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

                                   FORM 10-Q

[X]  Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
     Act of 1934

               For the quarterly period ended September 30, 2000

[_]  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   0-23272
                                             -----------

                           NPS PHARMACEUTICALS, INC.
            (Exact name of Registrant as specified in its charter)

                 Delaware                               87-0439579
       (State or other jurisdiction        (I.R.S. Employer Identification No.)
    of incorporation or organization)

  420 Chipeta Way, Salt Lake City, Utah                 84108-1256
 (Address of principal executive offices)               (Zip Code)

                                (801) 583-4939
             (Registrant's telephone number, including area code)

                                      N/A
  (Former name, former address and former fiscal year, if changed since last
                                    report)

                             ____________________

     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 at least the past 90 days. YES  [X] NO [_]

     Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.

                    Class                     Outstanding at November 8, 2000
          ------------------                  -------------------------------
          Common Stock $.001 par value                   25,039,830*

     *Includes 1,014,833 shares of exchangeable stock which are exchangeable at
any time into common stock on a one-for-one basis. Holders of shares of
exchangeable stock are entitled to dividends and other rights economically
equivalent to those of the common stock, and, through a voting trust, holders
are entitled to vote at all meetings of stockholders of the Registrant, also on
a one-for-one basis.


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                               TABLE OF CONTENTS



PART I    FINANCIAL INFORMATION                                       Page No.
                                                                      --------
                                                                   
Item 1. Consolidated Financial Statements.

          Consolidated Balance Sheets...............................     3

          Consolidated Statements of Operations.....................     4

          Consolidated Statements of Cash Flows.....................     5

          Notes to Consolidated Financial Statements................     7


Item 2. Management's Discussion and Analysis of Financial Condition
        and Results of Operations...................................    12

Item 3. Quantitative and Qualitative Disclosures About Market Risk..    16


PART II   OTHER INFORMATION

Item 2. Changes in Securities and Use of Proceeds...................    17

Item 5. Other Information...........................................    17

Item 6. Exhibits and Reports on Form 8-K............................    24

               (a)  Exhibits

               27.1   Financial Data Schedule for the three months
                      ended September 30, 2000


SIGNATURES..........................................................    24


                                       2


Item 1. Consolidated Financial Statements.

                  NPS PHARMACEUTICALS, INC. AND SUBSIDIARIES
                       (A Development Stage Enterprise)
                          Consolidated Balance Sheets
                                (In thousands)



                                                                   September 30, 2000   December 31, 1999
                                                                   ------------------   -----------------
                                                                       (Unaudited)
                                                                                  
Assets
Current assets:
     Cash and cash equivalents                                      $         23,312     $        13,116
     Marketable investment securities                                         49,462              22,563
     Due from related parties                                                     --                  68
     Accounts receivable                                                         645                 815
     Other current assets                                                      1,101                 417
                                                                   ------------------   -----------------
          Total current assets                                                74,520              36,979
Restricted marketable investment securities                                      753                 778
Plant and equipment:
     Land                                                                        433                 447
     Building                                                                  1,163               1,201
     Equipment                                                                 7,815               8,238
     Leasehold improvements                                                    2,878               3,732
                                                                   ------------------   -----------------
                                                                              12,289              13,618
     Less accumulated depreciation and amortization                            6,817               5,541
                                                                   ------------------   -----------------
          Net plant and equipment                                              5,472               8,077
Goodwill, net of accumulated amortization                                      9,512              11,230
Purchased intangible assets, net of accumulated amortization                   6,286               7,820
Other assets                                                                       2                  82
                                                                   ------------------   -----------------
                                                                    $         96,545     $        64,966
                                                                   ==================   =================
Liabilities and Stockholders' Equity
Current liabilities:
     Current installments of obligations under capital leases       $            325     $           371
     Due to related parties                                                       59                  --
     Accounts payable                                                          1,351                 669
     Accrued expenses                                                          2,266                 687
     Accrued severance                                                           294               1,455
     Deferred income                                                             539               1,265
                                                                   ------------------   -----------------
          Total current liabilities                                            4,834               4,447

Obligations under capital leases, excluding current installments                 109                 373
Long-term debt                                                                 1,514               1,567
                                                                   ------------------   -----------------
          Total liabilities                                                    6,457               6,387

Minority interest                                                                 --               2,500
Stockholders' equity:
     Common stock                                                                 25                  20
     Additional paid-in capital                                              196,883             135,036
     Deferred compensation                                                    (1,295)                 --
     Accumulated other comprehensive loss                                       (700)                (54)
     Deficit accumulated during development stage                           (104,825)            (78,923)
                                                                   ------------------   -----------------
          Net stockholders' equity                                            90,088              56,079
                                                                   ------------------   -----------------
                                                                    $         96,545     $        64,966
                                                                   ==================   =================


         See accompanying notes to consolidated financial statements.

                                       3


                  NPS PHARMACEUTICALS, INC. AND SUBSIDIARIES
                       (A Development Stage Enterprise)

                     Consolidated Statements of Operations
                     (In thousands, except per share data)
                                  (Unaudited)



                                                    Three Months Ended        Nine Months Ended       October 22, 1986,
                                                      September 30,             September 30,        (inception) through
                                                    2000          1999        2000         1999       September 30, 2000
                                                  ---------    ---------    ---------    ---------    ------------------
                                                                                      
Revenues from research
  and license agreements                          $   1,654    $     915    $   5,308    $   2,745        $    60,822

Operating expenses:
  Research and development                            6,442        4,598       20,403       15,002            111,971
  General and administrative                          2,954        1,341        9,746        4,440             44,762
  Amortization of goodwill and
     acquired intangibles                               874           --        2,694           --              2,694
  In-process research and
      development acquired                               --           --           --           --             17,760
                                                  ---------    ---------    ---------    ---------    ------------------
          Total operating expenses                   10,270        5,939       32,843       19,442            177,187

                                                  ---------    ---------    ---------    ---------    ------------------
                 Operating loss                      (8,616)      (5,024)     (27,535)     (16,697)          (116,365)

Other income (expense):
  Interest income                                     1,214          353        2,587        1,266             14,292
  Interest expense                                      (27)          --          (77)          (4)              (783)
  Gain (loss) on sale of marketable
      investment securities                              (9)          --           79           --                 96
  Gain (loss) on disposition of
      equipment, leasehold
      improvements and leases                            26           --       (1,098)          --             (1,199)
  Foreign currency transaction gain                      15           --           99           --                 99
  Other                                                  14           --           43           --                 53
                                                  ---------    ---------    ---------    ---------    ------------------
          Total other income                          1,233          353        1,633        1,262             12,558

                                                  ---------    ---------    ---------    ---------    ------------------
                 Loss before tax expense             (7,383)      (4,671)     (25,902)     (15,435)          (103,807)
                                                  =========    =========    =========    =========    ==================

Income tax expense                                       --           --           --           --              1,018

                                                  ---------    ---------    ---------    ---------    ------------------
                 Net loss                         $  (7,383)   $  (4,671)   $ (25,902)   $ (15,435)       $  (104,825)
                                                  =========    =========    =========    =========    ==================

Net loss per common and
  common-equivalent share
   - basic and diluted                            $   (0.30)   $   (0.37)   $   (1.14)   $   (1.22)
                                                  =========    =========    =========    =========

Weighted average common
  and common-equivalent
  shares outstanding
  - basic and diluted                                24,903       12,696       22,791       12,665
                                                  =========    =========    =========    =========


         See accompanying notes to consolidated financial statements.

