BIOCRYST PHARMACEUTICALS INC, 10-K, 1998-03-24

BIOCRYST PHARMACEUTICALS INC
10-K, 1998-03-24
BIOLOGICAL PRODUCTS, (NO DIAGNOSTIC SUBSTANCES)

Previous: PARAGON HEALTH NETWORK INC, SC 13D, 1998-03-24

Next: NUVEEN TAX EXEMPT UNIT TRUST SERIES 668, 485BPOS, 1998-03-24

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

FORM 10-K

|X| Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. For the fiscal year ended December 31, 1997

| | Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.

For the transition period from _________ to ________.

Commission File Number 000-23186

BIOCRYST PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)

DELAWARE 62-1413174
(State of other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)

2190 Parkway Lake Drive; Birmingham, Alabama 35244
(Address and zip code of principal executive offices)

(205) 444-4600
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class Name of each exchange on which registered
None None

Securities registered pursuant to Section 12(g) of the Act:

Title of each class
Common Stock, $.01 Par Value

Indicate by a check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No | |.

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K | |.

While it is difficult to determine the number of shares owned by non-affiliates,
the Registrant estimates that the aggregate market value of the Common Stock on
March 22, 1998 (based upon the closing price shown on the Nasdaq National Market
on March 20, 1998) held by non-affiliates was approximately $77,526,188. For
this computation, the Registrant has excluded the market value of all shares of
its Common Stock reported as beneficially owned by officers, directors and
certain significant stockholders of the Registrant. Such exclusion shall not be
deemed to constitute an admission that any such stockholder is an affiliate of
the Registrant.

The number of shares of Common Stock, par value $.01, of the Registrant
outstanding as of March 22, 1998 was 13,940,210 shares.

DOCUMENTS INCORPORATED BY REFERENCE

None.
<PAGE>

PART I

ITEM 1. BUSINESS

General

BioCryst Pharmaceuticals, Inc. ("BioCryst" or the "Company") is an emerging
pharmaceutical company using structure-based drug design to discover and design
novel, small-molecule pharmaceutical products for the treatment of immunological
and infectious diseases and disorders. The Company believes that structure-based
drug design, by precisely designing compounds to fit the active site of target
proteins, offers the potential for developing drugs for many indications that
have improved efficacy and fewer side effects than currently marketed drugs for
the same indications. The Company is conducting four clinical trials with its
lead drug, BCX-34, including a Phase I/II trial with an oral formulation for
cutaneous T-cell lymphoma ("CTCL"), a Phase I/II trial with an oral formulation
for psoriasis, a Phase I/II trial with an oral formulation for HIV and a Phase
I/II trial with an ointment formulation for psoriasis. BioCryst has additional
drug discovery projects underway using its structure-based drug design
technologies to develop inhibitors of influenza neuraminidase and enzymes and
proteins involved in the complement cascade, which is implicated in several
major inflammatory conditions. The Company has selected a lead compound,
BCX-1470, for its serine protease inhibitor in its complement cascade project
and is testing several neuraminidase inhibitors to further assess the compounds'
oral activity against influenza A and influenza B. One of the elements of the
Company's strategic plan is to leverage its clinical progress by entering into
pharmaceutical collaborations with drug companies in major world markets.
BioCryst entered into an exclusive license agreement with Torii Pharmaceutical
Co., Ltd. ("Torii"), a Japanese pharmaceutical company, for the development and
commercialization in Japan of BCX-34 and certain other purine nucleoside
phosphorylase ("PNP") inhibitor compounds. PNP is an enzyme believed to be
involved in T-cell proliferation.

BioCryst's lead immunological drug program targets T-cell proliferative
disorders, which arise when T-cells, immune system cells that normally fight
infection, attack normal body cells or multiply uncontrollably. These disorders
are varied and include CTCL (a severe form of cancer), psoriasis, transplant
rejection and certain autoimmune diseases. BioCryst has designed and synthesized
several chemically distinct classes of compounds which inhibit PNP.

The Company has completed seven Phase I clinical trials, four Phase I/II
clinical trials, six Phase II clinical trials and two Phase III clinical trials
with topical BCX-34 and has completed three Phase I trials with oral and
intravenous formulations of the drug and one Phase I/II clinical trial with an
oral formulation of the drug and is conducting three Phase I/II clinical trials
with an oral formulation of BCX-34. BCX-34 has been tested in over 670 subjects,
and no significant drug-related side effects have been observed. While the Phase
III clinical trials with topical BCX-34 for the treatment of CTCL and psoriasis
did not demonstrate statistical efficacy and resulted in cessation of further
development of a topical cream formulation. The Company is continuing its PNP
inhibitor program for the oral and ointment formulations of BCX-34. In addition,
the Company has initiated preclinical studies using an ophthalmic formulation of
BCX-34 for potential use in treating uveitis, Sjogren's syndrome and corneal
transplant rejection.

BioCryst's scientists include recognized world leaders in the fields of X-ray
crystallography and medicinal chemistry, two core disciplines associated with
structure-based drug design. The Company has certain collaborative arrangements
with The University of Alabama at Birmingham ("UAB"), which has one of the
leading X-ray crystallography centers in the world and has been successful in
characterizing a significant number of medically relevant protein targets. The
Company believes, based upon its scientific staff and management, the number of
compounds it has designed and its clinical development program, that it is a
leader in the practical application of structure-based drug design.

1
<PAGE>

obligated to pay royalties to the Company on sales of licensed products in
Japan. The agreement will remain in effect, unless earlier terminated, until the
last to expire of any patent rights licensed under the agreement, or in the
event no patents issue, for twenty years from May 31, 1996. The agreement is
subject to termination by Torii at any time and by the Company in certain
circumstances, including any material breaches of the agreement by Torii.
Pursuant to the agreement, Torii may negotiate a license with the Company to
develop BCX-34 and certain other PNP inhibitor compounds for additional
indications.

Products in Development

The following table summarizes BioCryst's development projects as of February
28, 1997:

<TABLE>
<CAPTION>
PROGRAM/ INDICATION/ DELIVERY STAGE OF
COMPOUND APPLICATION FORM DEVELOPMENT
-------- ----------- ---- -----------
<S> <C> <C> <C>
PNP Inhibitors (BCX-34) CTCL Oral Phase I/II
Psoriasis Oral Phase I/II
Ointment Phase I/II
HIV Oral Phase I/II
Rheumatoid arthritis Oral Preclinical
Transplant rejection Oral Preclinical
Ophthalmic diseases and
disorders Ophthalmic Preclinical
Influenza Neuraminidase Inhibitors Influenza Oral Preclinical
Complement Inhibitors (BCX-1470) Cardiopulmonary bypass surgery Intravenous/Oral Phase I
</TABLE>

- ----------
See "-Government Regulation" for a description of drug development phases and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Certain Factors That May Affect Future Results, Financial
Condition and the Market Price of Securities" for a discussion of certain
factors that can adversely affect the Company's drug development programs.

PNP Inhibitors (BCX-34)

The human immune system employs specialized cells and proteins, including cells
known as T-cells and B-cells, to control infection and recognize and attack
foreign disease-causing viruses, bacteria and parasites. The immune system can
also cause diseases or disorders when it inappropriately identifies the body's
own tissue as foreign and, among other things, produces T-cells that attack
normal body cells. Such diseases are referred to as autoimmune diseases and
include psoriasis, in which the immune system attacks skin tissue, and
rheumatoid arthritis, in which the immune system attacks joint tissue. This
immune system response also causes transplant rejection in which the T-cells of
the immune system attack the transplanted organ or tissue. The immune system may
also produce T-cells that multiply uncontrollably. T-cell proliferation in such
cases is associated with cancers such as cutaneous T-cell lymphoma. Within the
past decade, drugs have been developed that treat autoimmune and related
diseases by selectively suppressing the immune system. However, most current
immunosuppressive drugs have dose-limiting side effects, including severe
toxicity.

The link between T-cell proliferative disorders and the PNP enzyme was first
discovered approximately 20 years ago when a patient, who was genetically
deficient in PNP, exhibited limited T-cell activity, but reasonably normal
activity of other immune functions. Since then, additional patients with
inherited PNP deficiency have been reported. In most patients, the T-cell
population was less than 20% of normal levels, often as low as 1-3% of normal
levels. However, B-cell function was normal in approximately two-thirds of these
patients. These findings suggested that inhibition of PNP might produce
selective suppression of T-cell function without significantly impairing B-cell
function.

BioCryst has designed and synthesized several chemically distinct classes of
small molecule compounds (seven of which have been patented in the United
States) which inhibit the PNP enzyme. In in vitro preclinical studies, the
Company's PNP inhibitor compounds selectively and potently suppressed human
T-cells associated with certain T-cell proliferative disorders. One member of a
patented class of PNP inhibitor compounds, BCX-34, which was designed and

2
<PAGE>

developed by BioCryst, to date has undergone clinical trials as a potential
treatment for a number of T-cell proliferative diseases and related disorders.
The Company is in the clinical stage of development of an oral formulation of
BCX-34 and is in the preclinical stage of development of an ophthalmic
formulation. Additionally, the Company has an intravenous formulation for future
development. An orally deliverable product may allow systemic application of the
drug in diseases that either cannot be treated topically or can be treated more
successfully with an oral formulation. An ophthalmic formulation in the form of
eye droplets may be most suitable for treating certain ophthalmic indications as
a result of being able to directly administer the drug to the eye. An
intravenous formulation may allow more precise dosage control and direct
systemic application into the bloodstream and may permit usage of BCX-34 where
other methods of delivery may not be suitable.

Cutaneous T-Cell Lymphoma. CTCL is a severe form of cancer which is
characterized by the development of scaly patches on the skin, progressing to
ulcers and tumors of the skin, lymph nodes and internal organs. CTCL is a
chronic disease involving the proliferation of certain types of T-cells.
According to a medical journal, approximately 1,000 new cases of CTCL are
diagnosed annually in the United States. There is no known cure and the median
survival time is approximately four years after systemic progression of the
disease. Existing therapies for CTCL are generally considered inadequate. In
October 1993, the Company obtained from the United States Food and Drug
Administration (the "FDA") orphan drug designation for BCX-34 to treat CTCL and
may qualify for accelerated review as a new drug to treat serious and
life-threatening illnesses.

The Company completed a Phase I oral and intravenous trial of BCX-34 in May
1995. In this trial, three CTCL patients received a single intravenous dose,
followed a week later by a single oral dose, followed three weeks later by
five-day consecutive oral dosing. This pharmacology study suggested that BCX-34
is well tolerated systemically and that the drug is highly bioavailable in
humans. In late 1995, the Company initiated a Phase I/II dose escalation oral
trial in CTCL and other T-cell cancer patients. This is an open label trial
designed to provide safety and pharmacokinetic data on BCX-34 as well as provide
potential efficacy data. As of December 31, 1997, 30 patients have been enrolled
and dosed in this study, and preliminary data indicate biological activity.

Psoriasis. Psoriasis is a common chronic and recurrent disease involving T-cells
characterized by red, thick scaling of the skin, which can develop at any time
in life. According to the National Psoriasis Foundation, it is estimated that
approximately five million people suffer from some form of psoriasis in the
United States and 150,000 to 260,000 new cases are diagnosed annually. About 10%
of these cases are classified as "severe" and are most likely to require
physician's care and drug intervention. In some cases, the condition may be
accompanied by a form of arthritis which can be debilitating. Current therapies
for psoriasis either are of limited benefit or have severe side effects.

The Company has initiated Phase I/II clinical trials with an ointment and an
oral formulation BCX-34 for the treatment of psoriasis.

HIV. Due to the increasing number of HIV-infected people, HIV infection is a
major health concern. Despite extensive research and development, the treatment
of HIV infection remains unsatisfactory due to the toxicity or limited
therapeutic benefit of currently approved therapies. The Centers for Disease
Control and Prevention ("CDC") estimates that there are approximately one
million people in the United States infected with HIV. HIV drug research has
focused primarily on developing inhibitors of the enzymes reverse transcriptase
("RT") and HIV protease. Initially, scientists thought blocking the HIV
essential RT enzyme would shut down replication of HIV and curb the progression
of HIV infection to AIDS. Several RT inhibitors are now approved, but the
clinical usefulness of these drugs has been limited by their toxicity and by the
ability of HIV to mutate into forms that are resistant to them. A second
approach of HIV drug research and treatment has targeted the HIV protease
enzyme. HIV protease is an enzyme that performs an essential role in the
infectious cycle of HIV. It is believed that blocking HIV protease renders HIV
unable to form a new infectious virus. Although numerous companies are
developing protease inhibitors, the long-term therapeutic potential of these
drugs is uncertain.

A new approach to HIV drug research focuses on the T-cell host rather than the
virus. It is believed that while resting, nondividing CD4 T-cells can be
infected by the virus, the virus does not multiply. Since T-cell activation and
growth appear to be essential for virus replication, a treatment which inhibits
T-cell growth might decrease the overall viral burden. The Company believes,
based in part upon preliminary preclinical in vitro tests, that BCX-34 could
potentially be useful in treating HIV-infected patients by reversibly inhibiting
the growth of infected T-cells. The Company, in collaboratation with researchers
at the UAB Center for AIDS Research on the design, has initiated a Phase I/II
clinical

3
<PAGE>

trial with an oral formulation of BCX-34 for the treatment of HIV.

Rheumatoid Arthritis. Rheumatoid arthritis is an autoimmune disease that
involves inflammation of the membranes lining joints, causing joint pain,
swelling, and deformities. According to a scientific journal, it is estimated
that approximately 1% to 2% of the U.S. adult population is afflicted with
rheumatoid arthritis. There are many drugs used to treat the disease, but such
drug treatments only alleviate the symptoms of rheumatoid arthritis. The Company
believes T-cell controlling agents, such as PNP inhibitors and specifically an
oral formulation of BCX-34, offer promise as a potential drug treatment for
rheumatoid arthritis. Among other potential competitors, Novartis
Pharmaceuticals Corporation, formerly Ciba-Geigy Corporation, ("Novartis") has
rights to develop a group of PNP inhibitors, excluding BCX-34, licensed from
BioCryst, with potential application in the treatment of rheumatoid arthritis.

Transplant Rejection. Risk of rejection is one of the most frequent
complications following transplant surgery. Rejection is caused by the body's
immune response in which T-cells are generated to attack the transplanted organ
or tissue. In general, for organ and bone marrow transplants, rejection is an
acute risk during the initial hospital stay for the transplant surgery and
thereafter a chronic risk of varying degrees of severity. The Company believes
selective suppression of the immune response may reduce the risk of rejection.
The immunosuppressant drugs which are currently used to control or prevent
rejection often cause significant detrimental side effects. A number of new
drugs are in various stages of development by other researchers and companies
for the control and prevention of transplant rejection. The Company is at the
preclinical stage of development of an oral formulation of BCX-34 for treatment
of transplant rejection.

Ophthalmic Diseases and Disorders. There are a number of inflammatory diseases
of the eye that involve T-cells. A leading ophthalmic inflammatory disease is
uveitis, which is characterized by eye swelling, ocular accumulation of fatty
deposits and impaired vision. The most severe cases of uveitis, such as Behcet's
syndrome and Vogt-Koyanagi-Harada syndrome, may result in blindness. Clinical
studies conducted by third parties with currently approved immunosuppressants
support the idea that T-cells participate in the pathogenesis of these diseases
and that oral and ophthalmic formulations of BCX-34 may potentially be
efficacious in treating these diseases. The Company is in the preclinical stage
of development of an ophthalmic formulation of BCX-34 for direct delivery of the
drug to the eye in treating uveitis, Sjogren's syndrome and corneal transplant
rejection.

Influenza Neuraminidase Inhibitors

Influenza is a viral disease which is particularly dangerous to the very young,
the elderly and debilitated patients and those who have suppressed immune
systems. The CDC estimates that approximately 10% to 20% of the U.S. population
is infected with influenza during most influenza seasons. The current standard
for preventing flu is by vaccination, which is of limited benefit as vaccines
are designed to resist a specific flu strain. No satisfactory treatment
currently exists. Since the early 1980's, UAB scientists have been investigating
the active site and function of the enzyme influenza neuraminidase. Influenza
neuraminidase is an enzyme on the surface of the influenza virus which is
associated with the spread of influenza and is believed to permit the influenza
virus to invade human cells. Scientists at UAB and the Company have
characterized the molecular structure of influenza neuraminidase and have
initiated the design and synthesis of specific inhibitors. Research at UAB and
the Company to date indicates that the active site for influenza neuraminidase
remains substantially unchanged for the major strains of influenza. The Company
believes that a neuraminidase inhibitor may be useful as a treatment for
influenza and is in the preclinical stage of development of inhibitors of
influenza neuraminidase. Funded in part by a National Institutes of Health
("NIH") Phase I Small Business Innovation Research ("SBIR") grant and a State of
Alabama grant, the Company has developed lead compounds which in in vitro
studies have indicated inhibition of influenza neuraminidase. The Company is
currently assessing several influenza inhibitor compounds for oral activity
against influenza A and influenza B. At least two major pharmaceutical companies
are engaged in clinical studies of influenza neuraminidase inhibitor compounds
intended to treat influenza, and the Company believes that several other
pharmaceutical companies are engaged in research to design or discover
inhibitors of influenza neuraminidase.

Complement Inhibitors

The human body is equipped with immunological defense mechanisms to respond
aggressively to infection or injury. One of these mechanisms, called complement,
is a system of functionally linked proteins that interact with one another in a
highly regulated manner. The complement system functions as a "cascade." Once an
activator of the system

4
<PAGE>

converts an inactive enzyme to an active enzyme, the activated enzyme activates
more proteins at the next stage, which in turn activates other proteins. This
mechanism, if inappropriately activated, can cause acute medical reactions,
including inflammatory reactions that accompany hemodialysis, myocardial
infarction, bypass surgery and post heart attack reperfusion injury. There are
two pathways of complement activation, the classical pathway and the alternative
pathway. The classical pathway is usually initiated by antigen-antibody
complexes, while the alternative pathway is activated by bacterial, viral and
parasite cell surfaces.

Due to the biochemical mechanism of the complement cascade, BioCryst believes
complement inhibitors may have therapeutic applications in several acute and
chronic immunological disorders. BioCryst is focusing its research efforts on
designing enzyme inhibitors to limit the rapid and aggressive damage caused by
the complement cascade. The Company is initially focusing on designing
inhibitors for Factor D and Factor B, enzymes playing a role in the alternative
pathway, and the enzyme C1s, which plays a role in the classical pathway.
Working with UAB scientists and funded in part by SBIR grants from the NIH,
BioCryst has characterized the three-dimensional structure of Factor D and has
developed various assay systems for screening complement inhibitors. The Company
is performing preclinical studies with certain inhibitors it has designed and
synthesized. A serine protease inhibitor, BCX-1470, has been selected by the
Company for evaluation in patients receiving heparin during cardiopulmonary
bypass surgery. Preclinical results have shown that BCX-1470 and related
compounds can block key blood enzymes, known as serine proteases, responsible
for excessive bleeding and inflammatory damage related to cardiopulmonary bypass
surgery. The Company filed an Investigational New Drug ("IND") in January 1998
with respect to the use of an intravenous formulation of BCX-1470 in connection
with cardiopulmonary bypass surgery and started a Phase I clinical trial in
February 1998. The Company continues to design additional inhibitors. The
Company has a collaboration agreement to use combinatorial chemistry to help
identify certain inhibitors. See "Research and Development - 3-Dimensional
Pharmaceuticals."

