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                                                Filed Pursuant to Rule 424(b)(3)
                                                      Registration No. 333-30142
PROSPECTUS

                             CONNETICS CORPORATION

                         139,255 SHARES OF COMMON STOCK

     The stockholders named on page 29 are selling up to 89,255 shares of our
common stock together with up to 50,000 shares of common stock issuable upon the
exercise of outstanding warrants. We will only receive proceeds if the
warrantholders exercise the outstanding warrants.

     Our common stock is quoted on the Nasdaq National Market under the symbol
"CNCT." On June 19, 2000, the last reported sale price of our common stock was
$12.688 per share.

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     INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING
ON PAGE 3.

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     NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

                  The date of this prospectus is June 20, 2000
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                               TABLE OF CONTENTS

                                                           
Risk Factors................................................    3
Forward-Looking Statements..................................   10
Trademarks..................................................   10
Use of Proceeds.............................................   10
Dividend Policy.............................................   10
Price Range of Common Stock.................................   11
Business....................................................   12
Issuance of Common Stock to Selling Stockholders............   28
Selling Stockholders........................................   29
Plan of Distribution........................................   29
Legal Matters...............................................   31
Experts.....................................................   31
Where You Can Find Additional Information...................   31



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     You should only rely on the information contained in this document or to
which we have referred you. We have not authorized anyone to provide you with
information that is different. This document may be used only where it is legal
to sell these securities. The information in this document may only be accurate
on the date of this document.

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                                  RISK FACTORS

     You should carefully consider the following risks and all of the other
information included in or incorporated by reference into this prospectus before
buying our common stock.

RISKS RELATED TO OUR BUSINESS

WE MAY NEVER MAKE A PROFIT, AND STOCKHOLDERS MAY LOSE THEIR INVESTMENT.

     We have lost money every year since our inception. We had net losses of
$26.6 million in 1998 and $27.3 million in 1999. Our accumulated deficit was
$119.8 million at December 31, 1999. We expect to incur additional losses for at
least the next few years. We may not achieve profitability and, if we do reach
profitability, we may not be able to sustain it. If we do not achieve
profitability, our stock price may decline.

IF WE DO NOT OBTAIN THE CAPITAL NECESSARY TO FUND OUR OPERATIONS, WE WILL BE
UNABLE TO DEVELOP OR MARKET OUR PRODUCTS.

     We currently believe that our available cash resources will be sufficient
to fund our operating and working capital requirements for the next 12 months.
Accordingly, we may need to raise additional funding in the future. In
particular, we would need to raise additional funds if our relaxin clinical
trial is successful because our working capital needs will increase as we incur
additional regulatory and commercialization expenses for relaxin. Relaxin is a
hormone that occurs naturally in humans, and which we manufacture using
recombinant process. If we are unable to raise additional funds when needed, we
may not be able to market our products as planned or continue development of our
other products.

     We may need to raise additional funds through public or private financings,
strategic relationships or other arrangements. In particular, if our clinical
trial for scleroderma is successful, we would incur significant additional
expenditures associated with pursuing regulatory approval and eventual
commercialization of relaxin which would extend the date as of which we could
first achieve profitability. If we are unable to successfully complete
development and commercialization of relaxin, we may never achieve
profitability. If we need to raise additional money to fund our operations,
funding may not be available to us on acceptable terms, or at all.

IF WE FAIL TO PROTECT OUR PROPRIETARY RIGHTS, COMPETITORS MAY BE ABLE TO USE OUR
TECHNOLOGIES, WHICH WOULD WEAKEN OUR COMPETITIVE POSITION, REDUCE OUR REVENUES
AND INCREASE OUR COSTS.

     Our commercial success depends in part on our ability and the ability of
our licensors to protect our technology and processes.

     The foam technology used in our Luxiq and OLUX products is not covered by
issued patents but is the subject of pending patent applications. If we do not
obtain patent coverage for Luxiq and OLUX, it may be easier and more attractive
for potential new market entrants to develop and introduce competitive products.

     With regard to patent applications that we or our licensors have filed, or
patents issued to us or our licensors:

     - any pending patent applications may not issue as patents;

     - our competitors may successfully challenge or circumvent our patents; or

     - any patents which exist or are issued may not provide us with a
       competitive advantage.

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     In addition, others may obtain patents that contain claims which cover
products or processes that we make, have made, use, or sell. If a third party
claimed an intellectual property right to technology we use, we might be forced
to:

     - discontinue an important product or product line;

     - alter our products or processes to avoid infringement;

     - pay license fees and/or damages; and

     - cease certain activities.

     Under these circumstances, we may not be able to obtain a license to such
intellectual property on favorable terms, if at all. We may not succeed in any
attempt to redesign our products or processes to avoid infringement.

     A judgment adverse to us in any patent interference, litigation or other
proceeding arising in connection with these patent applications could materially
harm our business. In addition, the costs of any such proceeding may be
substantial whether or not we are successful.

     In addition, the patents in our relaxin patent portfolio begin to expire in
2002 in foreign countries and 2005 in the United States. Additional patents may
not issue, and if they do, they may not be sufficient to protect our relaxin
products.

IF OUR CORPORATE PARTNERS ARE NO LONGER WILLING OR ABLE TO FUND THE DEVELOPMENT
OF RELAXIN, OUR CURRENT PRODUCT REVENUE WILL NOT COVER THE COST OF FULLY
DEVELOPING AND COMMERCIALIZING RELAXIN.

     We depend on licensing agreements with our corporate partners to
successfully develop and commercialize our products. We also generate revenue by
licensing our products to third parties for specific territories and
indications. Our reliance on licensing arrangements with third parties carries
several risks, including the possibilities that:

     - a product development contract may expire or a relationship may be
       terminated, and we will not be able to attract a satisfactory alternative
       corporate partner within a reasonable time;

     - a corporate partner involved in the development of our products does not
       commit sufficient capital to successfully develop our products; and

     - we may be contractually bound to terms that, in the future, are not
       commercially favorable to us.

If any of these risks occurs, we may not be able to successfully develop our
products.

WE DEPEND ON THIRD PARTIES TO PROTECT AND MAINTAIN OUR PATENT PORTFOLIO.

     Nearly our entire patent portfolio is licensed from third parties, who are
responsible to varying degrees for the prosecution and maintenance of those
patents. Our success will depend on our ability, or the ability of our
licensors, to obtain and maintain patent protection on technologies, to preserve
trade secrets, and to operate without infringing the proprietary rights of
others. It is possible that before any of our products in development can be
commercialized, the related patents may have expired or be close to expiration,
thus reducing any advantage of the patent. Moreover, composition of matter
patent protection, which gives patent protection for a compound or a
composition, may not be available for some of our product candidates.

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IF WE DO NOT SUCCESSFULLY COMMERCIALIZE RELAXIN, WE MAY LOSE FUNDAMENTAL
INTELLECTUAL PROPERTY RIGHTS TO THE PRODUCT.

     Licenses with Genentech, Inc. and The Howard Florey Institute of
Experimental Physiology and Medicine require us to use our best efforts to
commercialize relaxin. Our failure to successfully commercialize relaxin may
result in the reversion of our rights under these licenses to Genentech and the
Florey Institute. The termination of these agreements and subsequent reversion
of rights could cause us to lose fundamental intellectual property rights to
relaxin. This would prohibit us from continuing our relaxin development
programs.

WE ARE SUBJECT TO FOREIGN EXCHANGE RISKS WHICH MAY INCREASE OUR OPERATIONAL
EXPENSES.

     We make payments to Boehringer Ingelheim for the production of relaxin in
Austrian schillings, and to CCL Pharmaceuticals for the production of Luxiq and
OLUX in pounds sterling. If the U.S. dollar depreciates against the schilling or
the pound, the payments that we must make will increase, which will increase our
expenses.

WE RELY ON OUR EMPLOYEES AND CONSULTANTS TO KEEP OUR TRADE SECRETS CONFIDENTIAL.

     We rely on trade secrets and proprietary know-how. We require each of our
employees, consultants and advisors to execute a confidentiality agreement
providing that all proprietary information developed or made known to the
individual during the course of the relationship will be kept confidential and
not used or disclosed to third parties except in specified circumstances. The
agreements also provide that all inventions conceived by an employee, consultant
or advisor, to the extent appropriate for the services provided during the
course of the relationship, shall be our exclusive property, other than
inventions unrelated to us and developed entirely on the individual's own time.
These agreements may not provide meaningful protection or adequate remedies for
misappropriation of our trade secrets in the event of unauthorized use or
disclosure of such information.

OUR USE OF HAZARDOUS MATERIALS EXPOSES US TO THE RISK OF ENVIRONMENTAL
LIABILITIES, AND WE MAY INCUR SUBSTANTIAL ADDITIONAL COSTS TO COMPLY WITH
ENVIRONMENTAL LAWS.

     Our research and development activities involve the controlled use of
hazardous materials, chemicals and various radioactive materials. We are subject
to federal, state and local laws and regulations governing the use, storage,
handling and disposal of these materials and certain waste products. In the
event of accidental contamination or injury from these materials, we could be
liable for any damages that result and any liability could exceed our resources.
We may also be required to incur significant costs to comply with environmental
laws and regulations as our research activities increase.

RISKS RELATED TO OUR PRODUCTS

IF WE DO NOT OBTAIN AND MAINTAIN GOVERNMENTAL APPROVALS FOR OUR PRODUCTS, WE
CANNOT SELL THESE PRODUCTS FOR THEIR INTENDED DISEASES.

     The process of obtaining and maintaining regulatory approvals for
pharmaceutical and biological drug products, and obtaining and maintaining
regulatory approvals to market these products for new indications, is lengthy,
expensive and uncertain. The manufacturing and marketing of drugs are subject to
continuing FDA and foreign regulatory review, and later discovery of previously
unknown problems with a product, manufacturing process or facility may result in
restrictions, including withdrawal of the product from the market. To obtain
approval, we must show in preclinical and clinical trials that our products are
safe and effective.

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     After we complete the clinical trials for a product, we must file a new
drug application if the product is classified as a new drug, or a biologics
license application if the product is classified as a biologic, which is a drug
based on natural substances. The FDA approval processes require substantial time
and effort, the FDA continues to modify product development guidelines, and the
FDA may not grant approval on a timely basis or at all. Clinical trial data can
be the subject of differing interpretation, and the FDA has substantial
discretion in the approval process. The FDA may not interpret our clinical data
the way we do. The FDA may also require additional clinical data to support
approval. The FDA can take between one and two years to review new drug
applications and biologics license applications, or longer if significant
questions arise during the review process. Even after such time and
expenditures, we may not obtain regulatory approval or the approval we get may
have strict limitations.