                                       4


                  NPS PHARMACEUTICALS, INC. AND SUBSIDIARIES
                       (A Development Stage Enterprise)

                     Consolidated Statements of Cash Flows
                                (In thousands)
                                  (Unaudited)



                                                                                                         October 22, 1986
                                                                     Nine Months Ended September 30,    (inception) through
                                                                     -------------------------------
                                                                            2000         1999           September 30, 2000
                                                                     --------------- ---------------   ---------------------
                                                                                              
Cash flows from operating activities:
  Net loss                                                             $    (25,902)  $   (15,435)        $      (104,825)
  Adjustments to reconcile net loss to net
    cash used in operating activities:
    Depreciation and amortization                                             4,172           880                  10,882
    Loss (gain) on disposition of equipment,
      leasehold improvements and leases                                       1,098            (4)                  1,199
    Realized gain on sale of marketable
      investment securities                                                     (79)           --                     (96)
    Issuance of stock in lieu of cash for services                              241           105                   1,275
    Compensation expense on stock options                                     1,406            51                   2,269
    Write off of in-process research and development                             --            --                  17,760
    Decrease (increase) in receivables                                          144            (3)                   (282)
    Decrease (increase) in other current assets, restricted marketable
      securities, due from related parties and other assets                    (163)           43                    (201)
    Increase in accounts payable, accrued expenses
      and accrued severance                                                   1,188           101                   1,708
    Increase (decrease) in deferred income                                     (711)         (383)                     58
    Increase in due to related parties                                           59            --                      59
                                                                     --------------- ---------------   ---------------------
      Net cash used in operating activities                                 (18,547)      (14,645)                (70,194)

Cash flows from investing activities:
  Net sale (purchase) of marketable investment securities                   (26,940)        4,707                 (39,411)
  Acquisition of equipment and leasehold improvements                           (99)         (580)                (10,027)
  Proceeds from sale of equipment                                                79             4                   1,155
  Cash paid for acquisition, net of cash received                                --            --                    (676)
                                                                     --------------- ---------------   ---------------------
    Net cash provided by (used in) investing activities                     (26,960)        4,131                 (48,959)

Cash flows from financing activities:
  Proceeds from note payable to bank                                             --            --                     124
  Proceeds from issuance of preferred stock                                      --            --                  17,581
  Proceeds from issuance of common stock                                     55,926           310                 127,051
  Proceeds from long-term debt                                                   --            --                   1,166
  Principal payments on note payable to bank                                     --            --                    (124)
  Principal payments under capital lease obligations                           (296)          (17)                 (1,742)
  Principal payments on long-term debt                                           (3)           (9)                 (1,367)
  Repurchase of preferred stock                                                  --            --                    (300)
                                                                     --------------- ---------------   ---------------------
    Net cash provided by financing activities                                55,627           284                 142,389

Effect of exchange rate changes                                                  76            --                      76
                                                                     --------------- ---------------   ---------------------
Net increase (decrease) in cash and cash equivalents                         10,196       (10,230)                 23,312

Cash and cash equivalents at beginning of period                             13,116        23,615                      --
                                                                     --------------- ---------------   ---------------------

Cash and cash equivalents at end of period                                $  23,312    $   13,385         $        23,312
                                                                     =============== ===============   =====================


         See accompanying notes to consolidated financial statements.

                                       5


                  NPS PHARMACEUTICALS, INC. AND SUBSIDIARIES
                       (A Development Stage Enterprise)

                     Consolidated Statements of Cash Flows
                                (In thousands)
                                  (Unaudited)



                                                                                                         October 22, 1986
                                                                     Nine Months Ended September 30,    (inception) through
                                                                     -------------------------------
                                                                            2000         1999           September 30, 2000
                                                                     --------------- ---------------   ---------------------
                                                                                              
Supplemental Disclosure of Cash Flow
  Information:
Cash paid for interest                                                 $         77   $         -         $           783
Cash paid for taxes                                                               -             -                   1,018

Supplemental Schedule of Noncash Investing and
     Financing Activities:
Acquisition of equipment through incurrence of
  capital lease obligations                                                       -             -                   1,478
Acquisition of leasehold improvements through
  incurrence of debt                                                              -             -                     197
Issuance of preferred stock for stock subscription
  receivable                                                                      -             -                   4,000
Accrual of deferred offering costs                                                -             -                     150
Change in unrealized gain/loss on marketable
  investment securities                                                         119            35                      65
Issuance of common stock in exchange for
  minority interest                                                           2,500             -                   2,500


         See accompanying notes to consolidated financial statements.

                                       6


                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (Unaudited)

(1)  Basis of Presentation

     The accompanying unaudited consolidated financial statements included
herein have been prepared by NPS Pharmaceuticals, Inc. (NPS) pursuant to the
rules and regulations of the Securities and Exchange Commission (SEC). The
consolidated financial statements include the financial statements of NPS and
its operating subsidiary NPS Allelix Corp. (NPS Allelix), collectively referred
to as the Company. Investments in a limited liability partnership and in non-
public corporations in which the Company has the ability to exercise significant
influence, but not control, are accounted for by the equity method.  The Company
carries all other investments in non-public corporations at cost.  In
management's opinion, the interim financial data presented includes all
adjustments (consisting solely of normal recurring items) necessary for fair
presentation. All intercompany accounts and transactions have been eliminated.
All monetary amounts are reported in U.S. dollars unless specified otherwise.
Certain information required by generally accepted accounting principles has
been condensed or omitted pursuant to rules and regulations of the SEC.
Operating results for the three- and nine-month periods ended September 30,
2000, are not necessarily indicative of the results that may be expected for any
future period or the year ended December 31, 2000.

     This report should be read in conjunction with the Company's audited
consolidated financial statements and the notes thereto for the year ended
December 31, 1999, included in the Company's Annual Report on Form 10-K/A filed
with the SEC.

     The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period.  Actual results could differ from these estimates.

(2)  Business Acquisition

     NPS acquired Allelix Biopharmaceuticals, Inc. (Allelix), in a transaction
accounted for by the purchase method as of December 31, 1999. Allelix was merged
with and into NPS Allelix, an acquisition subsidiary of NPS. Accordingly, the
operations of NPS Allelix have been included in the accompanying consolidated
financial statements of the Company since December 31, 1999.

     The Company recorded an expense of $17.8 million in December 1999 for in-
process research and development that was acquired as part of the Company's
purchase of Allelix. The acquired in-process research and development consisted
of five drug development programs. The two most advanced product candidates, ALX
1-11, for osteoporosis, and ALX-0600, for gastrointestinal disorders, accounted
for 83% of the total value of the acquired in-process research and development.

     The Company determined the fair value assigned to the in-process research
and development by estimating the total costs to develop the product candidates
into commercially viable products (i.e., to obtain FDA approval). The Company
then discounted the projected net cash flows related to these product candidates
back to their present value using a risk-adjusted discount rate.  At the date of
the acquisition, the product candidates had not yet received FDA approval and
had no alternative future uses.

     Since the date of the acquisition, the Company revised its plans for the
next series of clinical trials for ALX1-11 and ALX-0600. The Company started a
pivotal Phase III clinical trial with ALX1-11, which it expects will include an
18-month course of treatment in 1,800 to 2,000 patients with

                                       7


osteoporosis. The Company also started enrolling a small number of patients with
short bowel syndrome in a pilot Phase II clinical trial with ALX-0600. Since the
date of acquisition, and through September 30, 2000, the Company has incurred
development costs of approximately $9.5 million for ALX1-11 and $894,000 for
ALX-0600. Total development costs and time-to-completion for each of these
product candidates will depend on the costs we incur to conduct current
clinical trials and any additional testing that is necessary to obtain FDA
approval.