Drug Discovery Methods

Drugs are chemical compounds that interact with target molecules, typically
proteins, within the human body to affect a molecule's normal function. Ideally,
drugs accomplish their intended therapeutic functions while creating as few side
effects as possible. The interaction can be illustrated as follows: the drug
molecule inserts itself in the target protein like a key inserted in a lock, and
either stimulates, or more commonly suppresses, a protein's normal function. The
results vary depending upon the role of the target protein. A drug that is
selective or specific, i.e., that binds to or blocks the target protein without
affecting other proteins or receptors, is generally more effective, less likely
to cause side effects and can be administered in smaller doses.

Traditional Drug Discovery

Historically, most pharmaceutical companies have relied on costly and
time-consuming screening to discover new chemical entities for development.
While screening has been the basis for the discovery of virtually all drugs
currently in use, the cost has been substantial. On average, it has generally
been necessary to assess hundreds or thousands of chemical compounds to find a
lead compound which successfully completes the development process. If screening
produces a lead compound, it is likely that the compound's mode of action will
be unknown and the risk of side effects caused by a lack of target specificity
will be high. Newer techniques, such as combinatorial chemistry and high
throughput screening, have enhanced the range of compounds that can be examined
quickly. However, screening-based research has, to date, failed to yield
acceptably safe and effective drugs for many important therapeutic needs.

Most pharmaceutical companies presently use some form of pharmacology-based
rational drug design which primarily utilizes certain receptors or purified
enzyme preparations in assays to identify lead compounds and to design molecules
to perform specific therapeutic tasks. Development of lead compounds is
conducted by systematic empirical methods and computer modeling. While this
approach is more refined than random screening, it is still a costly and
time-consuming effort which is limited by the amount and quality of information
available about the target protein.

Structure-Based Drug Design

Structure-based drug design is a drug discovery approach by which synthetic
compounds are designed from detailed structural knowledge of the active sites of
protein targets associated with particular diseases. The Company's
structure-based drug design involves the integrated application of traditional
biology and medicinal chemistry along with an

5
<PAGE>

array of advanced technologies, including X-ray crystallography, combinatorial
chemistry, computer modeling of molecular structures and protein biophysical
chemistry, to focus on the three-dimensional molecular structure and active site
characterization of the proteins that control cellular biology. BioCryst
believes that structure-based drug design is an improvement over traditional
drug screening techniques. By identifying the target protein in advance and by
discovering the chemical and molecular structure of the protein, scientists
believe it is possible to design a more optimal drug to interact with the
protein.

The initial targets for structure-based drug design are selected based on their
involvement in the biological pathways integral to the course of a disease. Once
a target is selected, its structure is determined by X-ray crystallography, a
method used in determining the precise three-dimensional molecular structure of
the proteins. This structure is then used as a blueprint for the drug design of
a lead compound. The compounds are modeled for their fit in the active site of
the target, considering both steric aspects (i.e., geometric shape) and
functional group interactions, such as hydrogen bonding and hydrophobic
interactions.

The initial design phase is followed by the synthesis of the lead compound,
quantitative measurements of its ability to interact with the target protein,
and X-ray crystallographic analysis of the compound-target complex. This
analysis reveals important, empirical information on how the compound actually
binds to the target and the nature and extent of changes induced in the target
by the binding. These data, in turn, suggest ways to refine the lead compound to
improve its binding to the target protein. The refined lead compound is then
synthesized and complexed with the target, and further refined in a reiterative
process. If lead compounds are available from other studies, such as screening
of combinatorial libraries, these compounds may serve as starting points for
this optimization cycle using structure-based drug design.

Once a sufficiently potent compound has been designed and optimized, its
activity is evaluated in a biological system to establish the compound's ability
to function in a physiological environment. If the compound fails at any stage
of the biological evaluation, the design team reviews the structural model and
uses crystallography to adjust structural features of the compound to overcome
the difficulty. This process continues until a designed compound exhibits the
desired properties.

The compound is then evaluated in an experimental disease model. If the compound
fails, the reasons for failure (e.g., adverse metabolism, plasma binding,
distribution, etc.) are determined and, again, new modified compounds are
designed to overcome the deficiencies without interfering with their ability to
interact with the active site of the target protein. The experimental drug is
then ready for conventional drug development (e.g., studies in safety
assessment, formulation, clinical trials, etc.).

This reiterative analysis and compound modification are possible because of the
structural data obtained by X-ray crystallographic analysis at each stage. This
capability renders structure-based drug design a powerful tool for rapid and
efficient development of drugs that are highly specific for particular protein
target sites.

Research and Development

General

BioCryst initiated its research and development program in 1986, with drug
synthesis beginning in 1987. The Company has assembled a scientific research
staff with expertise in a broad base of advanced research technologies including
protein biochemistry, X-ray crystallography, chemistry and pharmacology. Of the
Company's 55 employees at March 15, 1998, 41 were employed in its research and
development, preclinical studies and clinical trials programs. The Company's
staff includes 19 persons with Ph.D. or M.D. degrees.

The Company's research facilities include protein biochemistry and organic
synthesis laboratories, in vitro and in vivo testing facilities, X-ray
crystallography, computer and graphics equipment and formulation facilities.

In addition to its research programs pursued in-house, BioCryst collaborates
with academic institutions to support research in areas of the Company's product
development interests and to conduct its clinical trials. Usually, research
assistance provided by outside academic institutions is performed in conjunction
with additional in-house research. The faculty member supervising the outside
research effort may also participate as a consultant to the Company's in-house

6
<PAGE>

effort. The Company's primary academic collaboration is with UAB and is
described under "Business - Research and Development - UAB Collaborative
Arrangements."

During the years ended December 31, 1995, 1996 and 1997, the Company spent an
aggregate of $25,270,777 on research and development. Of that amount, $7,107,249
was spent in 1995, $7,586,159 was spent in 1996 and $10,577,369 was sent in
1997. Approximately $13,682,948 of that amount was spent on in-house research
and development and $11,587,829 was spent on contract research and development.

Torii

In May 1996, the Company entered into an agreement pursuant to which it granted
Torii an exclusive license, with the right to sublicense, to develop,
manufacture and commercialize BCX-34 and certain other PNP inhibitor compounds
in Japan for the treatment of rheumatoid arthritis, T-cell cancers (including
CTCL) and atopic dermatitis. Upon entering into the agreement, Torii paid the
Company $1.5 million in license fees and made a $1.5 million equity investment
in the Company, purchasing 76,608 shares of Common Stock at a purchase price of
$19.58 per share. A milestone payment of $1 million was made in 1997. In order
for Torii to maintain its licensing rights, it is obligated to make payments to
the Company of up to $18 million upon the achievement of specified development
milestones. Torii is responsible for all development, regulatory and
commercialization expenses in Japan and is obligated to pay royalties to the
Company on sales of licensed products in Japan. The agreement will remain in
effect, unless earlier terminated, until the last to expire of any patent rights
licensed under the agreement, or in the event no patents issue, for twenty years
from May 31, 1996. The agreement is subject to termination by Torii at any time
and by the Company in certain circumstances, including any material breaches of
the agreement by Torii. Pursuant to the agreement, Torii may negotiate a license
with the Company to develop BCX-34 and certain other PNP inhibitor compounds for
additional indications.

3-Dimensional Pharmaceuticals

In October 1996, the Company signed an agreement with 3-Dimensional
Pharmaceuticals, Inc. ("3DP") of Exton, Pennsylvania, under which the companies
will share resources and technology to expedite the identification of inhibitors
of key serine protease enzymes which represent promising targets for inhibition
of complement activation. The agreement combines BioCryst's capabilities in
structure-based drug design with the selection power of 3DP's
DirectedDiversity(R), a proprietary method of directing combinatorial chemistry
and high throughput screening toward specific molecular targets, used to rapidly
discover and optimize new drugs. Under the terms of this agreement, the
companies will be responsible for their own research costs. If compounds are
discovered as a result of the collaboration, the companies will then negotiate
clinical development and commercialization rights to those compounds.

UAB Collaborative Arrangements

UAB has one of the leading X-ray crystallography centers in the world with
approximately 140 full-time staff members and approximately $17.7 million in
research grants and contract funding in 1997. In 1986, the Company entered into
an agreement with UAB which granted the Company exclusive rights to any
discoveries resulting from research relating to PNP.

Since 1990, the Company has entered into several other research agreements with
UAB to perform research for the Company. The agreements provide that UAB perform
specific research for the Company in return for research payments and license
fees. In November 1994, the Company entered into an agreement with UAB for the
joint research and development relating to development of an influenza
neuraminidase inhibitor. UAB has granted the Company certain rights to any
discoveries in this area resulting from research previously developed by UAB or
jointly developed with BioCryst. The Company has agreed to fund certain UAB
research laboratories, to expend at least $6 million for the project over a
period coinciding with the period the Company funds UAB's research laboratories,
to pay certain royalties on sales of any resulting product and to share in
future payments received from other third-party collaborators. In July 1995, the
Company entered into an agreement with UAB for the joint research and
development relating to Factor D inhibitors. UAB has also granted the Company
certain rights to any discoveries in this area resulting from research
previously developed by UAB or jointly developed with BioCryst. The Company has
agreed to fund certain UAB research laboratories, to expend at least $1 million
for the project over a three-year period, to pay certain royalties on sales of
any resulting product and to share in future payments received from other
third-party collaborators. These

7
<PAGE>

two agreements have initial 25-year terms (automatically renewable for five-year
terms throughout the life of the last patent or extension thereof incorporating
the license rights) and are terminable by the Company upon three months' notice
and by UAB under certain circumstances.

BioCryst believes that due to the expertise of the faculty at UAB in the various
disciplines employed by BioCryst in its structure-based drug design programs,
including X-ray crystallography, and UAB's past performance in identifying and
characterizing medically relevant protein targets, BioCryst's relationship with
UAB is important to the success of BioCryst. No assurance can be given, however,
that UAB's research will be beneficial to BioCryst or that BioCryst will be able
to maintain its relationship with UAB. See Note 9 to Notes to Financial
Statements.

Grants and Technology Agreements

In 1987, the Company entered into a research agreement under which BioCryst
received approximately $960,000 over four years from Novartis to fund its
research of PNP inhibitors and Novartis was granted certain rights to enter into
various option and license agreements for PNP inhibitors. In 1990, Novartis
exercised its right pursuant to which the Company granted Novartis an exclusive
option to enter into a worldwide exclusive license for several of the Company's
PNP inhibitor compounds. The license does not include BCX-34. Novartis signed
that license agreement and paid the Company a $500,000 fee (up to $300,000 of
which is refundable in certain circumstances) following patent issuance in 1993.
The terms of the license also call for Novartis to make milestone payments based
upon the estimated annual United States sales of the licensed products plus
royalties. No assurance can be given that any additional revenues will be
realized by the Company pursuant to the license. Novartis' other rights to enter
into various option and license agreements for PNP inhibitors have expired. See
Note 9 to Notes to Financial Statements.

In 1991 and 1992, BioCryst was awarded three $50,000 Phase I SBIR grants by the
NIH. They were used to support the design and synthesis of inhibitors to
influenza neuraminidase, Factor D and aldose reductase. In 1992, the Company was
also awarded $47,500 by the Alabama Department of Economic and Community Affairs
which was used in the design and synthesis of inhibitors of influenza
neuraminidase. In February 1994, BioCryst was awarded a two-year $500,000 Phase
II SBIR grant by the NIH. The grant was used to support the design of inhibitors
of Factor D. There is no assurance that BioCryst will be awarded any future
grants.

Patents and Proprietary Information

The Company owns or has rights to certain proprietary information, issued and
allowed patents and patent applications which relate to compounds it is
developing. The Company actively seeks, when appropriate, protection for its
products and proprietary information by means of United States and foreign
patents, trademarks and contractual arrangements. In addition, the Company plans
to rely upon trade secrets and contractual arrangements to protect certain of
its proprietary information and products. The Company has been issued seven
United States patents which expire between 2009 to 2013 and relate to its PNP
inhibitor compounds. The Company's current lead compound, BCX-34, is covered by
one of the patents. This group also includes BCX-5, which may require a license
from Warner-Lambert Company ("Warner-Lambert") to market a product containing
this compound. The Company has the right of first refusal to negotiate a license
from Warner-Lambert for that compound: however, there can be no assurance that
such a license would be available or obtainable on terms acceptable to the
Company. The Company has also been issued a patent by the U.S. Patent and
Trademark Office ("PTO") covering the manufacturing process of its PNP
inhibitors which expires in 2015 and an additional patent application has been
filed for another new process to prepare BCX-34 and other PNP inhibitors. In
addition, one patent has issued by the PTO which expires in 2015 and two patent
applications have been filed with the PTO relating to inhibitors of influenza
neuraminidase. Also, two provisional United States patent applications have been
filed with the PTO on complement inhibitors. There can be no assurance that any
patents will provide the Company with sufficient protection against competitive
products or otherwise be commercially valuable.

The Company's success will depend in part on its ability to obtain and enforce
patent protection for products developed by it, preserve its trade secrets, and
operate without infringing on the proprietary rights of third parties, both in
the United States and other countries. In the absence of patent protection, the
Company's business may be adversely affected by competitors who develop
substantially equivalent technology. Because of the substantial length of time
and expense associated with bringing new products through development and
regulatory approval to the marketplace, the pharmaceutical and biotechnology
industries place considerable importance on obtaining and maintaining patent and
trade secret protection for new technologies, products and processes. There can
be no assurance that patents will be

8
<PAGE>

issued from such applications, that the Company will develop additional products
that are patentable, or that present or future patents will provide sufficient
protection to the Company's present or future technologies, products and
processes. In addition, there can be no assurance that others will not
independently develop substantially equivalent proprietary information, design
around the Company's patents or obtain access to the Company's know-how, or that
others will not successfully challenge the validity of the Company's patents or
be issued patents which may prevent the sale of one or more of the Company's
product candidates, or require licensing and the payment of significant fees or
royalties by the Company to third parties in order to enable the Company to
conduct its business. Legal standards relating to the scope of claims and the
validity of patents in the fields in which the Company is pursuing research and
development are still evolving, are highly uncertain and involve complex legal
and factual issues. No assurance can be given as to the degree of protection or
competitive advantage any patents issued to the Company will afford, the
validity of any such patents or the Company's ability to avoid violating or
infringing any patents issued to others. Further, there can be no guarantee that
any patents issued to or licensed by the Company will not be infringed by the
products of others. Litigation and other proceedings involving the defense and
prosecution of patent claims can be expensive and time consuming, even in those
instances in which the outcome is favorable to the Company, and can result in
the diversion of resources from the Company's other activities. An adverse
outcome could subject the Company to significant liabilities to third parties,
require the Company to obtain licenses from third parties or require the Company
to cease any related research and development activities or sales.

The Company depends upon the knowledge, experience and skills (which are not
patentable) of its key scientific and technical personnel. To protect its rights
to its proprietary information, the Company requires all employees, consultants,
advisors and collaborators to enter into confidentiality agreements which
prohibit the disclosure of confidential information to anyone outside the
Company and require disclosure and assignment to the Company of their ideas,
developments, discoveries and inventions. There can be no assurance that these
agreements will effectively prevent the unauthorized use or disclosure of the
Company's confidential information.

The Company's research has been funded in part by SBIR or NIH grants. As a
result of such funding, the United States Government has certain rights in the
inventions developed with the funding. These rights include a non-exclusive,
paid-up, worldwide license under such inventions for any governmental purpose.
In addition, the government has the right to require the Company to grant an
exclusive license under any of such inventions to a third party if the
government determines that (i) adequate steps have not been taken to
commercialize such inventions, (ii) such action is necessary to meet public
health or safety needs or (iii) such action is necessary to meet requirements
for public use under federal regulation. Federal law requires that any exclusive
licensor of an invention that was partially funded by federal grants (which is
the case with the subject matter of certain patents issued in the Company's
name) agree that it will not grant exclusive rights to use or sell the invention
in the United States unless the grantee agrees that any products embodying the
invention will be manufactured substantially in the United States, although such
requirement is subject to a discretionary waiver by the government. It is not
expected that the government will exercise any such rights.

Marketing, Distribution and Sales

The Company lacks experience in marketing, distributing or selling
pharmaceutical products and will have to develop a pharmaceutical sales force
and/or rely on collaborators, licensees or on arrangements with others to
provide for the marketing, distribution and sales of any products it may
develop. There can be no assurance that the Company will be able to establish
marketing, distribution and sales capabilities or make arrangements with
collaborators, licensees or others to perform such activities.

Competition

The pharmaceutical industry is intensely competitive. Many companies, including
biotechnology, chemical and pharmaceutical companies, are actively engaged in
activities similar to those of the Company, including research and development
of drugs for the treatment of immunological and infectious diseases and
disorders. Many of these companies have substantially greater financial and
other resources, larger research and development staffs, and more extensive
marketing and manufacturing organizations than the Company. In addition, some of
them have considerable experience in preclinical testing, clinical trials and
other regulatory approval procedures. There are also academic institutions,
governmental agencies and other research organizations which are conducting
research in areas in which the Company is working; they may also market
commercial products, either on their own or through collaborative

9
<PAGE>

efforts.

BioCryst expects to encounter significant competition for any of the
pharmaceutical products it plans to develop. Companies that complete clinical
trials, obtain required regulatory approvals and commence commercial sales of
their products before their competitors may achieve a significant competitive
advantage. In addition, certain pharmaceutical and biotechnology firms,
including major pharmaceutical companies and specialized structure-based drug
design companies have announced efforts in the field of structure-based drug
design and in the field of PNP inhibitors, and the Company is aware that other
companies or institutions are pursuing development of new drugs and technologies
directly targeted at applications for which the Company is developing its drug
compounds. The Company expects that the technology for structure-based drug
design will attract significant additional competitors over time. In order to
compete successfully, the Company's goal is to develop proprietary positions in
patented drugs for therapeutic markets which have not been satisfactorily
addressed by conventional research strategies and, in the process, extend its
expertise in structure-based drug design.

Government Regulation

BioCryst's research and development activities are, and its future business will
be, subject to significant regulation by numerous governmental authorities in
the United States, primarily, but not exclusively, by the FDA, and other
countries. Pharmaceutical products intended for therapeutic or diagnostic use in
humans are governed principally by the Federal Food, Drug and Cosmetic Act and
by FDA regulations in the United States and by comparable laws and regulations
in foreign countries. The process of completing clinical testing and obtaining
FDA approval for a new drug product requires a number of years and the
expenditure of substantial resources.

Following drug discovery, the steps required before a new pharmaceutical product
may be marketed in the United States include (1) preclinical laboratory and
animal tests, (2) the submission to the FDA of an application for an IND, (3)
clinical and other studies to assess safety and parameters of use, (4) adequate
and well-controlled clinical trials to establish the safety and effectiveness of
the drug, (5) the submission of a New Drug Application ("NDA") to the FDA, and
(6) FDA approval of the NDA prior to any commercial sale or shipment of the
drug.