     In particular, relaxin is critical to our future success. We are initially
studying relaxin for the treatment of diffuse scleroderma, a serious disease
involving the excessive formation of connective tissue, and we are in earlier
stages of clinical development of relaxin for other indications, including
infertility and the treatment of blocked or restricted blood vessels in the arms
and legs. For relaxin to succeed, we will need, at a minimum, to demonstrate the
safety and efficacy of relaxin in these clinical studies.

     To market our products in countries outside of the United States, we and
our partners must obtain similar approvals from foreign regulatory bodies. The
foreign regulatory approval process includes all of the risks associated with
obtaining FDA approval, and approval by the FDA does not ensure approval by the
regulatory authorities of any other country. The process of obtaining these
approvals is time consuming and requires the expenditure of substantial
resources.

IF LUXIQ AND OLUX DO NOT ACHIEVE OR SUSTAIN MARKET ACCEPTANCE, OUR REVENUES WILL
NOT INCREASE AND MAY NOT COVER OUR OPERATING EXPENSES.

     Our future revenues will depend upon dermatologist and patient acceptance
of Luxiq and OLUX. Factors that could affect acceptance of Luxiq and OLUX
include:

     - satisfaction with existing alternative therapies;

     - the effectiveness of our sales and marketing efforts;

     - undesirable and unforeseeable side effects; and

     - the cost of the product as compared with alternative therapies.

     Since we have only had approval to sell Luxiq for one year, and OLUX was
only approved on May 26, 2000, we cannot predict the potential long-term patient
acceptance of either product.

IF WE ARE UNABLE TO DEVELOP ALTERNATIVE DELIVERY SYSTEMS FOR RELAXIN, PATIENTS
THAT DO NOT SUFFER FROM SEVERE DISEASES MAY NOT BE WILLING TO USE THE CURRENT
DRUG DELIVERY SYSTEM.

     In addition to demonstrating the safety and efficacy of relaxin in our
current clinical trials, we must meet several additional major development
objectives for relaxin. In particular, we may need to develop an alternative
means of delivering the drug. In our current clinical trials, relaxin is being
delivered through the use of an infusion pump. For a serious and life
threatening condition, such as diffuse scleroderma, this method of delivery may
be acceptable. However, we are pursuing other indications for relaxin, such as
treatment of infertility and peripheral arterial disease. For these indications,
we may need to develop an alternative delivery system; however, the known
biological properties of the relaxin molecule may decrease the availability of
certain delivery systems. If we are not able to develop a suitable alternative
delivery system for relaxin, we may be unable to market relaxin effectively for
indications that are not life threatening, such as infertility, and the
commercial

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potential of relaxin would be seriously harmed. Our inability to develop relaxin
to its full commercial potential would harm our future prospects and revenue
growth and our stock price would likely decline.

WE RELY ON THIRD PARTIES TO CONDUCT CLINICAL TRIALS FOR OUR PRODUCTS, AND THOSE
THIRD PARTIES MAY NOT PERFORM SATISFACTORILY.

     We do not have the ability to independently conduct clinical studies, and
we rely on third parties to perform this function. If these third parties do not
perform satisfactorily, we may not be able to locate acceptable replacements or
enter into favorable agreements with them, if at all. If we are unable to rely
on clinical data collected by others, we could be required to repeat clinical
trials, which could significantly delay commercialization and require
significantly greater capital.

MANUFACTURING DIFFICULTIES COULD DELAY COMMERCIALIZATION OF OUR PRODUCTS.

     We depend on third parties to manufacture our products, and each product is
manufactured by a sole source manufacturer. Boehringer Ingelheim Austria GmbH,
SmithKline Beecham, and CCL Pharmaceuticals are our sole source manufacturers
for our products. All of our contractors must comply with the applicable FDA
good manufacturing practice regulations, which include quality control and
quality assurance requirements as well as the corresponding maintenance of
records and documentation. Manufacturing facilities are subject to ongoing
periodic inspection by the FDA and corresponding state agencies, including
unannounced inspections, and must be licensed before they can be used in
commercial manufacturing of our products. If our sole source manufacturers
cannot provide us with our product requirements in a timely and cost-effective
manner, if the product they are able to supply cannot meet commercial
requirements for shelf life, or if they are not able to comply with the
applicable good manufacturing practice regulations and other FDA regulatory
requirements, our sales of marketed products could be reduced and we could
suffer delays in the progress of clinical trials for products under development.
We do not have control over our third-party manufacturers' compliance with these
regulations and standards.

IF WE ARE UNABLE TO CONTRACT WITH THIRD PARTIES TO MANUFACTURE AND DISTRIBUTE
OUR PRODUCTS IN SUFFICIENT QUANTITIES, ON A TIMELY BASIS, OR AT AN ACCEPTABLE
COST, WE MAY BE UNABLE TO MEET DEMAND FOR OUR PRODUCTS AND MAY LOSE POTENTIAL
REVENUES.

     We have no manufacturing or distribution facilities for any of our
products. Instead, we contract with third parties to manufacture our products
for us. We have manufacturing agreements with the following companies:

     - Boehringer Ingelheim Austria GmbH for relaxin;

     - CCL Pharmaceuticals, a Division of CCL Industries Limited, a U.K.
       corporation, for Luxiq and OLUX;

     - SmithKline for Ridaura; and

     - Genentech, Inc. for Actimmune.

     If these third parties are unable or unwilling to produce our products in
sufficient quantities, with appropriate quality for our clinical trials and
subsequent commercialization, if any, and under commercially reasonably terms,
our business will suffer.

     In addition, we have entered into an agreement with CORD Logistics, Inc. to
distribute Luxiq, Ridaura and Actimmune. If CORD is unable to continue to
distribute our products in an effective manner or if we are unable to maintain
sufficient personnel with the appropriate levels of experience

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to manage this function, we may be unable to meet the demand for our products
and we may lose potential revenues.

RISKS RELATED TO OUR INDUSTRY

WE FACE INTENSE COMPETITION, WHICH MAY LIMIT OUR COMMERCIAL OPPORTUNITIES AND
OUR ABILITY TO BECOME PROFITABLE.

     The pharmaceutical and biotechnology industries are highly competitive.
Products and therapies currently on the market or under development could
compete directly with some of our products. Numerous pharmaceutical and
biotechnology companies and academic research groups are engaged in research and
development efforts with respect to therapeutic products targeted at diseases or
conditions addressed by us. Our commercial opportunities will be reduced or
eliminated if our competitors develop and market products that are more
effective, have fewer or less severe adverse side effects or are less expensive
than our products. In addition, many of our existing or potential competitors,
particularly large pharmaceutical companies, have substantially greater
financial, technical and human resources than we have. Many of these competitors
have more collective experience than we do in undertaking preclinical testing
and human clinical trials of new pharmaceutical products and obtaining
regulatory approvals for therapeutic products. Accordingly, our competitors may
succeed in developing and marketing products either that are more effective than
those that we may develop, alone or with our collaborators, or that are marketed
before any products we develop are marketed. We believe that competitive factors
in our industry include:

     - scientific and technological expertise;

     - sales and marketing resources;

     - operational competence in developing, protecting, manufacturing and
       marketing products and obtaining timely regulatory agency approvals;

     - managerial competence in identifying and pursuing product in-licensing
       and acquisition opportunities; and

     - financial resources.

     Physicians may not adopt our products over competing products, and our
products may not offer an economically feasible alternative to existing modes of
therapy.

IF THIRD PARTY PAYORS WILL NOT PROVIDE COVERAGE OR REIMBURSE PATIENTS FOR THE
USE OF OUR PRODUCTS, OUR REVENUES AND PROFITABILITY WILL SUFFER.

     Our products' commercial success is substantially dependent on whether
third-party reimbursement is available for the use of our products by hospitals,
clinics and doctors. Medicare, Medicaid, health maintenance organizations and
other third-party payers may not authorize or otherwise budget for the
reimbursement of our products. In addition, they may not view our products as
cost-effective and reimbursement may not be available to consumers or may not be
sufficient to allow our products to be marketed on a competitive basis.
Likewise, legislative proposals to reform health care or reduce government
programs could result in lower prices for or rejection of our products. Changes
in reimbursement policies or health care cost containment initiatives that limit
or restrict reimbursement for our products may cause our revenues to decline.

IF PRODUCT LIABILITY LAWSUITS ARE BROUGHT AGAINST US, WE MAY INCUR SUBSTANTIAL
COSTS.

     The testing and marketing of pharmaceutical products entails an inherent
risk of product liability. Our insurance may not provide adequate coverage
against potential product liability claims or losses, and insurance coverage may
not continue to be available to us on reasonable terms or at all. Even if we are
ultimately successful in product liability litigation, the litigation would
consume

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substantial amounts of our financial and managerial resources, and might create
adverse publicity, all of which would impair our ability to generate sales.

RISKS RELATED TO OUR STOCK

OUR STOCK PRICE IS VOLATILE AND THE VALUE OF YOUR INVESTMENT IN OUR STOCK COULD
DECLINE IN VALUE.

     The market prices for securities of biotechnology companies like our
company have been and are likely to continue to be highly volatile. As a result,
investors in these companies often buy at very high prices only to see the price
drop substantially a short time later, resulting in an extreme drop in value in
the stock holdings of these investors. In addition, the volatility could result
in securities class action litigation. Any litigation would likely result in
substantial costs, and divert our management's attention and resources.

IF OUR OFFICERS, DIRECTORS AND PRINCIPAL STOCKHOLDERS ACT TOGETHER, THEY MAY BE
ABLE TO CONTROL OUR MANAGEMENT AND OPERATIONS AND THEY MAY MAKE DECISIONS THAT
ARE NOT IN THE BEST INTERESTS OF OTHER STOCKHOLDERS.

     Our directors, executive officers and principal stockholders and their
affiliates currently beneficially own in the aggregate approximately 65% of our
outstanding common stock. Accordingly, they collectively have the ability to
determine the election of all of our directors and to determine the outcome of
most corporate actions requiring stockholder approval. They may exercise this
ability in a manner that advances their best interests and not necessarily those
of other stockholders. This concentration of ownership may also have the effect
of delaying, deferring or preventing a change in control of our company, even if
the change in control would be beneficial to other stockholders.

OUR CHARTER DOCUMENTS AND DELAWARE LAW CONTAIN PROVISIONS THAT COULD DELAY OR
PREVENT AN ACQUISITION OF US, EVEN IF THE ACQUISITION WOULD BE BENEFICIAL TO OUR
STOCKHOLDERS.