     The Company believes the assumptions used in the valuation of the in-
process research and development acquired from Allelix were reasonable at the
time of the acquisition. However, the Company has modified development plans as
new data have become available regarding each product candidate. Accordingly,
actual results may vary from the projected results in the valuation.

(3)  Loss Per Common Share

     Basic loss per common share is the amount of loss for the period available
to each common and exchangeable share outstanding during the reporting period.
Diluted loss per common share is the amount of loss for the period available to
each common and exchangeable share outstanding during the reporting period and
to each share that would have been outstanding assuming the issuance of common
shares for all dilutive potential common shares outstanding during the period.

     Loss per common share was the same for both the basic and diluted
calculations. Common stock equivalents (stock options and warrants outstanding)
of approximately 2.6 million and 2.3 million shares for the three and nine
months ended September 30, 2000 and 1999, respectively, that could potentially
dilute basic earnings per share in the future were not included in the
computation of diluted loss per share because to do so would have been anti-
dilutive for the periods presented.

(4)  Operating Segment

     The Company is engaged in the discovery, development, and commercialization
of pharmaceutical products and in its current state of development, considers
its operations to be a single reportable segment.  Financial results of this
reportable segment are presented in the accompanying consolidated financial
statements.

(5)  Comprehensive Loss

     The components of the Company's comprehensive loss are as follows, in
thousands:



                                               Three months        Three months        Nine months         Nine months
                                                  ended               ended               ended               ended
                                              September 30,       September 30,       September 30,         September
                                                   2000                1999                2000             30, 1999
                                             ---------------     ---------------     ---------------     ---------------
                                                                                             
Net loss                                             $7,383              $4,671             $25,902             $15,435
Other comprehensive loss (income):
 Unrealized loss (gain) on marketable
  investment securities, net                            (44)                (22)               (119)                 58

 Foreign currency translation loss                      711                 ---                 765                 ---
                                            ---------------     ---------------     ---------------     ---------------
Comprehensive loss                                   $8,050              $4,649             $26,548             $15,493
                                                     ======              ======             =======             =======



                                       8


(6)  Plan of Termination

     As of December 31, 1999, the Company had a balance of $1.5 million for
accrued severance for salaries and benefits payable to former employees under
formal plans of termination. Approximately $1.2 million was paid in severance
benefits during the first nine months of 2000, leaving an accrued balance of
approximately $294,000 as of September 30, 2000.

(7)  Capital Stock

     (a)  Shareholders Rights Plan

          In December 1996, the Board of Directors approved the adoption of a
          Shareholders Rights Plan (the Rights Plan).  The Rights plan provides
          for the distribution of a preferred stock purchase right (Right) as a
          dividend for each outstanding share of the Company's common stock.
          This Right entitles stockholders to acquire stock in the Company or in
          an acquirer of the Company at a discounted price in the event that a
          person or group acquires 20 percent or more of the Company's
          outstanding voting stock or announces a tender or exchange offer that
          would result in ownership of 20 percent or more of the Company's
          stock.  Each right entitles the registered holder to purchase from the
          Company 1/100th of a share of Series A Junior Participating Preferred
          Stock, par value $0.001 per share at a price of $50 per 1/100th of a
          preferred share, subject to adjustment.  The Rights may only be
          exercised on the occurrence of certain events related to a hostile
          takeover of the Company as described above.  In any event, the Rights
          will expire on December 31, 2002.  The Rights may be redeemed by the
          Company at $0.01 per right at any time prior to expiration or the
          occurrence of an event triggering exercise.  At September 30, 2000,
          the Rights were not exercisable.

     (b)  Exchangeable Shares of NPS Allelix Inc.

          On December 23, 1999, in connection with the acquisition of all of the
          outstanding common shares of Allelix, NPS Allelix Inc., an acquisition
          subsidiary of the company, issued 3,476,009 exchangeable shares to
          certain Canadian shareholders of Allelix in exchange for their shares
          of Allelix.  The exchangeable shares are designed to be the functional
          and economic equivalent of the Company's common stock, and were issued
          to such shareholders in lieu of shares of the Company's common stock
          because of Canadian tax considerations.  The terms and conditions of
          the exchangeable share provisions provide each Canadian registered
          holder with the following rights:

          (i)  the right to exchange such exchangeable shares for the Company's
               common stock on a one-for-one basis at any time;

                                       9


          (ii)  the right to receive dividends, on a per share basis, in amounts
                (or property in the case of non-cash dividends) which are the
                same as, and which are payable at the same time as, dividends
                declared on the Company's common stock.

          (iii) the right to vote, on a per share equivalent basis, at all
                stockholder meetings at which the holders of the Company's
                common stock are entitled to vote; and

          (iv)  the right to participate, on a per share equivalent basis, in a
                liquidation dissolution or other winding-up of the company, on a
                pro rata basis with the registered holders of the Company's
                common stock in the distribution of assets of the Company,
                through the medium of a mandatory exchange of exchangeable
                shares for the Company's common stock.

     The exchangeable shares are exchangeable at any time by their holder solely
into shares of the Company's common stock on a one-for-one basis. On or after
December 31, 2004, the Company has the right to cause the exchange of all
outstanding exchangeable shares for shares of the Company's common stock on a
one-for-one basis. Also, the Company has the right to effect such an exchange at
any time (i) if there are fewer than 1,000,000 exchangeable shares outstanding
(other than those held by the Company and its affiliates); or (ii) on or after
the occurrence of a change in control of the Company where it is not reasonably
practicable to substantially replicate the existing terms and conditions of the
exchangeable shares in connection with such a transaction.

     The exchangeable shares do not have liquidation rights in NPS Allelix Inc.
and, as such, the consolidated financial statements do not include minority
interest.

(8)  Capital Stock Transactions

     In February 2000, the Company completed a private placement of 3.9 million
shares of its common stock to selected institutional and other accredited
investors which closed on April 24, 2000, with net proceeds to the Company of
approximately $43.3 million.

     On May 2, 2000, the Company issued 210,526 shares of common stock in
exchange for 1,000 preferred shares of NPS Allelix that were recorded as a
minority interest of $2.5 million at December 31, 1999. The value of the
minority interest was allocated using the purchase method effective December 31,
1999 as the amount was fixed and determinable based upon contractual terms of
the exchange. The minority interest was eliminated upon issuance of the common
shares.

     On May 11, 2000, the Company sold 168,492 shares of its common stock for $2
million based upon the average of the bid and ask prices of the Company's common
stock during a period of 20 consecutive trading days prior to the sale under the
terms of an on-going corporate license agreement. The fair value on May 11, 2000
of the shares issued on the closing date was $2,021,904.

     In July 2000, the Company's wholly owned Canadian subsidiary, NPS Allelix
Inc., issued 264,650 shares of exchangeable shares upon exercise of outstanding
warrants, with proceeds to the Company of approximately $4.2  million. The
exchangeable shares may be exchanged into the Company's common shares at any
time with the value of the exchangeable shares being accounted for as equity of
the Company.

                                       10


(9)  Recent Accounting Pronouncements

     The Financial Accounting Standards Board (FASB) issued Statement on
Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative
Instruments and Hedging Activities in 1998. SFAS No. 133, as amended,
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives), and for hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. For a derivative not designated as a hedging instrument, changes
in the fair value of the derivative are recognized in earnings in the period of
change. We must adopt SFAS No. 133 in the first quarter of 2001. Management does
not believe the adoption of SFAS No.133 will have a material effect on the
Company's consolidated financial position, results of operations, or liquidity.

