SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549
                                    FORM 10-K
Mark One:
   [X]        ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                 SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
                   For the fiscal year ended December 31, 2000

                                     OR

   [ ]        TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
              THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)

                         Commission File Number 0-27324

                       SYNAPTIC PHARMACEUTICAL CORPORATION
             (Exact name of registrant as specified in its charter)

                                    Delaware
                          (State or other jurisdiction
                        of incorporation or organization)

                                215 College Road
                                   Paramus, NJ
                    (Address of principal executive offices)

                                   22-2859704
                      (I.R.S. Employer Identification No.)

                                      07652
                                   (Zip Code)

                                 (201) 261-1331
              (Registrant's telephone number, including area code)

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

           Securities registered pursuant to Section 12(g) of the Act:
                     Common Stock, par value $.01 per share
 Rights to Purchase Series A Junior Convertible Preferred Stock,
                            par value $.01 per share
                                (Title of Class)

     Indicate by check mark  whether the  registrant:  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934, as amended (the  "Exchange  Act"),  during the preceding 12 months (or for
such shorter  period that the  registrant was required to file such reports) and
(2) has been subject to such filing requirements for the past 90 days.

                                    Yes X No

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

     The approximate  aggregate market value of the voting and non voting common
equity held by non-affiliates of the registrant was approximately $35,400,000 as
of  February  16,  2001,  based upon the  closing  price of the Common  Stock as
reported  on The  Nasdaq  Stock  Market  on  such  date.  For  purposes  of this
calculation, shares of Common Stock held by directors, officers and stockholders
whose  ownership in the  registrant  is known by the  registrant  to exceed five
percent have been  excluded.  This number is provided  only for purposes of this
report and does not represent an admission by either the  registrant or any such
person as to the status of such person.

     As of February 16, 2001,  there were 10,938,497  shares of the registrant's
Common Stock outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the Synaptic Pharmaceutical  Corporation Proxy Statement, to be
filed not later than 120 days after  December 31, 2000, in  connection  with the
registrant's  2001  Annual  Meeting of  Stockholders,  referred to herein as the
"Proxy Statement," are incorporated by reference into Part III of this Report on
Form 10-K.





                       SYNAPTIC PHARMACEUTICAL CORPORATION

      INDEX TO REPORT ON FORM 10-K FOR FISCAL YEAR ENDED DECEMBER 31, 2000


                                     Part I
                                                                           Page
                                                                           ----
Item  1.          Business...............................................    1
Item  2.          Properties.............................................   20
Item  3.          Legal Proceedings......................................   20
Item  4.          Submission of Matters to a Vote of Securityholders.....   21

                                     Part II

Item  5.          Market for Registrant's Common Equity and Related
                         Stockholder Matters............................    23
Item  6.          Selected Financial Data...............................    24
Item  7.          Management's Discussion and Analysis of Financial
                         Condition and Results..........................    24
Item 7A.          Quantitative and Qualitative Disclosures About
                         Market Risk....................................    33
Item  8.          Financial Statements..................................    34
Item  9.          Changes in and Disagreements with Accountants on
                         Accounting and Financial Disclosures...........    51

                                    Part III

Item 10.          Directors and Executive Officers of the Registrant        51
Item 11.          Executive Compensation................................    51
Item 12.          Security Ownership of Certain Beneficial Owners
                         and Management.................................    51
Item 13.          Certain Relationships and Related Transactions........    51

                                     Part IV

Item 14.          Exhibits, Financial Statement Schedules and Reports
                         on Form 8-K....................................    52









                                       (i)





                                     Part I


Item 1.  Business

Overview

         Synaptic Pharmaceutical  Corporation ("Synaptic" or the "Company") is a
drug  discovery  company  utilizing G  protein-coupled  receptors  ("GPCRs")  as
targets for novel therapeutics.  The Company is utilizing its large portfolio of
patented  GPCR  targets as a basis for the  creation of improved  drugs that act
through these targets.  The Company and its licensees are first  utilizing these
receptor  targets  to  discover  their  function  in the body and thus  specific
physiological  disorders  with which they may be  associated,  and secondly,  to
design compounds that can potentially be developed as drugs.