     Our certificate of incorporation authorizes our board of directors to issue
undesignated preferred stock and to determine the rights, preferences,
privileges and restrictions of the preferred stock without further vote or
action by our stockholders. The issuance of preferred stock could make it more
difficult for third parties to acquire a majority of our outstanding voting
stock. We also have a stockholder rights plan, which entitles existing
stockholders to rights, including the right to purchase shares of preferred
stock, in the event of an acquisition of 15% or more of our outstanding common
stock, or an unsolicited tender offer for such shares. The existence of the
rights plan could delay, prevent, or make more difficult a merger or tender
offer or proxy contest involving us. Other provisions of Delaware law and of our
charter documents, including a provision eliminating the ability of stockholders
to take actions by written consent, could also delay or make difficult a merger,
tender offer or proxy contest involving us. Further, our stock option and
purchase plans generally provide for the assumption of such plans or
substitution of an equivalent option of a successor corporation or,
alternatively, at the discretion of the board of directors, exercise of some or
all of the option stock, including non-vested shares, or acceleration of vesting
of shares issued pursuant to stock grants, upon a change of control or similar
event.

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                           FORWARD-LOOKING STATEMENTS

     This prospectus contains forward-looking statements within the meaning of
Section 27A of the Securities Act, and Section 21E of the Securities Exchange
Act. When used in this prospectus, the words "anticipate," "believe,"
"estimate," "will," "may," "intend" and "expect" and similar expressions
identify forward-looking statements. Although we believe that our plans,
intentions and expectations reflected in these forward-looking statements are
reasonable, these plans, intentions or expectations may not be achieved.
Forward-looking statements in this prospectus include, but are not limited to,
those relating to:

     - the commercialization of our currently marketed products;

     - the progress of our product development programs;

     - developments with respect to clinical trials and the regulatory approval
       process;

     - developments related to acquisitions and clinical development of drug
       candidates; and

     - developments relating to the growth of our sales and marketing
       capabilities.

     Actual results, performance or achievements could differ materially from
those contemplated, expressed or implied, by the forward-looking statements
contained in this prospectus. Important factors that could cause actual results
to differ materially from our forward-looking statements are set forth in this
prospectus, including under the heading "Risk Factors." These factors are not
intended to represent a complete list of the general or specific factors that
may affect us. You should recognize that other factors, including general
economic factors and business strategies, may be significant, presently or in
the future, and the factors set forth in this prospectus may affect us to a
greater extent than indicated. All forward-looking statements attributable to us
or persons acting on our behalf are expressly qualified in their entirety by the
cautionary statements set forth in this prospectus. Except as required by law,
we undertake no obligation to update any forward-looking statement, whether as a
result of new information, future events or otherwise.

                                   TRADEMARKS

     Connetics(R), Ridaura(R), ConXn(R), and the interlocking globe design are
registered trademarks of Connetics. We also own the trademarks Luxiq(TM) and
OLUX(TM). ACTIMMUNE(R) is a registered trademark of Genentech, Inc. All other
trademarks or service marks appearing in this prospectus are the property of
their respective companies.

                                USE OF PROCEEDS

     We will not receive any proceeds from the sale of the shares of our common
stock by the selling stockholders. However, upon the exercise of the outstanding
warrants we will receive proceeds of up to $211,406.25. We intend to use the
proceeds from the exercise of the warrants for working capital and other general
corporate purposes.

                                DIVIDEND POLICY

     We have not declared or paid cash dividends on our common stock in the past
and do not intend to pay dividends on our common stock in the foreseeable
future.

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                          PRICE RANGE OF COMMON STOCK

     Our common stock commenced trading on the Nasdaq National Market under the
symbol CNCT on February 1, 1996. The following table sets forth, for the periods
indicated, the intra-day high and low bid prices per share of common stock on
the Nasdaq National Market:



                                                               HIGH      LOW
                                                              ------    -----
                                                                  
2000
  Second Quarter (through June 19, 2000)....................  $13.44    $5.75
  First Quarter.............................................   17.88     7.00
1999
  Fourth Quarter............................................   10.25     4.06
  Third Quarter.............................................    7.63     4.81
  Second Quarter............................................    8.00     5.88
  First Quarter.............................................   10.25     4.50
1998
  Fourth Quarter............................................    5.88     2.00
  Third Quarter.............................................    4.50     2.13
  Second Quarter............................................    6.06     3.25
  First Quarter.............................................    5.56     3.00


     The last reported sale price of our common stock on the Nasdaq National
Market on June 19, 2000 was $12.688. As of June 19, 2000, there were
approximately 170 stockholders of record of our common stock. Because many of
these shares are held by brokers and other institutions on behalf of
stockholders, we are unable to estimate the total number of stockholders
represented by these record holders.

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                                    BUSINESS

OVERVIEW

     We are developing a biotechnology product that has significant potential to
treat multiple diseases and we develop and commercialize pharmaceutical
products. Our product is a recombinant form of a natural hormone called relaxin.
Relaxin reduces the hardening, or fibrosis, of skin and organ tissue, dilates
existing blood vessels and stimulates new blood vessel growth. We currently have
clinical trials underway with relaxin for scleroderma and infertility and have
submitted an application with the FDA to commence testing the efficacy of
relaxin to treat blocked or restricted blood vessels in the extremities, which
is known in the medical field as peripheral arterial disease. We currently
market three products targeted at specialty medical markets. Specialty medical
markets are characterized by markets with large patient populations that are
served by relatively small, and therefore more accessible, groups of treating
physicians. Our initial commercial focus is on dermatology. If we receive FDA
approval to commercialize relaxin, we intend to expand our commercial efforts to
the rheumatology, infertility and other specialty medical markets.

     We are building our business by developing relaxin for a number of
indications, and are conducting multiple clinical trials. These include a
pivotal trial for scleroderma and two trials to determine safety and efficacy
for infertility. In addition, in March 2000, we submitted an investigational new
drug application to initiate a clinical trial to determine relaxin's efficacy
for the treatment of peripheral arterial disease. In our commercial business, we
are offering products with clinically proven therapeutic advantages and are
providing quality customer service to physicians through our experienced sales
and marketing staff. By pursuing a dual business model of developing relaxin for
a variety of significant markets, while at the same time commercializing our
current products, we believe we have a diversified and balanced strategy. We
maintain North American rights for relaxin and have entered into three
collaborative relationships for this program for markets outside of the United
States.

CONXN -- OUR RELAXIN DEVELOPMENT PROGRAM

OVERVIEW

     We manufacture a cloned version of the natural hormone relaxin. Relaxin
circulates in the blood and has a broad spectrum of biological activities. It
plays a role during pregnancy in pelvic remodeling and increasing blood supply
to the fetus. Relaxin may also enhance the kidneys' ability to remove toxins
from the woman's body. In a non-pregnant state, administering relaxin stimulates
blood flow to oxygen-deprived tissue, and inhibits the hardening or fibrosis
associated with a number of diseases. Relaxin is in a category of hormones that
includes erythropoetin, growth hormone and insulin which circulate in the blood
in response to specific stimuli. These hormones tend to have an excellent safety
profile since they circulate naturally in the blood and their sites of targeted
activity are separate from the site where they are produced. By contrast, some
biotechnology products that act locally tend to cause significant toxicities
when they are administered systemically, or into the bloodstream. In addition,
hormones in the category that relaxin is in are highly selective in their
biological actions. Given relaxin's biological properties and its strong safety
profile, the hormone has significant potential for the treatment of a variety of
human diseases.

     We believe the most significant near-term use of relaxin is for the
treatment of progressive systemic sclerosis, a severe form of scleroderma that
is life threatening and afflicts approximately 70,000 persons in the United
States. Scleroderma is a disease where skin and organs harden, or become
fibrotic, with unknown causes. We completed patient enrollment in a clinical
trial intended to provide sufficient data for approval, known as a Phase II/III
pivotal clinical trial, for the treatment of

                                       12
   13

scleroderma in December 1999, and anticipate announcing results of that trial in
the fourth quarter of 2000.

     Infertility, peripheral vascular disease, cardiovascular disease, and
kidney disease represent opportunities for relaxin's other biologic properties,
namely, enhancing blood flow to oxygen-deprived tissues and enhancing kidney
function. There are two ways to increase blood flow to a specific region. The
first is by increasing the size of the blood vessel, or vasodilation, and the
second is by generating more blood vessels, or angiogenesis. Relaxin
accomplishes both by inducing factors that act locally. In December 1999, we
initiated enrollment in two clinical trials to determine safety and efficacy for
the treatment of infertility. In March 2000, we filed an investigational new
drug application to begin a clinical trial to determine efficacy for the
treatment of peripheral arterial disease. We licensed the exclusive worldwide
rights to develop and commercialize recombinant human relaxin from Genentech,
except for co-exclusive rights with Genentech for reproductive indications. Our
strategy has been to retain U.S. rights for all potential indications for the
drug.

     The status of our relaxin development program is as follows:


      DISEASE                       STATUS                              MARKETING(1)
                                                     
- --------------------------------------------------------------------------------------------------
 Scleroderma         Pivotal clinical trial enrollment     Connetics -- United States and other
                     completed; results expected by year   Medeva -- Europe
                     end 2000                              Paladin -- Canada
                                                           Suntory -- Japan
                                                           Faulding -- Australia
- --------------------------------------------------------------------------------------------------
 Infertility(2)      Trials ongoing to determine safety    Connetics -- United States and other
                     and efficacy                          Medeva -- Europe
                                                           Paladin -- Canada
                                                           Faulding -- Australia
- --------------------------------------------------------------------------------------------------
 Peripheral          Investigational new drug application  Connetics -- United States and other
 arterial disease    submitted, expect to initiate         Medeva -- Europe
                     clinical trials to determine          Paladin -- Canada
                     efficacy by fall 2000                 Faulding -- Australia
- --------------------------------------------------------------------------------------------------
 Kidney failure      Expect to initiate clinical trials    Connetics -- United States and other
                     to determine efficacy in late 2000    Medeva -- Europe
                                                           Paladin -- Canada
                                                           Faulding -- Australia
- --------------------------------------------------------------------------------------------------
 Organ fibroses,     Preclinical development               Connetics -- United States and other
 prevention of                                             Medeva -- Europe
 scarring                                                  Paladin -- Canada
                                                           Faulding -- Australia
- --------------------------------------------------------------------------------------------------


- -------------------------
(1) We retain the rights to non-U.S. territories that are not the subject of
    collaboration agreements.

(2) We have co-exclusive rights with Genentech for infertility and other
    reproductive indications.

THE PRIMARY BIOLOGICAL ACTIVITIES OF RELAXIN

     Hundreds of researchers have tested and analyzed the biology of relaxin
since the 1950s. Relaxin was first identified over 70 years ago as a substance
that circulates in the blood stream during pregnancy. While we are still
learning about relaxin as a treatment for human disease, the multi-
                                       13
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faceted biological mechanisms of the hormone are well understood. Relaxin has
three principle biological activities:

     - anti-fibrosis, or reducing the hardening and scarring of tissue;

     - vasodilation, or expanding blood vessels; and

     - angiogenesis, or stimulating the production of new blood vessels.

