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

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FORM 10-K/A
(Amendment No. 1)

(MARK ONE)

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For The Fiscal Year Ended December 31, 2001

[_] 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 0-31781

American Pharmaceutical Partners, Inc.
(Exact name of registrant as specified in its charter)

Delaware 68-0389419
(State of Incorporation) (I.R.S. Employer Identification No.)
11777 San Vicente Boulevard, Suite 550
Los Angeles, CA 90049 (310) 826-8505
(Address of principal executive offices, (Registrant's telephone number,
including zip code) including area code)

Securities registered pursuant to Section 12(b) of the Act: None

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

Common Stock, Par Value $0.001 Per Share

(Title Of Class)

Indicate by 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 the 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. [_]

As of March 25, 2002, the aggregate market value of the voting stock held by
non-affiliates of the Registrant was approximately $298,228,000 based upon the
average of the high and low prices of the Common Stock as reported on The
Nasdaq National Market on such date.

As of March 25, 2002, the Registrant had 49,735,063 shares of Common Stock
outstanding.

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AMERICAN PHARMACEUTICAL PARTNERS, INC.

FORM 10-K/A
For the Fiscal Year Ended December 31, 2001

TABLE OF CONTENTS

Page
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PART I

Item 1. Business............................................................................. 3
Item 2. Properties........................................................................... 23
Item 3. Legal Proceedings.................................................................... 24
Item 4. Submission of Matters to a Vote of Security Holders.................................. 24

PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters................ 25
Item 6. Selected Financial Data.............................................................. 26
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 28
Item 7A. Quantitative and Qualitative Disclosures about Market Risk........................... 34
Item 8. Financial Statements and Supplementary Data.......................................... 34
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. 59

PART III

Item 10. Directors and Executive Officers of the Registrant................................... 60
Item 11. Executive Compensation............................................................... 61
Item 12. Security Ownership of Certain Beneficial Owners and Management....................... 63
Item 13. Certain Relationships and Related Transactions....................................... 64

PART IV

Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K....................... 65
Signatures........................................................................... 67

PART I

Item 1. Business

Note Regarding Forward-looking Statements

Statements contained in this Annual Report on Form 10-K, which are not
historical facts, are forward-looking statements, as the term is defined in the
Private Securities Litigation Reform Act of 1995. Such forward-looking
statements, whether expressed or implied, are subject to risks and
uncertainties which can cause actual results to differ materially from those
currently anticipated, due to a number of factors, which include, but are not
limited to:

. the impact of competitive products and pricing;

. the availability and pricing of raw materials and components used in the
manufacture of our pharmaceutical products;

. the ability to successfully manufacture products in an efficient,
time-sensitive and cost effective manner;

. the acceptance of and demand for our existing and new pharmaceutical
products;

. the impact of laws and regulations, and their interpretations, which
govern or affect the pharmaceutical industry;

. the impact of patents and other proprietary rights licensed or owned by
us, our competitors and other third parties;

. the difficulty in predicting the timing or outcome of product development
efforts and regulatory approvals;

. the actual results achieved in the Phase III clinical trials for ABI-007;

. the timing of the completion of Phase III trials for ABI-007;

. licenses or acquisitions; and

. relationships and agreements with other parties.

Forward-looking statements also include the assumptions underlying or
relating to any of the foregoing or other such statements. When used in this
report, the words "may," "will," "should," "could," "expect," "plan,"
"anticipate," "believe," "estimate," "predict," "continue", and similar
expressions are generally intended to identify forward-looking statements.

Readers are cautioned not to place undue reliance on these forward-looking
statements, which reflect management's opinions only as of the date hereof. We
undertake no obligation to revise or publicly release the results of any
revision to these forward-looking statements. Readers should carefully review
the factors described in BUSINESS: FACTORS THAT MAY AFFECT FUTURE RESULTS OF
OPERATIONS and other documents we file from time to time with the Securities
and Exchange Commission, including the Quarterly Reports on Form 10-Q to be
filed by us in fiscal year 2002.

Overview

We are a specialty pharmaceutical company that develops, manufactures and
markets injectable pharmaceutical products. We currently produce over 100
generic injectable pharmaceutical products in more than 300 dosages and
formulations. Our primary focus is in the oncology, anti-infective and critical
care markets, and we believe that we offer one of the most comprehensive
generic injectable product portfolios in the pharmaceutical industry across
these therapeutic categories. We manufacture products in all three of the three

basic forms in which injectable products are sold: liquid, powder and
lyophilized, or freeze-dried. In November 2001, we obtained the exclusive North
American rights to manufacture and sell ABI-007, a proprietary injectable
oncology product candidate that is a patented formulation of paclitaxel.
Paclitaxel is the active ingredient in Taxol, the world's top selling cancer
drug. A multi-center Phase III clinical trial has commenced for ABI-007 for the
treatment of metastatic breast cancer, or breast cancer that has spread to
other parts of the body.

Our products are generally used in hospitals, long-term care facilities,
alternate care sites, and clinics. Unlike the retail pharmacy market for oral
products, the injectable pharmaceuticals marketplace is largely made up of end
users who have relationships with group purchasing organizations, or GPOs. GPOs
enter into collective purchasing agreements with pharmaceutical suppliers for
products in an effort to secure favorable drug pricing on behalf of their
members.

We were incorporated in Delaware in 2001, as successor to a California
corporation formed in 1996.

Our Strategy

Our goal is to become an industry leader in the development, manufacture,
sale and distribution of injectable pharmaceutical products. The key elements
of our strategy include:

. Continue To Focus On Higher-Margin Opportunities. We believe there
continue to be significant opportunities for growth driven by an
increasing number of patent expirations for proprietary injectable
pharmaceutical products. We will continue to target products where
additional generic competition is likely to be limited because of
complexities in product development, the need for specialized
manufacturing capabilities and the need for raw materials that are
difficult to obtain. In particular, we will continue to focus on product
opportunities in the oncology, anti-infectives and critical care markets,
where we can utilize the manufacturing facilities that we already have in
place.

. Continue To Focus On GPO Relationships. We will continue to focus on
maintaining strong relationships with the leading GPOs in the United
States. Much of our growth to date has resulted from increased
penetration of our existing products into hospitals that are members of
the largest GPOs. These relationships are key to ensuring a market for
the products we develop and thus enable us to invest aggressively in new
product development.

. Pursue Proprietary Pharmaceutical Product Opportunities in Our Focus
Therapeutic Areas. We intend to acquire or license rights to proprietary
injectable pharmaceutical products in our focus therapeutic areas,
allowing us to enhance our market presence and visibility, as well as our
revenue growth and profitability. We intend to take advantage of our
manufacturing and marketing resources in oncology, anti-infectives and
critical care by entering into development and marketing collaborations
with companies that are developing proprietary products.

. Complement Internal Growth With Strategic Acquisitions. We believe
opportunities exist for us to enhance our competitive position by
acquiring companies with complementary products and technologies. We also
intend to invest in or acquire additional manufacturing capacity to meet
projected increased demand for our current and future products.

Our Products

Injectable Oncology Products

We presently market eleven injectable oncology products. According to IMS
Health, Inc., a market research firm, we were the market leader for four of
these products in terms of units sold for 2001, selling more units than the
innovator and all generic competitors. Our injectable oncology products
generated net sales of approximately $31.2 million in 2001, which represented
approximately 16% of our total net sales for that year.

Our oncology products include:

Cisplatin. Cisplatin is a chemotherapy agent used alone or in combination
with other agents to treat metastatic testicular or ovarian cancer, Hodgkin's
disease, non-Hodgkin's lymphoma, brain tumors, cancer of the nervous system and
head, neck, bone, cervical, lung and bladder cancer. Bristol-Myers Squibb
originally marketed cisplatin under the brand name Platinol. Together with
several other companies, we prevailed in a lawsuit invalidating Bristol-Myers'
patent covering this product in October 1999 and the FDA granted us 180 days of
market exclusivity when we launched cisplatin in November 1999. We are
currently one of five producers of cisplatin competing for market share.
According to IMS, we were the market leader for cisplatin in terms of units
sold in 2001.

Dacarbazine. Dacarbazine is a chemotherapy agent used alone or in
combination with other agents to treat Hodgkin's disease, cancer of the nervous
system, soft-tissue sarcoma and malignant skin, islet cell and thyroid cancer.
Bayer AG originally marketed dacarbazine under the brand name DTIC-Dome.
According to IMS, we sold the largest number of units of dacarbazine in 2001 of
any manufacturer.

Mesna. Mesna is used to treat the side effects associated, and is currently
sold together with the chemotherapy drug ifosfamide. Bristol-Myers originally
marketed mesna under the brand name Mesnex. We currently are one of only two
generic companies who have received approval from the FDA to sell mesna. We
launched this product in May 2001.

Injectable Anti-infective Products

We market 15 injectable anti-infective products. According to IMS, we were
the market leader for five of our injectable anti-infective products in terms
of units sold during 2001. Our injectable anti-infective products generated net
sales of approximately $54.7 million in 2001, which represented approximately
28% of our total net sales for that year.