Typically, preclinical studies are conducted in the laboratory and in animal
model systems to gain preliminary information on the drug's pharmacology and
toxicology and to identify any potential safety problems that would preclude
testing in humans. The results of these studies are submitted to the FDA as part
of the IND application. Testing in humans may commence 30 days after submission
of the IND to the FDA unless the FDA objects, although companies typically wait
for approval from the FDA before commencing clinical trials. A three phase
clinical trial program is usually required for FDA approval of a pharmaceutical
product. Phase I clinical trials are designed to determine the metabolism and
pharmacologic effects of the drug in humans, the side effects associated with
increasing doses, and, possibly, to obtain early indications of efficacy. These
studies generally involve a small number of healthy volunteer subjects, but may
be conducted in people with the disease the drug is intended to treat. Phase II
studies are conducted in an expanded population to evaluate the effectiveness of
the drug for a particular indication and thus involve patients with the disease
under study. These studies are also intended to elicit additional safety data on
the drug, including evidence of the short-term side effects and other risks
associated with the drug. Phase III studies are generally designed to provide
the substantial evidence of safety and effectiveness of a drug required to
obtain FDA approval. They often involve a substantial number of patients in
multiple study centers and may include chronic administration of the drug in
order to assess the overall benefit-risk relationship of the drug. A clinical
trial may combine the elements of more than one phase, and typically two or more
Phase III studies are required. Upon completion of clinical testing which
demonstrates that the product is safe and effective for a specific indication,
an NDA may be submitted to the FDA. This application includes details of the
manufacturing and testing processes, preclinical studies and clinical trials.
The designation of a clinical trial as being of a particular phase is not
necessarily indicative that such a trial will be sufficient to satisfy the
requirements of a particular phase. For example, no assurance can be given that
a Phase III clinical trial will be sufficient to support an NDA without further
clinical trials. The FDA monitors the progress of each of the three phases of
clinical testing and may alter, suspend or terminate the trials based on the
data that have been accumulated to that point and its assessment of the
risk/benefit ratio to the patient. Typical estimates of the total time required
for completing such clinical testing vary between four and ten years. FDA
approval of the NDA is required before the applicant may market the new product
in the United States. The clinical testing and FDA review process for new drugs
are likely to require substantial time, effort and expense. There can be no
assurance that any approval will be granted to the Company on a timely basis, if
at all. The FDA may refuse to approve an NDA if applicable statutory

10
<PAGE>

and/or regulatory criteria are not satisfied, or may require additional testing
or information. There can be no assurance that such additional testing or the
provision of such information, if required, will not have a material adverse
effect on the Company. The regulatory process can be modified by Congress or the
FDA in specific situations.

In 1988, the FDA issued regulations intended to expedite the development,
evaluation, and marketing of new therapeutic products to treat life-threatening
and severely debilitating illnesses for which no satisfactory alternative
therapies exist. These regulations provide for early consultation between the
sponsor and the FDA in the design of both preclinical studies and clinical
trials. Phase I clinical trials may sometimes be carried out in people with the
disease that the drug is intended to treat rather than in healthy volunteers, as
is customary, followed by studies to establish effectiveness in Phase II. If the
results of Phase I and Phase II trials support the safety and effectiveness of
the therapeutic agent, and their design and execution are deemed satisfactory
upon review by the FDA, marketing approval can be sought at the end of Phase II
trials. NDA approval granted under these regulations may be restricted by the
FDA as necessary to ensure safe use of the drug. In addition, post-marketing
clinical studies may be required. If after approval a post-marketing clinical
study establishes that the drug does not perform as expected, or if
post-marketing restrictions are not adhered to or are not adequate to ensure
safe use of the drug, FDA approval may be withdrawn. The expedited approval may
shorten the traditional drug development process by an estimated two to three
years. There can be no assurance, however, that any compound the Company may
develop will be eligible for evaluation by the FDA under the 1988 regulations
or, if eligible, will be approved for marketing at all or, if approved for
marketing, will be approved for marketing sooner than would be traditionally
expected.

Under the Orphan Drug Act, the FDA may grant orphan drug designation to drugs
intended to treat a "rare disease or condition," which generally is a disease or
condition that affects populations of fewer than 200,000 individuals in the
United States. Orphan drug designation must be requested before submitting an
NDA. After the FDA grants orphan drug designation, the generic identity of the
therapeutic agent and its potential orphan use are publicized by the FDA. Under
current law, orphan drug designation grants certain U.S. marketing exclusivity
to the first company to receive FDA approval to market such designated drug,
subject to certain limitations. A product that is considered by the FDA to be
different from a particular orphan drug or is approved for different indications
is not barred from sale in the United States during the seven year exclusivity
period. Orphan drug designation does not convey any advantage in, or shorten the
duration of, the regulatory approval process. In October 1993, the Company
obtained from the FDA an orphan drug designation for BCX-34 to treat CTCL, and
may request orphan drug designation for more of its products and/or additional
indications as part of its overall regulatory strategy in the future. There is
no assurance, however, that any of its products will receive an orphan drug
designation or be the first to be approved by the FDA for the designated
indication and, hence, obtain orphan drug marketing exclusivity. Although
obtaining FDA approval to market a product with an orphan drug designation can
be advantageous, there can be no assurance that the scope of protection or the
level of marketing exclusivity that is currently afforded by orphan drug
designation and marketing approval will remain in effect in the future. There
can be no assurance that the Company will receive FDA approval to market BCX-34
to treat CTCL. In addition, it is possible that other competitors of the Company
could obtain orphan drug designation for product candidates that are not the
same as BCX-34 though they are intended for use to treat CTCL.

Even after initial FDA approval has been obtained, further studies may be
required to provide additional data on safety or to gain approval for the use of
a product as a treatment in clinical indications other than those for which the
product was initially tested. The FDA may also require post-marketing testing
and surveillance programs to monitor the drug's effects. Side effects resulting
from the use of pharmaceutical products may prevent or limit the further
marketing of products.

Once the sale of a product is approved, the FDA regulates production, marketing,
and other activities under the Federal Food, Drug, and Cosmetic Act and the
FDA's implementing regulations. A post-marketing testing, surveillance and
reporting program may be required to continuously monitor the product's usage
and effects. Product approvals may be withdrawn, or other actions may be
ordered, or sanctions imposed if compliance with regulatory requirements is not
maintained. Other countries in which any products developed by the Company or
its licensees may be marketed impose a similar regulatory process.

In June 1995, the Company notified the FDA that it had submitted incorrect
efficacy data to the FDA pertaining to its Phase II dose-ranging studies of
BCX-34 for CTCL and psoriasis. Upon learning of the error, the Company initiated
internal and external audits and submitted corrected analyses to the FDA. In
addition, the Company hired a new Vice President of Clinical Development and
outside expert personnel to manage clinical development and monitor studies,

11
<PAGE>

developed additional standard operating procedures, and contracted with a
contract research organization to assist the Company in monitoring its trial for
BCX-34 for CTCL.

In November 1995, the FDA inspected the Company in relation to a February 1995
48-hour skin stripping study involving application of BCX-34. At the conclusion
of the inspection, the FDA issued to the Company a List of Inspectional
Observations ("Form FDA 483") including the observation that there was no
documentation of any monitoring of the study or of several other studies. The
Company responded to this and the other observation in the Form FDA 483.
Although the FDA has not raised any additional questions in the matter, the
Company does not know whether its responses were satisfactory to the FDA.

In June 1996, the FDA inspected the Company and one of its clinical sites in
relation to Phase II dose-ranging studies of BCX-34 for CTCL and psoriasis, each
of which was concluded in early 1995. At the conclusion of the inspection, the
FDA issued to the Company a Form FDA 483 citing deficiencies relating to the
monitoring of the studies and the Company's procedures for generating,
archiving, and safeguarding the randomization tables used in the studies. The
deficient procedures failed to prevent the use of an incorrect randomization
table which ultimately resulted in the initial submission to the FDA of data
which reported false statistical significance. The FDA issued a Form FDA 483 to
the principal investigator at one of the Company's clinical sites, citing
numerous significant deficiencies in the conduct of the Phase II dose-ranging
study of BCX-34 for CTCL and psoriasis. These deficiencies included improper
delegations of authority by the principal investigator, failures to follow the
protocols, institutional review board deviations, and discrepancies or
deficiencies in documentation and reporting. As a result of the FDA inspections,
the Company has been notified that the FDA will not accept data from these
studies at that clinical site. As a consequence of the FDA inspections and such
resulting Form FDA 483s, the Company's ongoing clinical studies are likely to
receive increased scrutiny from the FDA.

The Company believes that its procedures and monitoring practices are now in
compliance with the FDA's requirements governing Good Clinical Practice ("GCP").
There can be no assurance, however, that the FDA will agree or that, even if it
does agree, it will not seek to impose administrative, civil, or other sanctions
in connection with the earlier studies and submission.

In addition to regulations enforced by the FDA, the Company also is subject to
regulation under the Occupational Safety and Health Act, the Environmental
Protection Act, the Toxic Substances Control Act, the Resource Conservation and
Recovery Act and other similar Federal, state and local regulations governing
permissible laboratory activities, waste disposal handling of toxic, dangerous
or radioactive materials and other matters. The Company believes that it is in
compliance with such regulations.

For marketing outside the United States, the Company will be subject to foreign
regulatory requirements governing human clinical trials and marketing approval
for drugs and devices. The requirements relating to the conduct of clinical
trials, product licensing, pricing and reimbursement vary widely from country to
country.

Human Resources

As of March 15, 1998, the Company had 55 employees, of whom 41 were engaged in
research and development and 14 were in general and administrative functions.
The Company's scientific staff (19 of whom hold Ph.D. or M.D. degrees) has
diversified experience in biochemistry, pharmacology, X-ray crystallography,
synthetic organic chemistry, computational chemistry, medicinal chemistry and
pharmacology. The Company considers its relations with its employees to be
satisfactory.

Scientific Advisory Board and Consultants

BioCryst has assembled a Scientific Advisory Board comprised of six members (the
"Scientific Advisors") who are leaders in certain of the Company's core
disciplines or who otherwise have specific expertise in its therapeutic focus
areas. The Scientific Advisory Board meets as a group at scheduled meetings and
the Scientific Advisors meet more frequently, on an individual basis, with the
Company's scientific personnel and management to discuss the Company's ongoing
research and drug discovery and development projects. The Company also has
consulting agreements with a number of other scientists (the "Consultants") with
expertise in the Company's core disciplines or in its therapeutic focus areas
who are consulted from time to time by the Company.

12
<PAGE>

The Scientific Advisors and the Consultants are reimbursed for their expenses
and receive nominal cash compensation in connection with their service and have
been issued options and/or shares of Common Stock. The Scientific Advisors have
been issued a total of 4,975 shares of Common Stock for nominal consideration
and granted stock options to purchase a total of 75,000 shares of Common Stock
at a weighted average exercise price of $7.37 per share. Consultants have also
been granted stock options to purchase a total of 30,000 shares at a weighted
average exercise price of $7.52 per share. The Scientific Advisors and the
Consultants are all employed by or have consulting agreements with entities
other than the Company, some of which may compete with the Company in the
future. The Scientific Advisors and the Consultants are expected to devote only
a small portion of their time to the business of the Company, although no
specific time commitment has been established. They are not expected to
participate actively in the Company's affairs or in the development of the
Company's technology. Certain of the institutions with which the Scientific
Advisors and the Consultants are affiliated may adopt new regulations or
policies that limit the ability of the Scientific Advisors and the Consultants
to consult with the Company. The loss of the services of certain of the
Scientific Advisors and the Consultants could adversely affect the Company to
the extent that the Company is pursuing research or development in areas of such
Scientific Advisors' and Consultants' expertise. To the extent members of the
Company's Scientific Advisory Board or the Consultants have consulting
arrangements with or become employed by any competitor of the Company, the
Company could be materially adversely affected. One member of the Scientific
Advisory Board, Dr. Gordon N. Gill, is a member of the Board of Directors of the
Agouron Institute. The Agouron Institute is a shareholder in, and has had
contractual relationships with, Agouron Pharmaceuticals, Inc., a company
utilizing core technology which is similar to the core technology employed by
BioCryst.

The Scientific Advisory Board consists of the following individuals:

Name Position
- ---- --------

Albert F. LoBuglio, M.D. (Chairman).. Professor of Medicine and the Director
of the Comprehensive Cancer Center of
UAB

Gordon N. Gill, M.D.................. Professor of Medicine and Chair of the
Faculty of Basic Biomedical Sciences at
the University of California, San Diego
School of Medicine

Robert E. Handschumacher, Ph.D....... Retired Professor and former Chairman of
the Department of Pharmacology at Yale
University School of Medicine

Herbert A. Hauptman, Ph.D............ Research Professor in Biophysical
Science at the State University of New
York (Buffalo), the President of the
Hauptman-Woodward Medical Research
Institute, Inc. (formerly the Medical
Foundation (Buffalo), Inc.), and
Research Professor in Biophysical
Sciences at the State University of New
York (Buffalo), recipient of the Nobel
Prize in Chemistry (1985)

Yuichi Iwaki, M.D., Ph.D............. Professor of Urology and Pathology,
University of Southern California School
of Medicine

Hamilton O. Smith, M.D............... Professor, Molecular Biology and
Genetics Department at The Johns Hopkins
University School of Medicine, recipient
of the Nobel Prize in Medicine (1978)

Any inventions or processes independently discovered by the Scientific Advisors
or the Consultants may not become the property of the Company and will probably
remain the property of such persons or of such persons' employers. In addition,
the institutions with which the Scientific Advisors and the Consultants are
affiliated may make available the research services of their personnel,
including the Scientific Advisors and the Consultants, to competitors of the
Company pursuant to sponsored research agreements. The Company requires the
Scientific Advisors and the Consultants to enter into confidentiality agreements
which prohibit the disclosure of confidential information to anyone outside the
Company and require disclosure and assignment to the Company of their ideas,
developments, discoveries or inventions. However, no assurance can be given that
competitors of the Company will not gain access to trade secrets and other
proprietary information developed by the Company and disclosed to the Scientific
Advisors and the Consultants.

13
<PAGE>

ITEM 2. PROPERTIES

The Company's administrative offices and principal research facility are located
in 28,440 square feet of leased office space in Riverchase Industrial/Research
Park in Birmingham, Alabama. The lease runs through July 31, 2000 with an option
to lease for an additional three years at current market rates. The Company
believes that its facilities are adequate for its current operations. Additional
facilities will be necessary to manufacture sufficient quantities under good
manufacturing practices to conduct extensive clinical trials or if the Company
undertakes commercial manufacturing. See Note 5 to the Financial Statements.

ITEM 3. LEGAL PROCEEDINGS

None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

14
<PAGE>

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS

The Company's common stock trades on the Nasdaq National Market tier of The
Nasdaq Stock MarketSM under the symbol BCRX. Public trading commenced on March
4, 1994. Prior to that date, there was no public market for the Company's stock.
The following table sets forth the low and high prices as reported by Nasdaq for
each quarter in 1997 and 1996:

1997 1996
---- ----
Low High Low High
---- ----- ---- ----
First quarter $11.50 $17.00 $ 8.63 $10.25
Second quarter 10.06 14.75 9.13 20.75
Third quarter 4.25 13.75 10.63 17.13
Fourth quarter 6.25 8.38 10.50 17.13

The last sale price of the common stock on February 27, 1998 as reported by
Nasdaq was $7.69 per share.

As of February 27, 1998, there were approximately 566 holders of record of the
common stock.

The Company has never paid cash dividends and does not anticipate paying cash
dividends.

ITEM 6. SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
Years Ended December 31,
(In thousands, except per share)
--------------------------------
Statement of Operations Data: 1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Total revenues $ 2,693 $ 2,652 $ 885 $ 734 $ 363
Research and development expenses $ 10,577 $ 7,586 $ 7,107 $ 5,552 $ 4,196
Net loss $(10,619) $ (7,698) $ (8,576) $ (6,938) $ (5,196)
Net loss per share $ (.77) $ (.69) $ (.96) $ (1.02) $ (1.55)
Weighted average shares outstanding 13,780 11,171 8,905 6,787 3,352
</TABLE>

<TABLE>
<CAPTION>
December 31,
(In thousands)
--------------
Balance Sheet Data: 1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Cash, cash equivalents and securities $ 24,643 $ 35,785 $ 11,414 $ 10,873 $ 2,873
Total assets 26,485 37,149 13,056 12,803 5,203
Long-term debt and obligations under
capital leases, excluding current portion 34 58 300 573 855
Accumulated deficit (48,384) (37,766) (30,067) (21,491) (14,553)
Total stockholders' equity 25,285 35,403 11,326 11,176 2,877
</TABLE>

15
<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Annual Report contains certain statements of a forward-looking nature
relating to future events or the future financial performance of the Company.
Such statements are only predictions and the actual events or results may differ
materially from the results discussed in the forward-looking statements. Factors
that could cause or contribute to such differences include those discussed below
as well as those discussed in other filings made by the Company with the
Securities and Exchange Commission.

Overview

Since its inception in 1986, the Company has been engaged in research and
development activities (including drug discovery, manufacturing compounds,
conducting preclinical studies and clinical trials) and organizational efforts
(including recruiting its scientific and management personnel), establishing
laboratory facilities, engaging its Scientific Advisory Board and raising
capital. The Company has not received any revenue from the sale of
pharmaceutical products and does not expect to receive such revenues to a
significant extent for at least several years, if at all. The Company has
incurred operating losses since its inception. The Company expects to incur
significant additional operating losses over the next several years and expects
such losses to increase as the Company's research and development and clinical
trial efforts expand.

Year Ended December 31, 1997 Compared with the Year Ended December 31, 1996

Collaborative and other research and development revenue decreased 35.8% to
$1,000,000 in 1997 from $1,558,543 in 1996, primarily due to a $1 million
milestone payment received from Torii in 1997 compared to the $1.5 million
license fee received from Torii and a Factor D grant in 1996. Interest and other
income increased 54.8% to $1,692,521 in 1997 from $1,093,617 in 1996, primarily
due to interest earned on funds invested from the Company's public offering in
September 1996.

Research and development expenses increased 39.4% to $10,577,369 in 1997 from
$7,586,159 in 1996. The increase was primarily attributable to costs associated
with manufacturing compounds, clinical trials and preclinical studies and
expenses associated with increased personnel. These costs tend to fluctuate from
period to period depending upon the stage of development and the conduct of
clinical trials.

General and administrative expenses increased .7% to $2,682,137 in 1997 from
$2,664,197 in 1996. The increase was in several categories, primarily increased
personnel costs and the fact that 1996 expenses were reduced by the reversal of
a liability recorded in 1995 for use taxes assessed that the Company
successfully contested in 1996, and was partially offset by decreased fees and
taxes on the Torii milestone in 1997 versus the fees and taxes on the Torii
license in 1996 and decreased legal expenses in 1997.

Interest expense decreased 48.1% to $51,880 in 1997 from $100,031 in 1996. The
decrease was primarily due to a decline in capitalized lease obligations, along
with long-term debt, resulting in lesser interest expense. The Company obtained
most of its leases in connection with the move to its current facilities in
April 1992.

Year Ended December 31, 1996 Compared with the Year Ended December 31, 1995

Collaborative and other research and development revenue increased 601.0% to
$1,558,543 in 1996 from $222,329 in 1995, primarily due to the $1.5 million
license fee received from Torii. This was offset by the decrease in the Factor D
grant from 1995 due to its completion in early 1996. Interest and other income
increased 65.1% to $1,093,617 in 1996 from $662,259 in 1995, primarily due to
interest earned on funds from the Company's public offering in September 1996
and private placements in March 1996 and May 1995.