These natural activities of the hormone may be useful for the treatment of a
variety of diseases. Because the biological effects of relaxin have been shown
to be independent of gender or reproductive state, relaxin has the potential to
have numerous therapeutic benefits in humans.

Anti-Fibrosis

     Relaxin plays a key role in blocking the formation of excessive scar or
fibrotic tissue by regulating both the material that causes tissue scarring as
well as the material that breaks down scar tissue. Specifically, relaxin
decreases the production of collagen, which is the material that makes up scar
tissue. In addition, relaxin promotes collagen breakdown by stimulating the
production of collagenase, an enzyme that breaks down collagen, and by
decreasing the production of a known agent that blocks collagenase activity. In
preclinical studies, relaxin demonstrated a dose-dependent ability to inhibit
collagen accumulation in fibrosis models. In animal studies, relaxin has been
shown to inhibit organ fibroses in the lung and kidney, and to improve organ
function. These studies together, with the human data we have collected in
scleroderma patients, demonstrate that relaxin holds significant promise as an
anti-fibrotic agent in the treatment of various fibrotic diseases and disorders.

Vasodilation

     Relaxin induces vasodilation, the expansion of blood vessels, by
stimulating the secretion of nitric oxide into the blood stream. Nitric oxide
relaxes and expands blood vessels, enabling the vessels to carry more blood.
Renal vasodilation occurs during pregnancy and has been observed in various
animal studies after relaxin administration. In addition, recently published
research indicates that relaxin may be the hormone responsible for the dramatic
increases in kidney function that occur during a normal pregnancy. The
publication cites research in which relaxin treatment in animals significantly
increased the kidneys' ability to filter blood by 33%, and increased blood flow
to the kidney by 49%.

Angiogenesis

     Angiogenesis refers to the creation of new blood vessels, which has shown
promise in animal models and human clinical trials for the treatment of
ischemic, or oxygen deprived, tissue. Vascular endothelial growth factor, or
VEGF, and basic fibroblast growth factor, or bFGF, have individually been shown
to promote angiogenesis in animal models and human studies of heart disease as
well as peripheral vascular disease. However, when bFGF and VEGF proteins are
administered systemically, they have been shown to cause a variety of adverse
side effects such as low blood pressure, irregular heartbeat, and reduced
cardiac output. Due to these toxicities, there is limited therapeutic value in
administering bFGF and VEGF directly into the bloodstream. In contrast, relaxin
induces angiogenesis selectively in animal models when it is introduced into the
bloodstream, because it stimulates the production of both VEGF and bFGF only at
the site where the tissue is oxygen-deprived, and not throughout the body.
Relaxin circulates in the blood naturally during pregnancy, and has an
established safety profile based on Phase II clinical trials. We believe,
therefore, that relaxin may have more potential to treat vascular diseases than
bFGF or VEGF. In addition, studies show that when VEGF and bFGF are both
stimulated, there is a synergistic therapeutic effect that is greater than when
either growth factor is present alone.

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   15

RELAXIN DEVELOPMENT PROGRAMS

Scleroderma

     The first indication for which we are developing relaxin is scleroderma, a
serious disease involving the excessive formation of connective tissue.
Scleroderma is characterized by thickening and hardening of the skin and, in
severe cases, the internal organs, including the heart, lungs, kidneys and the
organs of the gastrointestinal tract. Scleroderma can cause extensive
disfigurement and quality of life impairment, often making it impossible for
patients to carry out the most routine daily functions. The disease also affects
lung and kidney function causing serious illness and, in the most severe cases,
death. The Scleroderma Research Foundation estimates that between 300,000 and
500,000 individuals in the United States, of whom 80% are women, suffer from
various forms of this disease, with approximately 70,000 having a severe form of
scleroderma called progressive systemic sclerosis. We have been granted orphan
drug status in the United States for relaxin for treatment of progressive
systemic sclerosis.

     The most serious form of progressive systemic sclerosis, called diffuse
scleroderma, is often fatal. Few therapies exist that ease the pain and
suffering of scleroderma patients. In June 1997, we announced results of a Phase
II trial for relaxin in patients with diffuse scleroderma. The results of the
Phase II trial showed that the administration of 25 micrograms per kilogram of
body weight per day of relaxin caused a statistically significant (p = 0.04)
reduction in skin score the primary clinical endpoint, and positive trends were
seen in eleven other secondary disease parameters. Skin score is a physical
evaluation of a patient's skin measuring the thickness of the skin at 17 points
on the body. In the 25 micrograms per day group, 71% of the patients showed a
7-point or better improvement in skin score as compared to 37% of the patients
receiving placebo. A 7-point reduction in skin score represents approximately a
25% reduction in skin fibrosis. No patients receiving the 25 microgram dose got
worse while on therapy whereas 21% of the placebo treated patients worsened.
Patient lung function was a secondary parameter as measured by forced vital
capacity. Diffuse scleroderma patients typically lose approximately 8% of lung
function every year. Over the duration of the six-month study, the patients
treated with placebo experienced a 3.8% decrease in lung function, compared to a
1.0% decrease in the patients receiving 25 micograms. This outcome demonstrated
a positive trend in slowing progression of loss of lung function, but was not
statistically significant. In addition to the 25 microgram and placebo groups,
in the Phase II trial we also evaluated a group of patients receiving a higher
daily dose of 100 micrograms per kilogram of body weight per day. The 100
microgram dose level was safe; however, we did not observe a significant
clinical effect versus placebo.

     To our knowledge, recombinant human relaxin is the only therapy to show
statistically significant efficacy in a double-blind, placebo-controlled trial
for scleroderma. Based partly on the results of our clinical trials for
scleroderma, we believe that relaxin may have a beneficial effect on reducing
fibrotic tissue and may serve as a treatment for scleroderma. We completed
enrollment of a 239-patient Phase II/III pivotal clinical trial of relaxin for
the treatment of diffuse scleroderma in December 1999. We anticipate announcing
trial results by the end of 2000. If the results from this trial are positive,
we intend to submit a biologics license application to the FDA requesting
clearance to market relaxin for the treatment of scleroderma in 2001.

Infertility

     Industry sources estimate that one out of six American couples is
infertile, with sixty percent of the cases being due to disorders in the woman.
One half of these problems in women are caused by pelvic factors, including how
receptive the endometrium is to implantation of an embryo. Recent technological
progress in the area of infertility, including the development of techniques for
controlled ovarian hyperstimulation and donor embryo transfers, has resulted in
approximately 75,000 births

                                       15
   16

annually in the United States from assisted reproductive technologies. However,
despite the progress, a successful pregnancy occurs in only approximately 20% of
in vitro fertilization cycles started. Two major causes of infertility are the
failure of the embryo to implant in the uterus, and failure of the embryo and
fetus to receive adequate blood flow to develop and grow.

     The promise of relaxin to treat infertility is based on its ability to
stimulate new blood vessel growth in the endometrium. We believe this mechanism
of action is due to relaxin's ability to induce VEGF, which is a potent
angiogenic agent, locally in the cells of the endometrium. Endometrial blood
flow is believed to be important in determining how receptive the endometrial
lining is to implantation of an embryo. We believe that, by enhancing
endometrial blood flow, relaxin treatment may increase the likelihood that an
embryo will successfully implant in the endometrium, and therefore would
increase pregnancy success rates. In addition, an increase in the rate of embryo
implantation would reduce the need for multiple embryo transfers in in vitro
fertilization cycles, and hence reduce the costs and high frequency of multiple
births from women undergoing in vitro fertilization treatments.

     An analysis of relaxin levels produced by cultured ovarian cells obtained
from in vitro fertilization subjects shows that relaxin levels are positively
correlated with implantation and full term pregnancy. Relaxin has been
associated with placental blood flow in the developing placenta in pregnant
women. Other studies have associated relaxin with the growth of new blood
vessels in the endometrium of monkeys. In addition, 72% of all women receiving
relaxin in our scleroderma clinical trial reported heavier than usual menstrual
bleeding. Researchers have correlated heavy menstrual bleeding with increased
uterine artery blood flow. Accordingly, we believe that relaxin may be useful in
the treatment of infertility. In December 1999, we initiated two clinical trials
with relaxin to determine the safety and efficacy for the treatment of
infertility. The trials have been designed to test relaxin's ability to cause
both increased blood flow to and thickening in the endometrium, which may
enhance implantation of the embryo. We are conducting reproductive toxicology
tests in animals in parallel with the trials in anticipation of studying relaxin
in women trying to get pregnant.

Peripheral Arterial Disease

     Peripheral arterial disease is a syndrome characterized by inadequate blood
flow to the extremities, particularly the lower limbs. Peripheral arterial
disease often leads to severe leg pain and debilitating ulcers due to chronic
oxygen deprivation of the lower extremities. In its more serious manifestations,
patients with peripheral arterial disease can develop gangrene, which may result
in amputation of the affected limb. It is caused by a variety of serious medical
conditions, but the single most common cause is diabetes mellitus or Type II
diabetes. As the incidence of Type II diabetes is increasing in both developed
and developing nations, and because there are limited therapeutic options for
treatment, peripheral arterial disease is becoming an increasingly frequent
medical problem.

     The promise of relaxin to treat peripheral arterial disease is based on its
ability to increase blood flow to oxygen-deprived tissue through its
vasodilatory and angiogenic activities. Relaxin's vasodilatory property relates
to its ability to stimulate the secretion of nitric oxide at selective targets
without side effects. Nitric oxide is an agent known to cause vasodilation and
improve vascularization, or blood flow. There is evidence that nitric oxide
synthesis is impaired in patients with peripheral arterial disease, and
restoration of nitric oxide levels in the blood vessels by the administration of
a known nitric oxide stimulator reduced the severe pain experienced by
peripheral arterial disease patients due to constricted blood vessels. Clinical
studies have shown that other agents that cause vasodilation, such as
prostacyclin, alleviated the acute symptoms of peripheral arterial disease and
improved ulcer healing, but are also associated with side effects, including low
blood pressure. Although there are drugs currently available for pain due to
constricted blood vessels, surgery is the only option available for more severe
incidences. We believe that relaxin, although it is administered systemically,
may

                                       16
   17

have a specific therapeutic effect at the precise location where more blood flow
is needed, and may have a positive effect in the treatment of more severe
incidences of the disease.

     Relaxin may also be beneficial in treating peripheral arterial disease due
to its angiogenic activity. Relaxin stimulates the growth of new blood vessels
at the site of oxygen-deprived tissue through a several step process, further
enhancing the blood flow to the site of oxygen-deprived tissue. At this site,
macrophages, which are cells that help fight infection and injury, become
activated. Relaxin is known to bind to activated macrophages, which in turn
stimulates the production of VEGF and bFGF. These two growth factors play a
potent role in the growth of new blood vessels.