We believe we offer one of the most comprehensive portfolios of injectable
anti-infective products, including six different classes of antibiotics. We own
and operate one of only two dedicated manufacturing facilities in the United
States for generic cephalosporins. We currently are the only generic competitor
offering first-generation, second-generation and third generation
cephalosporins. Dedicated facilities are required by the FDA for the
manufacture of cephalosporins. According to IMS, the markets for second and
third generation cephalosporins were approximately $100 million and $800
million, respectively, in 2001.

Our anti-infective products include:

Vancomycin. Vancomycin is an antibiotic used to treat some types of Staph
or Strep infections, particularly in-patients who are allergic to penicillins
or cephalosporins, and other infections. Eli Lilly originally marketed
vancomycin under the brand name Vancocin HCL. We currently are one of five
competitors for injectable vancomycin. We are the only generic competitor to
offer a 10-gram formulation of this antibiotic. According to IMS, we sold the
second largest number of units of vancomycin in 2001.

Doxycycline. Doxycycline is an antibiotic used to treat anthrax, Rocky
Mountain Spotted Fever, typhus and mycoplasma pneumonia. Pfizer, Inc.
originally marketed doxycycline under the brand name Vibramycin. We currently
manufacture and distribute nearly all of the injectable doxycycline sold in
North America.

Cefotaxime. Cefotaxime is a broad spectrum antibiotic in the
third-generation cephalosporin class of antibiotics. It is used to treat
intra-abdominal infections such as peritonitis, central nervous system
infections including meningitis, lower respiratory tract, genitourinary, and
gynecological infections, bacteremia and septicemia, and infections of the
skin, bone and joints. Abbott Laboratories originally marketed this drug under

the brand name Claforan. We initially introduced cefotaxime on a limited basis
in September 2001, and conducted a full launch of the product in February 2002.

Gentamicin. Gentamicin is an antibiotic used to treat endocarditis,
septicemia and bacterial, bone, respiratory tract, soft tissue, urinary tract
and other infections. Schering-Plough originally marketed gentamicin under the
brand name Garamycin. We currently are one of six competitors for gentamicin.
According to IMS, we sold the second largest number of units of injectable
gentamicin during 2001.

Injectable Critical Care Products

We market 62 injectable critical care products. According to IMS, we were
the market leader for seven of our injectable critical care products in terms
of units sold in 2001. Our injectable critical care products generated net
sales of approximately $100.4 million in 2001, which represented approximately
52% of our total net sales for that year.

Our critical care products include:

Heparin. Injectable heparin is a blood thinner used to prevent and treat
blood clotting, especially in patients during and after surgery. We manufacture
one of the most comprehensive lines of injectable heparin. We currently are one
of seven competitors for injectable heparin and are one of only two companies
currently selling beef lung heparin. According to IMS, we sold the third
largest number of units of injectable heparin during 2001.

Oxytocin. Oxytocin is used to induce labor at term and control postpartum
bleeding. Wyeth-Ayerst originally marketed oxytocin under the brand name
Pitocin. We are currently the only manufacturer of generic oxytocin. According
to IMS, we were the market leader for oxytocin in terms of units sold in 2001.

Haloperidol Decanoate. Haloperidol is an antipsychotic agent used to treat
psychoses, Tourette's Syndrome and severe behavioral problems in children.
Ortho-McNeil Pharmaceuticals originally marketed haloperidol decanoate under
the brand name Haldol Decanoate.

Generic Injectable Pharmaceuticals Under Development

Since our acquisition of the Fujisawa generic business in 1998, which
included seven abbreviated new drug applications, or ANDAs, that were pending
with the FDA, we have filed a total of 26 ANDAs for injectable product
candidates with the FDA and received a total of 26 new generic product
approvals. In the year ended December 31, 2001, we received 13 ANDA approvals
and had an additional 14 ANDAs pending with the FDA. We have over 50 product
candidates under development, including 17 oncology, 18 anti-infective and 17
critical care products.

Proprietary Injectable Product

ABI-007, a Proprietary Injectable Oncology Product Candidate

We have licensed ABI-007, a patented formulation of paclitaxel, from
American BioScience, Inc. (ABI). Paclitaxel is the active ingredient in Taxol,
the world's largest selling cancer drug marketed by Bristol-Myers. A
multi-center Phase III clinical trial has commenced for ABI-007 for the
treatment of metastatic breast cancer.

Many oncology drugs, including paclitaxel, are water insoluble and thus
often require toxic solvents to formulate the drugs for injection. Taxol and
its generic equivalents contain the toxic solvent Cremaphor. The toxicity of
Cremaphor limits the dose of Taxol that can be administered, potentially
limiting the efficacy of the drug. Furthermore, patients receiving Taxol
require pre-medication with steroids to prevent the toxic side effects
associated with Cremaphor and, in some cases, require a growth factor such as
G-CSF to overcome low white

blood cell levels resulting from chemotherapy. The FDA-approved dose of Taxol
is 135-175 mg/m/2/, administered over three to 24 hours using specialized
intravenous tubing. Despite the difficulties associated with administration and
serious dose-limiting toxicities, it is estimated that approximately $1.5
billion of Taxol and its generic equivalents were sold in 2001.

ABI-007 utilizes a proprietary nanoparticle drug delivery technology to
encapsulate paclitaxel in albumin, a human protein found in blood. Because
ABI-007 is not formulated with Cremaphor, we believe ABI-007 provides several
advantages over Taxol and its generic equivalents, including:

. avoiding the need for steroid pre-medication

. reducing or eliminating the need for G-CSF support

. allowing for more rapid infusion, using standard intravenous tubing

Three Phase I studies to determine the maximum tolerated dose of ABI-007
have been completed and have found that ABI-007 can be tolerated at much higher
doses than Taxol without the need for steroid pre-medication.

Enrollment has been completed for two multi-center Phase II trials, in which
ABI-007 was administered at the current maximum FDA-approved dose of Taxol (175
mg/m/2) and at a much higher dose of 300 mg/m/2 over 30 minutes as
mono-therapy, without steroid pre-medication, in patients with metastatic
breast cancer. Data from these Phase II trials will be presented at the
American Society of Clinical Oncology (ASCO) annual meeting in May 2002.

A randomized Phase III trial in breast cancer patients to directly compare
ABI-007 with Taxol has been initiated and a number of treatment centers have
begun patient enrollment. The actual results achieved in the Phase III clinical
trials may not be reflective of the Phase I or Phase II clinical trial data, or
may fail to demonstrate sufficient safety and efficacy required to obtain the
necessary regulatory approvals or to warrant further product development.

In November 2001, we signed a license agreement with American BioScience
under which we acquired the exclusive rights to market and sell ABI-007 in
North America, and have paid the up-front licensing fees under that agreement.
This license is perpetual. American BioScience is responsible for substantially
all costs associated with the development of ABI-007, except that we have
agreed to provide up to $2 million of ABI-007 for use in clinical trials. The
cost of the clinical product was charged to research and development expense in
the year ended December 31, 2001. We are required to make milestone payments of
up to (a) $60 million for indications relating to breast, ovarian and lung
cancers and (b) $32.5 million for indications relating to prostate cancer and
other indications agreed upon between American BioScience and us. We also may
be required to make additional milestone payments, of up to an aggregate of
$110 million, based upon the achievement of particular annual sales levels.
Profits from any sales of ABI-007 shall be shared equally after deducting costs
of goods sold, selling expenses and other appropriate deductions. All costs and
expenses related to product recalls and product liability claims generally will
be split equally between American BioScience and us.

In November 2001, we also entered into a manufacturing agreement with
American BioScience under which we agreed to manufacture ABI-007 for American
BioScience and its licensees for sales outside North America during the term of
the agreement. Under this agreement, we were granted the exclusive right to
manufacture ABI-007 for sales in North America for a period of three years and
the non-exclusive right to manufacture ABI-007 for sales (a) outside North
America and (b) in North America after expiration of the three year exclusivity
period. We will charge American BioScience and its licensees a customary margin
on our manufacturing costs based on whether the product will be used for
clinical trials or commercial sale. The initial term of this agreement is ten
years and may be extended for successive two-year terms by American BioScience.

Research and Development

We have approximately 57 employees dedicated to product development,
including more than 20 employees with Ph.D.s, who have expertise in areas such
as pharmaceutical formulation, analytical chemistry and drug delivery. We
operate a research and development facility in a building of approximately
140,000 square feet that we own in Melrose Park, Illinois.

We have made, and will continue to make, substantial investment in research
and development. Research and development costs for the fiscal year ended
December 31, 2001 were approximately $14.0 million, including stock-based
compensation.

When developing new products, we consider a variety of factors, including:

. potential pricing and gross margins

. existing and potential market size

. our manufacturing capabilities and access to raw materials

. potential development and competitive challenges

. whether these products complement our existing products and the
opportunity to leverage these products with the development of additional
products

Sales and Marketing

We employ a sales force comprised of 38 field sales and national accounts
professionals, supported by our customer service and sales support groups. Our
representatives have substantial injectable pharmaceutical sales experience.