     In December 1999, the Securities and Exchange Commission staff issued Staff
Accounting Bulletin No. 101, "Revenue Recognition," (SAB No. 101) to provide
guidance on the recognition, presentation and disclosure of revenue in financial
statements. SAB No. 101 does not modify existing literature or revenue
recognition. SAB No. 101 explains the staff's general framework for revenue
recognition. The Company will incorporate the guidance of SAB No. 101 in
financial reporting beginning with the fourth quarter of fiscal 2000. The
Company continues to evaluate the impact, if any, of SAB No. 101 on the
Company's policies and procedures relating primarily to upfront license fees and
milestone payments receivable under current and potential collaborative
licensing agreements.

     The FASB issued Interpretation No. 44, "Accounting for Certain Transactions
Involving Stock Compensation--an Interpretation of APB Opinion No. 25" (FIN No.
44) in March 2000. The interpretation clarifies the application of Opinion 25
for only certain issues such as the following: (i) the definition of employee
for purposes of applying Opinion 25, (ii) the criteria for determining whether a
plan qualifies as a noncompensatory plan, (iii) the accounting consequences of
various modifications to the terms of a previously fixed stock option or award,
and (iv) the accounting for an exchange of stock compensation awards in a
business combination. The Company adopted FIN No 44, effective July 1, 2000. The
interpretation did not have a material impact on the Company's consolidated
financial position, results of operations, or liquidity.

(10) Subsequent Events

     On November 9, 2000, the Company priced a public offering of 4,000,000
shares of its common stock at $42.00 per share, with expected net proceeds to
the Company of approximately $157.1 million.

(11) Legal Proceedings

     The Company is involved in various legal actions that arose in the normal
course of business. Although the final outcome of such matters cannot be
predicted, the Company believes the ultimate disposition of these matters will
not have a material adverse effect on the Company's consolidated financial
position, results of operations, or liquidity.

                                       11


Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.

     THIS QUARTERLY REPORT ON FORM 10-Q, INCLUDING THE FINANCIAL STATEMENTS AND
NOTES THERETO, CONTAIN FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THESE FORWARD-
LOOKING STATEMENTS. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES
ARE DISCUSSED IN THIS DOCUMENT, AS WELL AS IN OUR ANNUAL REPORT ON SEC-FILED
FORM 10-K/A FOR THE YEAR ENDED DECEMBER 31, 1999, UNDER THE HEADING "RISK
FACTORS."

Overview

     We discover, develop and intend to commercialize small molecule drugs and
recombinant proteins, primarily for bone and mineral disorders and central
nervous system disorders.  We have five drugs in clinical development and
several preclinical product candidates. Our two most advanced product candidates
focus on bone and mineral disorders. They are AMG 073, which has completed a
series of Phase II clinical trials for treatment of hyperparathyroidism, and
ALX1-11, which is in a pivotal Phase III clinical trial for treatment of post-
menopausal osteoporosis.

     On December 23, 1999 we acquired all of the outstanding common stock of
Allelix BioPharmaceuticals Inc., a biopharmaceutical company based in Ontario,
Canada for 6,516,923 common and exchangeable shares and assumed options and
warrants for the issuance of an additional 675,520 shares of our common stock.
The acquisition was accounted for under the purchase method of accounting, with
an effective date of December 31, 1999. Accordingly, operating results of
Allelix are only included in our consolidated statements of operations for
periods after that date.  We did, however, record an expense of $17.8 million in
1999 for in-process research and development that we acquired as part of our
purchase of Allelix.

     Substantially all of our resources are devoted to our research and
development programs.  To date, we have not completed the development of any
pharmaceutical product for sale. We have incurred cummulative losses through
September 30, 2000 of approximately $104.8 million, net of cumulative revenues
from research and license agreements of approximately $60.8 million. We expect
to incur significant operating losses over at least the next several years as we
continue to expand our clinical trials and research activities. In particular,
we recently initiated an 1,800 to 2,000 patient Phase III clinical trial for
ALX1-11, and expect to expend significant portion of our resources on the
development of this product.

Results of Operations

Revenues

     Substantially all our revenues have come from license fees, milestone
payments, and research and development support payments from our licensees and
collaborators. These revenues fluctuate from quarter to quarter. All of the
research and development support payments under our existing license or
collaborative agreements are scheduled to expire in 2000. Our revenues were $1.7
million for the quarter ended September 30, 2000, compared to $915,000 for the
quarter ended September 30, 1999. Our revenues for the nine-month period ended
September 30, 2000 were $5.3 million compared to $2.7 million for the same
period in the prior year. The increases in revenues for the three- and nine-
month periods ended September 30, 2000 were primarily due to revenues from
license agreements we acquired as a result of our purchase of Allelix. See
"Liquidity and Capital Resources" below for further discussion of payments that
we may earn in the future under these agreements.

                                       12


Operating Expenses

Research and Development

     Our research and development expenses arise primarily from compensation and
other related costs of our personnel who are dedicated to research and
development activities and from the fees paid to outside professionals to
conduct clinical studies and trials.  Our research and development expenses
increased to $6.4 million for the quarter ended September 30, 2000, from $4.6
million in the comparable period of 1999 and to $20.4 million for the nine-month
period ended September 30, 2000, from $15.0 million in the comparable period in
1999. The increases in research and development expenses for the three- and
nine-month periods ended September 30, 2000 were principally due to the
commencement of a pivotal Phase III clinical trial for ALX1-11 and a pilot Phase
II clinical trial for ALX-0600, two product candidates that we acquired as a
result of our acquisition of Allelix. We have the right to be reimbursed under
our agreement with Technology Partnerships Canada, or TCP, for a portion of our
research and development expenses for ALX-0600. We expect research and
development expenses to continue at this level or higher as these clinical
trials progress. We may incur additional research and development expenses if we
start other clinical trials, or if we acquire new technologies, product
candidates or companies.

General and Administrative

     Our general and administrative expenses consist primarily of the costs of
our executive management, finance and administrative staff, business insurance,
taxes and professional fees. Our general and administrative expenses increased
to $3.0 million for the quarter ended September 30, 2000, from $1.3  million for
the quarter ended September 30, 1999, and to $9.7 million for the nine-month
period ended September 30, 2000 from $4.4 million in the comparable period in
1999. The increase in general and administrative expenses was primarily the
result of increased costs of our operations and of our recently acquired
subsidiary, NPS Allelix, and a charge of $990,000 for compensation expense for
stock options held by management that vested upon the signing of a license
agreement in the first quarter of 2000. That type of compensation expense may
occur in the future upon vesting of contingent options we may grant to employees
and upon our grant of options to consultants or other non-employees.

Amortization of Goodwill and Acquired Intangibles

     We are required to amortize goodwill and other acquired intangibles as a
result of our acquisition of Allelix. The remaining intangible assets at
September 30, 2000 total approximately $15.8 million. We are amortizing these
assets over their expected lives, which range  from two to six years. We
recorded amortization expense of $874,000 for the three months ended September
30, 2000 and $2.7 million for the nine months ended September 30, 2000.  We did
not record any amortization of goodwill and acquired intangibles for the same
periods in 1999, since the effective date of the Allelix acquisition was
December 31, 1999.

Total Other Income, Net

     Our other income, net,  increased from $353,000 to $1.2 million for the
three months ended September 30, 2000, as compared with the same period in the
prior year, and from $1.3 million to $1.6 million for the nine months ended
September 30, 2000, as compared with the same period in the prior year. The
increases for the three and nine months ended September 30, 2000 are mainly the
result of increased interest income of $861,000 and $1.3 million, respectively,
resulting from higher cash, cash equivalents, and marketable investment security
balances. These balances increased primarily due to cash received from a private
placement offering of 3.9 million common shares of the Company which was
completed in February 2000 and closed in April 2000. Additionally a non-cash
loss of approximately $1.2 million associated with  closing a facility in New
Jersey that we acquired as part of the Allelix

                                       13


transaction was recorded during the nine months ended September 30, 2000. We
anticipated at the time of the acquisition that we would sublease the facility
for the remaining nine-year term of our lease obligation and retain the existing
leasehold improvements. However, we were able to negotiate a release of our
obligation from the landlord subject to our forfeiting the leasehold
improvements and certain office furniture and equipment which had a net book
value of approximately $1.2 million.