         Since the Company's  inception in 1988,  it has  developed  significant
expertise in the molecular biology,  pharmacology and medicinal chemistry of the
GPCR family.  The Company  selected this receptor family because GPCRs have been
shown to be attractive drug targets, as evidenced by the commercial availability
of drugs for a wide  variety of  therapeutic  indications  that work by means of
their  interactions  with  GPCRs.  The  GPCR  family  is  estimated  to  include
approximately 1,000 distinct receptors.  Of these,  approximately 500 receptors,
mostly from the groupings that include rhodopsin and secretin, are thought to be
useful targets for drug discovery.  Accordingly, the Company believes that there
are substantial  opportunities  to use many receptors  within the GPCR family as
targets for novel  drugs.  Today,  the Company has been awarded over 110 patents
relating to its GPCR efforts.

         For more than 12 years,  we have based our drug discovery  efforts on a
genomics  program that discovers the genes that code for GPCRs. At the same time
that we  initiated  our genomics  program we  initiated a program in  functional
genomics,  a  term  which  describes  the  technologies  that  are  involved  in
identifying the physiological  function of a given receptor.  Synaptic initiated
its functional  genomics  program in order to help prioritize  which targets the
Company wanted to pursue in its drug discovery  programs.  Synaptic utilizes the
biological method, as opposed to the chemical method, in its functional genomics
efforts to identify the  physiological  functions of receptors.  The  biological
method  involves first  identifying  the specific  natural ligand with which the
receptor preferentially  interacts. We have created a Universal Functional Assay
(UFA(TM))  which  significantly  reduces  the time  and the  cost,  compared  to
traditional  methods,  for the identification of endogenous  ligands. We believe
that  knowing  the  endogenous  ligand  for the  receptor  provides  a wealth of
pharmacological  insights that are extremely  important in determining whether a
given receptor will be a valuable drug discovery target.

         We believe that our competitive  advantage derives from being the first
Company to be involved in genomics and functional genomics, and from our ability
to identify endogenous ligands for newly discovered  receptors.  Being the first
Company in these areas has allowed us to accumulate a significant  patent estate
around  the more  valuable  parts of the GPCR  family.  Also by being one of the
pioneers of functional genomics, Synaptic has been able to discover the function
in humans of a number of GPCRs. We call the  identification of the function of a
receptor in humans "target  validation".  To date we have validated the function
for the Alpha 1a  adrenergic  receptor  and the  serotonin  1F receptor in human
Phase II trials.

         Once a GPCR has been identified as a valuable drug discovery target and
the endogenous  ligand has been identified,  the next step in the drug discovery
process is to identify compounds that interact with the chosen GPCR. The Company
has created a GPCR-biased  chemical  library of  approximately  40,000  distinct
structures that can be used in high throughput  screening.  The "hits" from this
screening  process  become the


                                       1


starting  points for chemical  lead  optimization
programs  aimed at the  discovery of potent,  selective  tool  compounds.  These
compounds  can  than be  tested  in  animals  in  order  to  attempt  to  obtain
information  as to the  possible  function of the GPCR.  We call the step in the
process that leads to  identification  of the role of a GPCR in an animal model,
"proof of concept".  To date our GPCR-biased  chemical library and our licensees
libraries have yielded tool compounds that have allowed for proof of concept for
six GPCRs.

         Gene discovery,  functional  genomics,  high  throughput  screening and
chemical lead optimization are only a few of the steps in the multi-step process
of drug  discovery.  The  Company  has  created  and is  utilizing a platform of
technologies that it calls SNAP Discovery in order to facilitate the creation of
new drugs.  Synaptic  has varying  levels of  expertise in the many steps of the
drug  discovery and  development  process.  In order to gain access to expertise
required to effect steps where it has limited capabilities,  we utilize contract
research  organizations,  academic laboratories and pharmaceutical  companies to
move our  programs  forward into the late  preclinical,  as well as the clinical
phases of the drug development process.

         Over the first twelve years of the Company's  existence we have entered
into a number of collaborative  or licensing  arrangements  with  pharmaceutical
companies.  These  arrangements  include  milestone  payments  and  royalties to
Synaptic as compounds  being  developed  by the  collaborator  or licensee  move
through clinical  development and into the market.  The Company's business model
contemplates a combination of licensed  programs being developed by others and a
number of internal  programs  that the Company is  developing  on its own as the
best means of creating value for its shareholders.

         Certain   discussions  in  this  Report  refer  to  various  phases  of
preclinical  testing and clinical trials. For a description of these phases, see
"Government Regulation" below.