We sell our products primarily to hospitals, long-term care facilities,
alternate care sites, clinics and doctors who administer injectable products in
their offices. Most purchases by these buyers are made through arrangements
with GPOs, which negotiate collective purchasing agreements on behalf of their
members, or through specialty distributors, which specialize in particular
therapeutic categories such as oncology. We have relationships with all of the
major GPOs in the United States, which we believe collectively account for over
95% of all hospital-based pharmaceutical purchases in the United States. We
also have relationships with specialty distributors. Through these agreements,
we believe we have access to nearly 100% of the buyers of injectable products
in the United States.

We currently derive, and expect to continue to derive, a large percentage of
our revenue from customers that have relationships with a small number of GPOs.
Currently, less than ten GPOs control a large majority of sales to hospital
customers. We have purchasing arrangements with the major GPOs in the United
States, including AmeriNet, Inc., Broadlane Healthcare Corporation, Consorta,
Inc., MedAssets Inc., Novation, LLC, Owen Healthcare, Inc., PACT, LLC and
Premier Purchasing Partners, LP. In order to maintain these relationships, we
believe we need to be reliable in terms of supply, offer a broad product line,
remain price competitive, comply with FDA regulations and provide high-quality
products. Most of our GPO agreements may be terminated on 60 or 90 days' notice.

Our international sales, outside U.S. and Canada, are approximately 1% of
our total net sales.

Competition

pharmaceutical industry by creating generic subsidiaries, purchasing generic
companies or licensing their products prior to or as their patents expire. Many
pharmaceutical companies are developing, or have developed and are marketing,
alternative formulations of paclitaxel, generic versions of Taxol and other
cancer therapies that may compete directly or indirectly with ABI-007.

Revenue and gross profit derived from sales of generic pharmaceutical
products tend to follow a pattern based on regulatory and competitive factors.
As patents for brand name products and related exclusivity periods expire, the
first generic pharmaceuticals manufacturer to receive regulatory approval for
generic versions of these products is generally able to achieve significant
market penetration and higher margins. As competing generic manufacturers
receive regulatory approvals on similar products, market share, revenue and
gross profit typically decline. The level of market share, revenue and gross
profit attributable to a particular generic pharmaceutical product is normally
related to the number of competitors in that product's market and the timing of
that product's regulatory approval and launch, in relation to competing
approvals and launches. We must continue to develop and introduce new products
in a timely and cost-effective manner and identify niche products with
significant barriers to entry in order to maintain our revenue and gross
margins.

Regulatory Considerations

Proprietary and generic prescription pharmaceutical products are subject to
extensive pre- and post-market regulation by the FDA, including regulations
that govern the testing, manufacturing, safety, efficacy, labeling, storage,
record keeping, advertising, and promotion of the products under the Federal
Food Drug and Cosmetic Act and the Public Health Services Act, and by
comparable agencies in foreign countries. FDA approval is required before any
dosage form of any new unapproved drug, including a generic equivalent of a
previously approved drug, can be marketed in the United States. All
applications for FDA approval must contain information relating to
pharmaceutical formulation, stability, manufacturing, processing, packaging,
labeling and quality control.

Generic Drug Approval

The Drug Price Competition and Patent Term Restoration Act of 1984, or the
Hatch-Waxman Act, established abbreviated FDA approval procedures for those
proprietary drugs that are no longer protected by patents and which are shown
to be equivalent to previously approved proprietary drugs. Approval to
manufacture these drugs is obtained by filing an abbreviated new drug
application, or an ANDA. An ANDA is a comprehensive submission that must
contain data and information pertaining to the active pharmaceutical
ingredient, drug product formulation, specifications and stability of the
generic drug, as well as analytical methods, manufacturing process validation
data and quality control procedures. As a substitute for clinical studies, the
FDA may require data indicating that the ANDA drug formulation is equivalent to
a previously approved proprietary drug. In order to obtain an ANDA approval of
strength or dosage form that differs from the referenced brand name drug, an
applicant must file and have granted an ANDA Suitability Petition. A product is
not eligible for ANDA approval if it is not determined by the FDA to be
equivalent to the referenced brand name drug or if it is intended for a
different use. However, such a product might be approved under a New Drug
Application, or an NDA, with supportive data from clinical trials.

One advantage of the ANDA approval process is that an ANDA applicant
generally can rely upon equivalence data in lieu of conducting pre-clinical
testing and clinical trials to demonstrate that a product is safe and effective
for its intended use. We generally file ANDAs to obtain approval to manufacture
and market our generic products. No assurance can be given that ANDAs submitted
for our products will receive FDA approval on a timely basis, if at all.

New Drug Approval

The process required by the FDA before a new drug may be marketed in the
United States generally involves:

. completion of pre-clinical laboratory and animal testing

. submission of an investigational new drug application, or IND, which must
become effective before clinical trials may begin

. performance of adequate and well-controlled human trials to establish the
safety and efficacy of the proposed drug product's intended use

. submission to and approval by the FDA of an NDA

Clinical trials are typically conducted in three sequential phases that may
overlap. These phases generally include:

. Phase I during which the drug is introduced into healthy human subjects
or, on occasion, patients, and generally is tested for safety, stability,
dose tolerance and metabolism

. Phase II during which the drug is introduced into a limited patient
population to determine the efficacy of the product in specific targeted
diseases, to determine dosage tolerance and optimal dosage and to
identify possible adverse effects and safety risks

. Phase III during which the clinical trial is expanded to a more diverse
patient group in geographically dispersed trial sites to further evaluate
clinical efficacy, optimal dosage and safety

The drug sponsor, the FDA or the Institutional Review Board at each
institution at which a clinical trial is being performed may suspend a clinical
trial at any time for various reasons, including a belief that the subjects are
being exposed to an unacceptable health risk.

The results of product development, preclinical animal studies and human
studies are submitted to the FDA as part of the NDA. The NDA also must contain
extensive manufacturing information. The FDA may approve or disapprove the NDA
if applicable FDA regulatory criteria are not satisfied or it may require
additional clinical data. Once approved, the FDA may withdraw the product
approval if compliance with pre- and post-market regulatory standards are not
maintained or if problems occur after the product reaches the marketplace. In
addition, the FDA may require post-marketing studies to monitor the effect of
approved products and may limit further marketing of the product based on the
results of these post-marketing studies. The FDA has broad post-market
regulatory and enforcement powers, including the ability to levy fines and
civil penalties, suspend or delay issuance of approvals, seize or recall
products, and withdraw approvals.

Satisfaction of FDA pre-market approval requirements typically takes several
years and the actual time required may vary substantially based upon the type,
complexity and novelty of the product or disease. Government regulation may
delay or prevent marketing of potential products for a considerable period of
time and impose costly procedures upon a manufacturer's activities. Success in
early stage clinical trials does not assure success in later stage clinical
trials. Data obtained from clinical activities is not always conclusive and may
be susceptible to varying interpretations that could delay, limit or prevent
regulatory approval. Even if a product receives regulatory approval, later
discovery of previously unknown problems with a product may result in
restrictions on the product or even complete withdrawal of the product from the
market.

Manufacturing

Our manufacturing facilities are located in Melrose Park, Illinois and Grand
Island, New York. These facilities, which include dedicated cephalosporin
powder filling and oncolytic manufacturing suites, have in the aggregate
approximately 277,000 square feet of manufacturing, packaging, laboratory,
office and warehouse space.

We can produce a broad range of dosage formulations, including lyophilized
products, liquids, both aseptically filled and terminally sterilized, and
powders. We currently produce approximately 200 million vials per year.

In addition to manufacturing, we have fully integrated manufacturing support
systems, including quality assurance, quality control, regulatory affairs and
inventory control. These support systems enable us to maintain high standards
of quality for our products and simultaneously deliver reliable services and
goods to our customers on a timely basis.

We are required to comply with the applicable FDA manufacturing requirements
contained in the FDA's current Good Manufacturing Practice, or GMP,
regulations. GMP regulations require quality control and quality assurance as
well as the corresponding maintenance of records and documentation. Our
manufacturing facilities must meet GMP requirements in order that we can
manufacture our products. We are subject to the periodic inspection of our
facilities, procedures and operations and/or the testing of our products by the
FDA, the Drug Enforcement Administration and other authorities to assess our
compliance with applicable regulations.

Failure to comply with the statutory and regulatory requirements subjects
the manufacturer to possible legal or regulatory action, including the seizure
or recall of products, injunctions, consent decrees placing significant
restrictions on or suspending manufacturing operations, and civil and criminal
penalties. Adverse experiences with the product must be reported to the FDA and
could result in the imposition of market restriction through labeling changes
or in product removal. Product approvals may be withdrawn if compliance with
regulatory requirements is not maintained or if problems concerning safety or
efficacy of the product occur following approval.

