during the course of a Participation  Period,  the
Board,  on at least  ten days  written  notice  to a  Participant,  may elect to
shorten the duration of the Participation Period to end immediately prior to the
event causing such termination. Such written notice shall advise the Participant
of the new date on which  the  Participant  Period  will end and that his or her
option to purchase Stock will be exercised automatically on that date unless the
Participant  withdraws  from the Plan prior to that  date.  The Plan shall in no
event be  construed  to restrict in any way the  Company's  right to undertake a
dissolution, liquidation, merger, consolidation or other reorganization.

14.      AMENDMENT OR DISCONTINUANCE

         The  Board of  Directors  shall  have the right to  amend,  suspend  or
terminate  the  Plan  at  any  time  and  without  notice;   provided,  that  no
Participant's existing rights are adversely affected thereby and that, except as
provided in Section 13, any increase in the aggregate  number of shares of Stock
to be issued  under  the Plan  shall be  subject  to  approval  by a vote of the
Shareholders of the Company. Provided further the Board shall not have the right
to  amend  the  Plan in any  manner  which  will  cause  it to fail to meet  the
qualification  requirements of Code Section 423. Unless sooner  terminated,  the
Plan shall terminate on December 4, 2002.



<PAGE>



15.      SPECIAL RULE FOR DIRECTORS AND OFFICERS

         Any other provision of the Plan notwithstanding, to the extent mandated
by SEC Rule 16b-3 a Participant  who is a member of the Board of Directors or an
officer of the Company shall be subject to such other conditions as are required
to satisfy the requirements  necessary for the exemptions provided by Rule 16b-3
to be available.

16.      SHAREHOLDER APPROVAL

         The Plan was  originally  approved  by the  Company's  Shareholders  on
December  4, 1992 and an  increase  in the  number of shares of Stock  available
under the Plan was later approved by the Shareholders on October 28, 1998.

17.      EXECUTION

         To record the  adoption of the Plan by the Board on October  15,  1992,
effective  as of January 1, 1993,  the  amendment  of the Plan by the  Directors
Compensation Committee on June 6, 1994, and the subsequent amendment of the Plan
by the Board on August 6, 1998,  the  Company  has  caused  its duly  authorized
officer to affix the corporate name hereto.

AGOURON PHARMACEUTICALS, INC.

By       ________________________
         Peter Johnson, President


<PAGE>



                                     PART II

                     INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 20.  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 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.



<PAGE>



         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, 1998.  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 21.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)   Exhibits

         NUMBER                     DESCRIPTION

         3.1               Form of Restated Articles of Incorporation. (Included
                           as  Annex  II  to  the  Proxy  Statement/  Prospectus
                           contained in Part I of this Registration Statement).
   
         5.1               Opinion of Pillsbury Madison & Sutro LLP.

         8.1               Opinion of Pillsbury Madison & Sutro LLP.  
                           (Previously filed.)
    
         10.1              Amended and Restated Agouron Stock Option Plan.  
                           (Included as Annex VI to the Proxy
                           Statement/Prospectus contained in Part I 
                           of this Registration Statement.)

         10.2              Amended and Restated  Employee  Stock  Purchase Plan.
                           (Included    as    Annex    VII    to    the    Proxy
                           Statement/Prospectus  contained  in  Part  I of  this
                           Registration Statement.)

         10.3              Amended and Restated Rights  Agreement dated November
                           7, 1996,  as  proposed  to be  amended,  between  the
                           Registrant  and  ChaseMellon   Shareholder   Services
                           L.L.C.
                           (Previously filed.)

         23.1              Consent of PricewaterhouseCoopers LLP.

         23.2              Consent of  Pillsbury  Madison & Sutro LLP. 
                           (Included  in their  opinions set forth as Exhibits
                           5.1 and  8.1)

         24.1              Power  of  Attorney.  (Contained  on  Signature  Page
                           of this  Registration  Statement.)
                           (Previously filed.)

         99.1              Form of Proxy.

(b)  Financial  Statement  Schedules (Included in Annex IV, Annex V and Annex VI
     to  the  Proxy  Statement  and  Prospectus  contained  in  Part  I of  this
     Registration Statement). (Previously filed.)