                                       2






Business Model

         Synaptic's  business  model  involves the  discovery  and  development,
together  with its  collaborative  partners and  licensees,  of a broad array of
drugs based upon the Company's  proprietary  GPCR targets,  and the licensing of
certain of its  technologies  to third  parties who will use the  technology  in
their drug development efforts. In order to achieve its objectives we employ the
following strategies:

         Business Strategy:  To develop compounds initially through Phase II and
eventually take a product to the market.

         The  Company's  business  strategy is to integrate  complementary  drug
discovery and  development  functions into its existing SNAP Discovery  platform
with the goal of  eventually  moving  drugs  through  the  clinical  development
process and into the market.

         Research  Strategy:  To discover and design  potential  drugs utilizing
Synaptic's  large  portfolio  of patented  GPCR  targets and its small  molecule
chemical library.

         The  principal  research  strategy of the  Company is to  discover  and
design,  or to have  collaborative  partners  and other  licensees  discover and
design,  potential drugs through the use of our GPCR technologies and expertise.
The  Company and its  licensees  are using these  technologies  to identify  and
optimize drug-like chemical series for further development.

         Research  Strategy:  To develop a broad  array of  functional  genomics
technologies.

         The Company's  second research  strategy is to attempt to obtain "proof
of concept" in animal models of individual  GPCRs. We have discovered,  and will
continue to attempt to discover and integrate, technologies that will facilitate
an understanding of the various functions of specific GPCRs in the body.

         Financial  Strategy:  To  utilize  the  Company's  patent  estate,  its
developed  technologies  and the  capital  markets as the basis for  funding the
Company's drug discovery and development programs.

         The  Company's  financial  strategy  is to  create  revenues  from  the
nonexclusive licensing to others of portions of its broad GPCR patent estate and
certain  of the  drug  discovery  technologies  that it has  created.  Exclusive
licensing of our drug  discovery  programs or compounds may be used from time to
time and is determined on a  project-by-project  basis. The capital markets will
be utilized, when appropriate,  in order to provide a greater source of funds to
help defray the costs of drug development.


Background

         The Role of Receptors in Controlling Cellular Function

         Most drugs work by binding to a particular target in the body,  thereby
altering communications between cells or otherwise regulating cellular activity.
Therefore,  the traditional  path to discovering  small molecule drugs typically
begins  with the  identification  of a  biological  target  that is  believed to
regulate cellular communications or activities which could be altered to treat a
given disorder. A test or assay is then developed in order to discover compounds
with biological activity at this target. Such an assay facilitates the screening
of the target against a library of many compounds that have been  synthesized in
the laboratory. Compounds that bind to the target protein and alter its activity
are referred to as "hits."  Medicinal  chemists


                                       3


then  optimize  these hits until
they have  sufficient  potency to become lead  candidates and then improve their
"drug-like"  properties,  such as absorption,  stability,  freedom from unwanted
activities,  etc.,  with the goal of  producing a  successful  drug  development
candidate.

         Chemists  typically try to streamline  the process by copying  chemical
structures from known active compounds. Even taking this approach,  however, the
number of possible  compounds  that could be made is too large to actually  test
against even a single  target using any  available  technology.  Generally,  the
search  is  further  narrowed  either  by  educated  guessing  or by  in  silico
methodologies.  As a result of the  uncertainty  of this  approach,  traditional
methods can take many years or may fail entirely.

         If it were possible to predict in advance which  compounds would result
in a hit at a novel target,  and which chemical changes would help optimize hits
into drug  candidates,  the drug discovery  process would be vastly  simplified.
Unfortunately, the traditional drug discovery process has had to rely on a trial
and  error  approach  that  has  proven  extremely  expensive,  inefficient  and
unreliable.  Further,  making all of the  trillions  upon  trillions of possible
small  organic  compounds,  much less  testing  them all  against  even a single
target,  would be  impossible.  Optimization  of hits to  achieve  the  delicate
balance of properties  necessary for a successful drug is still a daunting task.
Most hits are never optimized into successful drugs despite years of effort.