Liquidity and Capital Resources

     We have financed operations since inception primarily through collaborative
research and license agreements and the private and public placement of equity
securities. As of September 30, 2000, we had recognized $60.8 million of
cumulative revenues from payments for research support and license fees and
$144.3 million from the sale of equity securities for cash. The sale of equity
securities includes $6.3 million received from the exercise of options during
the first nine months of 2000, $43.3 million, net, from the sale of 3.9 million
shares of common stock we completed in the second quarter of 2000, $2.0 million
from the sale of 168,492 shares of common stock under the terms of an agreement
with an existing corporate licensee during the second quarter of 2000, and $4.2
million from the exercise of warrants to acquire 264,650 shares of exchangeable
shares of the Company's wholly-owned subsidiary, NPS Allelix Inc. The
exchangeable shares may be exchanged into the Company's common shares at any
time. Our principal sources of liquidity are cash, cash equivalents, and
marketable investment securities, which totaled $72.8 million at September 30,
2000. On November 9, 2000, the Company priced a public offering of 4,000,000
shares of its common stock at $42.00 per share, with expected net proceeds to
the Company of approximately $157.1 million.

     Net cash used in operating activities was $18.5 million for the nine months
ended September 30, 2000 compared to $14.6 million for the nine months ended
September 30, 1999. Net cash used in investing activities was $27.0 million for
the nine months ended September 30, 2000 compared to $4.1 million provided by
investing activities for the nine months ended September 30, 1999. Net cash
provided by financing activities was $55.6 million for the nine months ended
September 30, 2000 compared to $284,000 for the nine months ended September 30,
1999. The decrease in cash flows from operating activities was due primarily to
an increase in the net loss of $4.7 million, excluding all non-cash
expense/income, for the nine months ended September 30, 2000. Net cash used in
investing activities in 2000 was almost entirely the result of investing the
proceeds from our private placement and option and warrant exercises in
marketable investment securities. Net cash provided by financing activities in
2000 resulted primarily from the proceeds from the private placement which
closed in April 2000 and from the exercise of outstanding options and warrants.

     During the past, we have received quarterly research and/or development
support payments under our agreements with Amgen, Kirin, and SmithKline Beecham,
and under NPS Allelix's agreements with Janssen and Eli Lilly Canada. All of the
research and development support payments under these agreements are scheduled
to expire in 2000. We do not receive any research and development support
payments under our agreements with Abbott Laboratories or Forrest Laboratories.
However, we could receive future payments of up to $113.5 million in the
aggregate if we accomplish specified research and/or development milestones
under our agreements with all of those parties. All of the agreements also
require the licensees to make royalty payments to us if they sell products
derived from the license rights. However, we do not control the subject matter,
timing or resources applied by our licensees to their development programs.
Thus, potential receipt of milestone payments from these licensees is largely
beyond our control. Each of these agreements may be terminated before its
scheduled expiration date by the respective licensee under certain conditions.

     We have an agreement with TPC, a Canadian government program, under which
TPC will reimburse us for our research expenses for treatments for various
intestinal disorders using our ALX-0600 product. TPC will reimburse us for 30%
of the qualified costs we incur through December 2002, to a maximum of Cdn. $8.4
million. We will pay a 10% royalty to TPC on revenues received from the sale or

                                       14


license of any product we develop from the funded research. These payments
terminate in December 2008 if we have paid TPC a total of at least Cdn. $23.9
million through that date, or if we have paid TPC less than that amount through
that date, the payments continue until the earlier of when we have paid TPC a
total of Cdn $23.9 million or December 2017. As of September 20, 2000, we have
invoiced TPC for a total of Cdn $2.5 million for reimbursement.

     We have entered into service agreements and sponsored research and license
agreements that obligate us to purchase services and to make research support
payments to academic and/or commercial research institutions. As of September
30, 2000, we had a total commitment under the arrangements of approximately
$301,000. We may be required to make additional payments if the research
institutions reach milestones, or for license fees or royalties to maintain the
licenses. We expect to enter into additional sponsored research and license
agreements in the future.

     We expect that our existing capital resources, together with proceeds from
our recently priced offering, including interest earned thereon, will be
sufficient to allow us to maintain our current and planned operations for at
least the next 24 months. However, our actual needs will depend on numerous
factors, especially with regard to the clinical trial and pre-launch marketing
and production costs for ALX1-11, if approved. Furthermore, if we advance
current propriety programs or if we in-license or otherwise acquire other
technologies, product candidates or companies, we may need to make substantial
additional expenditures.

In-Process Research and Development

     We recorded an expense of $17.8 million in 1999 for in-process research and
development that we acquired as part of our purchase of Allelix. The acquired
in-process research and development consisted of five drug development programs.
The two most advanced product candidates, ALX1-11, for osteoporosis, and ALX-
0600, for gastrointestinal disorders, accounted for 83% of the total value of
the acquired in-process research and development.

     We determined the fair value assigned to the in-process research and
development by estimating the total costs to develop the product candidates into
commercially viable products (i.e., to obtain FDA approval). We then discounted
the projected net cash flows related to these product candidates back to their
present value using a risk-adjusted discount rate. At the date of the
acquisition, the product candidates had not yet received FDA approval and had no
alternative future uses.

     Since the date of the acquisition, we revised our plans for the next series
of clinical trials for ALX1-11 and ALX-0600. We started a pivotal Phase III
clinical trial with ALX1-11, which we expect will include an 18-month course of
treatment in 1,800 to 2,000 patients with osteoporosis. We also started
enrolling a small number of patients with short bowel syndrome in a pilot Phase
II clinical trial with ALX-0600. Since the date of acquisition, and through
September 30, 2000, we have incurred development costs of approximately $9.5
million for ALX1-11 and $894,000 for ALX-0600. Total development costs and time-
to-completion for each of these product candidates will depend on the costs we
incur to conduct current clinical trials and any additional testing we find
necessary to obtain FDA approval.

     We believe the assumptions we used in the valuation of the in-process
research and development we acquired from Allelix were reasonable at the time of
the acquisition. However, we have modified our development plans as new data
have become available regarding each product candidate.  Accordingly, actual
results may vary from the projected results in the valuation.

                                       15


Recent Accounting Pronouncements

     The Financial Accounting Standards Board (FASB) issued Statement on
Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative
Instruments and Hedging Activities in 1998. SFAS No. 133, as amended,
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives), and for hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. For a derivative not designated as a hedging instrument, changes
in the fair value of the derivative are recognized in earnings in the period of
change. We must adopt SFAS No. 133 in the first quarter of 2001. We do not
believe the adoption of SFAS No.133 will have a material effect on our
consolidated financial position, results of operations, or liquidity.

     In December 1999, the Securities and Exchange Commission staff issued Staff
Accounting Bulletin No. 101, "Revenue Recognition," ("SAB No. 101") to provide
guidance on the recognition, presentation and disclosure of revenue in financial
statements. SAB No. 101 does not modify existing literature on revenue
recognition. SAB No. 101 explains the staff's general framework for revenue
recognition. We will incorporate the guidance of SAB No. 101 in financial
reporting beginning with the fourth quarter of fiscal 2000. We continue to
evaluate the impact, if any, of SAB No. 101 on the Company's policies and
procedures relating primarily to upfront license fees and milestone payments
receivable under current and potential collaborative licensing agreements.