ITEM 22.  UNDERTAKINGS

         The undersigned Registrant hereby undertakes:

                  (1) To file,  during any  period in which  offers or sales are
                      being made, a post-effective amendment to the
                      Registration Statement:

                  (i) To include any prospectus required by Section 10(a)(3)
                      of the Securities Act;



<PAGE>



                  (ii) To reflect in the  prospectus any facts or events arising
         after the  effective  date of the  Registration  Statement (or the most
         recent post-effective amendment thereof) which,  individually or in the
         aggregate,  represent a fundamental change in the information set forth
         in the Registration Statement; and

                  (iii) To include any material  information with respect to the
         plan of  distribution  not  previously  disclosed  in the  Registration
         Statement  or  any  material   change  to  such   information   in  the
         Registration Statement;

         provided,  however,  that  paragraphs  (i) and (ii) do not apply if the
         information  required to be included in a  post-effective  amendment by
         those  paragraphs  is  contained  in  periodic  reports  filed  by  the
         Registrant  pursuant to Section 13 or Section 15(d) of the Exchange Act
         that are incorporated by reference in the Registration Statement.

                  (2) That, for the purpose of determining  any liability  under
         the Securities Act, each such post-effective  amendment 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.

                  (3) To remove from  registration by means of a  post-effective
         amendment any of the securities being registered which remain unsold at
         the termination of the offering.

         The  undersigned  registrant  hereby  undertakes  that, for purposes of
determining  any liability  under the  Securities  Act of 1933 (the  "Securities
Act"),  each filing of the registrant's  annual report pursuant to Section 13(a)
or Section 15(d) of the  Securities  Exchange Act of 1934 (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.

         The undersigned registrant hereby undertakes to respond to requests for
information  that is incorporated  by reference into the prospectus  pursuant to
Items 4, 10(b), 11 or 13 of this Form within one business day of receipt of such
request,  and to send the  incorporated  documents  by first class mail or other
equally prompt means.  This includes  information  contained in documents  filed
subsequent to the effective date of the registration  statement through the date
of responding to the request.

        The  undersigned  registrant  hereby  undertakes to supply by means of a
post-effective  amendment  all  information  concerning a  transaction,  and the
company  being  acquired  involved  therein,  that  was not the  subject  of and
included in the registration statement when it became effective.

        Insofar as indemnification  for liabilities arising under the Securities
Act may be  permitted to  directors,  officers  and  controlling  persons of the
registrant pursuant to the foregoing  provisions,  or otherwise,  the registrant
has been advised that in the opinion of the Securities  and Exchange  Commission
such indemnification is against public policy as expressed in the 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 its counsel the matter
has been  settled by  controlling  precedent,  submit to a court of  appropriate
jurisdiction the question whether such  indemnification  by it is against public
policy as  expressed  in the  Securities  Act and will be  governed by the final
adjudication of such issue.

        The registrant  hereby  undertakes as follows:  that prior to any public
reoffering of the securities  registered  hereunder  through use of a prospectus
which is a part of this  registration  statement,  by any person or party who is
deemed to be an  underwriter  within  the  meaning  of Rule  145(c),  the issuer
undertakes that such reoffering  prospectus will contain the information  called
for by the applicable  registration  form with respect to reofferings by persons
who may be deemed underwriters, in addition to the information called for by the
other Items of the applicable form.


<PAGE>




        The  registrant  undertakes  that  every  prospectus  (i)  that is filed
pursuant to the paragraph immediately  preceding,  or (ii) that purports to meet
the  requirements of section  10(a)(3) of the Act and is used in connection with
an offering  of  securities  subject to Rule 415,  will be filed as a part of an
amendment  to the  registration  statement  and  will  not be  used  until  such
amendment is  effective,  and that,  for purposes of  determining  any liability
under the Securities Act, each such post-effective  amendment 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.
                                   SIGNATURES
   
         Pursuant  to the  requirements  of the  Securities  Act  of  1933,  the
registrant  has  duly  caused  this  Amendment  No.  1 to the  S-4  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 5th day of
November, 1998.
     
                                    AGOURON PHARMACEUTICALS, INC.

                                    By:      /S/ GARY E. FRIEDMAN
                                             _________________________________
                                             Gary E. Friedman, Esq.
                                             VICE PRESIDENT, GENERAL COUNSEL, 
                                             AND SECRETARY



<PAGE>



     Pursuant  to  the   requirements  of  the  Securities  Act  of  1933,  this
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>    <C>    <C>    <C>    <C>

     *                                               
- ------------------------------------------           President, Chief Executive                November 5, 1998
Peter Johnson                                        Officer and Director

     /S/ STEVEN S. COWELL                            
- ------------------------------------------           Corporate Vice President, Finance         November 5, 1998
Steven S. Cowell                                     and Chief Financial Officer

     /S/  GARY E. FRIEDMAN                           
- ------------------------------------------           Corporate Vice President, General         November 5, 1998
Gary E. Friedman                                     Counsel, Secretary and Director

     *                                               Director                                  November 5, 1998
- ------------------------------------------
John N. Abelson

     *                                               Director                                  November 5, 1998
- ------------------------------------------
Patricia M. Cloherty

     *                                               Director                                  November 5, 1998
- ------------------------------------------
A.E. Cohen