Raw Materials

The manufacture of our products requires raw materials and other components
that must meet stringent FDA requirements. Some of these raw materials and
other components are currently available only from a limited number of sources.
Additionally, our regulatory approvals for each particular product denote the
raw materials and components, and the suppliers for such materials, we may use
for that product. Even when more than one supplier exists, we may elect to
list, and in some cases have only listed, one supplier in our applications with
the FDA. Any change in a supplier not previously approved must then be
submitted through a formal approval process with the FDA. From time to time, it
is necessary to maintain increased levels of certain raw materials due to the
anticipation of raw material shortages and decreases in competition.

Intellectual Property

Our success depends on our ability to operate without infringing the patents
and proprietary rights of third parties. We cannot determine with certainty
whether patents or patent applications of other parties will materially affect
our ability to make, use or sell any products. A number of pharmaceutical
companies, biotechnology companies, universities and research institutions may
have filed patent applications or may have been granted patents that cover
aspects of our or our licensors' products, product candidates or other
technologies.

We rely on trade secrets, unpatented proprietary know-how, continuing
technological innovation and, in some cases, patent protection to preserve our
competitive position. As of December 31, 2001, we owned three patents issued by
the U.S. Patent and Trademark Office covering some processes used in the
manufacture of our products. In addition, ABI-007 is covered by at least six
issued patents owned by American BioScience relating to composition of matter,
method of use and method of preparation.

Intellectual property protection is highly uncertain and involves complex
legal and factual questions. Our patents and those for which we have or will
license rights may be challenged, invalidated, infringed or circumvented, and
the rights granted in those patents may not provide proprietary protection or
competitive
advantages to us. We and our licensors may not be able to develop patentable
products. Even if patent claims are

allowed, the claims may not issue, or in the event of issuance, may not be
sufficient to protect the technology owned by or licensed to us.

Third-party patent applications and patents could reduce the coverage of the
patents licensed, or that may be licensed to or owned by us. If patents
containing competitive or conflicting claims are issued to third parties, we
may be enjoined from commercialization of products or be required to obtain
licenses to these patents or to develop or obtain alternative technology. In
addition, other parties may duplicate, design around or independently develop
similar or alternative technologies to ours or our licensors.

Litigation may be necessary to enforce patents issued or licensed to us or
to determine the scope or validity of another party's proprietary rights. U.S.
Patent Office interference proceedings may be necessary if we and another party
both claim to have invented the same subject matter. We could incur substantial
costs and our management's attention would be diverted if:

. patent litigation is brought by third parties

. we participate in patent suits brought against or initiated by our
licensors

. we initiate similar suits

. we participate in an interference proceeding

In addition, we may not prevail in any of these actions or proceedings.

Employees

As of December 31, 2001, we had a total of 940 full-time employees, of which
57 were engaged in research and development, 690 were in manufacturing, 53 were
in sales and marketing and 140 were in administration and finance. None of our
employees are represented by a labor union or subject to a collective
bargaining agreement. We have not experienced any work stoppage and consider
our relations with our employees to be good.

Executive Officers

The following table sets forth certain information with respect to the
executive officers and certain key employees of the Company as of March 29,
2002:

Name Age Position
---- --- --------

Patrick Soon-Shiong, M.D. 49 President, Chief Executive Officer and Chairman

Derek J. Brown........... 52 Co-Chief Operating Officer, Chief Financial
Officer, Secretary and Director

Jeffrey M. Yordon........ 53 Co-Chief Operating Officer and Director

Jack C. Silhavy.......... 45 Vice President and General Counsel

Mitchall Clark........... 41 Vice President of Regulatory Affairs

Mia Igyarto.............. 48 Vice President of Human Resources

Rajesh Kapoor, Ph.D...... 49 Vice President of Quality Assurance/
Quality Control

Thomas Shea.............. 63 Vice President of Corporate Marketing

Dennis Szymanski, Ph.D... 51 Vice President of Product Development

Sam Trippie.............. 61 Vice President of Manufacturing

The following is a brief description of the capacities in which each of the
above executive officers and key employees has served during the past five
years.

Patrick Soon-shiong, M.D. has served as President of the Company since July
2001 and Chief Executive Officer and Chairman of the Board of Directors of the
Company since its inception in March 1996. From the Company's inception to
August 1997, Dr. Soon-Shiong served as its Chief Financial Officer. Since June
1994, Dr. Soon-Shiong has also served as president, chief financial officer and
a director of ABI. From June 1994 to June 1998, he served as chief executive
officer and chairman of the Board of Directors of VivoRx, Inc., a biotechnology
company. Dr. Soon-Shiong is named as a co-inventor on over 30 issued U.S.
patents. Dr. Soon-Shiong is a fellow of the American College of Surgeons and
the Royal College of Physicians and Surgeons of Canada. Dr. Soon-Shiong holds a
degree in Medicine from the University of the Witwatersrand and a M.S. in
Science from the University of British Columbia.

Derek J. Brown has served as Co-Chief Operating Officer since June 2000 and
Chief Financial Officer, Secretary and a director of the Company since August
1997. From November 1995 to June 1998, he served as vice president of finance
and administration and as chief financial officer of VivoRx, Inc. Mr. Brown
serves as a director of ABI. Mr. Brown also has over eight years of public
accounting experience, having served as a manager at Price Waterhouse. Mr.
Brown is a Chartered Accountant and holds a Bachelor of Commerce in Economics
and an M.B.A. from the University of the Witwatersrand.

Jeffrey M. Yordon has served as Co-Chief Operating Officer since June 2000
and a director of the Company since August 1997. From August 1997 to July 2001,
Mr. Yordon served as President of the Company. From January 1994 to June 1996,
Mr. Yordon served as president of Faulding Pharmaceuticals, Inc. Mr. Yordon has
also held various senior management positions at several pharmaceutical
companies, including Gensia, Inc. and LyphoMed, Inc. Mr. Yordon holds a B.S. in
Political Science and Business from Northern Illinois University.

Jack C. Silhavy has served as Vice President and General Counsel of the
Company since September 1999. From October 1986 to August 1999, Mr. Silhavy
worked as an attorney for Monsanto Company, a diversified company with food
ingredient, pharmaceutical, agricultural and other businesses. He served as
assistant general counsel for Monsanto from May 1992 to August 1999. Mr.
Silhavy holds a B.A. in American Studies from the University of Notre Dame and
a J.D. from Loyola University of Chicago.

Mitchall Clark has served as the Company's Vice President of Regulatory
Affairs since September 1998. From May 1997 to September 1998, Mr. Clark served
as senior director of regulatory affairs at VivoRx, Inc. Prior to that, he
served as senior director of regulatory affairs from April 1996 to May 1997 at
Faulding, Inc. Mr. Clark holds a B.Pharm. from the University of Nottingham,
United Kingdom.

Mia Igyarto has served as the Company's Vice President of Human Resources
since July 2001. From March 1995 to July 2001, she served as vice president of
human resources for McWhorter Technologies, Inc., a specialty chemicals company
that was acquired by Eastman Chemical Company in July 2000. She holds a B.S. in
biology from Northern Illinois University and an M.B.A. from Northwestern
University, Kellogg School of Management.

Rajesh Kapoor, Ph.D. has served as the Company's Vice President of Quality
Assurance/Quality Control since February 2000. From March 1997 to February
2000, Dr. Kapoor was a director of quality assurance/quality control at
American Home Products Corporation, a pharmaceutical company. From November
1995 to March 1997, he served as director of quality assurance/quality control
at Regeneron Pharmaceuticals, Inc., a biotechnology company. From September
1993 to November 1995, Dr. Kapoor served as a manager of quality assurance
development at Bayer Corporation, a pharmaceutical company. Dr. Kapoor holds a
B.S. in Biochemistry from the University of Essex in England, an M.B.A. from
Suffolk University and a Ph.D. in Biochemistry from the University of
Lancaster, England.

Thomas Shea has served as the Company's Vice President of Corporate
Marketing since April 2000. From June 1998 to April 2000, he served as the
Company's Senior Director of Corporate Marketing. From October 1989 to June
1998, Mr. Shea served as senior director of corporate marketing at Fujisawa
Healthcare, Inc., a pharmaceutical company. Prior to that, he held various
positions at LyphoMed, Inc., a pharmaceutical company, including director of
national accounts and marketing and senior director of corporate marketing. Mr.
Shea holds an M.A. from Catholic University.

Dennis Szymanski, Ph.D. has served as the Company's Vice President of
Product Development since February 1999. From December 1997 to January 1999,
Dr. Szymanski served as vice president of U.S. research and development at
Pharmascience Laboratories Inc., a pharmaceutical company. From April 1988 to
December 1997, Dr. Szymanski served as vice president of research and
development at Lemmon Company, a pharmaceutical company that was acquired by
Teva Pharmaceuticals USA in 1990. Prior to that, Dr. Szymanski held various
positions at Baxter International, a pharmaceutical company, and G.D. Searle
Pharmaceuticals. Dr. Szymanski holds a B.S. in Pharmacy and a Ph.D. in
Pharmaceutics from Wayne State University.