Research and development expenses increased 6.7% to $7,586,159 in 1996 from
$7,107,249 in 1995. The increase was primarily attributable to expenses
associated with increased personnel. The costs associated with manufacturing
compounds, clinical trials and preclinical studies were approximately the same
in both 1996 and 1995. These costs tend

16
<PAGE>

to fluctuate from period to period depending upon the stage of development and
the conduct of clinical trials.

General and administrative expenses increased 20.6% to $2,664,197 in 1996 from
$2,209,488 in 1995. The increase was primarily the result of approximately
$574,000 in consulting fees and withholding taxes incurred in connection with
the license agreement with Torii which was offset by reversal of a liability
recorded in 1995 for use taxes assessed that the Company successfully contested
in 1996.

Interest expense decreased 30.6% to $100,031 in 1996 from $144,115 in 1995. The
decrease was primarily due to a decline in capitalized lease obligations, along
with long-term debt, resulting in lesser interest expense. The Company obtained
most of its leases in connection with the move to its current facilities in
April 1992.

Liquidity and Capital Resources

Cash expenditures have exceeded revenues since the Company's inception.
Operations have principally been funded through public offerings and private
placements of equity and debt securities, equipment lease financing, facility
leases, collaborative and other research and development agreements (including a
license and options for licenses), research grants and interest income. In
addition, the Company has attempted to contain costs and reduce cash flow
requirements by renting scientific equipment or facilities, contracting with
third parties to conduct certain research and development and using consultants.
The Company expects to incur additional expenses, resulting in significant
losses, as it continues and expands its research and development activities and
undertakes additional preclinical studies and clinical trials of compounds which
have been or may be discovered. The Company also expects to incur substantial
administrative, manufacturing and commercialization expenditures in the future
as it seeks FDA approval for its compounds and establishes its manufacturing
capability under Good Manufacturing Practices, and substantial expenses related
to the filing, prosecution, maintenance, defense and enforcement of patent and
other intellectual property claims.

At December 31, 1997, the Company's cash, cash equivalents and securities
held-to-maturity were $24,643,486, a decrease of $11,141,182 from December 31,
1996 principally due to net cash used in the Company's operating activities
($10.3 million) and purchases of furniture and equipment ($1.1 million),
partially offset by a number of other items.

The Company has financed its equipment purchases primarily with lease lines of
credit. The Company currently has a $500,000 line of credit with its bank to
finance capital equipment. In January 1992, the Company entered into an
operating lease for its current facilities which, based on an extension signed
in March 1997, expires on July 31, 2000, with an option to lease for an
additional three years at current market rates. The March 1997 extension also
added 5,640 square feet of finished office space. The operating lease requires
the Company to pay monthly rent (ranging from $14,562 and escalating annually to
a minimum of $15,912 per month in the final year), and a pro rata share of
operating expenses and real estate taxes in excess of base year amounts.

At December 31, 1997, the Company had long-term capital lease and operating
lease obligations which provide for aggregate minimum payments of $251,401 in
1998, $201,653 in 1999 and $127,610 in 2000. The Company is required to expend
$6 million over a period coinciding with funding by the Company to UAB on its
influenza neuraminidase project of which approximately $5.2 million was expended
through December 31, 1997. In 1997, the Company upgraded all its personal
computers and established a network using software packages that are generally
year 2000 compliant. Consequently, the Company does not anticipate incurring
additional significant costs to ensure that its operations will not be adversely
impacted by the year 2000 software problem. In addition, the Company has
committed to conducting certain clinical trials and animal studies in 1997 for
an aggregate amount of approximately $.9 million at December 31, 1997.

As described in Note 9, the Company entered into a license agreement with Torii
under which Torii paid the Company $1.5 million in license fees and made a $1.5
million equity investment in the Company in 1996 and $1 million in a milestone
payment in 1997. While the license agreement provides for additional potential
milestone payments of up to $18 million and royalties on future sales of
licensed products in Japan, there can be no assurance that Torii will continue
to develop the product in Japan or that if it does so that it will result in
meeting the milestones or achieving future sales of licensed products in Japan.

17
<PAGE>

The Company plans to finance its needs principally from its existing capital
resources and interest thereon, from payments under collaborative and licensing
agreements with corporate partners, through research grants, and to the extent
available, through lease or loan financing and future public or private
financings. The Company believes that its available funds will be sufficient to
fund the Company's operations at least through the end of 1998. However, this is
a forward-looking statement, and no assurance can be given that there will be no
change that would consume available resources significantly before such time.
The Company's long-term capital requirements and the adequacy of its available
funds will depend upon many factors, including continued scientific progress in
its research, drug discovery and development programs, the magnitude of these
programs, progress with preclinical studies and clinical trials, prosecuting and
enforcing patent claims, competing technological and market developments,
changes in existing collaborative research or development relationships, the
ability of the Company to establish additional collaborative relationships, and
the cost of manufacturing scale-up and effective marketing activities and
arrangements. Additional funding, whether through additional sales of securities
or collaborative or other arrangements with corporate partners or from other
sources, may not be available when needed or on terms acceptable to the Company.
Insufficient funds may require the Company to delay, scale-back or eliminate
certain of its research and development programs or to license third parties to
commercialize products or technologies that the Company would otherwise
undertake itself.

Certain Factors That May Affect Future Results, Financial Condition and the
Market Price of Securities

Early Stage of Development; Uncertainty of Product Development; Technological
Uncertainty

BioCryst is at an early stage of development. All of the Company's compounds are
in research and development, and no revenues have been generated from sales of
its compounds. It will be a number of years, if ever, before the Company will
recognize significant revenues from product sales or royalties. To date, most of
the Company's resources have been dedicated to the research and development of
pharmaceutical compounds based upon its PNP program for the treatment of T-cell
proliferative diseases and disorders and for the development of inhibitors of
influenza neuraminidase and enzymes and proteins involved in the complement
cascade. The Company is conducting preclinical and clinical studies with its
lead drugs, BCX-34 and BCX-1470, and results from these studies may not support
future human clinical testing or further development of the compound. Recently
completed Phase III trials with a cream formulation of BCX-34 for treatment of
CTCL and psoriasis did not show statistical efficacy. Accordingly, the Company
has discontinued further development of the cream formulation of BCX-34, but is
continuing its oral trials for BCX-34 and a Phase I trial for a topical ointment
treatment for psoriasis. T-cell proliferative diseases, as well as the other
disease indications the Company is studying, are highly complex and their causes
are not fully known. The Company's compounds under development will require
significant additional, time-consuming and costly research and development,
preclinical testing and extensive clinical testing prior to submission of any
regulatory application for commercial use. Product development of new
pharmaceuticals is highly uncertain, and unanticipated developments, clinical or
regulatory delays, unexpected adverse side effects or inadequate therapeutic
efficacy could slow or prevent product development efforts and have a material
adverse effect on the Company. BioCryst's lead drug, BCX-34, reversibly inhibits
T-cell activity, an essential component of the human immune system. In addition
to any direct toxicities or side effects the drug may cause, BCX-34, while
inhibiting T-cells, may compromise the immune system's ability to fight
infection. Although the Company will monitor immunosuppression during drug
dosing, there can be no assurance that the drug will not cause irreversible
immunosuppression. There can be no assurance that the Company's research or
product development efforts as to any particular compound will be successfully
completed, that the compounds currently under development will be safe or
efficacious, that required regulatory approvals can be obtained, that products
can be manufactured at acceptable cost and with appropriate quality or that any
approved products can be successfully marketed or will be accepted by patients,
health care providers and third-party payors. Few drugs discovered by use of
structure-based drug design have been successfully developed, approved by the
FDA or marketed. Within the pharmaceutical industry, treatment of the disease
indications being pursued by the Company, especially T-cell proliferative
diseases such as CTCL and psoriasis, have proven difficult. There can be no
assurance that drugs resulting from the approach of structure-based drug design
employed by the Company will overcome the difficulties of drug discovery and
development or result in commercially successful products.

Uncertainty Associated with Preclinical and Clinical Testing

Before obtaining regulatory approvals for the commercial sale of any of its
products, BioCryst must undertake

18
<PAGE>

extensive preclinical and clinical testing to demonstrate their safety and
efficacy in humans. The Company has limited experience in conducting clinical
trials. To date, the Company has conducted initial preclinical testing of
certain of its compounds and is testing oral and topical ointment formulations
of BCX-34 in various clinical trials. The results of initial preclinical and
clinical testing of compounds under development by the Company are neither
necessarily predictive of results that will be obtained from subsequent or more
extensive preclinical and clinical testing nor necessarily acceptable to the FDA
to support applications for marketing permits. However, the Company recently
completed two Phase III trials of a topical cream formulation of BCX-34 which
did not show statistical efficacy. Even if the results of subsequent clinical
tests are positive, products, if any, resulting from the Company's research and
development programs are not likely to be commercially available for several
years. Additionally, the Company has made and may in the future make changes to
the formulation of its drugs and/or to the processes for manufacturing its
drugs. Any such future changes in formulation or manufacturing processes could
result in delays in conducting further preclinical and clinical testing, in
unexpected adverse events in further preclinical and clinical testing, and/or in
additional development expenses. Furthermore, there can be no assurance that
clinical studies of products under development will be acceptable to the FDA or
demonstrate the safety and efficacy of such products at all or to the extent
necessary to obtain regulatory approvals of such products. Companies in the
industry have suffered significant setbacks in advanced clinical trials, even
after promising results in earlier trials. The failure to comply with data
integrity GCP requirements or to adequately demonstrate the safety and efficacy
of a therapeutic product under development could delay or prevent regulatory
approval of the product, and would have a material adverse effect on the
Company.

The rate of completion of clinical trials is dependent upon, among other
factors, the rate of enrollment of patients. Patient accrual is a function of
many factors, including the size of the patient population, the proximity of
patients to clinical sites, the eligibility criteria for the study and the
existence of competitive clinical trials. Delays in planned patient enrollment
in the Company's current trials or future clinical trials may result in
increased costs and/or program delays which could have a material adverse effect
on the Company.

Government Regulation; No Assurance of Product Approval

The research, testing, manufacture, labeling, distribution, advertising,
marketing and sale of drug products are subject to extensive regulation by
governmental authorities in the United States and other countries. Prior to
marketing, compounds developed by the Company must undergo an extensive
regulatory approval process required by the FDA and by comparable agencies in
other countries. This process, which includes preclinical studies and clinical
trials of each compound to establish its safety and effectiveness and
confirmation by the FDA that good laboratory, clinical and manufacturing
practices were maintained during testing and manufacturing, can take many years,
requires the expenditure of substantial resources and gives larger companies
with greater financial resources a competitive advantage over the Company. To
date, no compound or drug candidate being evaluated by the Company has been
submitted for approval to the FDA or any other regulatory authority for
marketing, and there can be no assurance that any such product or compound will
ever be approved for marketing or that the Company will be able to obtain the
labeling claims desired for its products or compounds. The Company is and will
continue to be dependent upon the laboratories and medical institutions
conducting its preclinical studies and clinical trials to maintain both good
laboratory and good clinical practices and, except for the formulating and
packaging of small quantities of its drug formulations which the Company is
currently undertaking, upon the manufacturers of its compounds to maintain
compliance with current good manufacturing practices ("GMP") requirements. Data
obtained from preclinical studies and clinical trials are subject to varying
interpretations which could delay, limit or prevent FDA regulatory approval.
Delays or rejections may be encountered based upon changes in FDA policy for
drug approval during the period of development and FDA regulatory review.
Similar delays also may be encountered in foreign countries. Moreover, even if
approval is granted, such approval may entail commercially unacceptable
limitations on the labeling claims for which a compound may be marketed. Even if
such regulatory approval is obtained, a marketed drug or compound and its
manufacturer are subject to continual review and inspection, and later discovery
of previously unknown problems with the product or manufacturer may result in
restrictions or sanctions on such product or manufacturer, including withdrawal
of the product from the market, and other enforcement actions.

In June 1995 the Company notified the FDA that it had submitted incorrect
efficacy data to the FDA pertaining to its Phase II dose-ranging studies of
BCX-34 for CTCL and psoriasis. The FDA inspected the Company in November 1995

19
<PAGE>

in relation to a study involving the topical application of BCX-34 concluded in
early 1995, and in June 1996 the FDA inspected the Company and one of its
clinical sites in relation to a Phase II dose-ranging study of BCX-34 for CTCL
and a Phase II dose ranging study for psoriasis, both of which were concluded in
early 1995. After each inspection, the FDA issued to the Company a Form FDA 483
setting forth certain deficient GCP procedures followed by the Company, some of
which resulted in submission to the FDA of efficacy data which reported false
statistical significance. The FDA also issued a Form FDA 483 to the principal
investigator at one of the Company's clinical sites citing numerous significant
deficiencies in the conduct of the Phase II dose-ranging studies of BCX-34 for
CTCL and psoriasis. These deficiencies included improper delegations of
authority by the principal investigator, failures to follow the protocols,
institutional review board deviations, and discrepancies or deficiencies in
documentation and reporting. As a consequence of the FDA inspections and such
resulting Form FDA 483s, the Company's ongoing clinical studies are likely to
receive increased scrutiny since the same clinical site which received the Form
FDA 483 is involved in the Company's oral trials; this may delay the regulatory
review process or require the Company to increase the number of patients at
other sites to obtain approval (which can not be assured on a timely basis or at
all). The Company has adjusted certain of its procedures, but there can be no
assurance that the FDA will find such adjustments to be in compliance with FDA
requirements or that, even if it does find such adjustments to be in compliance,
it will not seek to impose administrative, civil or other sanctions in
connection with the earlier studies. Administrative sanctions could include
refusing to accept earlier studies and requiring the Company to repeat one or
more clinical studies, which would be the only studies the FDA would accept for
purposes of substantive scientific review of any NDA by the agency.

Such sanctions or other government regulation may delay or prevent the marketing
of products being developed by the Company, impose costly procedures upon the
Company's activities and confer a competitive advantage to larger companies or
companies that are more experienced in regulatory affairs and that compete with
the Company. There can be no assurance that FDA or other regulatory approval for
any products developed by the Company will be granted on a timely basis, or at
all. Delay in obtaining or failure to obtain such regulatory approvals will
materially adversely affect the marketing of any products which may be developed
by the Company, as well as the Company's results of operations.

History of Operating Losses; Accumulated Deficit; Uncertainty of Future
Profitability

BioCryst, to date, has generated no revenue from product sales and has incurred
losses since its inception. As of December 31, 1997, the Company's accumulated
deficit was approximately $48.4 million. Losses have resulted principally from
costs incurred in research activities aimed at discovering, designing and
developing the Company's pharmaceutical product candidates and from general and
administrative costs. These costs have exceeded the Company's revenues, which to
date have been generated primarily from collaborative arrangements, licenses,
research grants and from interest income. The Company expects to incur
significant additional operating losses over the next several years and expects
such losses to increase as the Company's research and development and clinical
trial efforts expand. The Company's ability to achieve profitability depends
upon its ability to develop drugs and to obtain regulatory approval for its
products that may be developed, to enter into agreements for product
development, manufacturing and commercialization, and to develop the capacity to
manufacture, market and sell its products. There can be no assurance that the
Company will ever achieve significant revenues or profitable operations.

Additional Financing Requirements; Uncertainty of Additional Funding

The Company has incurred negative cash flows from operations in each year since
its inception. The Company expects that the funding requirements for its
operating activities will increase substantially in the future due to expanded
research and development activities (including preclinical studies and clinical
trials), the development of manufacturing capabilities and the development of
marketing and distribution capabilities. The Company anticipates that its
capital resources are adequate to satisfy its capital requirements at least
through 1998. However, this is a forward-looking statement, and no assurance can
be given that there will be no change that would consume available resources
significantly before such time. The Company's future capital requirements will
depend on many factors, including continued scientific progress in its research,
drug discovery and development programs, the magnitude of these programs,
progress with preclinical studies and clinical trials, prosecuting and enforcing
patent claims, competing technological and market developments, changes in
existing collaborative research or development relationships, the ability of the
Company to establish additional collaborative relationships, and the cost of
manufacturing scale-up and

20
<PAGE>

effective marketing activities and arrangements. The Company anticipates, based
on its current business plan, that it will be necessary to raise additional
funds in 1999 or earlier. Additional funds, if any, may possibly be raised
through financing arrangements or collaborative relationships and/or the
issuance of preferred or common stock or convertible securities, on terms and
prices significantly more favorable than those of the currently outstanding
Common Stock, which could have the effect of diluting or adversely affecting the
holdings or rights of existing stockholders of the Company. In addition,
collaborative arrangements may require the Company to transfer certain material
rights to such corporate partners. If adequate funds are not available, the
Company will be required to delay, scale back or eliminate one or more of its
research, drug discovery or development programs or attempt to obtain funds
through arrangements with collaborative partners or others that may require the
Company to relinquish some or all of its rights to certain of its intellectual
property, product candidates or products. No assurance can be given that
additional financing will be available to the Company on acceptable terms, if at
all.

Competition

The Company is engaged in the pharmaceutical industry, which is characterized by
extensive research efforts, rapid technological progress and intense
competition. There are many public and private companies, including well-known
pharmaceutical companies, chemical companies, specialized biotechnology
companies and academic institutions, engaged in developing synthetic
pharmaceuticals and biotechnological products for human therapeutic applications
that represent significant competition to the Company. Existing products and
therapies and improvements thereto will compete directly with products the
Company is seeking to develop and market, and the Company is aware that other
companies or institutions are pursuing development of new drugs and technologies
directly targeted at applications for which the Company is developing its drug
compounds. Many of the Company's competitors have substantially greater
financial and technical resources and production and marketing capabilities and
experience than does the Company. The Company has granted Novartis, a worldwide
exclusive license to several compounds in the Company's sixth group of PNP
inhibitors. Such arrangement with Novartis does not include BCX-34 or most of
the Company's other compounds. No assurance can be given that Novartis will or
will not develop compounds under such arrangements, will be able to obtain FDA
approval for any licensed compounds, that any such licensed compounds if so
approved will be able to be commercialized successfully, or that the Company
will realize any revenues pursuant to such arrangements. If commercialized,
these compounds could compete directly against other compounds, including
BCX-34, being developed by the Company.

Many of the Company's competitors have significantly greater experience in
conducting preclinical studies and clinical trials of new pharmaceutical
products and in obtaining FDA and other regulatory approvals for health care
products. Accordingly, BioCryst's competitors may succeed in obtaining approvals
for their products more rapidly than the Company and in developing products that
are safer or more effective or less costly than any that may be developed by the
Company and may also be more successful than the Company in the production and
marketing of such products. Many of the Company's competitors also have current
GMP facilities and significantly greater experience in implementing GMP or in
obtaining and maintaining the requisite regulatory standards for manufacturing.
Moreover, other technologies are, or may in the future become, the basis for
competitive products. Competition may increase further as a result of the
potential advances from structure-based drug design and greater availability of
capital for investment in this field. There can be no assurance that the
Company's competitors will not succeed in developing technologies and products
that are more effective than any being developed by the Company or that would
render the Company's technology and product candidates obsolete or
noncompetitive.