     *                                               Director                                  November 5, 1998
- ------------------------------------------
Michael E. Herman

     *                                               Director                                  November 5, 1998
- ------------------------------------------
Irving S. Johnson

     *                                               Director                                  November 5, 1998
- ------------------------------------------
Antonie T. Knoppers

     *                                               Director                                  November 5, 1998
- ------------------------------------------
Melvin I. Simon


*        /S/  GARY E. FRIEDMAN                                                                 November 5, 1998
- ------------------------------------------
    Gary E. Friedman  (Attorney in Fact)

    
</TABLE>

<PAGE>



                                                   EXHIBIT INDEX


         NUMBER                     DESCRIPTION

         3.1               Form of Restated Articles of Incorporation. (Included
                           as  Annex  II  to  the  Proxy  Statement/  Prospectus
                           contained in Part I of this Registration Statement).
   
         5.1               Opinion of Pillsbury Madison & Sutro LLP.

         8.1               Opinion of Pillsbury Madison & Sutro LLP. 
                           (Previously filed.)
    
         10.1              Amended  and  Restated  Agouron  Stock  Option  Plan.
                           (Included     as    Annex    VI    to    the    Proxy
                           Statement/Prospectus  contained  in  Part  I of  this
                           Registration Statement.)

         10.2              Amended and Restated  Employee  Stock  Purchase Plan.
                           (Included    as    Annex    VII    to    the    Proxy
                           Statement/Prospectus  contained  in  Part  I of  this
                           Registration Statement.)

         10.3              Amended and Restated Rights  Agreement dated November
                           7, 1996,  as  proposed  to be  amended,  between  the
                           Registrant  and  ChaseMellon   Shareholder   Services
                           L.L.C.
                           (Previously filed.)

         23.1              Consent of PricewaterhouseCoopers LLP.

         23.2              Consent of  Pillsbury  Madison & Sutro LLP.  
                           (Included  in their  opinions set forth as Exhibits
                           5.1 and  8.1)

         24.1              Power  of  Attorney.  (Contained  on  Signature  Page
                           of this  Registration  Statement.)
                           (Previously filed.)

         99.1              Form of Proxy.


                                                                   EXHIBIT  5.1




November 3, 1998



Agouron Pharmaceuticals, Inc.
10350 North Torrey Pines Road
La Jolla, California 92037

         Re:      Registration Statement on Form S-4

Ladies and Gentlemen:

     We are acting as counsel for Agouron  Pharmaceuticals,  Inc.,  a California
corporation  (the  "Company"),  in connection  with the  registration  under the
Securities Act of 1933, as amended, of shares of Agouron  Pharmaceuticals  Stock
and shares of Oncology Division Stock (collectively,  the "Shares") to be issued
as a result of the  Reclassification of the shares of the Existing Common Stock,
together  with rights to  purchase  shares of Series B  Participating  Preferred
Stock, no par value,  and Series C Participating  Preferred Stock, no par value,
of the Company (collectively, the "Rights"). In this regard we have participated
in the  preparation  of a  Registration  Statement  on Form S-4 relating to such
Shares and such  Rights.  Such  Registration  Statement,  as amended,  is herein
referred  to as the  "Registration  Statement."  Capitalized  terms used but not
defined herein have the meanings ascribed to them in the Registration Statement.
We assume, for purposes of this opinion, the approval by the shareholders of the
Company  of the  Divisional  Stock  Proposal  as set  forth in the  Registration
Statement, and the effectiveness of the Restated Articles.

         We are of the opinion that:

         1.  When  the  Reclassification  has  become  effective  in the  manner
described in the  Registration  Statement and in accordance with the resolutions
adopted by the Board of Directors of the Company (the "Board"),  the outstanding
shares of Existing Common Stock will be validly reclassified and redesignated as
shares of Agouron  Pharmaceuticals  Stock and Oncology  Division Stock and, when
issued  by the  Company  as a  result  of  the  Reclassification  in the  manner
described in the  Registration  Statement and in accordance with the resolutions
adopted by the Board, the Shares will be duly authorized,  legally issued, fully
paid and nonassessable.

         2. When the  Reclassification  has become  effective  and the  Restated
Rights  Agreement has been executed and delivered in the manner described in the
Registration  Statement and in accordance  with the  resolutions  adopted by the
Board,  the Common Stock Rights will be validly  redesignated  as Agouron  Stock
Rights and  Oncology  Stock  Rights,  and,  when issued in  accordance  with the
Restated  Rights  Agreement,  such  Rights will be duly  authorized  and legally
issued.


<PAGE>




     We hereby  consent  to the filing of this  opinion  as  Exhibit  5.1 to the
Registration  Statement  and to the use of our name  under  the  caption  "Legal
Matters" in the  Registration  Statement  and in the Proxy  Statement/Prospectus
included therein.