     The FASB issued Interpretation No. 44, "Accounting for Certain Transactions
Involving Stock Compensation--an Interpretation of APB Opinion No. 25" (FIN No.
44) in March 2000. The interpretation clarifies the application of Opinion 25
for only certain issues such as the following: (i) the definition of employee
for purposes of applying Opinion 25, (ii) the criteria for determining whether a
plan qualifies as a noncompensatory plan, (iii) the accounting consequences of
various modifications to the terms of a previously fixed stock option or award,
and (iv) the accounting for an exchange of stock compensation awards in a
business combination. The Company adopted FIN No. 44 effective July 1, 2000. The
impact of adopting Fin No. 44 did not have a material impact on our consolidated
financial position, results of operations, or liquidity.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Interest Rate Risk

     Our primary objectives in managing our investment portfolio are to preserve
principal, maintain proper liquidity to meet operating needs and maximize
yields. The securities we hold in our investment portfolio are subject to
interest rate risk. We have established policies and procedures to manage
exposure to fluctuations in interest rates. We place our investments with high
quality issuers and limit the amount of credit exposure to any one issuer and do
not use derivative financial instruments in our investment portfolio. We
maintain an investment portfolio of various issuers, types and maturities, which
consist mainly of fixed-rate financial instruments. These securities are
classified as available-for-sale and, consequently, are recorded on the balance
sheet at fair value with unrealized gains or losses reported as accumulated
other comprehensive income as a separate component in stockholders' equity. At
any time, sharp changes in interest rates can affect the fair value of the
investment portfolio and its interest earnings. Currently, we do not hedge these
interest rate exposures. After a review of our marketable securities, we believe
that in the event of a hypothetical 10% increase in interest rates, the
resulting decrease in fair market value of our marketable investment securities
would be insignificant to the financial statements.

                                       16


Foreign Currency Risk

     Some of our research and development operations are in Canada. As a result,
our financial results could be affected by factors such as a change in the
foreign currency exchange rate between the U.S. dollar and the Canadian dollar,
or by weak economic conditions in Canada. When the U.S. dollar strengthens
against the Canadian dollar, the cost of expenses in Canada decreases. When the
U.S. dollar weakens against the Canadian dollar, the cost of expenses in Canada
increases. The monetary assets and liabilities in our foreign subsidiary which
are impacted by the foreign currency fluctuations are cash, accounts receivable,
accounts payable, and certain accrued liabilities. A hypothetical 10% increase
or decrease in the exchange rate between the U.S. dollar and the Canadian dollar
from the September 30, 2000, rate would cause the fair value of such monetary
assets and liabilities in Canada to change by an insignificant amount. We are
not currently engaged in any foreign currency hedging activities, although we
may engage in those types of activities in the future.


Part II. OTHER INFORMATION

Item 2.  Changes in Securities and Use of Proceeds

     During the three month period ended September 30, 2000, two entities
acquired 264,650 shares of the stock of our wholly-owned Canadian subsidiary,
NPS Allelix Inc., through the exercise of warrants.  The exercise price for the
warrants was $4.2 million. The transaction was exempt from registration pursuant
to the provisions of Section 3(a)(10) of the 1933 Act applicable to the merger
of Allelix with the Company in December 1999.  The shares may be exchanged for
NPS common stock at any time, and the Company has filed a registration statement
on Form S-3 providing for resale by the purchasers of the NPS common stock
acquired by the holders of the exchangeable shares upon any exchange of the
exchangeable stock.


Item 5.  Other Information

Public Offering

     On November 9, 2000, the Company priced the public offering of 4,000,000
shares of its common stock at a price of $42.00 per share. All of the 4,000,000
shares of common stock included in the offering are being sold by the Company.
The underwriters have an option for up to 30 days to purchase up to an
additional 600,000 shares to cover over-allotments, if any.

Certain Business Risks

We have a history of operating losses and may never reach profitability.

     With the exception of 1996, we have not been profitable since our inception
in 1986. As of September 30, 2000, we had an accumulated deficit of
approximately $104.8 million. We have not generated any revenue from product
sales to date, and it is possible that we will never have significant product
sales revenue. We expect to continue to incur losses for the next several years.

We are dependent on the successful outcome of the clinical trials for our two
most advanced product candidates, AMG 073 and ALX1-11.

     Amgen, our collaborator, has conducted Phase II clinical trials for AMG
073, and we are currently conducting a pivotal Phase III clinical trial for
ALX1-11. Our success will depend, to a great degree, on the success of these and
subsequent clinical trials. Prior to receiving approval for commercialization,
we must demonstrate to the satisfaction of the FDA and comparable foreign
regulatory authorities that each of the product candidates is both safe and
efficacious. While no significant safety issues have emerged in Phase I and
Phase II clinical trials with respect to either of these candidates, we will
still need to demonstrate their efficacy for the treatment of the specific
indication as well as the product candidates' continued safety through the
conduct of Phase III clinical trials. The successful outcome of the Phase III
clinical trials will depend in part on our and Amgen's ability to \


                                       17


successfully complete enrollment in the clinical trials. To date, neither long
term safety nor efficacy has been demonstrated in clinical trials with either of
these product candidates. Accordingly, the results of future studies may
indicate that the candidates are unsafe, ineffective, or both, notwithstanding
the results of earlier clinical trials. If either or both of these products do
not continue to prove to be safe and are not shown to be efficacious to the
satisfaction of the FDA and comparable foreign regulatory authorities, our
business would be materially harmed and our stock price would be adversely
affected.

The FDA has not approved any of our product candidates and we cannot assure you
that data collected from clinical trials of our product candidates will be
sufficient to support approval by the FDA, the failure of which could delay our
profitability and adversely impact our stock price.

     Many of our research and development programs are at an early stage.
Clinical trials are long, expensive and uncertain processes. We cannot assure
you that the clinical trials will be commenced or completed on schedule, or that
the FDA will ultimately approve our product candidates for commercial sale.
Furthermore, even if the results of our preclinical studies or clinical trials
are initially positive, it is possible that we will obtain different results in
the later stages of drug development. Drugs in late stages of clinical
development may fail to show the desired safety and efficacy traits despite
having progressed through initial clinical testing. For example, positive
results in early Phase I or Phase II clinical trials may not be repeated in
larger Phase II or Phase III clinical trials. All of our potential drug
candidates are prone to the risks of failure inherent in drug development.

     The clinical trials of any of our drug candidates could be unsuccessful,
which would prevent us from commercializing the drug. Our failure to develop
safe, commercially viable drugs would substantially impair our ability to
generate revenues and sustain our operations and would materially harm our
business and adversely affect our stock price.

If we fail to maintain our existing or establish new collaborative
relationships, or if our collaborators do not devote adequate resources to the
development and commercialization of our licensed drug candidates, we may have
to reduce our rate of product development and may not be able to achieve
profitability.

     Our strategy for developing, manufacturing and commercializing our products
includes entering into various relationships with large pharmaceutical companies
to advance our programs. We have granted exclusive development,
commercialization and marketing rights to a number of our collaborators for some
of our key product development programs, including AMG 073, calcilytics, NPS
1776, ALX-0646, glycine reuptake inhibitors and excitatory amino acid receptors.
Our collaborators have full control over those efforts in their territories, the
resources they commit to the program, and the success of the development and
commercialization of products in those programs depends on their efforts. For us
to receive any significant royalty payments from our collaborators, they must
establish the safety and efficacy of our drug candidates, obtain regulatory
approvals and achieve market acceptance of those products.