Dependence on Collaborative Partners; Relationship with The University of
Alabama at Birmingham

The Company's strategy for research, development and commercialization of
certain of its products is to rely in part upon various arrangements with
corporate partners, licensees and others. As a result, the Company's products
are dependent in large part upon the subsequent success of such third parties in
performing preclinical studies and clinical trials, obtaining regulatory
approvals, manufacturing and marketing. The Company entered into an exclusive
license agreement with Torii in May 1996 to develop, manufacture and
commercialize in Japan BCX-34 and certain other PNP inhibitor compounds for
three indications. The Company has also entered into collaborative arrangements
with Novartis and intends to pursue additional collaborations in the future.
There can be no assurance that the Company will be able to negotiate additional
acceptable collaborative arrangements or that such arrangements will be
successful. No

21
<PAGE>

assurance can be given that the Company's collaborative partners will be able to
obtain FDA approval for any licensed compounds, that any such licensed
compounds, if so approved, will be able to be commercialized successfully, or
that the Company will realize any revenues pursuant to such arrangements.
Although the Company believes that parties to collaborative arrangements
generally have an economic motivation to succeed in performing their contractual
responsibilities, the amount and timing of resources which they devote to these
activities are not within the control of the Company. There can be no assurance
that such parties will perform their obligations as expected or that current or
potential collaborators will not pursue treatments for other diseases or seek
alternative means of developing treatments for the diseases targeted by
collaborative programs with the Company or that any additional revenues will be
derived from such arrangements. If any of the Company's collaborators breaches
or terminates its agreement with the Company or otherwise fails to conduct its
collaborative activities in a timely manner, the development or
commercialization of the product candidate or research program under such
collaboration agreement may be delayed, the Company may be required to undertake
unforeseen additional responsibilities or to devote unforeseen additional
resources to such development or commercialization, or such development or
commercialization could be terminated. The termination or cancellation of
collaborative arrangements could also adversely affect the Company's financial
condition, intellectual property position and operations. In addition,
disagreements between collaborators and the Company have in the past and could
in the future lead to delays in the collaborative research, development or
commercialization of certain product candidates, or could require or result in
legal process or arbitration for resolution. These consequences could be
time-consuming, expensive and could have material adverse effects on the
Company.

The successful commercialization of the Company's compounds and product
candidates is also dependent upon the Company's ability to develop collaborative
arrangements with academic institutions and consultants to support research and
development efforts and to conduct clinical trials. The Company's primary
academic collaboration is with UAB. The Company is highly dependent upon its
collaborative arrangements with UAB to support its ongoing research and
development programs and the termination or cessation of such relationship could
have a material adverse effect upon the Company. There can be no assurance that
the Company's current arrangements with UAB will continue or that the Company
will be able to develop successful collaborative arrangements with academic
institutions and consultants in the future.

Uncertainty of Protection of Patents and Proprietary Rights

The Company's success will depend in part on its ability to obtain and enforce
patent protection for its products, preserve its trade secrets, and operate
without infringing on the proprietary rights of third parties, both in the
United States and in other countries. In the absence of patent protection, the
Company's business may be adversely affected by competitors who develop
substantially equivalent technology. Because of the substantial length of time
and expense associated with bringing new products through development and
regulatory approval to the marketplace, the pharmaceutical and biotechnology
industries place considerable importance on obtaining and maintaining patent and
trade secret protection for new technologies, products and processes. To date,
the Company has been issued seven United States patents related to its PNP
inhibitor compounds. One of these compounds is under a patent issued to
Warner-Lambert and the Company may require a license from Warner-Lambert to
market a product containing one or both of these compounds. The Company has the
right of first refusal to negotiate a license from Warner-Lambert for that
compound, however, there can be no assurance that such a license would be
available or obtainable on terms acceptable to the Company. A patent has also
been issued by the PTO on a new process to prepare BCX-34 and other PNP
inhibitors and an additional patent application has been filed for another new
process to prepare BCX-34 and other PNP inhibitors. In addition, one patent has
been issued by the PTO and two patent applications have been filed with the PTO
relating to inhibitors of influenza neuraminidase. Also, two provisional United
States patent applications have been filed with the PTO on complement
inhibitors. The Company has filed certain corresponding foreign patent
applications and intends to file additional foreign patent applications and
additional United States patent applications, as appropriate. There can be no
assurance that patents will be issued from such applications, that the Company
will develop additional products that are patentable or that present or future
patents will provide sufficient protection to the Company's present or future
technologies, products and processes. In addition, there can be no assurance
that others will not independently develop substantially equivalent proprietary
information, design around the Company's patents or obtain access to the
Company's know-how or that others will not successfully challenge the validity
of the Company's patents or be issued patents which may prevent the sale of one
or more of the Company's product candidates, or require licensing and the
payment of significant fees or royalties by the Company to third parties in
order

22
<PAGE>

to enable the Company to conduct its business. Legal standards relating to the
scope of claims and the validity of patents in the fields in which the Company
is pursuing research and development are still evolving, are highly uncertain
and involve complex legal and factual issues. No assurance can be given as to
the degree of protection or competitive advantage any patents issued to the
Company will afford, the validity of any such patents or the Company's ability
to avoid infringing any patents issued to others. Further, there can be no
guarantee that any patents issued to or licensed by the Company will not be
infringed by the products of others. Litigation and other proceedings involving
the defense and prosecution of patent claims can be expensive and time
consuming, even in those instances in which the outcome is favorable to the
Company, and can result in the diversion of resources from the Company's other
activities. An adverse outcome could subject the Company to significant
liabilities to third parties, require the Company to obtain licenses from third
parties or require the Company to cease any related research and development
activities or sales.

The Company's success is also dependent upon the skills, knowledge and
experience (none of which is patentable) of its scientific and technical
personnel. To help protect its rights, the Company requires all employees,
consultants, advisors and collaborators to enter into confidentiality agreements
which prohibit the disclosure of confidential information to anyone outside the
Company and requires disclosure and assignment to the Company of their ideas,
developments, discoveries and inventions. There can be no assurance, however,
that these agreements will provide adequate protection for the Company's trade
secrets, know-how or other proprietary information in the event of any
unauthorized use or disclosure or the lawful development by others of such
information.

The Company's management and scientific personnel have been recruited primarily
from other pharmaceutical companies and academic institutions. In many cases,
these individuals are continuing research in the same areas with which they were
involved prior to joining BioCryst and may be restricted by agreement from
disclosing to the Company trade secrets they learned elsewhere. As a result, the
Company could be subject to allegations of violation of such agreements and
similar claims and litigation regarding such claims could ensue.

Dependence on Key Management and Qualified Personnel

The Company is highly dependent upon the efforts of its senior management and
scientific team. The loss of the services of one or more members of the senior
management and scientific team could significantly impede the achievement of
development objectives. Although the Company maintains, and is the beneficiary
of, a $2 million key-man insurance policy on the life of Charles E. Bugg, Ph.D.,
Chairman of the Board of Directors and Chief Executive Officer, the Company does
not believe the proceeds would be adequate to compensate for his loss. Due to
the specialized scientific nature of the Company's business, the Company is also
highly dependent upon its ability to attract and retain qualified scientific,
technical and key management personnel. There is intense competition for
qualified personnel in the areas of the Company's activities, and there can be
no assurance that the Company will be able to continue to attract and retain
qualified personnel necessary for the development of its existing business and
its expansion into areas and activities requiring additional expertise, such as
production and marketing. The loss of, or failure to recruit, scientific,
technical and managerial personnel could have a material adverse effect on the
Company. In addition, the Company relies on members of its Scientific Advisory
Board and consultants to assist the Company in formulating its research and
development strategy. All of the members of the Scientific Advisory Board and
all of the Company's consultants are employed by other employers, and each such
member or consultant may have commitments to, or consulting or advisory
contracts with, other entities that may limit their availability to the Company.

Lack of Manufacturing, Marketing or Sales Capability

The Company has not yet manufactured or marketed any products and currently does
not have the facilities to manufacture its product candidates in commercial
quantities under GMP as prescribed and required by the FDA. To be successful,
the Company's products must be manufactured in commercial quantities under GMP
and at acceptable costs. Although the Company is formulating and packaging under
GMP conditions small amounts of certain drug formulations which are the subject
of preclinical studies and clinical trials, the current facilities of the
Company are not adequate for commercial scale production. Therefore, the Company
will need to develop its own GMP manufacturing facility and/or depend on its
collaborators, licensees or contract manufacturers for the commercial
manufacture of its products. The Company has no experience in such commercial
manufacturing and no assurance can be given that the Company will be able to
make the transition to commercial production successfully or at an acceptable
cost. In

23
<PAGE>

addition, no assurance can be given that the Company will be able to make
arrangements with third parties to manufacture its products on acceptable terms,
if at all. The inability of the Company to manufacture or provide for the
manufacture of any products it may develop on a cost-effective basis would have
a material adverse effect on the Company.

The Company has no experience in marketing, distributing or selling
pharmaceutical products and will have to develop a pharmaceutical sales force
and/or rely on its collaborators, licensees or arrangements with others to
provide for the marketing, distribution and sales of any products it may
develop. There can be no assurance that the Company will be able to establish
marketing, distribution and sales capabilities or make arrangements with
collaborators, licensees or others to perform such activities.

Uncertainty of Third-Party Reimbursement and Product Pricing

Successful commercialization of any pharmaceutical products the Company may
develop will depend in part upon the availability of reimbursement or funding
from third-party health care payors such as government and private insurance
plans. There can be no assurance that third-party reimbursement or funding will
be available for newly approved pharmaceutical products or will permit price
levels sufficient to realize an appropriate return on the Company's investment
in its pharmaceutical product development. The U.S. Congress is considering a
number of legislative and regulatory reforms that may affect companies engaged
in the health care industry in the United States. Although the Company cannot
predict whether these proposals will be adopted or the effects such proposals
may have on its business, the existence and pendency of such proposals could
have a material adverse effect on the Company in general. In addition, the
Company's ability to commercialize potential pharmaceutical products may be
adversely affected to the extent that such proposals have a material adverse
effect on other companies that are prospective collaborators with respect to any
of the Company's pharmaceutical product candidates.

Third-party payors are continuing their efforts to contain or reduce the cost of
health care through various means. For example, 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 health maintenance organizations,
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.

Risk of Product Liability; Availability of Insurance

The Company's business may be affected by potential product liability risks
which are inherent in the testing, manufacturing and marketing of pharmaceutical
and other products under development by the Company. There can be no assurance
that product liability claims will not be asserted against the Company, its
collaborators or licensees. The use of products developed by the Company in
clinical trials and the subsequent sale of such products is likely to cause
BioCryst to bear all or a portion of those risks. The Company does not have
product liability insurance but does maintain coverage for clinical trials in
the amount of $6 million per occurrence and in the aggregate. No assurance can
be given that such insurance will be adequate to cover claims made with respect
to the clinical trials. There can be no assurance that the Company will be able
to obtain or maintain adequate product liability insurance on acceptable terms
or that such insurance will provide adequate coverage against potential
liabilities. Furthermore, there can be no assurance that any collaborators or
licensees of BioCryst will agree to indemnify the Company, be sufficiently
insured or have a net worth sufficient to satisfy any such product liability
claims.

Hazardous Materials; Compliance with Environmental Regulations

The Company's research and development involves the controlled use of hazardous
materials, chemicals and various radioactive compounds. Although the Company
believes that its safety procedures for 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

24
<PAGE>

held liable for any damages that result and any such liability could exceed the
resources of the Company. The Company may incur substantial costs to comply with
environmental regulations if the Company develops manufacturing capacity.

Control by Existing Management and Stockholders; Effect of Certain Anti-Takeover
Considerations

The Company's directors, executive officers and certain principal stockholders
and their affiliates own beneficially approximately 30.8% of the Common Stock.
Accordingly, such holders, if acting together, may have the ability to exert
significant influence over the election of the Company's Board of Directors and
other matters submitted to the Company's stockholders for approval. The voting
power of these holders may discourage or prevent any proposed takeover of the
Company unless the terms thereof are approved by such holders. Pursuant to the
Company's Composite Certificate of Incorporation (the "Certificate of
Incorporation"), shares of Preferred Stock may be issued by the Company in the
future without stockholder approval and upon such terms as the Board of
Directors may determine. The rights of the holders of Common Stock will be
subject to, and may be adversely affected by, the rights of the holders of any
Preferred Stock that may be issued in the future. The issuance of Preferred
Stock could have the effect of discouraging a third party from acquiring a
majority of the outstanding Common Stock of the Company and preventing
stockholders from realizing a premium on their shares. The Company's Certificate
of Incorporation also provides for staggered terms for the members of the Board
of Directors. A staggered Board of Directors and certain provisions of the
Company's by-laws and of Delaware law applicable to the Company could delay or
make more difficult a merger, tender offer or proxy contest involving the
Company.

Price Volatility

The securities markets have from time to time experienced significant price and
volume fluctuations that have often been unrelated to the operating performance
of particular companies. In addition, the market prices of the common stock of
many publicly traded emerging pharmaceutical and biopharmaceutical companies
have in the past been, and can in the future be expected to be, especially
volatile. Announcements of technological innovations or new products by the
Company or its competitors, developments or disputes concerning patents or
proprietary rights or collaboration partners, achieving or failing to achieve
development milestones, publicity regarding actual or potential medical results
relating to products under development by the Company or its competitors,
regulatory developments in both U.S. and foreign countries, public concern as to
the safety of pharmaceutical products and economic and other external factors,
as well as period-to-period fluctuations in the Company's financial results, may
have a significant impact on the market price of the Common Stock.

25
<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

BALANCE SHEETS

<TABLE>
<CAPTION>
December 31,
------------
Assets 1997 1996
------------ ------------
<S> <C> <C>
Cash and cash equivalents (Note 3) $ 3,757,098 $ 3,635,780
Securities held-to-maturity 15,723,631 24,229,033
Prepaid expenses and other current assets 214,777 233,454
------------ ------------
Total current assets 19,695,506 28,098,267
Securities held-to-maturity 5,162,757 7,919,855
Furniture and equipment, net (Note 2) 1,557,537 1,130,790
Patents 68,928
------------ ------------
Total assets $ 26,484,728 $ 37,148,912
============ ============

Liabilities and Stockholders' Equity
Accounts payable $ 245,180 $ 615,433
Accrued expenses (Note 4) 306,433 240,878
Accrued taxes, other than income (Note 4) 166,177 209,954
Accrued vacation 89,777 83,277
Current maturities of long-term debt (Note 5) 18,560
Current maturities of capital lease obligations (Note 5) 57,896 219,117
------------ ------------
Total current liabilities 865,463 1,387,219
------------ ------------
Capital lease obligations (Note 5) 34,469 58,472
------------ ------------
Deferred license fee (Note 9) 300,000 300,000
------------ ------------
Stockholders' equity (Notes 7 and 8):
Preferred stock, $.01 par value, shares authorized-
5,000,000; none issued and outstanding
Common stock, $.01 par value; shares authorized -
45,000,000; shares issued and outstanding -
13,817,667 - 1997; 13,697,734 - 1996 138,177 136,977
Additional paid-in capital 73,531,104 73,031,864
Accumulated deficit (48,384,485) (37,765,620)
------------ ------------
Total stockholders' equity 25,284,796 35,403,221
------------ ------------
Commitments and contingency (Notes 5 and 9)
Total liabilities and stockholders' equity $ 26,484,728 $ 37,148,912
============ ============
</TABLE>

See accompanying notes to financial statements.

26
<PAGE>

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Collaborative and other research and
development (Notes 1 and 9) $ 1,000,000 $ 1,558,543 $ 222,329
Interest and other 1,692,521 1,093,617 662,259
------------ ------------ ------------
Total revenues 2,692,521 2,652,160 884,588
------------ ------------ ------------
Expenses:
Research and development 10,577,369 7,586,159 7,107,249
General and administrative 2,682,137 2,664,197 2,209,488
Interest 51,880 100,031 144,115
------------ ------------ ------------
Total expenses 13,311,386 10,350,387 9,460,852
------------ ------------ ------------
Net loss $(10,618,865) $ (7,698,227) $ (8,576,264)
============ ============ ============

Net loss per share (Note 1) $ (.77) $ (.69) $ (.96)

Weighted average shares outstanding (Note 1) 13,779,698 11,171,035 8,905,099
</TABLE>

See accompanying notes to financial statements.

27
<PAGE>

STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
Additional Total Stock-
Common Paid-in Accumulated Holders'
Stock Capital Deficit Equity
-------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Balance at December 31, 1994 $ 79,072 $32,588,017 $(21,491,129) $ 11,175,960
Sale of common stock, 1,570,000 shares 15,700 8,594,550 8,610,250
Exercise of stock options, 13,834 shares 138 50,556 50,694
Employee stock purchase plan sales, 13,331 shares 133 65,725 65,858
Net loss (8,576,264) (8,576,264)
-------- ----------- ------------ ------------
Balance at December 31, 1995 95,043 41,298,848 (30,067,393) 11,326,498
Sale of common stock, 3,376,608 shares 33,766 30,495,652 30,529,418
Exercise of stock options, 45,255 shares 453 190,987 191,440
Employee stock purchase plan sales, 18,101 shares 181 147,362 147,543
Exercise of warrants, 753,439 shares 7,534 883,266 890,800
Compensation cost 15,749 15,749
Net loss (7,698,227) (7,698,227)
-------- ----------- ------------ ------------
Balance at December 31, 1996 136,977 73,031,864 (37,765,620) 35,403,221
Exercise of stock options, 79,670 shares 797 272,389 273,186
Employee stock purchase plan sales, 15,933 shares 160 163,632 163,792
Exercise of warrants, 24,330 shares 243 (274) (31)
Compensation cost 63,493 63,493
Net loss (10,618,865) (10,618,865)
-------- ----------- ------------ ------------
Balance at December 31, 1997 $138,177 $73,531,104 $(48,384,485) $ 25,284,796
======== =========== ============ ============
</TABLE>

See accompanying notes to financial statements.

28
<PAGE>

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Operating activities
Net loss $(10,618,865) $ (7,698,227) $ (8,576,264)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 648,935 524,367 554,025
Non-monetary compensation cost 63,493 15,749
Changes in operating assets and liabilities:
Prepaid expenses and other assets 18,677 45,932 (34,539)
Patents (68,928)
Accounts payable (370,253) 405,256 62,063
Accrued expenses 65,555 53,205 16,661
Accrued taxes, other than income (43,777) (140,269) 326,497
Accrued vacation 6,500 (27,427) (24,023)
------------ ------------ ------------
Net cash used in operating activities (10,298,663) (6,821,414) (7,675,580)
------------ ------------ ------------
Investing activities
Purchases of furniture and equipment (1,075,682) (292,374) (231,685)
Purchase of marketable securities (12,200,183) (36,950,717) (11,397,640)
Maturities of marketable securities 23,462,683 10,080,905 14,313,366
------------ ------------ ------------
Net cash provided by/(used in) investing activities 10,186,818 (27,162,186) 2,684,041
------------ ------------ ------------
Financing activities
Principal payments of debt and capital lease obligations (254,547) (274,789) (278,354)
Capital leases 50,763
Exercise of stock options 273,186 191,440 50,694
Employee Stock Purchase Plan stock sales 163,792 147,543 65,858
Exercise of warrants (31) 890,800
Sale of common stock, net of issuance costs 30,529,418 8,610,250
------------ ------------ ------------
Net cash provided by financing activities 233,163 31,484,412 8,448,448
------------ ------------ ------------

Increase (decrease) in cash and cash equivalents 121,318 (2,499,188) 3,456,909
Cash and equivalents at beginning of period 3,635,780 6,134,968 2,678,059
------------ ------------ ------------
Cash and cash equivalents at end of period $ 3,757,098 $ 3,635,780 $ 6,134,968
============ ============ ============
</TABLE>

See accompanying notes to financial statements.