         Receptor-Based Drug Therapy

         Many  illnesses  arise  because  of   abnormalities   in  intercellular
communication,  and the concept of receptor-based  drug therapy was developed to
address  this  problem.  The goal of  receptor-based  drug therapy is to develop
drugs that will  interact with the receptor  believed to be associated  with the
targeted abnormality, thereby inhibiting or enhancing the cascade of events that
is  mediated  by the  receptor.  A number  of  receptor-based  drugs  have  been
developed and are currently being marketed. During the past several years it has
been discovered that a single ligand,  for instance  serotonin,  reacts with not
one but several  receptors.  The members of a group of receptors  that  interact
with  the same  ligand  are  called  receptor  subtypes.  A major  problem  with
currently available receptor-based drugs is that they do not differentiate among
receptor subtypes and, while they may indeed interact with the targeted receptor
subtypes,  thereby having some therapeutic  effect,  they may also interact with
other  receptor  subtypes  within  the  same  family  as the  targeted  receptor
subtypes.   These  other  receptor   subtypes  may  be  associated   with  other
physiological  functions, and interactions of these drugs with them often result
in  undesirable  side  effects.  In  addition,  many of these drugs have limited
therapeutic  utility because they must be used in sub-optimal  doses in order to
minimize these side effects.

         The Post-Genomics Era (Functional Genomics)

         Over the past decade, most of the major  pharmaceutical  companies have
developed an interest in using  cloned  receptors in at least some of their drug
discovery efforts.  This interest coincides with, and may in part be responsible
for, the sequencing of the entire human genome. While worldwide genomics efforts
have resulted in the development of new  technologies  which greatly  accelerate
the pace at which new receptors are  discovered,  most of these  discoveries  to
date have  been  "orphan  receptors,"  i.e.,  sequences  without  known  natural
ligands.  Without information regarding the natural ligands for these receptors,
it is  difficult  to  hypothesize  about  their role in  specific  physiological
functions.


         Over the next several decades,  a principal focus of the  biotechnology
and  pharmaceutical  industries  will be to utilize  the vast body of data being
generated with respect to cloned receptors to better understand


                                       4


these receptors,
their physiological  functions and their potential as targets for the design and
development of drugs that are safer and more efficacious than existing drugs. We
believe that our SNAP Discovery  platform will play an important role in (i) the
discovery  of new  GPCRs,  (ii)  the  elucidation  of  the  functions  of  newly
discovered  GPCRs and their  potential as drug targets,  and (iii) the design of
compounds that interact with these GPCRs.

Synaptic's GPCR SNAP Discovery Platform

         The Company  believes  that its success in the  discovery  of GPCRs and
subsequently  their  function in the body,  will enable it to further refine the
understanding of many disease processes. There is increasing evidence to suggest
that some disorders may actually involve the  malfunctioning of one or more of a
variety of receptors included within different  receptor families.  For example,
in the case of obesity,  there is pharmacological data indicating that NPY, MCH,
galanin and serotonin  receptors are involved in controlling  food intake.  As a
result, more than one drug could be developed to treat obesity,  but these drugs
would work through different biological mechanisms by exerting their therapeutic
effects by  interacting  with  receptors  belonging  to different  families.  We
believe  that our drug  discovery  and design  technologies  make it possible to
discover  two or  more  separate  drugs  that  could  benefit  distinct  patient
populations whose symptoms (for example,  obesity),  while identical,  stem from
different physiological disorders and therefore require different treatments.

Overview -- The Three Principal Steps

         The Company's GPCR drug discovery and design  technologies are employed
in three separate steps of the drug discovery process.

         (i)     Genomics.  Genomics is the discovery and cloning of the genes.
Our  genomics  efforts are focused on genes for GPCRs.  In this step,  we employ
molecular  biology  technologies,  such as genetic  engineering,  automated gene
sequencing and  bioinformatics to discover and clone receptor genes. Many of the
component technologies in this step are proprietary to Synaptic.

         (ii)     Functional  Genomics. The term "functional genomics" refers to
the  technologies  involved in the process of target  validation.  For  example,
certain  functional  genomics  technologies  facilitate  the  discovery  of  the
endogenous  ligands for  receptors  and,  thus,  the  biological  roles of these
receptors in the body.  Others involve mapping the  distribution of the receptor
gene or gene  product in the body in both normal and  diseased  tissues.  Others
involve assays that  facilitate both the search for compounds that are selective
for the  receptors  of interest  and the use of  selective  compounds in various
animal models of behavior and  physiology in an attempt to provoke a response in
an animal  model system that might  indicate the role of these  receptors in the
body.  Observation of a response in an animal model  constitutes a confirmation,
or "proof of  concept,"  of a role of the  receptor  targeted  by the  selective
compounds  and provides an  opportunity  to develop  hypotheses  concerning  the
possible  therapeutic  utility of drugs that act at the  receptors  of interest.
There is no guarantee,  however, that effects seen in animals will also occur in
humans.  The  downstream  steps in the  process of `target  validation'  include
preclinical testing and Phase I and Phase II clinical trials.