     We continue to evaluate whether to seek collaborators for ALX1-11, ALX-0600
and our metabotropic glutamate receptor program. We may not be able to negotiate
further collaborative arrangements for those or our other programs on acceptable
terms, if at all. If we are not able to establish additional collaborative
arrangements, we will either have to delay further development of these or other
programs or increase our capital expenditures and undertake the development
activities at our own expense.

                                       18


     Collaborative agreements, including our existing agreements, pose the
following risks:

     .  our contracts with collaborators may be terminated and we may not be
        able to replace them

     .  the terms of our contracts with our collaborators may not be favorable
        to us in the future

     .  our collaborators may not pursue further development and
        commercialization of compounds resulting from their collaborations with
        us

     .  a collaborator with marketing and distribution rights to one or more of
        our products may not commit enough resources to the marketing and
        distribution of our products

     .  disputes with our collaborators may arise, leading to delays in or
        termination of the research, development or commercialization of our
        product candidates, or resulting in significant litigation or
        arbitration

     .  contracts with our collaborators may fail to provide significant
        protection if one or more of them fail to perform

     .  our collaborators could independently develop, or develop with third
        parties, drugs that compete with our products.

     There is a great deal of uncertainty surrounding the success of our current
and future collaborative efforts. If our collaborative efforts fail, our
business and financial condition would be materially harmed.

We may need additional financing, but our access to capital funding is
uncertain.

     Our current and anticipated development projects, particularly our clinical
trial programs for ALX1-11, ALX-0600 and our metabotropic glutamate receptor
program, require substantial additional capital. We expect our existing capital
resources, together with proceeds from our recently priced offering, including
interest thereon, will sufficiently fund our operations for at least the next 24
months. However, our future capital needs will depend on many factors, including
receiving milestone payments from our collaborators and making progress in our
research and development activities. Our capital requirements will also depend
on the magnitude and scope of these activities, the progress and level of
unreimbursed costs associated with preclinical studies and clinical trials, the
costs associated with acquisitions, the cost of preparing, filing, prosecuting,
maintaining and enforcing patent claims and other intellectual property rights,
competing technological and market developments, changes in or terminations of
existing collaboration and licensing arrangements, and the establishment of
additional collaboration and licensing arrangements, particularly for ALX1-11,
ALX-0600 and our metabotropic glutamate receptor program. We do not have
committed external sources of funding and we cannot assure you that we will be
able to obtain additional funds on acceptable terms, if at all. If adequate
funds are not available, we may be required to:

     .  delay, reduce the scope of or eliminate one or more of our development
        programs

     .  obtain funds through arrangements with collaborators or others that may
        require us to relinquish rights to technologies, product candidates or
        products that we would otherwise seek to develop or commercialize
        ourselves

     .  license rights to technologies, product candidates or products on terms
        that are less favorable to us than might otherwise be available

                                       19


     If funding is insufficient at any time in the future, we may not be able to
develop or commercialize our products, take advantage of business opportunities
or respond to competitive pressures.

We may be unable to obtain patents to protect our technologies from other
companies with competitive products, and patents of other companies could
prevent us from developing or marketing our products.

     The patent positions of pharmaceutical and biotechnology firms are
uncertain and involve complex legal and factual questions. In addition, the
scope of the claims in a patent application can be significantly modified during
prosecution before the patent is issued. Consequently, we cannot know whether
our pending applications will result in the issuance of patents or, if any
patents are issued, whether they will provide us with significant proprietary
protection or will be circumvented or invalidated. Generally, patent
applications in the United States are maintained in secrecy until the patents
issue, and publication of discoveries in scientific or patent literature often
lags behind actual discoveries. In addition, we cannot assure you that, even if
published, we will be aware of all such literature. Accordingly, we cannot be
certain that the named inventors of our products and processes were the first to
invent that product or process or that we were the first to pursue patent
coverage for our inventions.

     Moreover, we may have to participate in interference proceedings declared
by the U.S. Patent and Trademark Office to determine priority of invention,
which could result in substantial cost, even if the eventual outcome is
favorable to us. We cannot assure you that our pending patent applications, if
issued, would be held valid. Third parties may assert infringement or other
intellectual property claims against us based on their patents or other
intellectual property rights. An adverse outcome in these proceedings could
subject us to significant liabilities to third parties, require disputed rights
to be licensed from third parties or require us to cease or modify our use of
the technology. Additionally, many of our foreign patent applications have been
published as part of the patent prosecution process in such countries.
Protection of the rights revealed in published patent applications can be
complex, costly and uncertain.

     The pursuit of patent applications is intensely competitive for therapeutic
products in our areas of research. A number of pharmaceutical companies,
biotechnology companies, universities and research institutions have filed
patent applications or received patents in these and related fields. Some of
these applications or patents may limit or preclude our applications and could
result in a significant reduction in the coverage of our patents.

     We also rely on trade secrets, know-how and confidentiality provisions in
our agreements with our collaborators, employees and consultants to protect our
intellectual property. However, these and other parties may not comply with the
terms of their agreements with us, and we might be unable to adequately enforce
our rights against these people or obtain adequate compensation for the damages
caused by their unauthorized disclosure or use.

We are subject to extensive government regulation that may cause us to cancel or
delay the introduction of our products to market.

     Our research and development activities and the investigation, manufacture,
distribution and marketing of drug products are subject to extensive regulation
by governmental authorities in the United States, Canada and other countries.
Prior to marketing in the United States, a drug must undergo rigorous testing
and an extensive regulatory approval process implemented by the FDA under
federal law, including the Federal Food, Drug and Cosmetic Act. To receive
approval, we or our collaborators must, among other things, show the FDA that
the product is both safe and effective. Depending upon the type,

                                       20


complexity and novelty of the product and the nature of the disease or disorder
to be treated, that approval process can take several years and require
substantial expenditures. Data obtained from testing are susceptible to varying
interpretations that could delay, limit or prevent regulatory approvals of our
products. Drug testing is subject to complex FDA rules and regulations,
including the requirement to conduct human testing on a large number of test
subjects. We, our collaborators or the FDA may suspend human trials at any time
if a party believes that the test subjects are exposed to unacceptable health
risks. Other countries, including Canada, also have extensive requirements
regarding clinical trials, market authorization and pricing. These regulatory
schemes vary widely from country to country, but, in general, are subject to all
of the risks associated with U.S. approvals.

     If any of our products receive regulatory approval, the approval will be
limited to those disease states and conditions for which the product is useful,
as demonstrated through clinical trials. Furthermore, governmental approval may
subject us to ongoing requirements for post-marketing studies. Even if we obtain
governmental approval, a marketed product, its U.S. manufacturer and its
manufacturing facilities are subject to biannual inspections by the FDA and must
comply with the FDA's current Good Manufacturing Practices, or cGMP, and other
regulations. These regulations govern all areas of production, record keeping,
personnel and quality control, and are designed to insure full technical
compliance. If a manufacturer fails to comply with any of the manufacturing
regulations, it may be subject to, among other things, product seizures,
recalls, fines, injunctions, suspensions or revocations of marketing licenses,
operating restrictions and criminal prosecution. Other countries also impose
similar manufacturing requirements. We may discover previously unknown problems
with a product, manufacturer or facility that may result in restrictions on that
product or manufacturer, including costly recalls or withdrawals of the product
from the market.

As a result of intense competition and technological change in the
pharmaceutical industry, the marketplace may not accept our products and we may
not be able to compete successfully against other companies in our industry and
achieve profitability.