29
<PAGE>

NOTES TO FINANCIAL STATEMENTS

Note 1 - Accounting Policies

Basis of Presentation

BioCryst Pharmaceuticals, Inc. (the "Company") is a pharmaceutical company using
structure-based drug design to discover and design novel, small-molecule
pharmaceutical products for the treatment of major immunological and infectious
diseases and disorders. The Company has three research projects, of which only
one is in clinical trials. While the prospects for a project may increase as the
project advances to the next stage of development, a project can be terminated
at any stage of development. Until the Company generates revenues from either a
research project or an approved product, its ability to continue research
projects is dependent upon its ability to raise funds. The Company relies on
sole suppliers to manufacture its BCX-34 compound for clinical trials and is
evaluating supply sources for commercial production.

Net Loss Per Share

Net loss per share is computed using the weighted average number of shares of
common stock outstanding. Common equivalent shares from unexercised stock
options and warrants are excluded from the computation as their effect is
anti-dilutive. Due to this anti-dilutive effect, implementation of Statement of
Financial Accounting Standards No. 128, Earnings per Share, issued February
1997, does not change the calculation of the Company's net loss per share.

Securities Held-to-Maturity

The Company is required to classify debt and equity securities as
held-to-maturity, available-for-sale or trading. The appropriateness of each
classification is reassessed at each reporting date. The only dispositions were
maturities of securities held-to-maturity. At December 31, 1997, securities
held-to-maturity consisted of $20,062,571 of U.S. Treasury and Agency securities
and $823,817 of high-grade domestic corporate debt carried at amortized cost.
All of the non-current portion of securities held-to-maturity are U.S. Treasury
and Agency securities that mature in 1999. The amortized cost of all these
securities at December 31, 1997 approximated market value.

Furniture and Equipment

Furniture and equipment are recorded at cost. Depreciation is computed using the
straight-line method with estimated useful lives of five and seven years. Leased
laboratory equipment is amortized over the lease life of five years.
Leasehold improvements are amortized over the remaining lease period.

Income Taxes

The liability method is used in accounting for income taxes in accordance with
Statement of Financial Accounting Standards No. 109 ("Statement No. 109"). Under
this method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and liabilities
and are measured using the enacted tax rates and laws that will be in effect
when the differences are expected to reverse.

Revenue Recognition

Research and development revenue on cost-reimbursement agreements is recognized
as expenses are incurred, up to contractual limits. Research and development
revenues, license fees and option fees are recognized as revenue when
irrevocably due. Payments received which are related to future performance are
deferred and taken into income as earned over a specified future performance
period.

Statements of Cash Flows

For purposes of the statements of cash flows, the Company considers cash
equivalents to be all cash held in money

30
<PAGE>

market accounts or investments in debt instruments with maturities of three
months or less at the time of purchase.

Stock-Based Compensation

The Company accounts for stock-based compensation under Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to Employees (APB No. 25).
Under APB No. 25, the Company's stock option and employee stock purchase plans
qualify as noncompensatory plans. Consequently, no compensation expense is
recognized. Stock issued to non-employees is compensatory and a compensation
expense is recognized under Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation ("Statement No. 123").

Use of Estimates

Management is required to make estimates and assumptions that affect the amounts
reported in the financial statements. Actual results could differ from those
estimates.

Note 2 - Furniture and Equipment

Furniture and equipment consisted of the following at December 31:

1997 1996
---------- ----------
Furniture and fixtures $ 580,077 $ 276,057
Laboratory equipment 1,023,440 692,775
Leased equipment 396,765 1,220,778
Leasehold improvements 1,170,719 816,488
---------- ----------
3,171,001 3,006,098
Less accumulated depreciation and amortization 1,613,464 1,875,308
---------- ----------
Furniture and equipment, net $1,557,537 $1,130,790
========== ==========

The Company does not have any significant impairment losses under Statement of
Financial Accounting Standards No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of.

Note 3 - 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 in U.S.
government and agency bills and notes, 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 losses from such investments. At December 31, 1997, approximately
$3,780,413 is invested in the Fidelity Institution Cash Portfolio, which invests
in treasury notes and repurchase agreements. The Fidelity Institution Cash
Portfolio is not insured.

Note 4 - Accrued Expenses and Taxes

Accrued expenses and taxes were comprised of the following at December 31:

1997 1996
-------- --------
Accrued clinical trials $159,183 $ 65,725
Accrued bonus 50,000 50,000
Payroll withholdings 48,640 75,915
Accrued other 48,610 49,238
-------- --------
Accrued expenses $306,433 $240,878
======== ========

Accrued franchise tax $120,000 $150,363
Accrued other 46,177 59,591
-------- --------
Accrued taxes, other than income $166,177 $209,954
======== ========

31
<PAGE>

Note 5 - Long-term Debt and Leases

Long-term debt consisted of an installment loan paid in May 1997. The Company
paid $51,880, $100,031 and $144,115 in interest on debt and lease obligations
for the years ended December 31, 1997, 1996 and 1995, respectively. The Company
had an unused line of credit of $500,000 at December 31, 1997.

The Company has the following capital lease obligations and operating leases at
December 31, 1997:

Capital Operating
Leases Leases
-------- --------
1998 $ 72,724 $178,677
1999 17,615 184,038
2000 17,615 109,995
2001 7,191
-------- --------
Total minimum payments 115,145 $472,710
========
Less interest 22,780
--------
Present value of future minimum payments 92,365
Less current portion 57,896
--------
Non-current portion $ 34,469
========

Rent expense for operating leases was $186,004, $191,880 and $183,522 in 1997,
1996 and 1995, respectively.

Note 6 - Income Taxes

The Company has not had taxable income since incorporation and, therefore, has
not paid any income tax. Deferred tax assets of approximately $20,500,000 and
$14,600,000 at December 31, 1997 and 1996, respectively, have been recognized
principally for the net operating loss and research and development credit
carryforwards and have been reduced by a valuation allowance of $20,500,000 and
$14,600,000 at December 31, 1997 and 1996, respectively, which will remain until
it is more likely than not that the related tax benefits will be realized.

At December 31, 1997, the Company had net operating loss and research and
development credit carryforwards ("Carryforward Tax Benefits") of approximately
$44,600,000 and $3,400,000, respectively, which will expire in 2005 through
2012. Use of the Carryforward Tax Benefits will be subject to a substantial
annual limitation due to the change of ownership provisions of the Tax Reform
Act of 1986. The annual limitation is expected to result in the expiration of a
portion of Carryforward Tax Benefits before utilization, which has been
considered by the Company in its computations under Statement No. 109.
Additional sales of the Company's equity securities may result in further annual
limitations on the use of the Carryforward Tax Benefits against taxable income
in future years.

Note 7 - Stockholders' Equity

The Company was incorporated on November 17, 1989 as a Nevada corporation. On
December 29, 1989 it exchanged 384,901 shares of its common stock and 33,350
shares of its 8% Cumulative Convertible Preferred Stock, Series 1989 for the
predecessor partnership interests of the general partner and limited partners.
The partnership was dissolved as of January 15, 1990 and its assets and
liabilities were transferred to the Company in an exchange accounted for in a
manner similar to a pooling of interests. In 1991, the Company formed a wholly
owned subsidiary, BioCryst Pharmaceuticals, Inc., a Delaware corporation;
thereafter the Company was merged into BioCryst Pharmaceuticals, Inc., the
surviving corporation.

Warrants

As part of financing arrangements, the Company has, at certain times, issued
warrants to purchase 1,314,341 shares of the Company's common stock at no less
than its estimated fair value at the date of grant. In return for their
guarantees of a line of credit (now expired), three directors each received
warrants (included in the 1,314,341 warrants) to purchase

32
<PAGE>

49,400 shares of common stock at $6.00 per share. All warrants are exercisable
at various five-year periods through 1998. In lieu of a cash exercise, the
warrant holder may elect a net issue exercise. Under a net issue exercise, the
shares to be issued are equal to the product of (a) the number of shares of
common stock purchasable under the warrant being exercised, and (b) the fair
market value of one share of common stock minus the exercise price divided by
(c) the fair value of one share of common stock.

At December 31, 1997 and 1996, 248,239 shares and 311,841 shares, respectively,
of the Company's common stock were reserved for issuance under warrant
agreements and the weighted average per share exercise price was $6.48 and
$6.68, respectively. During 1997, warrants were exercised to purchase 24,330
shares via net issue exercise by giving up warrants to purchase 25,875 shares.
During 1996, warrants were exercised to purchase 201,800 shares with cash and
warrants to exercise 551,639 shares were exercised via net issue exercise by
giving up warrants to purchase 249,061 shares.

Options

In November 1991, the Board of Directors adopted the 1991 Stock Option Plan
("Plan") for key employees and consultants of the Company and reserved 500,000
shares of common stock for the Plan. The Plan was approved by the stockholders
on December 19, 1991. The term of the Plan is for ten years and includes both
incentive stock options and non-statutory options. The option price for the
incentive stock options shall not be less than the fair market value of common
stock on the grant date. The option price per share for non-statutory stock
options may not be less than 85% of the fair market value of common stock on the
date of grant. The options generally vest 25% after one year and monthly
thereafter on a pro rata basis over the next three years until fully vested
after four years. Options are generally granted to all full-time employees.

There are an aggregate of 3,146,045 shares reserved for future issuance for the
options and warrants discussed above and the Stock Purchase Plan discussed in
Note 8.

The Company follows APB No. 25 in accounting for its Stock Option and Stock
Purchase Plans and accordingly does not recognize a compensation cost. The
Company has adopted the disclosure requirement of Statement No. 123 commencing
in 1996. Since Statement No. 123 is only applied to options granted after 1994,
the pro forma disclosure should not necessarily be considered indicative of
future pro forma results when the full four-year vesting (the period in which
the compensation cost is recognized) is included in the disclosure in 1999. The
fair value of each option grant is estimated on the grant date using the
Black-Scholes option-pricing method with the following weighted-average
assumptions used for grants in 1997, 1996 and 1995, respectively: no dividends,
expected volatility of 57.8, 52.3 and 70.2 percent, risk-free interest rate of
6.0, 6.1 and 6.1 percent and expected lives of five years. The weighted-average
grant-date fair values of options granted during 1997 under the Stock Option and
Employee Stock Purchase Plans were $5.42 and $3.07, respectively. Had the
Company adopted Statement No. 123 and determined its compensation cost based on
the fair value at the grant dates in 1997, 1996 and 1995, the Company's net loss
and net loss per share would have been increased to the pro forma amounts shown
below:

1997 1996 1995
------------- ------------- -------------
Net loss As reported $ (10,618,865) $ (7,698,227) $ (8,576,264)
Pro forma (11,657,646) (8,279,551) (8,696,497)
Net loss per share As reported (.77) (.69) (.96)
Pro forma (.85) (.74) (.98)

The stockholders on April 16, 1993 and on March 1, 1994 (approving the Board of
Directors' action of December 1993) authorized an amended and restated 1991
Stock Option Plan and approved an additional 1,000,000 shares of common stock
for issuance ("Amended Plan"). The Amended Plan includes an increase of common
stock reserved for issuance to 1,500,000 shares and establishes an automatic
option grant program. The automatic option grant program grants options to new
non-employee Board members to purchase 25,000 shares of common stock at an
exercise price of the fair market value at the grant date for a maximum of ten
years and is subject to vesting restrictions and early termination upon the
optionee's cessation of Board service. The vesting and exercise provisions of
the options issued under the Amended Plan are subject to acceleration, under
certain circumstances, upon the occurrence of a hostile

33
<PAGE>

tender offer for more than 50% of the outstanding stock of the Company or if the
Company is acquired. On May 29, 1995, the stockholders approved extending the
automatic option grant to cover non-employee Board members not previously
eligible for an automatic grant and approved an additional 500,000 shares of
common stock for issuance, increasing the common stock reserved for issuance to
2,000,000 shares. On May 14, 1997, the stockholders approved increasing the
automatic option grant to 40,000 shares and approved an additional 1,000,000
shares (of which 75,576 were approved by the Board of Directors in 1996) of
common stock for issuance, increasing the common stock reserved for issuance to
3,000,000 shares. The following is an analysis of stock options for the three
years ending December 31, 1997:

Weighted
Options Options Average
Available Outstanding Exercise Price
--------- ----------- --------------
Balance December 31, 1994 87,535 1,304,175 $ 4.53
Option plan amended 500,000
Options granted (384,800) 384,800 8.57
Options exercised (13,834) 3.66
Options canceled 45,079 (45,079) 4.63
---------- ----------
Balance December 31, 1995 247,814 1,630,062 5.49
Option plan amended 75,576
Options granted (302,540) 302,540 14.68
Options exercised (45,255) 4.23
Options canceled 45,625 (45,625) 4.19
---------- ----------
Balance December 31, 1996 66,475 1,841,722 7.06
Option plan amended 924,424
Options granted (590,810) 590,810 10.21
Options exercised (87,450) 4.02
Options canceled 139,850 (139,850) 10.33
---------- ----------
Balance December 31, 1997 539,939 2,205,232 7.82
========== ==========

There were 1,254,263, 1,027,416 and 773,730 options exercisable at December 31,
1997, 1996 and 1995, respectively. The weighted-average exercise price for
options exercisable was $5.84, $4.92 and $4.35 at December 31, 1997, 1996 and
1995, respectively.

The following table summarizes at December 31, 1997, by price range, (1) for
options outstanding the number of options outstanding, their weighted-average
remaining life and their weighted-average exercise price and (2) for options
exercisable the number of options exercisable and their weighted-average
exercise price:

Outstanding Exercisable
----------- -----------
Range Number Life Price Number Price
----- ------ ---- ----- ------ -----
$ 2 to $ 5 628,664 4.4 $ 3.75 574,629 $ 3.66
5 to 8 775,725 2.4 6.16 448,818 5.95
8 to 12 281,388 2.1 9.07 150,547 9.07
12 to 17 519,455 .8 14.56 80,269 14.85
--------- ---------
2 to 17 2,205,232 2.5 7.82 1,254,263 5.84
========= =========

Note 8 - Employee Benefit Plans

On January 1, 1991, the Company adopted an employee retirement plan ("401(k)
Plan") under Section 401(k) of the Internal Revenue Code covering all employees.
Employee contributions may be made to the 401(k) Plan up to limits established
by the Internal Revenue Service. Company matching contributions may be made at
the discretion of the Board of Directors. The Company made a contribution of
$45,603 in 1997 and $30,000 in 1996. The Company did not make a contribution to
the 401(k) Plan during the year ended December 31, 1995.

On May 29, 1995, the stockholders approved an employee stock purchase plan
("Stock Purchase Plan") effective

34
<PAGE>

February 1, 1995. The Company has reserved 200,000 shares of common stock under
the Stock Purchase Plan. Eligible employees may authorize up to 15% of their
salary to purchase common stock at the lower of 85% of the beginning or 85% of
the ending price during the six-month purchase intervals. No more than 3,000
shares may be purchased by any one employee at the six-month purchase dates and
no employee may purchase stock having a fair market value at the commencement
date of $25,000 or more in any one calendar year. There were 15,933 shares,
18,101 shares and 13,331 shares of common stock purchased under the Stock
Purchase Plan in 1997, 1996 and 1995, respectively, at a weighted average price
of $10.28, $8.15 and $4.94, respectively, per share.

Note 9 - Collaborative and Other Research and Development Contracts

The Company granted Novartis Pharmaceuticals Corporation, formerly Ciba-Geigy
Corporation ("Novartis"), an option in 1990 to acquire exclusive licenses to a
class of inhibitors arising from research performed by the Company by February
1991. The option was exercised and a $500,000 fee was paid to the Company in
1993. Milestone payments are due upon approval of a new drug application. The
Company will also receive a royalty based upon a percentage of sales of any
resultant products. Up to $300,000 of the initial fee received is refundable if
sales of any resultant products are below specified levels.

On November 7, 1991, the Company entered into a joint research and license
agreement with The University of Alabama at Birmingham ("UAB"). UAB will perform
specific research on Factor D for the Company for a period of approximately
three years in return for research and license fees. The agreement was replaced
by a new agreement on July 18, 1995 granting the Company a worldwide license in
exchange for funding UAB research in the amount of up to $288,000 annually and
sharing in any royalties or sublicense fees arising from the joint research. In
1995, the Company expensed $68,638 under the original agreement and expensed
$263,000 and $188,000 in 1997 and 1996, respectively, under the new agreement.
On November 17, 1994, the Company entered into another agreement for a joint
research and license agreement on influenza neuraminidase granting the Company a
worldwide license. Under this agreement, the Company funds UAB research in the
amount of up to $300,000 annually and UAB shares in any royalties or sublicense
fees arising from the joint research. Under the agreement,$175,000, $225,000 and
$300,000 were expensed in 1997, 1996 and 1995, respectively. The Company is
required to expend $6 million, of which approximately $5.2 million was expended
through December 31, 1997, on the project over a period to coincide with funding
by the Company to UAB in order to maintain the Company's exclusive worldwide
license.

In May 1996, the Company entered into an exclusive license agreement with Torii
Pharmaceutical Co., Ltd. ("Torii") to develop, manufacture and commercialize
BCX-34 and certain other PNP inhibitor compounds in Japan for the treatment of
rheumatoid arthritis, T-cell cancers and atopic dermatitis. Upon entering into
the agreement, Torii paid the Company $1.5 million in license fees and made a
$1.5 million equity investment in the Company, purchasing 76,608 shares of
common stock at a purchase price of $19.58 per share. The first milestone
payment of $1 million was received in 1997. The agreement further provides for
additional potential milestone payments of up to $18 million and royalties on
future sales of licensed products in Japan. Torii is responsible for all
development, regulatory and commercialization expenses in Japan. The agreement
is subject to termination by Torii at any time and by the Company in certain
circumstances. Pursuant to the agreement, Torii may negotiate a license with the
Company to develop BCX-34 and certain other PNP inhibitor compounds for
additional indications.

Note 10 - Quarterly Financial Information (Unaudited)(In thousands, except per
share)

First Second Third Fourth
----- ------ ----- ------
1997 Quarters
Revenues $ 452 $ 1,427 $ 387 $ 427
Net loss (3,149) (2,080) (2,513) (2,877)
Net loss per share (.23) (.15) (.18) (.21)
1996 Quarters
Revenues $ 168 $ 1,741 $ 252 $ 491
Net loss (1,913) (1,211) (2,512) (2,062)
Net loss per share (.20) (.11) (.23) (.15)

35
<PAGE>

REPORT OF INDEPENDENT AUDITORS

The Board of Directors
BioCryst Pharmaceuticals, Inc.

We have audited the accompanying balance sheets of BioCryst Pharmaceuticals,
Inc. as of December 31, 1997 and 1996, and the related statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1997. 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 in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of BioCryst Pharmaceuticals, Inc.
at December 31, 1997 and 1996 and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles.