     Clinical trials using porcine relaxin for the treatment of peripheral
arterial disease have been published prior to the era of recombinant DNA
technology. In these studies, improved blood flow and healing of oxygen deprived
ulcers was reported. Forty-three patents were treated with porcine relaxin daily
and efficacy was judged either by skin temperature or blood flow to digits and
segments. Mean skin temperature, compared to baseline, increased over six months
by approximately 3[degrees]C, indicating increased blood flow. Some patients
experienced healing of ulcers, typically within 3 months of therapy.
Additionally, patients with Raynaud's symptoms, or extreme sensitivity to cold
causing restriction of blood vessels, experienced improvement in their symptoms.
Finally, two patients taking relaxin who were known to have heart disease and
chest pain, had a dramatic decrease in their need for nitroglycerin tablets,
which stimulate the production of nitric oxide. Withdrawal of therapy or
conversion to a much less potent relaxin therapy resulted in recurrence of
symptoms and decline in skin temperatures.

     We have recently submitted an investigational new drug application to the
FDA to initiate a Phase II clinical trial with relaxin to treat peripheral
arterial disease. Our peripheral arterial disease trial will also examine
relaxin's effect in treating kidney and cardiovascular disease, which are often
present in patients with peripheral arterial disease.

Organ Fibroses

     We believe that relaxin may have further potential in treating
organ-specific fibroses, such as kidney, pulmonary, and liver fibroses. Each of
these fibrotic conditions has a common cause, namely the production of excessive
amounts of collagen that the body is unable to break down adequately. Relaxin's
ability to interrupt the production of and to promote the breakdown of scarred
or hardened tissue may make it effective in the treatment of such diseases.
Relaxin may have potential for treating kidney fibrosis that occurs from
diabetes and other diseases leading to impairment of the kidney, which are
currently treated with steroids and angiotensin-converting enzyme inhibitors. We
are also exploring the possibility of using relaxin to treat cardiac diseases,
specifically the scarring of the heart that occurs in heart attacks,
atherosclerosis and hypertension, as well as vessel blockage following
angioplasty. There may also be potential for the treatment of chronic
inflammation and scarring in the walls of the lungs, and fibrosis induced in the
liver by chronic hepatitis or cirrhosis of the liver.

RELAXIN STRATEGIC AGREEMENTS

     To date, we have entered into four strategic agreements for our relaxin
program for markets outside of the United States. We have licensed rights to
develop and commercialize relaxin to Medeva Plc for Europe, Suntory
Pharmaceuticals, Ltd. for Japan, Paladin Labs, Inc. for Canada, and F.H.
Faulding & Co. for Australia. Our license agreements with these international
companies are financially and commercially valuable as they offset much of the
costs associated with developing relaxin and will make it possible to
commercialize the product in geographical markets outside of our focus. In
combination, the three agreements may potentially provide approximately $52
million in license, development, milestone and equity payments, plus royalties
on product sales for the successful development of relaxin for the treatment of
scleroderma. We may receive additional milestone

                                       17
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payments for the approval of additional indications outside of the United
States. We may pursue additional license agreements for other foreign markets,
and intend to retain rights for the United States. We have entered into a
collaborative research agreement with another company for the development of a
new delivery system for relaxin that may be more convenient than the current
pump delivery system.

COMMERCIALIZATION AND DERMATOLOGY ACTIVITIES

     We are currently selling three products targeted at specialty medical
markets, and developing others. These products include:



   PRODUCT                    DISEASE                     STATUS             MARKETING
                                                             
 Luxiq         Mild to moderate scalp dermatoses       Marketed       North America
- ----------------------------------------------------------------------------------------------
 OLUX          Moderate to severe scalp dermatoses     New drug       Worldwide
                                                       application
                                                       approved
- ----------------------------------------------------------------------------------------------
 Liquipatch    Various diseases of the skin            In             North America(1)
                                                       development
- ----------------------------------------------------------------------------------------------
 Other foam    Various diseases of the skin            In             North America
 formulations                                          development
- ----------------------------------------------------------------------------------------------
 Ridaura       Rheumatoid arthritis                    Marketed       United States
- ----------------------------------------------------------------------------------------------
 Actimmune     Chronic granulomatous disease           Marketed       United States until
                                                                      December 31, 2001
                                                                      (royalties thereafter)
- ----------------------------------------------------------------------------------------------


- -------------------------
(1) Soltec reserved rights to certain specific Liquipatch formulations for North
    America.

     Our commercialization activities target specialty medical markets, which
are characterized by markets with large patient populations that are served by
relatively small, and therefore accessible, groups of treating physicians. In
our commercial business, we are offering products with clinically proven
therapeutic advantages and are providing quality customer service to physicians
through our experienced and focused sales and marketing staff. Our commercial
strategy permits us to effectively reach the majority of the treating
physicians. Currently, our primary commercial focus is on dermatology.
Approximately 6,000 of the 8,500 U.S. dermatologists account for 90% of the
prescriptions written by dermatologists.

     Dermatological diseases often persist for an extended period of time and
are treated with clinically proven drugs that are currently delivered in a
variety of formulations, including solutions, creams, gels and ointments. We
believe that these existing delivery systems often inadequately address a
patient's needs for efficacy and cosmetic elegance, and that the failure to
address those needs may decrease patient compliance. We have two foam-based
products for the treatment of scalp dermatoses: Luxiq, which we currently
market, and OLUX, which the FDA approved in late May 2000. We believe that our
proprietary foam delivery system has significant treatment and cosmetic
advantages over conventional therapies for scalp dermatoses. These advantages
include improved efficacy due to higher absorption and more localized delivery
of the active agent. The unique foam formulation liquefies when applied to the
skin, and enables rapid penetration of the active

                                       18
   19

dermatologic agent, thus enhancing efficacy. When the foam is applied, it dries
quickly, is not greasy, and does not stain or have any odor. As a result, we
believe that the combination of the increased efficacy and the cosmetic elegance
of the foam may actually improve patient compliance and satisfaction.

Luxiq Foam

     Luxiq is a foam formulation of betamethasone valerate, a mid-potency
topical steroid which is prescribed for the treatment of mild to moderate
steroid responsive scalp dermatoses such as psoriasis, eczema and seborrheic
dermatitis. We licensed the North American rights from Soltec Research Pty Ltd.,
a subsidiary of F.H. Faulding & Co., Ltd., to develop and commercialize Luxiq.
In our pivotal trial, patients treated with Luxiq experienced a statistically
significant improvement over patients treated with placebo or a currently
approved betamethasone valerate mid-potency lotion. In March 1999, we received
FDA clearance for Luxiq and in April 1999 we initiated commercial sales in the
United States.

OLUX Foam

     OLUX is a foam formulation of clobetasol propionate, a super high-potency
topical steroid which we are developing for the treatment of moderate to severe
steroid-responsive dermatoses of the scalp. We have licensed worldwide rights
from Soltec to develop and commercialize OLUX. In 1998, we completed a pivotal
clinical trial of approximately 190 scalp psoriasis patients, comparing OLUX to
a currently approved clobetasol solution and placebo during a two week treatment
regimen. OLUX trial results showed a 74% improvement in the global response to
treatment as judged by the investigators for OLUX as opposed to 63% for
clobetasol solution and 8% for placebo. Primary endpoints included changes in
the clinical signs of psoriasis: plaque thickness, scaling, erythema, or
redness, and the global response to treatment as judged by the investigator. In
May 2000, the FDA approved our new drug application for OLUX, and we anticipate
beginning commercial sales of OLUX in late 2000.

Dermatology Product Pipeline

     In December 1999, we entered into a comprehensive licensing agreement with
Soltec for exclusive rights to certain applications of a broad range of unique
topical delivery technologies, including aerosol foam formulations and Soltec's
patented Liquipatch technology. Similar to our foam delivery system for Luxiq
and OLUX, the new aerosol foams, including water-, ethanol- and petrolatum-based
foams, may offer improved efficacy over traditional formulations due to greater
absorption of the active ingredient to the skin. In addition to the potential
for improved efficacy, the foam formulations represent a cosmetically elegant
alternative to existing dermatologic treatments. Liquipatch is a gel-matrix
delivery system that applies to the skin like a normal gel and dries to form a
very thin, invisible, water-resistant film. This film enables a controlled
release of the active agent to provide longer relief, with the potential of
being less irritating to the skin than other delivery systems. With this
agreement in place we are positioned to pursue simultaneous development of a
number of innovative products. We anticipate developing one or more new products
in the aerosol foam or Liquipatch formulations, by incorporating leading
dermatologic agents, in such a way as to deliver formulations that are tailored
to treat specific diseases or different areas of the body. We expect to seek
partners for over-the-counter market opportunities and for development and
commercialization outside the United States.

Ridaura

     Ridaura is an oral formulation of a gold salt for the treatment of
rheumatoid arthritis, a chronic autoimmune disease that results in painful
inflammation and erosion of the joints and loss of mobility. Over two million
individuals in the United States suffer from this disease. Ridaura is currently

                                       19
   20

indicated for adults with active rheumatoid arthritis who are not responsive to,
or are intolerant of, treatment with non-steroidal anti-inflammatory drugs.
Ridaura competes on the basis of clinical evidence that shows the drug slows the
progression of damage to joint tissue. Our 1999 sales of Ridaura declined to
approximately $5.7 million from $7.5 million in 1998. We believe that our sales
have declined over this time period, and are likely to continue to decline, in
part due to the introduction of several major rheumatoid arthritis therapies in
late 1998 and 1999.

Actimmune

     In 1998, we licensed from Genentech exclusive rights to Actimmune,
interferon gamma, for the United States and Japan. Interferon gamma is one of a
family of proteins involved in the regulation of the immune system and has been
shown to reduce the frequency and severity of certain infections. We formed a
subsidiary, InterMune Pharmaceuticals, Inc., to develop Actimmune for various
infections and fungal diseases. In April 1999, InterMune became an independent
company, and it has an exclusive license from us to develop Actimmune. We have
retained the commercial revenue rights for Actimmune for the treatment of
chronic granulomatous disease through December 31, 2001. Thereafter, InterMune
will pay us a royalty on Actimmune sales. In addition, we have retained the
product rights for potential dermatological applications. Our sales of Actimmune
for the twelve months ended December 31, 1999 were approximately $4.8 million as
compared to zero for the same period in 1998.