                                          Very truly yours,



                                          /s/ Pillsbury Madison & Sutro LLP
                                          _________________________________





                                                                    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-4 of Agouron  Pharmaceuticals,  Inc.,  Agouron
Pharmaceuticals  and  Oncology  Division  of our  report  dated  July 16,  1998,
relating to the financial  statements of Agouron  Pharmaceuticals,  Inc. and our
reports dated August 10, 1998,  relating to the financial  statements of Agouron
Pharmaceuticals and Oncology Division, which appear in such Prospectus.  We also
consent to the reference to us under the heading "Experts" in such Prospectus.

PRICEWATERHOUSECOOPERS LLP
   
San Diego, California
November 4, 1998
    



                                                                    EXHIBIT 99.1

                          AGOURON PHARMACEUTICALS, INC.
                          10350 NORTH TORREY PINES ROAD
                         LA JOLLA, CALIFORNIA 92037-1020
           THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
   
     The  undersigned  hereby  appoints Peter Johnson and Gary E. Friedman,  and
each of them,  with full power of  substitution,  as proxies to represent and to
vote,  as  designated   below,  all  the  shares  of  common  stock  of  Agouron
Pharmaceuticals, Inc., held of record by the undersigned on October 19, 1998, at
the Annual  Meeting of  Shareholders  to be held on December 16, 1998 and at any
adjournments or postponements thereof.
    
     THIS PROXY,  WHEN PROPERLY  EXECUTED,  WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO OTHER DIRECTION IS MADE, THIS PROXY
WILL BE VOTED FOR THE ELECTION OF THE DIRECTOR NOMINEES LISTED ON THE OTHER SIDE
AND FOR PROPOSALS 2, 3, 4 AND 5. IF CUMULATIVE  VOTING PROCEDURES ARE INVOKED AT
THE  MEETING  AND THIS  PROXY  CARD  INDICATES  "FOR" OR GIVES NO  DIRECTION  ON
PROPOSAL  1, THE  DESIGNATED  PROXIES ARE  AUTHORIZED  TO  DISTRIBUTE  THE VOTES
REPRESENTED BY THIS PROXY IN THEIR  DISCRETION SO AS TO ELECT THE MAXIMUM NUMBER
OF MANAGEMENT NOMINEES WHICH MAY BE ELECTED BY CUMULATIVE VOTING.


         
                              FOLD AND DETACH HERE




                                   [ L O G O ]






   
                 Please check the appropriate box on the voting
           card to R.S.V.P. your attendance at the Meeting on December
                             16, 1998 at 10:00 a.m.
             or phone Agouron Investor Relations at 1-800-501-2474.
    

<PAGE>
<TABLE>
<CAPTION>



                                                                                                  Please mark
                                                                                                   your vote
                                                                                                       as
                                                                                                  indicated in
                                                                                                  this example



The Board recommends a vote FOR Proposals 1, 2, 3, 4 & 5.
<S>   <C>                               <C>       <C>         <C>                             <C>     <C>      <C>

1.    Proposal 1
                                        FOR ALL   WITHHELD                                    FOR     AGAINST  ABSTAIN
       ELECTION OF DIRECTORS            NOMINEES       FOR    2.    Proposal 2-
                                                       ALL          APPROVAL OF
                                   DIVISIONAL
       Peter Johnson                                                   STOCK PROPOSAL
       Gary E. Friedman
       John N. Abelson                                        3.    Proposal 3-
       Patricia M. Cloherty                                            APPROVAL OF
       A.E. Cohen                                                      AMENDMENT TO 1996
       Michael E. Herman                                               STOCK OPTION PLAN
       Irving S. Johnson
       Antonie T. Knoppers                                    4.    Proposal 4-
       Melvin I. Simon                                                 APPROVAL OF
                                  AMENDMENT TO
                                                                       EMPLOYEE STOCK
                                  PURCHASE PLAN

                                                              5.    Proposal 5-
                                  RATIFICATION
                                                                       OF SELECTION OF
                                                                       INDEPENDENT ACCOUNTANTS
WITHHELD FOR:  (To withhold authority to vote for any
individual nominee, write that nominee's name in the space           Check here if you
provided below.)                                                     plan to attend the
                                 Annual Meeting.
- -------------------------------------------------------------
</TABLE>


Note: The proxies of the undersigned may vote according to their discretion
on any other matter that may properly come before the meeting.







Signature(s) Date , 1998 NOTE: Please sign as name appears hereon.  Joint owners
should each sign. When signing as attorney, executor, administrator,  trustee or
guardian, please give full title as such.
                               
                                               FOLD AND DETACH HERE



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