/s/ Ernst & Young, LLP

Birmingham, Alabama
January 21, 1998

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

36
<PAGE>

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

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

Name Age Position(s) with the Company
---- --- ----------------------------
Charles E. Bugg, Ph.D. 56 Chairman, Chief Executive Officer and
Director
J. Claude Bennett, M.D. 64 President, Chief Operating Officer and
Director
John A. Montgomery, Ph.D. 73 Executive Vice President, Secretary, Chief
Scientific Officer and Director
Ronald E. Gray 57 Chief Financial Officer, Assistant
Secretary and Treasurer
William W. Featheringill (2) 55 Director
Edwin A. Gee, Ph.D. (1)(2) 78 Director
Zola P. Horovitz, Ph.D. 63 Director
Lindsay A. Rosenwald, M.D. (1) 42 Director
Joseph H. Sherrill, Jr. 56 Director
William M. Spencer, III (2) 77 Director
Randolph C. Steer, M.D., Ph.D. 48 Director

(1) Member of the Compensation Committee ("Compensation Committee").

(2) Member of the Audit Committee ("Audit Committee").

Charles E. Bugg, Ph.D. was named Chairman of the Board, Chief Executive Officer
and Director in November 1993 and President in January 1995. Dr. Bugg
relinquished the position of President in December 1996 when Dr. Bennett joined
the Company in that position. Prior to joining the Company, Dr. Bugg had served
as the Director of the Center for Macromolecular Crystallography, Associate
Director of the Comprehensive Cancer Center and Professor of Biochemistry at UAB
since 1975. He was a Founder of BioCryst and served as the Company's first Chief
Executive Officer from 1987-1988 while on a sabbatical from UAB. Dr. Bugg also
served as Chairman of the Company's Scientific Advisory Board from January 1986
to November 1993. He continues to hold the position of Professor Emeritus in
Biochemistry and Molecular Genetics at UAB, a position he has held since January
1994.

J. Claude Bennett, M.D. was named President and Chief Operating Officer in
December 1996 and elected a Director in January 1997. Prior to joining the
Company, Dr. Bennett was President of UAB from October 1993 to December 1996 and
Professor and Chairman of the Department of Medicine of UAB from January 1982 to
October 1993. Dr. Bennett served on the Company's Scientific Advisory Board from
1989-96. He also serves as a member of the Board of Governors of the Magnuson
Clinical Center of the National Institutes of Health. He also continues to hold
the position of Distinguished University Professor Emeritus at UAB.

John A. Montgomery, Ph.D. has been a Director since November 1989 and has been
Secretary and Chief Scientific Officer since joining the Company in February
1990. He was Executive Vice President from February 1990 until May 1997, at
which time he was named Senior Vice President. Dr. Montgomery was a Founder of
BioCryst. Prior to joining the Company, Dr. Montgomery served as Senior Vice
President of Southern Research Institute ("SRI") of Birmingham from January 1981
to February 1990. He continues to hold the position of Distinguished Scientist
at SRI, a position he has held since February 1990.

Ronald E. Gray joined BioCryst in January 1993 as Chief Financial Officer. In
1994, Mr. Gray received the additional title of Treasurer and Assistant
Secretary. Prior to joining BioCryst, from June 1992 to September 1992, Mr. Gray
was Chief Financial Officer of The ACB Companies, a collection agency. From July
1988 to March 1992, Mr. Gray was Chief Financial Officer and Secretary of Image
Data Corporation, a medical imaging company. He was previously Vice President

37
<PAGE>

of Finance, Secretary and Treasurer of CyCare Sytems, Inc., a health care
information processing company.

William W. Featheringill was elected a Director in May 1995. Mr. Featheringill
is Chairman and Chief Executive Officer, since June 1995, of Electronic
Healthcare Systems, a software company, and President, Chief Executive Officer
and director, since 1973, of Private Capital Corporation, a venture capital
management company. Mr. Featheringill was Chairman and Chief Executive Officer
of MACESS Corporation, which designs and installs paperless data management
systems for the managed care industry, from 1988 to November 1995. MACESS
Corporation merged with Sungard Data Systems in late 1995. From 1985 to December
1994, Mr. Featheringill was the developer, Chairman and President of Complete
Health Services, Inc., a health maintenance organization which grew, under his
direction, to become one of the largest HMOs in the southeastern United States.
Complete Health Services, Inc. was acquired by United HealthCare Corporation in
June 1994. Mr. Featheringill is a director of Citation Corporation.

Edwin A. Gee, Ph.D. was elected a Director in August 1993. Dr. Gee, who retired
in 1985 as Chairman of the Board and Chief Executive Officer of International
Paper Company, has been active as an executive in biotechnology, pharmaceutical
and specialty chemical companies since 1970. He is Chairman Emeritus and a
director of Oncogene Science, Inc., one of the leading biotechnology companies
for the diagnosis and treatment of cancer.

Zola P. Horovitz, Ph.D. was elected a Director in August 1994. Dr. Horovitz was
Vice President of Business Development and Planning at Bristol-Myers Squibb from
1991 until his retirement in April 1994 and previously was Vice President of
Licensing at the same company from 1990 to 1991. Prior to that he spent over 30
years with The Squibb Institute for Medical Research, most recently as Vice
President Research, Planning, & Scientific Liaison. He has been an independent
consultant in pharmaceutical sciences and business development since his
retirement from Bristol-Myers Squibb in April 1994. He serves on the Boards of
Directors of Avigen, Inc., Clinicor Inc., Diacrin, Inc., Magainin
Pharmaceuticals, Inc., Procept Corporation, Roberts Pharmaceutical Corporation
and Synaptic Pharmaceutical Corp.

Lindsay A. Rosenwald, M.D. has been a Director of the Company since December
1991. Dr. Rosenwald is President and Chairman of Paramount Capital Investments,
LLC, a medical venture capital and merchant banking firm; President and Chairman
of Paramount Capital, Inc., an investment banking firm specializing in the
health sciences industry; and, since 1994, President of Paramount Capital Asset
Management, Inc., a fund manager. From June 1987 to February 1992, he served in
various capacities at the investment banking firm of D. H. Blair & Co., where he
ultimately became a Managing Director of Corporate Finance and manager of their
Health Care Services Group. He is Chairman of the Board of Interneuron
Pharmaceuticals, Inc., which he co-founded in 1988, and a director of Sparta
Pharmaceuticals, Inc., Neose Technologies, Inc., Titan Pharmaceuticals, Inc.,
Avigen, Inc. and VIMrx Pharmaceuticals, Inc.

Joseph H. Sherrill, Jr. was elected a Director in May 1995. Mr. Sherrill served
as President of R. J. Reynolds ("RJR") Asia Pacific, based in Hong Kong, where
he oversaw RJR operations across Asia, including licensing, joint ventures and a
full line of operating companies from August 1989 to his retirement in October
1994. Prior management positions with RJR include Senior Vice President of
Marketing for R.J. Reynolds International, President and Chief Executive Officer
of R.J. Reynolds Tabacos de Brazil, and President and General Manager of R.J.
Reynolds Puerto Rico. Mr. Sherrill also serves as a member of the Board of
Directors of Savers Life Insurance Company.

William M. Spencer, III has been a Director of the Company since its inception.
Mr. Spencer, who is retired, is also a private investor in Birmingham, Alabama.
He served as Chairman of the Board of BioCryst from its founding in 1986 until
April 1992. He co-founded and operated Motion Industries from 1946 through its
merger into Genuine Parts Company in 1976. He has founded several businesses and
has served on the Board of Directors of numerous private corporations.

Randolph C. Steer, M.D., Ph.D. was elected a Director in February 1993. Dr.
Steer has been active as a consultant to biotechnology and pharmaceutical
companies since 1989. Dr. Steer serves on the Board of Directors of Techne
Corporation.

38
<PAGE>

In accordance with the terms of the Company's Certificate of Incorporation, the
Board of Directors has been divided into three classes with members of each
class holding office for staggered three-year terms. Dr. Bugg's, Dr.
Montgomery's and Dr. Gee's terms expire at the 1998 annual meeting, Mr.
Featheringill's, Mr. Sherrill's and Dr. Rosenwald's terms expire at the 1999
annual meeting and Dr. Bennett's, Dr. Horovitz's, Mr. Spencer's and Dr. Steer's
terms expire at the 2000 annual meeting (in all cases subject to the election
and qualification of their successors or to their earlier death, resignation or
removal). At each annual stockholder meeting, the successors to the Directors
whose terms expire are elected to serve from the time of their election and
qualification until the third annual meeting of stockholders following their
election and until a successor has been duly elected and qualified. The
provisions of the Company's Certificate of Incorporation governing the staggered
Director election procedure can be amended only by a shareholder's vote of at
least 75% of the eligible voting securities. There are no family relationships
among any of the directors and executive officers of the Company.

The Company has an Audit Committee, consisting of Messrs. Featheringill, Gee and
Spencer, which is responsible for the review of internal accounting controls,
financial reporting and related matters. The Audit Committee also recommends to
the Board the independent accountants selected to be the Company's auditors and
reviews the audit plan, financial statements and audit results.

The Company also has a Compensation Committee consisting of Dr. Gee and Dr.
Rosenwald. The Compensation Committee is responsible for the annual review of
officer compensation and other incentive programs and is authorized to award
options under the Company's 1991 Stock Option Plan.

The Company has a Nominating Committee comprised of all outside directors with
terms not expiring in the current year for which the Nominating Committee will
be nominating persons for election or re-election as directors.

39
<PAGE>

ITEM 11. EXECUTIVE COMPENSATION

The following table sets forth the annual and long-term compensation paid by the
Company during the 1997, 1996 and 1995 fiscal years to the Company's Chief
Executive Officer and each of the Company's four other most highly compensated
executive officers whose annual salary and bonus for the 1997 fiscal year
exceeded $100,000 (collectively the "Named Executive Officers"):

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
Long-term
Annual Compensation Compensation
------------------- ------------
Other Annual Awards-Securities
Name and Principal Position Year Salary Bonus Compensation Underlying Options
--------------------------- ---- ------ ----- ------------ ------------------
<S> <C> <C> <C> <C> <C>
Charles E. Bugg, Ph.D. 1997 $244,992 $50,000 (1) $3,000 (2) 125,000
Chairman and Chief Executive 1996 212,808 50,000 (1) 1,959 (2) 50,000
Officer 1995 207,000 50,000 (1) 0 100,000

J. Claude Bennett, M.D. 1997 220,008 (3) 0 0 35,000
President and Chief Operating 1996 800 0 0 103,000
Officer 1995 0 0 0 0

John A. Montgomery, Ph.D. 1997 150,000 0 0 37,000
Executive Vice President, Secretary 1996 133,656 0 0 12,000
and Chief Scientific Officer 1995 130,008 0 0 11,000

Ronald E. Gray 1997 119,784 0 2,396 (2) 14,400
Chief Financial Officer, Treasurer 1996 109,088 0 1,959 (2) 5,400
and Assistant Secretary 1995 98,520 0 0 11,000

John L. Higgins 1997 118,142 (4) 0 0 8,400
Vice President, Corporate 1996 136,896 0 1,959 (2) 28,400
Development 1995 103,728 0 0 50,000
</TABLE>

(1) Paid pursuant to Employment Agreements dated December 17, 1996 and November
19, 1993 between the Company and Dr. Bugg. See "Executive Compensation -
Employment Agreements."

(2) Represents the Company's contribution to the 401(k) Plan.

(3) Paid pursuant to an Employment Agreement dated December 18, 1996 between the
Company and Dr. Bennett, under which his annual salary will be $220,000
commencing in 1997. See "Executive Compensation - Employment Agreements."

(4) Mr. Higgins left the Company in September 1997.

Employment Agreements

Charles E. Bugg, Ph.D. entered into a new three-year employment agreement with
the Company on December 17, 1996 for the years 1997, 1998 and 1999 (the "Bugg
Agreement"). Under the terms of the Agreement, Dr. Bugg will serve as Chairman
of the Board of Directors and Chief Executive Officer of the Company. Dr. Bugg
will receive annual compensation of $245,000 and a discretionary bonus of
$50,000. The Board may, in its discretion, grant other cash or stock bonuses to
Dr. Bugg as an award or incentive. Dr. Bugg is also entitled to all employee
benefits generally made available to executive officers. Dr. Bugg may, if he
desires, also hold positions at UAB, provided that he does not devote more than
ten percent of his time to such activities. The term of the Agreement is for
three years unless terminated (i) by the Company for cause or (ii) upon the
permanent disability of Dr. Bugg.

40
<PAGE>

Dr. Bugg will receive, on the last day of each year during the term of the
Agreement, an additional option to purchase a minimum of 25,000 shares of Common
Stock of the Company under the Company's 1991 Stock Option Plan. The exact
number of shares will be determined by the plan administrator based on Dr.
Bugg's performance and the results of operations of the Company during such
year. Under the Bugg Agreement and his previous employment agreement, Dr. Bugg
received an option to purchase 75,000 shares of common stock at the end of 1997,
50,000 shares of common stock at the end of 1996, 50,000 shares of common stock
related to 1996 performance granted in May 1997 after the 1991 Stock Option Plan
was amended, 100,000 shares of common stock at the end of 1995 and 1994 and
200,000 shares of common stock in November 1993.

Dr. Bugg will receive an additional stock option to purchase 100,000 shares of
Common Stock under the Company's 1991 Stock Option Plan upon BioCryst's
submission to the FDA of any new drug application and another additional stock
option to purchase 100,000 shares of Common Stock under the Company's 1991 Stock
Option Plan upon the final approval by the FDA of each such new drug
application. The exercise price shall be the fair market value of the Company's
Common Stock on the date such additional stock option is granted. These
additional stock options will vest 25% one year after the date of issuance and
the remaining 75% will vest at the rate of 1/48 per month thereafter.

The options may be exercised immediately in the event of a merger or acquisition
of the Company. The options may be exercised within 24 months of Dr. Bugg's
death or permanent disability. In the event Dr. Bugg's employment is terminated
for cause he may exercise the options within three months of the date of such
termination to the extent such options were exercisable immediately prior to
such termination. In the event Dr. Bugg's employment is terminated for a reason
other than cause, death or permanent disability, the options then outstanding
shall become immediately exercisable in full.

All options granted to Dr. Bugg pursuant to the Agreement are intended to
qualify as incentive stock options as defined in Section 422 of the Internal
Revenue Code of 1986, as amended, except to the extent the portion of such
options which become exercisable in any year have an aggregate exercise price in
excess of $100,000. All options shall expire no later than ten years from the
date of grant.

J. Claude Bennett, M.D. entered into an employment agreement with the Company on
December 18, 1996 (the "JCB Agreement"). Under the terms of the JCB Agreement,
Dr. Bennett will serve as President and Chief Operating Officer of the Company.
The Company will also use its best efforts to elect Dr. Bennett as a director of
the Company. Dr. Bennett will receive annual compensation of $220,000. Dr.
Bennett was also granted an option to purchase 100,000 shares of Common Stock of
the Company and the Company will use its best efforts to provide that Dr.
Bennett is elected a Director of BioCryst. The Board may, in its discretion,
grant other cash or stock bonuses to Dr. Bennett as an award or incentive. An
option to purchase 35,000 shares of Common Stock was granted in December 1997.
Dr. Bennett is also entitled to all employee benefits generally made available
to executive officers. Dr. Bennett may, if he desires, also hold positions at
UAB, provided that he does not devote more than ten percent of his time to such
activities. The term of the JCB Agreement is for three years unless terminated
(i) by the Company for cause or (ii) upon the permanent disability of Dr.
Bennett.

41
<PAGE>

Option Grants in 1997

The following table shows, with respect to the Company's Named Executive
Officers, certain information with respect to option grants in 1997. All of the
grants were made under the Company's 1991 Stock Option Plan. No stock
appreciation rights were granted during such year.

<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of
Number of Stock Price
Securities % of Appreciation for
Underlying Total Exercise Option Term(1)
Options Options Price Per Expiration -------------
Name Granted Granted Share Date 5% 10%
---- ------- ------- ----- ---- -- ---
<S> <C> <C> <C> <C> <C> <C>
Charles E. Bugg, Ph.D. 50,000 8.5% $14.13 05/13/2007 $444,157 $1,125,581
75,000 12.7% 6.50 12/09/2007 306,586 776,949
J. Claude Bennett, M.D. 35,000 5.9% 6.50 12/09/2007 143,074 362,576
John A. Montgomery, Ph.D. 12,000 2.0% 14.13 05/13/2007 106,598 270,139
25,000 4.2% 6.50 12/09/2007 102,195 258,983
Ronald E. Gray 5,400 .9% 14.13 05/13/2007 47,969 121,563
9,000 1.5% 6.50 12/09/2007 36,790 93,234
John L. Higgins 8,400 1.4% 14.13 05/13/2007 74,618 189,098
</TABLE>

(1) Amounts represent hypothetical gains that could be achieved for the
respective options at the end of the ten-year option term. The assumed 5% and
10% rates of stock appreciation are mandated by rules of the Securities and
Exchange Commission and do not represent the Company's estimate of the future
market price of the Common Stock.

Aggregate Option Exercises in 1997 and Year-end Option Values

The following table shows, with respect to the Company's Named Executive
Officers, the number and value of unexercised options held by the Named
Executive Officers as of December 31, 1996. No stock appreciation rights were
exercised during the 1996 fiscal year and no such rights were outstanding at the
end of that year.

<TABLE>
<CAPTION>
Number of Securities
Underlying Values of Securities Underlying
Shares Unexercised Options Unexercised Options (1)
Acquired on Value ------------------- -----------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Charles E. Bugg, Ph.D. 0 0 375,000 237,500 $565,625 $96,875
J. Claude Bennett, M.D. 0 0 33,478 112,522 9,853 18,647
John A. Montgomery, Ph.D. 0 0 94,250 54,250 247,094 19,031
Ronald E. Gray 0 0 60,100 26,700 114,594 11,031
John L. Higgins 17,156 $42,457 0 0 0 0
</TABLE>

(1) Amounts reflect the net values of outstanding stock options computed as the
difference between $7.00 per share (the fair market value at December 31, 1997)
and the exercise price therefor.

Director Compensation

Directors do not receive a fee for attending Board or committee meetings.
Outside directors are reimbursed for expenses incurred in attending Board or
committee meetings and while representing the Company in conducting certain
business. Individuals who first become non-employee Board members on or after
March 3, 1994, at the time of

42
<PAGE>

commencement of Board service, receive a grant of options to purchase up to
25,000 shares pursuant to the automatic option grant program under the Company's
1991 Stock Option Plan, and, under the Company's 1991 Stock Option Plan each
non-employee director, including those persons presently serving as directors,
will receive grants of options to purchase 25,000 additional shares of Common
Stock every four years while they continue to serve as directors. All current
outside directors of the Company have received options to purchase 25,000 shares
of Common Stock. Dr. Horovitz and Dr. Steer also serve as consultants to the
Company for a quarterly fee of $4,000 each.

Compensation Committee Interlocks and Insider Participation

The Compensation Committee consists of Dr. Gee and Dr. Rosenwald. There are no
Compensation Committee interlocks.