SALES AND MARKETING

     We have an experienced, highly productive sales and marketing organization.
We intend to maintain control of sales and marketing responsibilities for our
targeted specialty markets in the United States. Outside of our target markets,
we have entered into partnerships to manage product commercialization
activities. For example, our relaxin partners, Medeva for Europe, Suntory for
Japan, Paladin for Canada, and Faulding for Australia, will be responsible for
commercializing relaxin in their territories should that product be approved. In
addition, we have agreements with MGI Pharma to provide sales support for
Ridaura and Luxiq to rheumatologists.

     Our sales representatives focus on cultivating relationships of trust and
confidence with the physicians they call upon. We use a variety of advertising,
promotional material, specialty publications, participation in educational
conferences and product Internet sites to achieve our marketing objectives. We
supplemented our sales staff in late 1999 with contract sales representatives to
increase the frequency of our sales calls or to assist with the launch of
products. Currently, all of our product distribution activities are handled by
CORD in the United States. As of June 1, 2000, we had 53 people in our sales and
marketing organization, including 42 sales representatives and others working
outside of our principal offices.

STRATEGIC AGREEMENTS

     We have entered into numerous strategic development and commercialization
relationships that have substantially expanded our business. Our main reasons
for entering into strategic partnerships are to gain access to additional
product and market opportunities and to share the risk and financial cost of
developing products. These collaborations may help us to increase product sales
and marketing activities, and extend development and commercialization
activities to foreign markets.

Relaxin -- Biotechnology Product Development Agreements

     Medeva PLC

     In January 1999, we entered into an exclusive license agreement with Medeva
PLC for the development and commercialization of relaxin in Europe. Under the
terms of the agreement, Medeva

                                       20
   21

will pay up to $35.0 million in development, milestone and equity payments for
the successful development of relaxin for the treatment of scleroderma. We may
receive additional milestone payments for the approval of additional indications
for relaxin in Europe. Medeva will be responsible for all development and
commercialization activities in Europe. Medeva will purchase relaxin from us and
pay royalties on European sales of relaxin. Until the earlier of five years
after we launch relaxin in the United States or the end of the first calendar
year when Medeva's European net sales of relaxin exceed $25.0 million, Medeva
will receive 50% of our operating profits from U.S. relaxin sales.

     Suntory

     In April 1998, we entered into an exclusive license agreement with Suntory
for the development, commercialization and supply of relaxin for scleroderma in
Japan. Under the terms of the agreement, Suntory will pay up to 1.6 billion yen,
which we estimated to be up to $14.0 million in license, development and
milestone payments, based upon the exchange ratio at the time of the
transaction. Suntory is responsible for all development and commercialization
activities in Japan. Suntory will purchase relaxin materials from us, make
payments based upon development progress in the United States and Japan and pay
us royalties on sales in Japan.

     Paladin Labs

     In July 1999, we entered into an exclusive license agreement with Paladin
for the development and commercialization of relaxin in Canada. Under the terms
of the agreement, Paladin will pay up to $3.2 million in development, milestone
and equity payments for the successful development of relaxin for the treatment
of scleroderma. We may receive additional milestone payments for the approval of
additional indications for relaxin in Canada. Paladin is responsible for all
development and commercialization activities in Canada, and will pay royalties
on all sales of relaxin in Canada.

     Faulding

     In April 2000, we entered into an exclusive license agreement with Faulding
for the development and commercialization of relaxin in Australia. Under the
terms of the agreement, Faulding paid $500,000 for the initial license of
relaxin for the treatment of scleroderma. We may receive additional milestone
payments for the approval of additional indications for relaxin in Australia.
Faulding is responsible for all development and commercialization activities in
Australia, and will pay royalties on all sales of relaxin in Australia.

     Genentech

     In September 1993, we entered into an agreement with Genentech, which was
subsequently amended in July 1994 and April 1996. The agreement, as amended,
grants to us exclusive rights, for indications other than reproductive
indications, to make, have made, use, import and sell certain products derived
from recombinant human relaxin. Many of our relaxin patent rights are owned by
The Florey Institute, and we license them through the agreements with Genentech.
Genentech retains co-exclusive rights for reproductive indications. The
agreement also includes technology transfer, supply, and intellectual property
provisions, including a provision requiring us to meet milestones. Our failure
to achieve designated milestones allows Genentech to terminate the license. Upon
termination, we could be required to license our relaxin technology to
Genentech, on a non-exclusive basis.

                                       21
   22

Dermatology Program and Other Commercialized Products Agreements

     Soltec

     We are party to four agreements with Soltec, which give us exclusive rights
to specified applications of a broad range of unique topical delivery
technologies, including several distinctive aerosol foams. Our relationship with
Soltec led to our development of Luxiq, which we launched in April 1999, and to
the development of OLUX. In May 2000, the FDA approved our new drug application
for OLUX for the treatment of moderate to severe scalp dermatoses. We anticipate
conducting parallel product development on several products over the next
several years.

     Under a comprehensive collaboration agreement that we entered into with
Soltec in December 1999, we paid Soltec $1 million in cash and stock, and may
make future milestone, development and royalty payments. We also have
obligations to develop new products incorporating the licensed technology on
timelines agreed to by the parties, and we will pay royalties on our net sales
on those products if and when they are approved for sale in the licensed
territory. We also agreed to pay Soltec an annual fee in exchange for continuing
research and the rights to future product formulations that Soltec may develop.

     InterMune Pharmaceuticals

     In December 1995, we entered into a license agreement with Genentech to
acquire exclusive U.S. development and marketing rights to interferon gamma for
dermatological indications. The cumulative effect of a number of subsequent
amendments to the original license agreement is to expand the fields of use for
which the license applies, and adding Japan to the licensed territory. Genentech
manufactures and supplies Actimmune pursuant to a separate supply agreement. We
established a subsidiary, InterMune, in 1998 to develop Actimmune for serious
pulmonary and infectious diseases and congenital disorders. In April 1999,
InterMune became an independent company, and in March 2000, InterMune went
public. We currently hold 1,049,445 shares of common stock of InterMune, which
represents approximately a 4.8% equity position in InterMune. We will receive
additional cash and equity payments over the next two years. InterMune assumed
our obligations under the license with Genentech and the corresponding supply
agreement pursuant to which Genentech manufactures and supplies Actimmune to us.
We will retain commercial rights to and revenue from Actimmune for chronic
granulomatous disease until December 31, 2001 and receive a royalty on Actimmune
sales thereafter. In addition, we hold an option to purchase the product rights
for potential dermatological applications of Actimmune.

     MGI Pharma

     In March 1999, we entered into two agreements with MGI Pharma. Under the
terms of the agreements, MGI Pharma promotes Ridaura and Luxiq to the
rheumatology market in the United States. These arrangements take advantage of
MGI Pharma's specialty sales force that calls on rheumatologists in the United
States, and allow us to focus our attention on the dermatology marketplace.

PATENTS AND PROPRIETARY RIGHTS

     Our success will depend in part on our ability and our licensors' ability
to obtain and retain patent protection for our products and processes, to
preserve our trade secrets, and to operate without infringing the proprietary
rights of third parties.

     We own or are exclusively licensed under pending applications and/or issued
patents worldwide relating to ConXn, Luxiq and OLUX, as well as other technology
in the earlier stages of research.

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     We license many of our relaxin patent rights from The Florey Institute
through a sublicense from Genentech. We have a separate agreement with the
Florey Institute that requires us to pay relaxin royalties based on our sales
directly to the Florey Institute in addition to those royalties payable to
Genentech. Under the agreement, we provide annual research funding to the Florey
Institute for up to five years or until the date of the first sale of a relaxin
product. We have also agreed to pay the Florey Institute a portion of revenues
we receive from corporate collaborators.

     Our relaxin patent portfolio includes pending applications and issued
patents in the United States and various international equivalents which we own
or license from others. Our relaxin patent portfolio includes certain claims
within the following categories:

     - compositions of matter;

     - pharmaceutical compositions;

     - methods of manufacture; and

     - methods of treatment.

     The issued patents in our relaxin patent portfolio will expire at various
times between 2002 and 2015. Recently, new biological activities of relaxin have
been elucidated, and we are pursuing methods of treatment patents with our
academic collaborators. The U.S. Patent and Trademark Office does not have a
consistent policy regarding the breadth of claims allowed in biotechnology
patents and the degree of future protection for our proprietary rights is
uncertain. In addition, the patent laws of foreign countries differ from those
of the U.S. and the claims allowed may differ from country to country.
Accordingly, the degree of protection, if any, afforded by foreign patents may
be different from that in the U.S.

     One of the European patents licensed to us, which claims gene sequence
encoding human relaxin, was opposed by a third party challenging the ethics of
patents on a human gene sequence. Our licensor successfully defended the
original opposition, resulting in a decision in our favor, but the decision has
been appealed. We may not be successful on appeal. An adverse decision could
result in a requirement that our licensor amend the language of the patent in
ways that we cannot currently predict, and would require us to reassess the
strength of that patent after it was amended.

     With respect to patent applications that we or our licensors have filed,
and patents issued to us or our licensors, we cannot give any assurances that:

     - any of our or our licensors' patent applications will issue as patents;

     - any such issued patents will provide competitive advantage to us; or

     - our competitors will not successfully challenge or circumvent any such
       issued patents.

     Our interferon gamma patent portfolio includes issued U.S. patents and
other pending U.S. applications. Our interferon gamma patent portfolio is
licensed to InterMune, but we receive revenue and royalty payments pursuant to
our agreement with InterMune. The issued interferon gamma patents begin to
expire in 2009. The interferon gamma portfolio covers compositions of matter,
pharmaceutical compositions, and methods of treatment.

     We encourage ongoing scientific research on relaxin by making samples of
recombinant human relaxin available for medical or scientific research studies.
To preserve our rights to the recombinant protein and to the technology in
general, we require each recipient of relaxin samples to sign a materials
transfer agreement. If these agreements are breached, however, remedies may not
be available or adequate and our trade secrets may otherwise become known to
competitors. To the extent that our consultants, employees or other third
parties apply technological information independently developed by them or by
others to our proposed projects, third parties may own all or

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part of the proprietary rights to such information, and disputes may arise as to
the ownership of these proprietary rights which may not be resolved in our
favor. Such third parties may attempt to patent their work and, if patents are
issued, they may not be available to license to us.

MANUFACTURING

     We contract with independent sources to manufacture our products, which
enables us to focus on product and clinical development strengths, minimize
fixed costs and capital expenditures, and gain access to advanced manufacturing
process capabilities. Boehringer Ingelheim manufactures relaxin for us for
clinical and commercial uses under a long-term contract. Luxiq and OLUX are
currently manufactured for us by CCL Pharmaceuticals. Actimmune is manufactured
by Genentech, and Ridaura is manufactured by SmithKline.