Sam Trippie has served as the Company's Vice President of Manufacturing
since June 1998. From September 1992 to June 1998, Mr. Trippie served as vice
president of manufacturing at Fujisawa USA, Inc., a pharmaceutical company.
Prior to that, Mr. Trippie was vice president of manufacturing at Sanofi Animal
Health Ltd. and held various positions in quality assurance and manufacturing
at Baxter International. Mr. Trippie holds a B.S. in Microbiology from the
University of Southwest Louisiana.

Factors That May Affect Future Results Of Operations

Our markets are highly competitive and, if we are unable to compete
successfully, our revenue will decline and our business will be harmed.

The markets for injectable pharmaceutical products are highly competitive,
rapidly changing and undergoing consolidation. Most of our products are generic
injectable versions of brand name products that are still being marketed by
proprietary pharmaceutical companies. The first company to market a generic
product is often initially able to achieve high sales, profitability and market
share with respect to that product. Prices, revenue and market size for a
product typically decline, however, as additional generic manufacturers enter
the market.

We face competition from major, brand name pharmaceutical companies as well
as generic manufacturers such as Bedford Laboratories, Elkin-Sinn Laboratories,
Sicor Inc. and Teva Pharmaceutical Industries Ltd. Smaller companies may also
prove to be significant competitors, particularly through collaboration
arrangements with large and established companies. Many of these entities have
significantly greater research and development, financial, sales and marketing,
manufacturing, regulatory and other resources than us. As a result, they may be
able to devote greater resources to the development, manufacture, marketing or
sale of their products, receive greater resources and support for their
products, initiate or withstand substantial price competition, more readily
take advantage of acquisition or other opportunities, or otherwise more
successfully market their products.

Any reduction in demand for our products could lead to a decrease in prices,
fewer customer orders, reduced revenues, reduced margins, reduced levels of
profitability, or loss of market share. These competitive pressures could
adversely affect our business and operating results.

If we are unable to develop and commercialize new products, our financial
condition will deteriorate.

Revenue and profit margins for a pharmaceutical product generally decline as
new competitors enter the market. As a result, our future success will depend
on our ability to commercialize the product candidates we are

currently developing, as well as develop new products in a timely and
cost-effective manner. We have over 50 new product candidates under
development. Successful development and commercialization of our product
candidates will require significant investment in many areas, including
research and development and sales and marketing, and we may not realize a
return on those investments. In addition, development and commercialization of
new products are subject to inherent risks, including:

. failure to receive necessary regulatory approvals

. difficulty or impossibility of manufacture on a large scale

. prohibitive or uneconomical costs of marketing products

. failure to be developed or commercialized prior to the successful
marketing of similar or superior products by third parties

. acceptance by customers

. infringement on the proprietary rights of third parties

. new patents for existing products may be granted, which could prevent the
introduction of newly-developed products for additional periods of time

. the FDA may grant another manufacturer a 180-day period of marketing
exclusivity under the Drug Price Competition and Patent Term Restoration
Act of 1984, or the Hatch-Waxman Act, as patents or other exclusivity
periods for brand name products expire

The timely and continuous introduction of new products is critical to our
business. Our financial condition will deteriorate if we are unable to
successfully develop and commercialize new products.

If sales of our key products decline, our business may be adversely affected.

Our top product for 2001, heparin, accounted for approximately 13.6% of our
net sales. Our top ten products accounted for approximately 58% of our net
sales in 2001. Our key products could lose market share or revenue by numerous
factors, many of which are beyond our control, including:

. lower prices offered on similar products by other manufacturers

. substitute or alternative products or therapies

. development by others of new pharmaceutical products or treatments that
are more effective than our products

. entrance of new products to our markets

. interruptions in manufacturing or supply

. changes in the prescribing practices of physicians

. changes in third-party reimbursement practices

. migration of key customers to other manufacturers or sellers

Any factor adversely affecting the sale of our key products may cause our
revenues to decline.

If we or our suppliers are unable to comply with ongoing and changing
regulatory standards, sales of our products could be delayed or prevented.

Virtually all aspects of our business, including the development, testing,
manufacturing, processing, quality, safety, efficacy, packaging, labeling,
record-keeping, distribution, storage and advertising of our products and

disposal of waste products arising from these activities, are subject to
extensive regulation by federal, state and local governmental authorities in
the United States, including the U.S. Food and Drug Administration, or the FDA.
Our business is also subject to regulation in foreign countries. Compliance
with these regulations is costly and time-consuming.

Our manufacturing facilities and procedures and those of our suppliers are
subject to ongoing regulation, including periodic inspection by the FDA and
foreign regulatory agencies. For example, manufacturers of pharmaceutical
products must comply with detailed regulations governing current good
manufacturing practices, including requirements relating to quality control and
quality assurance. We must spend funds, time and effort in the areas of
production, safety, quality control and quality assurance to ensure compliance
with these regulations. In the recent past, we have received warning letters
from the FDA regarding our Melrose Park, Illinois manufacturing facility. We
cannot assure you that our manufacturing facilities or those of our suppliers
will not be subject to regulatory action in the future.

Our products generally must receive appropriate regulatory clearance before
they can be sold in a particular country, including the United States. We may
encounter delays in the introduction of a product as a result of, among other
things, insufficient or incomplete submissions to the FDA for approval of a
product, objections by another company with respect to our submissions for
approval, new patents by other companies, patent challenges by other companies,
and changes in regulatory policy during the period of product development or
during the regulatory approval process. The FDA has the authority to revoke
drug approvals previously granted and remove from the market previously
approved products for various reasons, including issues related to current good
manufacturing practices for that particular product or in general. We may be
subject from time to time to product recalls initiated by us or by the FDA and,
in the recent past, we have initiated several product recalls. Delays in
obtaining regulatory approvals, the revocation of a prior approval, or product
recalls could impose significant costs on us and adversely affect our ability
to generate revenue.

Our inability or the inability of our suppliers to comply with applicable
FDA and other regulatory requirements can result in, among other things,
warning letters, fines, consent decrees restricting or suspending our
manufacturing operations, delay of approvals for new products, injunctions,
civil penalties, recall or seizure of products, total or partial suspension of
sales and criminal prosecution. Any of these or other regulatory actions could
materially adversely affect our business and financial condition.

The manufacture of our products is highly exacting and complex, and if we or
our suppliers encounter production problems, our business may suffer.

All of the products we make are sterile, injectable drugs. We also purchase
such products from other companies. The manufacture of these products is highly
exacting and complex, due in part to strict regulatory requirements and
standards which govern both the manufacture of a particular product and the
manufacture of these types of products in general. Problems may arise during
their manufacture due to a variety of reasons including equipment malfunction,
failure to follow specific protocols and procedures, and environmental factors.
If problems arise during the production of a batch of product, that batch of
product may have to be discarded. This could, among other things, lead to loss
of the cost of raw materials and components used, lost revenue, time and
expense spent in investigating the cause, and, depending on the cause, similar
losses with respect to other batches or products. If such problems are not
discovered before the product is released to the market, recall costs may also
be incurred. To the extent we experience problems in the production of our
pharmaceutical products, this may be detrimental to our business, operating
results and reputation.

If we are unable to maintain our GPO or key customer arrangements, sales of our
products and revenue would decline.

Almost all injectable pharmaceutical products are sold to customers through
arrangements with group purchasing organizations, or GPOs, and distributors.
The majority of hospitals contract with the GPO of their

choice for their purchasing needs. We currently derive, and expect to continue
to derive, a large percentage of our revenue from customers that have
relationships with a small number of GPOs. Currently, less than ten GPOs
control a large majority of sales to hospital customers. We have purchasing
arrangements with the major GPOs in the United States, including AmeriNet,
Inc., Broadlane Healthcare Corporation, Consorta, Inc., MedAssets Inc.,
Novation, LLC, Owen Healthcare, Inc., PACT, LLC and Premier Purchasing
Partners, LP. In order to maintain these relationships, we believe we need to
be reliable in terms of supply, offer a broad product line, remain price
competitive, comply with FDA regulations and provide high-quality products. The
GPOs with whom we have relationships also have relationships with other
manufacturers that sell competing products and may decide to contract for or
otherwise prefer products other than ours for one or more of these or other
reasons. Most of our GPO agreements may be terminated on 60 or 90 days notice.
If we are unable to maintain our arrangements with GPOs and key customers,
sales of our products and revenue would decline.

If ABI-007 is not developed into a successful commercial product, our future
profitability could be affected and we would be unable to recoup the
investments made to license this product candidate.

In connection with our agreement to license ABI-007 from ABI, we have paid a
substantial upfront licensing fee, and committed to make milestone and royalty
payments. The inability to successfully develop and commercialize ABI-007 could
cause us to lose some or all of the investment we made to license this product
candidate.