43
<PAGE>

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT

The following table sets forth information regarding beneficial ownership of the
Company's Common Stock as of March 22, 1998 by (i) each director, (ii) each of
the Named Executive Officers, (iii) all directors and executive officers of the
Company as a group and (iv) each person known to the Company to be the
beneficial owner of more than five percent of the Company's Common Stock:

Percentage
Number of Common of
Shares Beneficially Outstanding
Name and Address Owned (1) Shares
---------------- --------- ------
William W. Featheringill 2,203,178 (2) 15.8%
100 Brookwood Place, #410
Birmingham, Alabama 35209

Lindsay A. Rosenwald, M.D. 588,632 (3) 4.2
787 Seventh Avenue, 48th Floor
New York, New York 10019

William M. Spencer, III 544,172 (4) 3.9

Charles E. Bugg, Ph.D. 479,030 (5) 3.3

Joseph H. Sherrill, Jr. 408,978 (6) 2.9

John A. Montgomery, Ph.D. 143,886 (7) 1.0

Ronald E. Gray 70,300 (8) *

Randolph C. Steer, M.D., Ph.D. 60,000 (9) *

J. Claude Bennett, M.D. 46,084 (10) *

Zola P. Horovitz, Ph.D. 27,187 (9) *

Edwin A. Gee, Ph.D. 25,000 (9) *

John L. Higgins 8,685 (11) *

All executive officers and directors
as a group (12 persons) 4,605,132 (12) 30.8

(*) Less than one percent.

(1) Gives effect to the shares of Common Stock issuable within 60 days after
March 22, 1998 upon the exercise of all options, warrants and other rights
beneficially held by the indicated stockholder on that date.

(2) Includes 65,000 shares of Common Stock held by his brother of which Mr.
Featheringill is a beneficial owner, 299,900 shares of Common Stock held by the
Featheringill Family Trust of which he is a beneficial owner and 21,978 shares
of Common Stock issuable upon exercise of stock options.

(3) Includes 120,239 shares of Common Stock issuable upon exercise of certain
common stock warrants, 27,187 shares of Common Stock issuable upon exercise of
stock options and 3,125 shares of Common Stock which Dr. Rosenwald holds jointly
with his spouse. Also includes 77,539 shares of Common Stock held by Dr.
Rosenwald's spouse individually and as custodian for their minor children, as to
which Dr. Rosenwald disclaims beneficial ownership. Dr. Rosenwald has granted
options to seven individuals to purchase an aggregate of 21,100 shares of Common
Stock held by him at purchase prices ranging from $0.60 to $7.20 per share.

(4) Includes 49,400 shares of Common Stock issuable upon exercise of certain
common stock warrants, 27,187 shares of Common Stock issuable upon exercise of
stock options and 10,000 shares of Common Stock held by Mr. Spencer's spouse and
38 shares of Common Stock held by Mega Holdings, Inc. Liquidation Trust which
Mr. Spencer is Trustee and a beneficiary. Mr. Spencer disclaims beneficial
ownership of the 10,038 shares of Common Stock held by his

44
<PAGE>

spouse and Mega Holdings, Inc. Liquidation Trust.

(5) Includes 413,538 shares of Common Stock issuable upon exercise of stock
options.

(6) Includes 21,978 shares of Common Stock issuable upon exercise of stock
options, 10,000 shares of Common Stock which Mr. Sherrill holds jointly with his
spouse and 10,000 shares of Common Stock held by Mr. Sherrill's spouse. Mr.
Sherrill disclaims beneficial ownership of the 10,000 shares of Common Stock
held by his spouse.

(7) Includes 100,792 shares of Common Stock issuable upon exercise of stock
options and 19,400 shares of Common Stock held by Dr. Montgomery's spouse. Dr.
Montgomery disclaims beneficial ownership of the 19,400 shares of Common Stock
held by his spouse.

(8) Includes 1,500 shares of Common Stock held by the retirement accounts of Mr.
Gray and his spouse and 64,304 shares of Common Stock issuable upon exercise of
stock options.

(9) Includes shares of Common Stock issuable upon exercise of stock options.

(10) Includes 42,957 shares of Common Stock issuable upon exercise of stock
options.

(11) These shares of Common Stock are held jointly with his spouse.

(12) See Notes (1) through (11).

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Dr. Bugg, an executive officer and Director of the Company, is a Professor
Emeritus of UAB and is paid an annual stipend of $8,040 by UAB. Dr. Bennett, an
executive officer and Director of the Company, is a consultant to and a
Distinguished University Professor of UAB and is paid an annual stipend of
$12,500 by UAB Education Foundation. The Company paid approximately $791,000 to
UAB in 1997 for conducting certain clinical trials, research and data analysis.

Dr. Montgomery, an executive officer and Director of the Company, is a former
executive officer of SRI. The Company paid approximately $350,000 to SRI in 1997
for certain research, laboratory rental and supplies. Dr. Montgomery is
currently a Distinguished Scientist at SRI and was paid approximately $8,248 by
SRI in 1997 for various consulting services unrelated to the services performed
by SRI for the Company.

45
<PAGE>

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K

(a) Financial Statements

<TABLE>
<CAPTION>
Page in
Form 10-K
<S> <C>
The following financial statements appear in Item 8 of this Form 10-K:
Balance Sheets at December 31, 1997 and 1996 26
Statements of Operations for the years ended December 31, 1997, 1996 and 1995 27
Statements of Stockholders' Equity for the years ended December 31, 1997, 1996 and 1995 28
Statements of Cash Flows for the three years ended December 31, 1997, 1996 and 1995 29
Notes to Financial Statements 30 to 35
Report of Independent Auditors 36
</TABLE>

No financial statement schedules are included because the information is
either provided in the financial statements or is not required under the
related instructions or is inapplicable and such schedules therefore have
been omitted.

(b) Reports on Form 8-K

None

Number Description

3.1 Composite Certificate of Incorporation of Registrant. Incorporated
by reference to Exhibit 3.1 to the Company's Form 10-Q for the
second quarter ending June 30, 1995 dated August 11, 1995.

3.2 Bylaws of Registrant. Incorporated by reference to Exhibit 3.1 to
the Company's Form 10-Q for the second quarter ending June 30, 1995
dated August 11, 1995.

4.1 See Exhibits 3.1 and 3.2 for provisions of the Composite Certificate
of Incorporation and Bylaws of the Registrant defining rights of
holders of Common Stock of the Registrant.

10.1 1991 Stock Option Plan, as amended and restated. Incorporated by
reference to Exhibit 99.1 to the Company's Form S-8 Registration
Statement (Registration No. 333-30751).

10.2 Form of Notice of Stock Option Grant and Stock Option Agreement.
Incorporated by reference to Exhibit 99.2 and 99.3 to the Company's
Form S-8 Registration Statement (Registration No. 33-95062).

10.3 Warehouse Lease dated January 17, 1992 between Principal Mutual Life
Insurance Company and the Registrant. Incorporated by reference to
Exhibit 10.21 to the Company's Form S-1 Registration Statement
(Registration No. 33-73868).

10.4 Equipment Leases dated February 25, 1993, August 25, 1993, and
November 25, 1993 between Ventana Leasing, Inc. and the Registrant.
Incorporated by reference to Exhibit 10.23 to the Company's Form S-1
Registration Statement (Registration No. 33-73868).

10.5 Common Stock Purchase Warrants issued in connection with the
issuance of Series A Convertible Preferred Stock. Incorporated by
reference to Exhibit 10.32 to the Company's Form S-1 Registration
Statement (Registration No. 33-73868).

10.6 Fourth Amended and Restated Registration Rights Agreement among the
Registrant and certain securityholders. Incorporated by reference to
Exhibit 10.35 to the Company's Form S-1 Registration Statement
(Registration No. 33-73868).

10.7 Common Stock Purchase Warrants issued in connection with the
issuance of Series B Convertible Preferred Stock. Incorporated by
reference to Exhibit 10.36 to the Company's Form S-1 Registration
Statement (Registration No. 33-73868).

10.8 Common Stock Purchase Warrants dated December 7, 1993 to purchase
49,400 shares of Common Stock issued to each of John Pappajohn,
Lindsay A. Rosenwald and William M. Spencer. Incorporated by
reference to Exhibit 10.37 to the Company's Form S-1 Registration
Statement (Registration No. 33-73868).

10.9 Employment Agreement dated December 17, 1996 between the Registrant
and Charles E. Bugg, Ph.D. Incorporated by reference to Exhibit
10.11 to the Company's Form 10-K for the year ended December 31,
1996 dated March 28, 1997.

10.10 Employment Agreement dated December 18, 1996 between the Registrant
and J. Claude Bennett. Incorporated by reference to Exhibit 10.12 to
the Company's Form 10-K for the year ended December 31, 1996 dated
March 28, 1997.

10.11# License Agreement dated April 15, 1993 between Ciba-Geigy
Corporation (now merged into Novartis) and the Registrant.
Incorporated by reference to Exhibit 10.40 to the Company's Form S-1
Registration Statement (Registration No. 33-73868).

10.12 Employee Stock Purchase Plan. Incorporated by reference to Exhibit
99.4 to the Company's Form S-8 Registration Statement (Registration
No. 33-95062).

10.13 First Amendment to Lease Agreement between Registrant and Principal
Mutual Life Insurance Company, Inc. for office/warehouse space.
Incorporated by reference to Exhibit 10.21 to the Company's Form
10-K for the year ending December 31, 1994 dated March 28, 1995.

10.14 Form of Stock Purchase Agreement dated May 1995 between Registrant
and various parties to purchase 1,570,000 shares of common stock.
Incorporated by reference to Exhibit 10.22 to the Company's Form
10-Q for the second quarter ending June 30, 1995 dated August 11,
1995.

10.15 Form of Registration Rights Agreement dated May 1995 between
Registrant and various parties. Incorporated by reference to Exhibit
10.23 to the Company's Form 10-Q for the

46
<PAGE>

second quarter ending June 30, 1995 dated August 11, 1995.

10.16 Form of Stock Purchase Agreement dated March 22, 1996 among
Registrant and certain investors to purchase 1,000,000 shares of
common stock. Incorporated by reference to Exhibit 10.1 to the
Company's Form 8-K dated March 22, 1996.

10.17 Form of Registration Rights Agreement dated March 22, 1996 among
Registrant and certain investors. Incorporated by reference to
Exhibit 10.2 to the Company's Form 8-K dated March 22, 1996.

10.18# License Agreement, dated May 31, 1996, between Registrant and Torii
Pharmaceutical Co., Ltd. ("Torii"). Incorporated by reference to
Exhibit 10.1 to the Company's Form 8-K/A dated May 3, 1996 and filed
August 2, 1996.

10.19# Stock Purchase Agreement, dated May 31, 1996, between Registrant and
Torii. Incorporated by reference to Exhibit 10.2 to the Company's
Form 8-K/A dated May 3, 1996 and filed August 2, 1996.

10.20 Second Amendment to Lease Agreement between Registrant and Principal
Mutual Life Insurance Company, Inc. for office/warehouse space.
Incorporated by reference to Exhibit 10.24 to the Company's Form
10-Q for the first quarter ending March 31, 1997 dated May 12, 1997.

23.1 Consent of Independent Auditors.

27.1 Financial Data Schedule.

- ----------
# Confidential treatment granted.

47
<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized in the City of Birmingham,
State of Alabama, on this 23rd day of March, 1998.

BIOCRYST PHARMACEUTICALS, INC.

By: /s/ Charles E. Bugg
--------------------------------
Charles E. Bugg, Ph.D.
Chairman and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934 this report
has been signed by the following persons in the capacities indicated on March
23rd, 1998:

Signature Title(s)

/s/ Charles E. Bugg Chairman, Chief Executive Officer
- ------------------------------- and Director
(Charles E. Bugg, Ph.D.)

/s/ J. Claude Bennett President, Chief Operating Officer and
- ------------------------------- Director
(J. Claude Bennett, M.D.)

/s/ John A. Montgomery Executive Vice President, Secretary, Chief
- ------------------------------- Scientific Officer and Director
(John A. Montgomery, Ph.D.)

/s/ Ronald E. Gray Chief Financial Officer (Principal Financial
- ------------------------------- and Accounting Officer)
(Ronald E. Gray)

/s/ William W. Featheringill Director
- -------------------------------
(William W. Featheringill)

/s/ Edwin A. Gee Director
- -------------------------------
(Edwin A. Gee, Ph.D.)

/s/ Zola P. Horovitz Director
- -------------------------------
(Zola P. Horovitz, Ph.D.)

/s/ Lindsay A. Rosenwald Director
- -------------------------------
(Lindsay A. Rosenwald, M.D.)

/s/ William M. Spencer, III Director
- -------------------------------
(William M. Spencer, III)

/s/ Joseph H. Sherrill, Jr. Director
- -------------------------------
(Joseph H. Sherrill, Jr.)

/s/ Randolph C. Steer Director
- -------------------------------
(Randolph C. Steer, M.D., Ph.D.)

48
<PAGE>

INDEX TO EXHIBITS

Sequentially
Numbered
Number Description Page

3.1 Composite Certificate of Incorporation of Registrant.
Incorporated by reference to Exhibit 3.1 to the
Company's Form 10-Q for the second quarter ending June
30, 1995 dated August 11, 1995.

3.2 Bylaws of Registrant. Incorporated by reference to
Exhibit 3.1 to the Company's Form 10-Q for the second
quarter ending June 30, 1995 dated August 11, 1995.

4.1 See Exhibits 3.1 and 3.2 for provisions of the
Composite Certificate of Incorporation and Bylaws of
the Registrant defining rights of holders of Common
Stock of the Registrant.

10.1 1991 Stock Option Plan, as amended and restated.
Incorporated by reference to Exhibit 99.1 to the
Company's Form S-8 Registration Statement (Registration
No. 333-30751).

10.2 Form of Notice of Stock Option Grant and Stock Option
Agreement. Incorporated by reference to Exhibit 99.2
and 99.3 to the Company's Form S-8 Registration
Statement (Registration No. 33-95062).

10.3 Warehouse Lease dated January 17, 1992 between
Principal Mutual Life Insurance Company and the
Registrant. Incorporated by reference to Exhibit 10.21
to the Company's Form S-1 Registration Statement
(Registration No. 33-73868).

10.4 Equipment Leases dated February 25, 1993, August 25,
1993, and November 25, 1993 between Ventana Leasing,
Inc. and the Registrant. Incorporated by reference to
Exhibit 10.23 to the Company's Form S-1 Registration
Statement (Registration No. 33-73868).

10.5 Common Stock Purchase Warrants issued in connection
with the issuance of Series A Convertible Preferred
Stock. Incorporated by reference to Exhibit 10.32 to
the Company's Form S-1 Registration Statement
(Registration No. 33-73868).

10.6 Fourth Amended and Restated Registration Rights
Agreement among the Registrant and certain
securityholders. Incorporated by reference to Exhibit
10.35 to the Company's Form S-1 Registration Statement
(Registration No. 33-73868).

10.7 Common Stock Purchase Warrants issued in connection
with the issuance of Series B Convertible Preferred
Stock. Incorporated by reference to Exhibit 10.36 to
the Company's Form S-1 Registration Statement
(Registration No. 33-73868).

10.8 Common Stock Purchase Warrants dated December 7, 1993
to purchase 49,400 shares of Common Stock issued to
each of John Pappajohn, Lindsay A. Rosenwald and
William M. Spencer. Incorporated by reference to
Exhibit 10.37 to the Company's Form S-1 Registration
Statement (Registration No. 33-73868).

10.9 Employment Agreement dated December 17, 1996 between
the Registrant and Charles E. Bugg, Ph.D. Incorporated
by reference to Exhibit 10.11 to the Company's Form
10-K for the year ended December 31, 1996 dated March
28, 1997.

10.10 Employment Agreement dated December 18, 1996 between
the Registrant and J. Claude Bennett. Incorporated by
reference to Exhibit 10.12 to the Company's Form 10-K
for the year ended December 31, 1996 dated March 28,
1997.

10.11# License Agreement dated April 15, 1993 between
Ciba-Geigy Corporation (now merged into Novartis) and
the Registrant. Incorporated by reference to Exhibit
10.40 to the Company's Form S-1 Registration Statement
(Registration No. 33-73868).

10.12 Employee Stock Purchase Plan. Incorporated by reference
to Exhibit 99.4 to the Company's Form S-8 Registration
Statement (Registration No. 33-95062).

10.13 First Amendment to Lease Agreement between Registrant
and Principal Mutual Life Insurance Company, Inc. for
office/warehouse space. Incorporated by reference to
Exhibit 10.21 to the Company's Form 10-K for the year
ending December 31, 1994 dated March 28, 1995.

49
<PAGE>

10.14 Form of Stock Purchase Agreement dated May 1995 between
Registrant and various parties to purchase 1,570,000
shares of common stock. Incorporated by reference to
Exhibit 10.22 to the Company's Form 10-Q for the second
quarter ending June 30, 1995 dated August 11, 1995.

10.15 Form of Registration Rights Agreement dated May 1995
between Registrant and various parties. Incorporated by
reference to Exhibit 10.23 to the Company's Form 10-Q
for the second quarter ending June 30, 1995 dated
August 11, 1995.

10.16 Form of Stock Purchase Agreement dated March 22, 1996
among Registrant and certain investors to purchase
1,000,000 shares of common stock. Incorporated by
reference to Exhibit 10.1 to the Company's Form 8-K
dated March 22, 1996.

10.17 Form of Registration Rights Agreement dated March 22,
1996 among Registrant and certain investors.
Incorporated by reference to Exhibit 10.2 to the
Company's Form 8-K dated March 22, 1996.

10.18# License Agreement, dated May 31, 1996, between
Registrant and Torii Pharmaceutical Co., Ltd.
("Torii"). Incorporated by reference to Exhibit 10.1 to
the Company's Form 8-K/A dated May 3, 1996 and filed
August 2, 1996.

10.19# Stock Purchase Agreement, dated May 31, 1996, between
Registrant and Torii. Incorporated by reference to
Exhibit 10.2 to the Company's Form 8-K/A dated May 3,
1996 and filed August 2, 1996.

10.20 Second Amendment to Lease Agreement between Registrant
and Principal Mutual Life Insurance Company, Inc. for
office/warehouse space. Incorporated by reference to
Exhibit 10.24 to the Company's Form 10-Q for the first
quarter ending March 31, 1997 dated May 12, 1997.

23.1 Consent of Independent Auditors. 51

27.1 Financial Data Schedule. 52

# Confidential treatment granted.

EXHIBIT 23.1

CONSENT OF INDEPENDENT AUDITORS

We consent to the incorporation by reference in the Registration Statements
(Forms S-8 No. 33-81110, 33-95062 and 333-30751) pertaining to the BioCryst
Pharmaceuticals, Inc. 1991 Stock Option Plan of our report dated January 21,
1998, with respect to the financial statements of BioCryst Pharmaceuticals, Inc.
included in the Annual Report (Form 10-K) for the year ended December 31, 1997.

/s/ Ernst & Young LLP

Birmingham, Alabama
March 23, 1998

<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the BioCryst
Pharmaceuticals, Inc. Financial Statements, and is qualified in its entirety by
reference to such financial statements.
</LEGEND>

<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-END> Dec-31-1997
<CASH> 3,757,098
<SECURITIES> 20,886,388
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 19,695,506
<PP&E> 3,171,001
<DEPRECIATION> 1,613,464
<TOTAL-ASSETS> 26,484,728
<CURRENT-LIABILITIES> 865,463
<BONDS> 0
0
0
<COMMON> 138,177
<OTHER-SE> 25,146,619
<TOTAL-LIABILITY-AND-EQUITY> 26,484,728
<SALES> 0
<TOTAL-REVENUES> 2,692,521
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 13,259,506
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 51,880
<INCOME-PRETAX> (10,618,865)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,618,865)
<EPS-PRIMARY> (.77)
<EPS-DILUTED> (.77)

</TABLE>