     Many of our competitors have drug products that have already been approved
or are in development, and operate large, well-funded research and development
programs in these fields. For example, Hectoral(TM), a product of Bone Care
International, Inc., is being marketed as a treatment to relieve some symptoms
of secondary hyperthyroidism and may compete directly with AMG 073 if it is
approved. Also, GelTex Pharmaceuticals, Inc. is currently marketing RenaGel(TM),
which is a treatment for secondary hyperparathyroidism. Eli Lilly & Co. is
currently developing Forteo(TM), a fragment of the full-length parathyroid
hormone for the treatment of osteoporosis that will compete with our product
candidate, ALX1-11, if it is approved. In addition, many of our competitors have
greater financial resources, more effective marketing and sales, superior
intellectual property positions and substantially greater management resources
than we do. Existing and future products, therapies and technological approaches
will compete directly with our products. Competing products may provide greater
therapeutic benefits for a specific problem or may offer comparable performance
at a lower cost. Any products we develop may become obsolete before we recover
any expenses we incurred in connection with the development of these products.
As a result, we may never achieve profitability.

Because we do not have internal manufacturing facilities and rely on third-party
manufacturers, we are unable to control the availability of our products.

     We rely on third-party manufacturers for the manufacture of most of the
products we use in our clinical trials and intend to rely on third-party
manufacturers to manufacture any products we sell. If we are unable to contract
for a sufficient supply of our products on acceptable terms, or if we encounter
delays and difficulties in our relationships with manufacturers, we may not have
sufficient product to conduct or complete our clinical trials, particularly in
the case of our Phase III clinical trials for ALX1-11, which could delay those
trials. A delay would set back our timetable for the submission of our

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products for regulatory approval, market introduction and subsequent sales, and
would postpone revenues and profitability. Because we do not have or intend to
develop the capacity to manufacture ALX1-11, we intend to establish agreements
with third-party manufacturers for commercial scale manufacturing of ALX1-11.
Our third-party manufacturers may be unable to manufacture ALX1-11 or any other
products we develop in commercial quantities on a cost-effective basis. We will
need to expand our existing relationships or establish new relationships with
additional third-party manufacturers for products that we commercialize or
develop in the future. We may be unable to establish or maintain relationships
with third-party manufacturers on acceptable terms. Our dependence on third
parties may reduce our profit margins and delay our ability to develop and
commercialize our products on a timely and competitive basis. Furthermore,
third-party manufacturers may encounter manufacturing or quality control
problems in connection with the manufacture of our products and may be unable to
maintain the necessary governmental licenses and approvals to continue
manufacturing our products.

Because we do not have sales, marketing or distribution capabilities, we may be
unable to market and sell our products and generate revenues.

     We do not have any sales, marketing or distribution capabilities. We will
have to develop a sales force or rely on third parties to perform these
functions for any products we decide to commercialize. To market products
directly, we would have to develop a marketing and sales force with technical
expertise and supporting distribution capability. Our inability to establish in-
house sales and distribution capabilities or relationships with third parties
may limit our ability to generate revenues.

     For example, if we are successful in our Phase III clinical trials with
ALX1-11, and the FDA grants approval for the commercialization of ALX1-11, we
will be unable to introduce the product to market without developing these
channels.

Because of the uncertainty of pharmaceutical pricing, reimbursement and
healthcare reform measures, we may be unable to sell our products profitably.

     The availability of reimbursement by governmental and other third-party
payors affects the market for any pharmaceutical product. These third-party
payors continually attempt to contain or reduce the costs of healthcare. There
have been a number of legislative and regulatory proposals to change the
healthcare system and further proposals are likely. Under current guidelines,
Medicare does not reimburse patients for self-administered drugs. Medicare's
policy may decrease the market for our products that are designed to treat
patients with age-related disorders, such as hyperparathyroidism and
osteoporosis. In addition, third-party payors are increasingly challenging the
price and cost-effectiveness of medical products and services. Significant
uncertainty exists with respect to the reimbursement status of newly approved
healthcare products. We might not be able to sell our products profitably if
reimbursement is unavailable or limited in scope.

If we fail to attract and retain key employees and consultants, we may have to
delay the development and commercialization of our products.

     We are highly dependent on the principal members of our scientific and
management staff. If we lose any of these persons, our ability to develop
products and become profitable could suffer. The risk of being unable to retain
key personnel may be increased by the fact that we have not executed long term
employment contracts with our employees. Our future success will also depend in
large part on our continued ability to attract and retain other highly qualified
scientific and management personnel. We face competition for personnel from
other companies, academic institutions, government entities and other
organizations.

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If product liability claims are brought against us, we may incur substantial
liabilities that could reduce our financial resources.

     The testing and commercial use of pharmaceutical products involves
significant exposure to product liability claims. The use of our product
candidates in clinical trials and the sale of our products following regulatory
approval may expose us to product liability claims. We have obtained limited
product liability insurance coverage for our clinical trials on humans.
Currently, we are conducting clinical trials with humans for a number of our
product candidates. Our insurance coverage may be insufficient to protect us
against product liability damages. We might not be able to obtain or maintain
product liability insurance in the future on acceptable terms or in sufficient
amounts to protect us against product liability damages. If we are required to
pay a product liability claim, we may not have sufficient financial resources to
complete development or commercialization of any of our products.

Our operations involve hazardous materials and we must comply with environmental
laws and regulations, which can be expensive and restrict how we do business.

     Our research and development activities involve the controlled use of
hazardous materials, radioactive compounds and other potentially dangerous
chemicals and biological agents. Although we believe our safety procedures for
these materials comply with governmental standards, we cannot eliminate the risk
of accidental contamination or injury from these materials. If an accident or
environmental discharge occurs, we could be held liable for any resulting
damages, which could exceed our financial resources.

Our stock price has been and may continue to be volatile and your investment
could suffer a decline in value.

     You should consider an investment in our common stock as risky and invest
only if you can withstand a significant loss and wide fluctuations in the market
value of your investment. We receive only limited attention by securities
analysts and frequently experience an imbalance between supply and demand for
our common stock. The market price of our common stock has been highly volatile
and is likely to continue to be volatile. Factors affecting our common stock
price include:

     .  fluctuations in our operating results

     .  announcements of technological innovations or new commercial products by
        us, our collaborators or our competitors

     .  published reports by securities analysts

     .  the progress of our and our collaborators' clinical trials

     .  governmental regulation

     .  changes in medical and pharmaceutical product reimbursement policies

     .  developments in patent or other intellectual property rights

     .  publicity concerning the discovery and development activities by our
        licensees

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     .  public concern as to the safety and efficacy of drugs we and our
        competitors develop

     .  general market conditions

Anti-takeover provisions in our certificate of incorporation, bylaws,
stockholders rights plan and under Delaware law may discourage or prevent a
change of control.

     Provisions of our certificate of incorporation, bylaws and Section 203 of
the Delaware General Corporation Law could delay or prevent a change in control
of NPS. For example, our board of directors, without further stockholder
approval, may issue preferred stock that could delay or prevent a change in our
control as well as reduce the voting power of the holders of common stock, even
to the extent of losing control to others. In addition, our board of directors
has adopted a stockholder rights plan, commonly known as a "poison pill," that
may delay or prevent a change in control.

Item 6.   Exhibits and Reports on Form 8-K

          (a)  Exhibits

               27.1 Financial Data Schedule for the three months ended September
                    30, 2000



                                  SIGNATURES

     Pursuant to the requirements 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.


                               NPS Pharmaceuticals, Inc.


Date:  November 14, 2000       By:       /s/ James U. Jensen
                                  ----------------------------------------------
                                  James U. Jensen, Vice President
                                  Corporate Development and Legal Affairs
                                  (Executive Officer)

Date:  November 14, 2000       By:       /s/ Robert K. Merrell
                                  ----------------------------------------------
                                  Robert K. Merrell, Vice President, Finance,
                                  Chief Financial Officer and Treasurer
                                  (Principal Financial and Accounting Officer)

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