A multi-center Phase III clinical trial has commenced for ABI-007 for the
treatment of metastatic breast cancer, or breast cancer that has spread to
other parts of the body. American BioScience is responsible for conducting
clinical trials and obtaining necessary regulatory approvals prior to
commercialization of ABI-007. The amount and timing of resources American
BioScience devotes to develop ABI-007 is not within our control. Additionally,
any breach or termination of the ABI-007 license agreement could delay or stop
the commercialization of ABI-007.

The results from pre-clinical studies and early clinical trials conducted to
date may not be predictive of results to be obtained in later clinical trials.
Clinical trials conducted for ABI-007 may not demonstrate sufficient safety and
efficacy to obtain the necessary regulatory approvals or a commercially viable
product may not result. If the results of Phase III clinical trials are not
satisfactory, American BioScience will need to conduct additional clinical
trials or cease developing ABI-007. The commencement and completion of clinical
trials may be delayed by many factors that are beyond our control, including:

. scheduling or other conflicts with participating clinicians and clinical
institutions

. slower than anticipated patient enrollment

. difficulty in finding and retaining patients fitting the trial profile

. adverse events occurring during the clinical trials

Even if regulatory approvals are obtained for, and we commercialize,
ABI-007, we may not generate sales sufficient to recoup the investments made to
license ABI-007. In addition, we would need to significantly expand our sales
force to market ABI-007 to oncologists. Further, a number of pharmaceutical
companies are working to develop alternative formulations of paclitaxel,
generic versions of Taxol and other cancer drugs and therapies, any of which
may compete directly or indirectly with ABI-007 and which might adversely
affect the commercial success of ABI-007.

Our strategy to license rights to or acquire and commercialize proprietary
products may not be successful, and we may never receive any return on our
investment in these product candidates.

Because our research and development activities are not focused on the
development of proprietary products, we intend to license rights to or acquire
proprietary products from third parties. Other companies, including those with
substantially greater financial and sales and marketing resources, will compete
with us to license rights to or acquire these products. We may not be able to
license rights to or acquire these proprietary products on acceptable terms, if
at all. Even if we obtain rights to a pharmaceutical product and commit to
payment terms, including, in some cases, significant up-front license payments,
we may not be able to generate product sales sufficient to create a profit or
otherwise avoid a loss. ABI-007 is the only proprietary product that we have
licensed to date.

A product candidate may fail to result in a commercially successful drug for
other reasons, including the possibility that the product candidate may:

. fail to receive necessary regulatory approvals

. be difficult or uneconomical to produce in commercial quantities

. be precluded from commercialization by proprietary rights of third parties

. fail to achieve market acceptance

Our marketing strategy, distribution channels and levels of competition with
respect to any licensed or acquired proprietary product may be different than
those of our current products, and we may not be able to compete favorably in
any new proprietary product category.

We may not be able to successfully manage our growth, which could harm our
financial condition.

Our financial success is dependent in part on our ability to successfully
manage our growth. We have had a history of rapid growth, and our operating
results will depend on our ability to accurately forecast revenues and control
expenses, as well as on a number of external factors. A decline in the growth
rate of our revenues without a corresponding and timely slowdown in expense
growth could have an adverse impact on our business, results of operations,
financial condition or cash flows.

We and some of our officers and directors, including our president and CEO,
have potential conflicts of interest with respect to our past and ongoing
relationships with american bioscience that we may not be able to resolve on
terms favorable to us.

Conflicts of interest may arise between American BioScience and us in a
number of areas relating to our past and ongoing relationships, including:

. intellectual property matters, as well as licensing arrangements we have
entered, or may enter, into with American BioScience

. employee retention and recruiting

. loans

. payment of dividends

. issuances of capital stock

. election of directors

. business opportunities that may be attractive to both American BioScience
and us

Some of our officers and directors may experience conflicts of interest with
respect to decisions involving business opportunities and similar matters that
may arise in the ordinary course of our business or the business of American
BioScience. Our President, Chief Executive Officer and Chairman of our Board of
Directors, Patrick Soon-Shiong, M.D., is also the president, chief financial
officer and a director of American BioScience. Dr. Soon-Shiong also
beneficially owns over 80% of the outstanding capital stock of American
BioScience. Derek J. Brown, our Co-Chief Operating Officer, Chief Financial
Officer and a member of our Board of Directors, is also a director of American
BioScience.

We expect to resolve potential conflicts of interest on a case-by-case
basis, in the manner required by applicable law and customary business
practices. We entered into an agreement with American BioScience in July 2001
under which we acknowledged and agreed that Dr. Soon-Shiong and Mr. Brown may
devote time to the business of, receive remuneration from and present business
opportunities to American BioScience and that American BioScience's business
and operations may compete with us. This agreement does not ensure the
continued services of either Dr. Soon-Shiong or Mr. Brown. Resolutions of some
potential conflicts of interest are subject to review and approval by our Board
of Directors, including, in some instances, the independent and disinterested
non-executive directors and by our governance committee. We still may be
unable, however, to resolve some potential conflicts of interest with American
BioScience and Dr. Soon-Shiong and, even if we do, the resolution may be less
favorable than if we were dealing with an unaffiliated party because of their
controlling interest in our company. Nothing restricts American BioScience from
competing with us, and American BioScience is not obligated to engage in any
future business transactions with us or license any products it may develop in
the future to us.

We depend heavily on the principal members of our management and research and
development teams, the loss of whom could harm our business.

We depend heavily on the principal members of our management and research
and development teams, including Dr. Patrick Soon-Shiong, our President and
Chief Executive Officer, Derek Brown, our Co-Chief Operating Officer and Chief
Financial Officer, and Jeffrey Yordon, our Co-Chief Operating Officer. We do
not have employment agreements with any of these individuals, and the loss of
the services of any one of them may significantly delay or prevent the
achievement of our product development or business objectives. Competition
among pharmaceutical and biotechnology companies for qualified employees is
intense, and the ability to attract and retain qualified individuals is
critical to our success. We may not be able to attract and retain these
individuals on acceptable terms or at all, and our inability to do so would
significantly harm our business and reputation.

We depend on third parties to supply raw materials and other components and may
not be able to obtain sufficient quantities of these materials, which will
limit our ability to manufacture our products on a timely basis and harm our
operating results.

The manufacture of our products requires raw materials and other components
that must meet stringent FDA requirements. Some of these raw materials and
other components are currently available only from a limited number of sources.
Additionally, our regulatory approvals for each particular product denote the
raw materials and components, and the suppliers for such materials, we may use
for that product. Obtaining approval to change, substitute or add a raw
material or component, or the supplier of a raw material or component, can be
time consuming and expensive, as testing and regulatory approval is necessary.
In the past, we have experienced shortages in some of the raw materials and
components we purchase. If our suppliers are unable to deliver sufficient
quantities of these materials on a timely basis or we encounter difficulties in
our relationships with these suppliers, the manufacture and sale of our
products may be disrupted, and our business, operating results and reputation
could be adversely affected.

Other companies may claim that we infringe their intellectual property or
proprietary rights, which could cause us to incur significant expenses or
prevent us from selling our products.

Our success depends in part on our ability to operate without infringing the
patents and proprietary rights of third parties. The manufacture, use and sale
of new products with conflicting patent rights have been subject to substantial
litigation in the pharmaceutical industry. These lawsuits relate to the
validity and infringement of patents or proprietary rights of third parties.
This is especially true for the sale of generic versions of products for which
the patent covering the brand name product is expiring, an area where
infringement litigation is prevalent. A number of pharmaceutical companies,
biotechnology companies, universities and research institutions may have filed
patent applications or may have been granted patents that cover aspects of our
products or our licensor's products, product candidates or other technologies.

Future patents issued to third parties may contain claims that conflict with
our products. We are subject to infringement claims from time to time in the
ordinary course of our business, and third parties could assert infringement
claims against us in the future with respect to our current products, products
we may develop or products we may license. Litigation or interference
proceedings could force us to:

. stop or delay selling, manufacturing or using products that incorporate
or are made using the challenged intellectual property

. pay damages

. enter into licensing or royalty agreements that may not be available on
acceptable terms, if at all

Any litigation or interference proceedings, regardless of their outcome,
would likely delay the regulatory approval process, be costly and require
significant time and attention of our key management and technical personnel.

Our inability to protect our intellectual property rights in the United States
and foreign countries could limit our ability to manufacture or sell our
products.

We rely on trade secrets, unpatented proprietary know-how, continuing
technological innovation and, in some cases, patent protection to preserve our
competitive position. Our patents and those for which we have or will license
rights, including for ABI-007, may be challenged, invalidated, infringed or
circumvented, and the rights granted in those patents may not provide
proprietary protection or competitive advantages to us. We and our licensors
may not be able to develop patentable products. Even if patent claims are
allowed, the claims may not issue, or in the event of issuance, may not be
sufficient to protect the technology owned by or licensed to us. Third party
patents could reduce the coverage of the patents license, or that may be
license to or owned by us. If patents containing competitive or conflicting
claims are issued to third parties, we may be prevented from commercializing
the products covered by such patents, or may be required to obtain or develop
alternate technology. In addition, other parties may duplicate, design around
or independently develop similar or alternative technologies.