COMPETITION

     We believe relaxin provides opportunities for treatment of life threatening
diseases for which there are few or no current alternatives. Nevertheless, the
pharmaceutical and biotechnology industries are highly competitive. Other
products and therapies currently exist on the market or are under development
that could compete directly with some of the products that we are developing or
marketing. Numerous pharmaceutical and biotechnology companies and academic
research groups throughout the world are engaged in research and development
efforts with respect to therapeutic products targeted at diseases or conditions
that we are also addressing. In addition, we believe that the principal
competitive factors in our industry include:

     - ability to obtain timely regulatory approvals from the FDA and similar
       foreign regulatory agencies;

     - operational competence in developing, protecting, manufacturing and
       marketing products;

     - managerial competence in identifying and pursuing product in-licensing
       and acquisition opportunities; and

     - access to financial resources.

     Many of our existing or potential competitors, particularly large
pharmaceutical companies, have substantially greater financial, technical and
human resources than we do. In addition, many of these competitors have more
collective experience than we do in undertaking preclinical testing and human
clinical trials of new pharmaceutical products and obtaining regulatory
approvals for therapeutic products. Accordingly, our competitors may succeed in
obtaining FDA approval for products more rapidly than we do.

     We intend to compete on the basis of the quality and efficacy of our
products, combined with the effectiveness of our marketing and sales efforts.
Competing successfully will depend on our continued ability to attract and
retain skilled and experienced personnel, to identify, secure the rights to, and
develop pharmaceutical products and compounds and to exploit these products and
compounds commercially before others are able to develop competitive products.

     With regard to Ridaura, there are numerous products on the market, and
under development, for the treatment of rheumatoid arthritis. We believe that
our Ridaura sales declined in 1999 in part due to the competition of new
rheumatoid arthritis therapies introduced by Hoechst Marion Roussel, Immunex
Corporation and Monsanto Company.

GOVERNMENT REGULATION

     The pharmaceutical and biotechnology industries are subject to regulation
by the FDA under the Food Drug and Cosmetic Act, and by similar agencies outside
of the United States. We expect that

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all of our pharmaceutical products will require regulatory approval by
governmental agencies before we can commercialize them. In particular, human
pharmaceutical therapeutic products are subject to rigorous preclinical and
clinical testing and other approval procedures by the FDA in the United States
and similar health authorities in foreign countries. Labeling and promotional
activities are subject to scrutiny by the FDA. Various federal and, in some
cases, state statutes and regulations also govern or influence the
manufacturing, safety, labeling, storage, record keeping and marketing of such
pharmaceutical products. Failure to comply with applicable requirements can
result in, among other things, warning letters, fines, injunctions, penalties,
recall or seizure of products, total or partial suspension of production, denial
or withdrawal of approval, and criminal prosecution. Accordingly, ongoing
regulation by governmental entities in the United States and other countries
will be a significant factor in the production and marketing of any
pharmaceutical products that we have or may develop. The process of obtaining
these approvals and the subsequent compliance with appropriate federal and
foreign statutes and regulations are time-consuming and require the expenditure
of substantial resources.

     Generally, in order to obtain FDA approval for a new therapeutic agent, a
company first must conduct pre-clinical studies. The basic purpose of
pre-clinical investigation is to gather enough evidence on the potential new
agent through laboratory experimentation and animal testing, to determine if it
is reasonably safe to begin preliminary trials in humans. The results of these
studies are submitted as a part of an investigational new drug application,
which the FDA must review before human clinical trials of an investigational
drug can start. We have filed and will continue to be required to sponsor and
file investigational new drug applications, and will be responsible for
initiating and overseeing the clinical studies to demonstrate the safety and
efficacy that are necessary to obtain FDA approval of our products.

     Clinical trials are normally done in phases and generally take two to five
years, but may take longer, to complete. The rate of completion of our clinical
trials depends upon, among other factors, the rate at which patients enroll in
the study. Patient enrollment is a function of many factors, including the size
of the patient population, the nature of the protocol, the proximity of patients
to clinical sites and the eligibility criteria for the study. Delays in planned
patient enrollment may result in increased costs and delays, which could have a
material adverse effect on our business. Phase I trials generally involve
administration of a product to a small number of persons to determine safety,
tolerance and the metabolic and pharmacologic actions of the agent in humans and
the side effects associated with increasing doses. Phase II trials generally
involve administration of a product to a larger group of patients with a
particular disease to obtain evidence of the agent's effectiveness against the
targeted disease, to further explore risk and side effect issues, and to confirm
preliminary data regarding optimal dosage ranges. Phase I and Phase II trials
can sometimes be combined, with the FDA's concurrence, into a Phase I/II trial.
Phase III trials involve more patients, and often more locations and clinical
investigators than the earlier trials. At least one such trial is required for
FDA approval to market a drug. Phase II and Phase III trials can sometimes be
combined, with the FDA's concurrence, into a Phase II/III trial, which is an
accelerated clinical trial intended to provide sufficient data for approval.

     After we complete the clinical trials of a product, we must file with the
FDA a new drug application, if the product is classified as a new drug, or a
biologics license application if the product is classified as a biologic. We
must receive FDA clearance before we can commercialize the product. The testing
and approval processes require substantial time and effort, and the FDA may not
grant approval on a timely basis or at all. The FDA can take between one and two
years to review new drug applications and biologics license applications, and
can take longer if significant questions arise during the review process. While
various legislative and regulatory initiatives have focused on the need to
reduce FDA review and approval times, the ultimate impact of such initiatives on
our products cannot be certain. In addition, if there are changes in FDA policy
while we are in product

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development, we may encounter delays or rejections that we did not anticipate
when we submitted the new drug application or biologics license application for
that product. We could encounter similar delays in other countries. We may not
obtain regulatory approval for any products that we develop, even after
committing such time and expenditures to the process. If regulatory approval of
a product is granted, such approval may entail limitations on the indicated uses
for which the product may be marketed.

     The FDA continues to review marketed products even after granting
regulatory clearances, and later discovery of previously unknown problems or
failure to comply with the applicable regulatory requirements may result in
restrictions on the marketing of a product or withdrawal of the product from the
market, recalls, seizures, injunctions or criminal sanctions.

     The Orphan Drug Act of 1983 provides incentives to develop and manufacture
products for the treatment of rare diseases. Under the Orphan Drug Act as
currently written, we may be eligible for tax benefits and be granted a
seven-year period of marketing exclusivity for ConXn for the orphan indication.
The "orphan drug" status of ConXn may provide us with seven years of market
exclusivity in the United States if ConXn is the first recombinant relaxin
product approval for the treatment of progressive systemic sclerosis. Although
this status would prevent other sponsors from obtaining clearance of the same
product for the same indication, or the same product for other indications, it
would not prevent sponsors from seeking or receiving clearance of other types of
products to treat the same indication. To maintain orphan drug status, we must
be able to manufacture a sufficient supply of the drug. We depend on Boehringer
Ingelheim to manufacture relaxin on a commercial scale, and any failure by
Boehringer Ingelheim to meet its commitments could jeopardize our period of
exclusivity in the U.S.

     Our products will also be subject to foreign regulatory requirements
governing human clinical trials, manufacturing and marketing approval for
pharmaceutical products. The requirements governing the conduct of clinical
trials, product licensing, pricing and reimbursement are similar, but not
identical, to FDA requirements, and they vary widely from country to country.

THIRD PARTY REIMBURSEMENT AND HEALTH CARE REFORM

     The commercial success of our products will be substantially dependent upon
the availability of government or private third-party reimbursement for the use
of such products. Medicare, Medicaid, health maintenance organizations and other
third-party payers may not authorize or otherwise budget such reimbursement.
Such governmental and third party payers are increasingly challenging the prices
charged for medical products and services. Consumers and third-party payers may
not view our marketed products as cost-effective, and consumers may not be able
to get reimbursement or reimbursement may be so low that we cannot market our
products on a competitive basis. Furthermore, federal and state regulations
govern or influence the reimbursement to health care providers of fees and
capital equipment costs in connection with medical treatment of certain
patients. We cannot predict the likelihood that federal and state legislatures
will pass laws related to health care reform or lowering pharmaceutical costs.
To the extent that these or other proposals or reforms have a material adverse
effect on our ability to secure funding for development, or on the business,
financial condition and profitability of other companies that are prospective
collaborators for certain of our product candidates, our product development
efforts will take longer than we currently anticipate. In certain foreign
markets pricing of prescription pharmaceuticals is already subject to government
control. Continued significant changes in the U.S. or foreign health care
systems could have a material adverse effect on our business.

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ENVIRONMENTAL REGULATION

     Our research and development activities involve the controlled use of
hazardous materials, chemicals and various radioactive materials. We are subject
to federal, state and local laws and regulations governing the use, storage,
handling and disposal of such materials and certain waste products. Although we
believe that our safety procedures for handling and disposing of such materials
comply with the standards prescribed by state, federal, and local laws and
regulations, we cannot completely eliminate the risk of accidental contamination
or injury from these materials.

DEVELOPMENT

     We have several products that require clinical and manufacturing
development, including our relaxin and dermatology products. Our development
activities involve work related to product formulation, preclinical and clinical
study coordination, regulatory administration, manufacturing, and quality
control and assurance. While many other pharmaceutical and biotechnology
companies conduct earlier stage research and drug discovery, our focus is on
later-stage development to minimize the risk and time requirements for us to get
a product on the market.

     In addition to our in-house staff and resources, we contract a substantial
portion of development work to outside parties. For example, we typically engage
contract research organizations to manage our clinical trials. We have contracts
with vendors to conduct product analysis and stability studies, and we outsource
all of our manufacturing scale-up and production activities.

     We also use collaborative relationships with pharmaceutical partners and
academic researchers to augment our product development activities. In
particular, we have four partners that have responsibility for developing
relaxin in Europe, Japan, Canada and Australia. Through our agreements with
these partners, we have joint development committees that collaborate on
decision-making and product development. Also, from time to time we enter
agreements with academic or university-based researchers to conduct various
studies for us.

YEAR 2000 COMPLIANCE

     As of June 1, 2000, we had not experienced, nor do we expect to experience,
any Year 2000-related disruption in the operation of our systems. To our
knowledge, none of our material suppliers or customers experienced any material
Year 2000 problems or had any difficulty resolving the so-called "century leap
year" algorithm. Although most Year 2000 problems should have become evident on
January 1, 2000 or February 29, 2000, additional Year 2000-related problems may
become evident in the future.

EMPLOYEES

     As of June 1, 2000, we had 126 full-time employees. Of the full-time
employees, 53 were engaged in sales and marketing, 53 were in research and
development and 20 were in general and administrative positions. We believe our
relations with our employees are good.