         (iii)    Chemistry:  Compound Design and Optimization. Chemistry, as it
relates to Synaptic's  GPCR drug discovery and design  technology,  involves two
principal  activities:  the design and synthesis of compounds that are selective
for the  receptor  of  interest  and that can thus be used in "proof of concept"
studies;  and,  following  "proof of  concept",  the  optimization  of selective
chemical  series to arrive at a

                                       5


compound  which has the desired  pharmacological
profile and which can thus  proceed  through  preclinical  testing and  clinical
trials.


Research and Drug Discovery Programs: Focus on G Protein-Coupled Receptor Family

         The  family  of  receptors  to which we have  chosen  to apply our drug
discovery  technologies  is the G  protein-coupled  receptor  family,  so called
because the cascade of events that ensues  within the receiving  cell  following
the  occurrence  of the  ligand-receptor  interaction  is mediated by a class of
proteins called "GTP-binding regulatory proteins," or "G proteins," found within
the cell.

         The Company chose to focus on the GPCR family  because it believes that
this family provides the optimum  opportunity  for the  exploitation of its drug
design  technology.  First, it is known that G protein-coupled  receptors play a
major   role  in   intercellular   communication   and  that  drugs  that  block
("antagonists") or enhance ("agonists") their activity have therapeutic utility.
Examples of these drugs include:  Zantac(R), a histamine receptor antagonist for
the treatment of ulcers;  Claritin(R),  a histamine receptor  antagonist for the
treatment of allergy; Imitrex(R), a serotonin receptor agonist for the treatment
of migraine headache;  and Hytrin(R),  an adrenergic receptor antagonist for the
treatment of hypertension and urinary retention  resulting from benign prostatic
hyperplasia  ("BPH").  Second,  there is a large body of knowledge about some of
the basic  structural  elements of drugs that interact with these receptors that
has  accumulated  over the years from which the  Company  and its  collaborative
partners and  licensees  can draw in beginning  their drug  discovery  programs.
Third,  the GPCR  family is  extremely  large and,  based on several  estimates,
exceeds 1,000 receptor subtypes  belonging to more than 45 known families and an
unknown number of additional  families the natural  ligands of which either have
not yet been  identified  or have  been  identified  but have not been  publicly
disclosed.

         The Company's  SNAP  Discovery  platform is being  utilized or has been
utilized in a number of different research and drug discovery programs.  Some of
these  programs are  currently  being  conducted  by the Company  independently.
Others  have  been  conducted  by the Company  independently or in collaboration
with  pharmaceutical  companies  but are  currently  inactive and  available for
licensing by the Company.  Finally,  some of the programs are being conducted by
the Company in joint research programs with its collaborative partners or by the
Company's licensees.

         Total  operating  expenses  incurred by Synaptic for each of the fiscal
years  2000,  1999 and  1998  were  $20,212,000,  $19,652,000  and  $19,576,000,
respectively,  of which  approximately  $1,021,000,  $1,759,000 and  $7,182,000,
respectively, was funded by our collaborative partners during these years.

                                       6




         Current  programs in which the Company's human  receptor-targeted  drug
design technology is being utilized include the following:

                 Summary of Research and Drug Discovery Programs

-------------------------------------------------------------------------------
     Company Programs:
       GPCR Targets           Primary Indications                 Status
-------------------------------------------------------------------------------

MCH                                Obesity                      Preclinical

SUT - 4                            Incontinence                 Preclinical

SCT - 11                           Depression                   Preclinical

Trace Amines                       CNS Disorders                Discovery

SMT - 3                            Diabetes                     Discovery
-------------------------------------------------------------------------------


Research and Drug Discovery Programs

         The Company is currently  focusing  its efforts on five drug  discovery
programs.  These drug  discovery  programs have been chosen  because the Company
believes it has a competitive  advantage in its intellectual  property position,
its  identification  of the endogenous  ligand or its  identification of a novel
function for the GPCR target.