We may not be able to prevent third parties from using our intellectual
property. We generally control and limit access to, and the distribution of,
our product documentation and other proprietary information. Despite our
efforts to protect this proprietary information, however, unauthorized parties
may obtain and use information that we regard as proprietary. Other parties may
independently develop know-how or obtain access to our technologies.

The laws of some foreign countries do not protect proprietary information to
the same extent as the laws of the United States, and many companies have
encountered significant problems and costs in protecting their proprietary
information in these foreign countries.

The U.S. Patent and Trademark Office and the courts have not established a
consistent policy regarding the breadth of claims allowed in pharmaceutical
patents. The allowance of broader claims may increase the incidence and cost of
patent interference proceedings and the risk of infringement litigation. On the
other hand, the allowance of narrower claims may limit the value of our
proprietary rights.

If we are unable to integrate potential future acquisitions successfully, our
business may be harmed.

As part of our business strategy and growth plan, we plan to acquire
businesses, technologies or products that we believe complement our business.
The process of integrating an acquired business, technology or product may
result in unforeseen operating difficulties and expenditures and may require
significant management attention that would otherwise be available for ongoing
development of our existing business. In addition, we may not be able to
maintain the levels of operating efficiency that any acquired company achieved
or might have achieved separately. Successful integration of the companies we
acquire will depend upon our ability to, among other things, eliminate
redundancies and excess costs. As a result of difficulties associated with
combining operations, we may not be able to achieve cost savings and other
benefits that we might hope to achieve with acquisitions. Future acquisitions
could result in potentially dilutive issuances of our equity securities, the
incurrence of debt and contingent liabilities or have an undesirable impact on
our consolidated financial statements.

We are subject to risks associated with international sales and purchases,
which could harm both our domestic and international operations.

As part of our business strategy and growth plan, we plan to expand our
international sales as we obtain regulatory approvals to market our products in
foreign countries, including countries in the European Union and South America,
as well as expand our purchases of raw materials and finished products
overseas. Expansion of our international operations could impose substantial
burdens on our resources, divert management's attention from domestic
operations and otherwise harm our business. In addition, international
operations are subject to risks, including:

. regulatory requirements of differing nations

. inadequate protection of intellectual property

. difficulties and costs associated with complying with a wide variety of
complex domestic and foreign laws and treaties

. legal uncertainties regarding, and timing delays associated with,
tariffs, export licenses and other trade barriers

. increased difficulty in collecting delinquent or unpaid accounts

. adverse tax consequences

. currency fluctuations

Any of these or other factors could adversely affect our ability to compete
in international markets and our operating results.

We may be exposed to product liability claims that could cause us to incur
significant costs or cease selling some of our products.

We may be held liable for, or incur costs related to, liability claims if
any of our products, or any products that use or incorporate any of our
technologies, cause injury or are found unsuitable during development,
manufacture, sale or use. These risks exist even with respect to products that
have received, or may in the future receive, regulatory approval for commercial
use.

We currently maintain insurance coverage for product liability claims in the
aggregate amount of $100 million, including primary and excess coverages. Our
product liability insurance may not be adequate and, at any time, insurance
coverage may not be available on commercially reasonable terms or at all. A
product liability claim could result in liability to us greater than our
insurance coverage or assets. Even if we have adequate insurance coverage,
product liability claims or recalls could result in negative publicity or force
us to devote significant time and attention to those matters.

Any claims relating to improper handling, storage or disposal of, or
contamination from, hazardous materials could be costly to resolve.

Our research and development and manufacturing activities involve the
controlled use of hazardous materials and disposal of chemical, biological and
other hazardous waste. We are subject to federal, state and local laws and
regulations governing the use, manufacture, storage, handling and disposal of
these materials. Some of our facilities are located in industrial areas and may
experience environmental contamination due to the activities of third parties.
We cannot eliminate the risk of accidental contamination or discharge and any
resulting injury from these materials or areas. In the event of an accident or
contamination, we could be liable for costs and damages or be penalized with
fines, and this liability could exceed our resources. We may have to incur
significant costs to comply with future environmental laws and regulations. New
governmental regulations may have an adverse effect on the research,
development, manufacture and marketing of our products.

The FTC is studying relationships between brand name and generic pharmaceutical
companies and investigating the market for Paclitaxel.

The U.S. Federal Trade Commission, or the FTC, has instituted an
industry-wide study into whether brand name and generic pharmaceutical
companies have entered into agreements or have used other strategies to delay
introduction of generic versions of proprietary drugs. In early 2001, we were
required to produce documents and other information in connection with the
FTC's study. The FTC has stated that it plans to produce a factual description
of how the 180-day marketing exclusivity and 30-month stay provisions of the
Hatch-Waxman Act have influenced the development of generic drug competition.
The FTC study could affect the manner in which generic drug manufacturers
resolve intellectual property litigation with proprietary pharmaceutical
companies and could increase litigation against pharmaceutical companies.

In September 2000, American BioScience received a subpoena from the FTC in
connection with its investigation into whether Bristol-Myers Squibb Company and
American BioScience engaged in anti-competitive practices with respect to the
market for paclitaxel. We, as one of ABI's affiliates, were required to respond
to the subpoena. The FTC may bring enforcement actions as to specific
agreements it concludes are anti-competitive.

We face uncertainty related to pricing and reimbursement and health care reform.

In both domestic and foreign markets, sales of our products will depend in
part on the availability of reimbursement from third-party payers such as
government health administration authorities, private health insurers, health
maintenance organizations and other health care-related organizations.

Medicare, Medicaid and other reimbursement legislation or programs govern
drug coverage and reimbursement levels in the United States. Federal law
requires all pharmaceutical manufacturers to rebate a percentage of their
revenue arising from Medicaid-reimbursed drug sales to individual states.
Generic drug manufacturers' agreements with federal and state governments
provide that the manufacturer will remit to each state Medicaid agency, on a
quarterly basis, 11% of the average manufacturer price for generic products
marketed under abbreviated new drug applications covered by the state's
Medicaid program. For proprietary

products, which are marketed under new drug applications, manufacturers are
required to rebate the greater of (a) 15.1% of the average manufacturer price
or (b) the difference between the average manufacturer price and the lowest
manufacturer price during a specified period.

Both the federal and state governments in the United States and foreign
governments continue to propose and pass new legislation, rules and regulations
designed to contain or reduce the cost of health care. Existing regulations
that affect the price of pharmaceutical and other medical products may also
change before any of our products are approved for marketing. Cost control
initiatives could decrease the price that we receive for any product we develop
in the future. In addition, third-party payers are increasingly challenging the
price and cost-effectiveness of medical products and services. Significant
uncertainty exists as to the reimbursement status of newly approved
pharmaceutical products, including injectable products. Our products may not be
considered cost effective or adequate third-party reimbursement may not be
available to enable us to maintain price levels sufficient to realize an
adequate return on our investments.

We may need to change our business practices to comply with changes to, or may
be subject to charges under, the fraud and abuse laws.

We are subject to various federal and state laws pertaining to health care
fraud and abuse, including anti-kickback, marketing and pricing laws.
Violations of these laws are punishable by criminal and/or civil sanctions,
including, in some instances, imprisonment and exclusion from participation in
federal and state health care programs such as Medicare and Medicaid. If there
is a change in laws, regulations or administrative or judicial interpretations,
we may have to change our business practices, or our existing business
practices could be challenged as unlawful, which could materially adversely
affect our business.

We may become subject to Federal false claims or other similar litigation
brought by private individuals and the government.

The Federal False Claims Act allows persons meeting specified requirements
to bring suit alleging false or fraudulent Medicare or Medicaid claims and to
share in any amounts paid to the government in fines or settlement. These
suits, known as qui tam actions, have increased significantly in recent years
and have increased the risk that a health care company will have to defend a
false claim action, pay fines and/or be excluded from Medicare and Medicaid
programs. Federal false claims litigation can lead to civil monetary penalties,
criminal fines and imprisonment and/or exclusion from participation in
Medicare, Medicaid and other federally funded health programs. Other alternate
theories of liability may also be available to private parties seeking redress
for such claims. A number of parties have brought claims against numerous
pharmaceutical manufacturers, and we cannot be certain that such claims will
not be brought against us, or if they are brought, that such claims might not
be successful.

Item 2. Properties

We operate various facilities in the United States, which have an aggregate
size of approximately 551,000 square feet.

Our principal executive offices are located in Los Angeles, California. The
facility occupies 5,300 square feet under a lease that expires in December
2006. Our business office is located in Schaumburg, Illinois, and encompasses a
total of 20,700 square feet of space under a lease that expires in June 2005.
Our Raleigh, North Carolina, facility has 1,800 square feet of office space
under a lease that expires in October 2006. Our business office in Ontario,
Canada consists of 6,500 square feet of office space under a lease that expires
in June 2004 and a sublease that expires in May 2004. In Bensenville, Illinois,
we operate a distribution facility of approximately 100,000 square feet under a
lease that expires in September 2004.