FACILITIES

     We currently lease 36,964 square feet of laboratory and office space at
3400 and 3294 West Bayshore Road in Palo Alto, California. We lease this space
under two lease agreements that will expire in January 2003. We believe that our
existing facilities are adequate to meet our requirements for the near term and
that additional space will be available on commercially reasonable terms if
needed.

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LITIGATION

     We are not a party to any material litigation proceedings.

                ISSUANCE OF COMMON STOCK TO SELLING STOCKHOLDERS

     The shares being registered by this registration statement for the selling
stockholders consist of the following:

     Soltec. On December 9, 1999, in connection with a license agreement,
Connetics and Soltec entered into a Stock Issuance Agreement, pursuant to which
we agreed to issue 80,154 shares of our common stock to Soltec at the then-fair
market value of the stock. Pursuant to the terms of the agreement with Soltec,
if we have not registered these shares by June 30, 2000, Soltec has a one-time
right to demand payment in cash in lieu of stock.

     Kepler Capital. In connection with the Equity Line Agreement, we are
required to issue Kepler Capital a warrant to purchase 25,000 shares of our
common stock on each anniversary of the Agreement, at an exercise price equal to
110% of the fair market value of our common stock on that date. On December 1,
1998, we issued warrants to purchase 25,000 shares at an exercise price of $4.40
per share, and expiring on December 1, 2003. On the same date, Kepler Capital
assigned the right to purchase 6,250 of the 25,000 shares to AFO Capital
Advisors LLC. On December 1, 1999, we issued warrants to purchase 25,000 shares
at an exercise price of $6.875 per share, and expiring on December 1, 2004. On
the same date, Kepler Capital assigned the right to purchase 6,250 of the 25,000
shares to AFO Capital Advisors LLC. We are registering the shares issuable upon
exercise of these warrants.

     Dr. Vandenbark. On December 8, 1999, we entered into Agreement Relating to
Acceleration and Termination of Contracts with Dr. Vandenbark in conjunction
with the assignment of our TCR technology to The Immune Response Corporation.
Pursuant to that agreement, we agreed to issue 9,101 shares of our common stock
to Dr. Vandenbark.

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                              SELLING STOCKHOLDERS

     The following table sets forth certain information as of June 19, 2000 with
respect to each selling stockholder. Beneficial ownership is determined in
accordance with the rules and regulations of the SEC and generally includes
voting or investment power with respect to securities. Except as indicated
otherwise in the footnotes below, and subject to community property laws where
applicable, we believe based on information furnished by the selling
stockholders that the persons named in the table above have sole voting and
investment power with respect to all shares of common stock shown as
beneficially owned by them.



                                                              SHARES BENEFICIALLY   SHARES BENEFICIALLY
                                                                     OWNED                 OWNED
                                                                BEFORE OFFERING      AFTER OFFERING(1)
                                             SHARES OFFERED   -------------------   -------------------
        NAME OF SELLING STOCKHOLDER            HEREBY(1)       NUMBER    PERCENT     NUMBER    PERCENT
        ---------------------------          --------------   --------   --------   --------   --------
                                                                                
Kepler Capital LLC(2)......................      37,500       108,438      *        108,438      *
AFO Capital Advisors LLC...................      12,500             0     N/A             0     N/A
Soltec Research Pty Ltd.(3)................      80,154             0     N/A             0     N/A
Arthur A. Vandenbark.......................       9,101             0     N/A             0     N/A
     Total.................................     139,255       108,438      *        108,438      *


- -------------------------
 *  Less than 1%. Percentages are based on 27,348,280 shares outstanding at June
    19, 2000.

(1) Assumes the sale of all shares offered by this prospectus and no other
    purchases or sales of our common stock. See "Plan of Distribution." If the
    selling stockholders do not sell the shares offered by this prospectus,
    actual share ownership will be higher than this table reflects.

(2) Mr. Jeffrey Devers, President of Kepler Capital LLC, may be deemed to be the
    beneficial owner of shares held by Kepler Capital LLC. Mr. Devers disclaims
    beneficial ownership of such shares.

(3) Soltec Research Pty Ltd. is a subsidiary of F.H. Faulding & Co., Ltd., a
    public company. F.H. Faulding & Co. may be deemed to be the beneficial owner
    of such shares.

                              PLAN OF DISTRIBUTION

     The selling stockholders or their pledgees, donees, transferees, or other
successors-in-interest may sell the shares of our common stock from time to time
on the Nasdaq National Market, in the over-the-counter market, in regular
brokerage transactions, in transactions directly with market makers, in
privately negotiated transactions or otherwise. We will not receive any proceeds
from the sale of the shares by the selling stockholders, but we have agreed to
pay the expenses incurred in connection with the registration of the shares. We
estimate that our total expenses will be approximately $62,200. Sales may be
made at fixed prices which may be changed, at market prices prevailing at the
time of sale, at prices related to prevailing market prices, or at negotiated
prices.

     The selling stockholders may effect such transactions by selling the shares
to or through broker-dealers, and such broker-dealers may receive compensation
in the form of discounts, concessions or commissions from the selling
stockholders and/or the purchasers of the shares for whom such broker-dealers
may act as agents or to whom they sell as principals, or both (which
compensation as to a particular broker-dealer might be in excess of customary
commissions). In connection with distributions of the shares, the selling
stockholders may enter into hedging transactions with broker-dealers and the
broker-dealers may engage in short sales of the shares in the course of hedging
the positions they assume with the selling stockholder. The selling stockholders
also may sell the shares short and deliver the shares to close out such short
positions. The selling stockholders also may enter into options or other
transactions with broker-dealers that involve the delivery of the shares to the

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broker-dealers, which may then resell or otherwise transfer such shares. The
selling stockholders also may loan or pledge the shares to a broker-dealer and
the broker-dealer may sell the shares so loaned or upon a default may sell or
otherwise transfer the pledged shares.

     Selling stockholders may sell any shares that qualify for sale pursuant to
Rule 144 under the Securities Act under Rule 144 rather than pursuant to this
prospectus. In addition, shares held by Soltec may also qualify for sale
pursuant to Regulation S.

     The selling stockholders will pay selling commissions or brokerage fees, if
any, with respect to the sale of the shares in amounts customary for the type of
transaction effected. The selling stockholders will also pay all applicable
transfer taxes and all fees and disbursements of counsel for the selling
stockholders incurred in connection with the sale of shares.

     The selling stockholders have advised us that during such time as the
selling stockholders may be engaged in the attempt to sell shares registered
under this prospectus, that they will:

          (1) not engage in any stabilization activity in connection with any of
     our securities;

          (2) cause to be furnished to each person to whom shares included in
     this prospectus may be offered, and to each broker-dealer, if any, through
     whom shares are offered, such copies of this prospectus, as supplemented or
     amended, as may be required by such person; and

          (3) not bid for or purchase any of our securities or any rights to
     acquire our securities, or attempt to induce any person to purchase any of
     our securities or rights to acquire securities other than as permitted
     under the Exchange Act.

     The selling stockholders and any broker-dealers, agents, underwriters or
any other persons who participate with them in the distribution of the shares of
our common stock, may be deemed to be "underwriters" within the meaning of
Section 2(11) of the Securities Act. Any commissions paid or any discounts or
concessions allowed to any such persons, and any profits received on resale of
the shares, may be deemed to be underwriting discounts and commissions under the
Securities Act.

     With regard to the shares, we have agreed to maintain the effectiveness of
this registration statement until two years after the effective date of this
registration statement; provided however that if our counsel provides an opinion
to the requesting holders, based on factual representations provided by the
requesting holders or information filed with the SEC that such holders are not,
at the time of such request, our "affiliates", within the meaning of Rule 144 of
the Securities Act, then we shall not be obligated to extend the effectiveness
of the registration statement. No sales may be made pursuant to this
registration statement and prospectus after such dates unless we amend or
supplement this registration statement and prospectus to indicate that we have
agreed to extend such period of effectiveness.

     We have agreed to indemnify the selling stockholders against certain
liabilities, including liabilities under the Securities Act.

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                                 LEGAL MATTERS

     The validity of our common stock offered by this prospectus will be passed
upon for us by Morrison & Foerster LLP, Denver, Colorado.

                                    EXPERTS

     Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements included in our Annual Report on Form 10-K for the years
ended December 31, 1999 and 1998, as set forth in their report, which is
incorporated by reference in this prospectus and elsewhere in the registration
statement. Our financial statements are incorporated by reference in reliance on
Ernst & Young LLP's report, given on their authority as experts in accounting
and auditing.

                   WHERE YOU CAN FIND ADDITIONAL INFORMATION

     This prospectus is part of a registration statement on Form S-3 that we
filed with the SEC under the Securities Act. This prospectus does not contain
all of the information set forth in the registration statement, parts of which
are omitted in accordance with the rules and regulations of the SEC. For further
information about us and our common stock, you should read the registration
statement. Statements in this prospectus concerning the provisions of any
document are not necessarily complete, and each such statement is qualified in
its entirety by reference to the copy of such document filed with the SEC.

     We file annual, quarterly and special reports, proxy statements, and other
information with the SEC. You may read and copy any document we file at the
SEC's public reference facilities at 450 Fifth Street, N.W., Washington, D.C.
20549, and at the SEC's following Regional Offices: Suite 1400, Northwest Atrium
Center, 500 West Madison Street, Chicago, Illinois 60661; and 13th Floor, Seven
World Trade Center, New York, New York 10048. You can obtain copies of this
material at prescribed rates from the Public Reference Section of the SEC at 450
Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at
1-800-SEC-0330 for further information on the public reference rooms. Our SEC
filings are also available to the public at the SEC's web site at www.sec.gov.
You can find additional information about us on our web site at
www.connetics.com. Information contained on our web site does not constitute
part of this prospectus.

     The SEC allows us to incorporate by reference the information we file with
it, which means that we can disclose important information to you by referring
you to those documents. The information incorporated by reference is an
important part of this prospectus, and later information that we file with the
SEC will automatically update and supersede this information. We incorporate by
reference the documents listed below, and any future filings made with the SEC
under Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act, until the offering
is completed. This prospectus is part of a registration statement on Form S-3 we
filed with the SEC (Registration No. 333-30142). The documents we incorporate by
reference are:

     1. Connetics' Annual Report on Form 10-K for the fiscal year ended December
        31, 1999.

     2. Connetics' Quarterly Report on Form 10-Q for the fiscal quarter ended
        March 31, 2000.

     3. Connetics' Registration Statement on Form 8-A dated May 23, 1997, which
        contains a description of our capital stock.

     4. Connetics' Registration Statement on Form 8-A dated December 8, 1995,
        which contains a description of our capital stock.

     You may request a copy of these filings, at no cost, by writing or
telephoning us at the following address: General Counsel, Connetics Corporation,
3400 West Bayshore Road, Palo Alto, CA 94303; telephone number (650) 843-2800.

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