We own two manufacturing facilities, which are located in Melrose Park,
Illinois and Grand Island, New York. We occupy approximately 122,000 square
feet and 155,000 feet of manufacturing, packaging, laboratory,

office and warehouse space at our Illinois and New York facilities
respectively. We operate a research and development facility in a building of
approximately 140,000 square feet that we own in Melrose Park, Illinois.

Item 3. Legal Proceedings

From time to time, we may be involved in claims and legal proceedings that
arise in the ordinary course of our business. We are currently party to several
such claims and legal proceedings. We do not believe that the resolution of
these legal proceedings will have a material adverse effect on our business,
our consolidated financial position or results of operations.

Item 4. Submission of Matters to a Vote of Security Holders

On December 10, 2001, the majority of our stockholders representing
31,989,440 shares of our capital stock approved by written consent the adoption
of our 2001 Stock Incentive Plan, our 2001 Employee Stock Purchase Plan, and
our current Amended and Restated Certificate of Incorporation.

PART II

Item 5. Market For Registrant's Common Equity and Related Stockholder Matters

Market for Common Stock

Our common stock is listed and traded on the NASDAQ National Market under
the symbol "APPX". The following table sets forth the high and low prices for
our common stock as reported by NASDAQ for fiscal year 2001 commencing with our
initial trading date on December 14, 2001:

Price Per Share
---------------
High Low
------ ------

Period from December 14, 2001 through December 31, 2001 $22.00 $17.69

On March 25, 2002, the closing price for our common stock, as reported on
NASDAQ, was $17.39 per share. At such date, we had approximately 750 holders of
record of our common stock.

Dividend Policy

No cash dividends were declared or paid in fiscal 2001 or fiscal 2000. Our
credit facility currently restricts us from paying dividends.

Use of Initial Public Offering Proceeds

On December 14, 2001, we completed our initial public offering of 9,000,000
shares of common stock at a public offering price of $16.00 per share and
realized an aggregate offering price of $144.0 million. We received net
proceeds of $133.9 million. These proceeds are net of $10.1 million in
underwriting discounts and commissions. Of the net proceeds, we used $37.7
million of the net proceeds to repay in full and terminate our term loan and to
repay amounts outstanding under the revolving credit facility with CIBC. In
addition, expenses of $2.9 million relating to the issuance and distribution of
the securities sold were incurred.

On January 10, 2002, the underwriters for our initial public offering
exercised in full their option to purchase an additional 1,350,000 shares of
our common stock at the initial public offering price of $16.00 per share in
order to cover over-allotments. As a result of this exercise, we received
proceeds of $20,088,000. This is net of underwriting discounts and commissions
of $1,512,000.

Also in January 2002, we made an initial license payment of $60,000,000 to
American BioScience. Under this agreement, we acquired the exclusive rights to
market and sell ABI-007 in North America.

We intend to use the remaining net proceeds for general corporate purposes,
including working capital, capital expenditures, and potential acquisitions and
licensing opportunities. At this time, we do not have any commitments or
agreements with respect to any material acquisition.

Item 6. Selected Financial Data

Year Ended December 31,
-----------------------------------------------
2001 2000 1999 1998(1) 1997
-------- -------- -------- -------- -------
(in thousands, except per share data)
-----------------------------------------------

CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Net sales........................................... $192,029 $165,495 $136,523 $ 65,915 $ 7,574
Cost of sales....................................... 121,619 105,587 91,062 48,764 5,245
Gross margin........................................ 70,410 59,908 45,461 17,151 2,329
Operating expenses:
Research and development costs (exclusive of
stock-based compensation)...................... 13,790 13,016 9,865 3,646 217
Selling, general and administrative expenses
(exclusive of stock-based compensation)........ 30,911 30,048 23,450 13,267 1,373
Stock-based compensation (2)..................... 2,491 615 88 127 --
(Gain) loss on litigation settlements, net....... (750) 28,353 -- -- --
Equity in net (income) loss of Drug Source Co.,
LLC............................................ (1,414) 122 -- -- --
Total operating expenses..................... 45,028 72,154 33,403 17,040 1,590
Operating income (loss)............................. 25,382 (12,246) 12,058 111 739
Interest income..................................... 1,204 200 275 344 13
Interest expense.................................... (4,419) (1,751) (2,104) (1,256) --
Income (loss) before income taxes................... 22,167 (13,797) 10,229 (801) 752
Provision (benefit) for income taxes................ 9,539 (5,038) 4,147 (289) 293
Net income (loss)................................... 12,628 (8,759) 6,082 (512) 459
Less imputed preferred stock dividends.............. (951) (1,000) (1,000) (583) --
Income (loss) applicable to common stock............ $ 11,677 $ (9,759) $ 5,082 $ (1,095) $ 459
Income (loss) per common share (3):
Basic............................................ $ 0.47 $ (0.43) $ 0.23 $ (0.05) $ 0.02
Diluted.......................................... $ 0.30 $ (0.43) $ 0.14 $ (0.05) $ 0.02
Weighted-average common shares outstanding:.........
Basic............................................ 24,718 22,528 21,977 21,542 21,236
Diluted.......................................... 38,948 22,528 35,057 21,542 21,236
OTHER DATA:
EBITDA (4).......................................... $ 34,734 $ (4,485) $ 18,962 $ 4,494 $ 739
Adjusted EBITDA (4)................................. 38,229 29,265 21,132 5,207 739
Cash flow provided by operating activities.......... 11,605 18,580 8,186 6,602 683
Cash flow used in investing activities.............. (9,146) (11,851) (6,762) (56,503) --
Cash flow provided by (used in) financing activities 93,722 (11,661) (2,489) 55,621 27
CONSOLIDATED BALANCE SHEET DATA:
Working capital..................................... $ 76,421 $ 25,249 $ 31,130 $ 26,844 $ 377
Total assets........................................ 239,787 122,823 103,015 92,629 2,362
Long-term debt, including current portion........... -- 18,939 23,501 25,000 --
Series A redeemable convertible preferred stock..... -- 12,583 11,583 10,583 --
Total stockholders' equity.......................... 130,070 38,699 50,175 42,272 754

- --------
(1) We acquired the Fujisawa generic business on June 1, 1998. This business is
included in our operations since that date.

(2) We recorded stock-based compensation related to certain stock option
grants. Stock-based compensation relates to the following (in thousands):

Year Ended December 31,
--------------------------
2001 2000 1999 1998 1997
------ ---- ---- ---- ----

Research and development costs.............. $ 182 $ 73 $-- $ -- $--
Selling, general and administrative expenses 2,309 542 88 127 --
------ ---- --- ---- ---
$2,491 $615 $88 $127 $--
====== ==== === ==== ===

(3) See Note 2 to our consolidated financial statements for an explanation of
the number of shares used to compute basic and diluted net income (loss)
per common share.
(4) EBITDA consists of net income (loss) before interest, income taxes,
depreciation and amortization. Adjusted EBITDA is defined as EBITDA
adjusted to exclude shares issued to Premier Purchasing Partners, L.P.,
stock-based compensation and litigation settlements, net. Items excluded
from EBITDA and adjusted EBITDA are significant components in understanding
and assessing our financial performance, and EBITDA and adjusted EBITDA
should not be considered as measures of financial performance under
generally accepted accounting principles, or GAAP. We present adjusted
EBITDA to enhance the understanding of our operating results. EBITDA and
adjusted EBITDA should not be considered in isolation or as alternatives to
net income, cash flows generated by (used in) our operations, investing or
financing activities or other financial information presented in the
consolidated financial statements as indicators of our financial
performance or liquidity. Because EBITDA and adjusted EBITDA are not
measurements determined in accordance with GAAP and are therefore
susceptible to varying calculations, EBITDA and adjusted EBITDA as
presented may not be comparable to other similarly tested measures of other
companies.

The following table reconciles net income (loss) to EBITDA and EBITDA to
adjusted EBITDA:

Years Ended December 31,
--------------------------------
2001 2000 1999 1998
------- ------- ------- ------
(in thousands)

Net income (loss)....................... $12,628 $(8,759) $ 6,082 $ (512)
Depreciation and amortization........ 9,352 7,761 6,904 4,383
Provision (benefit) for income taxes. 9,539 (5,038) 4,147 (289)
Interest expense, net................ 3,215 1,551 1,829 912
------- ------- ------- ------
EBITDA.................................. 34,734 (4,485) 18,962 4,494
Common shares issued to Premier...... 1,754 4,782 2,082 586
Stock-based compensation............. 2,491 615 88 127
Litigation settlements, net.......... (750) 28,353 -- --
------- ------- ------- ------
Adjusted EBITDA......................... $38,229 $29,265 $21,132 $5,207
======= ======= ======= ======

Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations

You should read this discussion together with our consolidated financial
statements and accompanying notes included in this Annual Report on Form 10-K.