         MCH

         Current  research  in  obesity  indicates  that the  brain  controls  a
person's  appetite  through a complex  network  of  signals  that are  exchanged
between the body and the brain.  For over a decade,  scientists at Synaptic have
been  working with GPCRs,  key  components  involved in this complex  network of
signals.  A number of receptors in the GPCR family have been  hypothesized to be
potential targets for drug discovery  programs.  Included within these GPCRs are
the serotonin 2C receptor, the neuropeptide Y5 receptor, the galanin GPCR family
and the melanin concentrating hormone ("MCH") receptor(s), among others.

         The  medications  most often  used in the  management  of  obesity  are
commonly  known as  "appetite  suppressant"  medications.  Appetite  suppressant
medications promote weight loss by decreasing appetite or increasing the feeling
of satiety.  These  medications  decrease  appetite by  increasing  serotonin or
catecholamines--brain  chemicals  that affect  appetite,  as well as mood.  Most
currently  available appetite  suppressant  medications are approved by the U.S.
Food and Drug  Administration  (FDA) for short-term use,  meaning a few weeks or
months.  Sibutramine(R) is the only appetite suppressant medication approved for
longer-term  use in  significantly  obese  patients,  although  its  safety  and
effectiveness have not been established for use beyond one year.

         Among the GPCR  targets  for obesity on which the Company is working is
the MCH receptor.  The natural ligand, MCH, stimulates feeding in rats, and rats
lacking the MCH gene are lean. Synaptic identified the gene for the MCH receptor
by means of its SNAP Discovery platform through which it discovered the

                                       7



gene and
natural ligand.  Synaptic's  chemists have designed  compounds that have allowed
proof of concept in animal feeding models. Preclinical development activities in
this program are being carried out.


         Incontinence

         A recent  estimate  of the  prevalence  of  incontinence  in the United
States reveals that it affects approximately 35 percent of women over the age of
50. Of the women who  experience  incontinence,  40-50  percent have symptoms of
urgency and frequency of urination or "urge  incontinence."  These  symptoms are
often  associated  with a condition that is described as  "overactive  bladder."
Drugs  that  are  currently  used  to  treat  urge   incontinence  such  as  the
anticholinergics  Ditropan(R)  and  Detrol(R)  are  aimed  at  reducing  bladder
activity  by  blocking  muscarinic  receptors  in the  bladder.  These drugs are
associated  with side  effects  such as dry mouth,  dry skin,  visual  blurring,
nausea  and  constipation.  The  increasing  prevalence  of  urge  incontinence,
together  with the side effect  profile and limited  efficacy of these drugs has
spurred the search for new  mechanisms of action that may be useful  targets for
the treatment of this disorder.

         Scientists  at  Synaptic,  utilizing  their  expertise  in GPCRs,  have
identified a novel  receptor,  the SUT-4 or Synaptic  Urinary Target 4 receptor,
that is localized in the central  nervous  system.  Using the Company's  UFA(TM)
technology, the natural ligand for this receptor was then determined.  Next, our
scientists  were  able to  identify  tool  compounds  using  the SNAP  Discovery
platform.  These tool compounds,  when studied in an in vivo rat model,  inhibit
the sensory  signals  from the bladder  that give rise to bladder  contractions.
These studies  indicate that we have identified a novel mechanism of action that
may be useful in the treatment of urge  incontinence.  Small molecule  compounds
that act at SUT-4 are now being evaluated in several models of incontinence.


         Depression

         More than 19 million  American adults (9.5% of the  population)  suffer
from depression.  Treatment includes medication,  short-term psychotherapy, or a
combination of both.  Untreated  depression is costly. A RAND Corporation  study
found that patients with  depressive  symptoms spend more days in bed than those
with  diabetes,  arthritis,  back  problems,  lung problems or  gastrointestinal
disorders.  Estimates of the total annual cost of untreated  depression  in 1990
ranged  from  $30-$44  billion in the United  States  alone.  Of the $44 billion
figure,   lost  workdays  account  for  close  to  $12  billion  of  this  cost.
Additionally,  more  than $11  billion  in other  costs  accrue  from  decreased
productivity  due to  symptoms  that sap  energy,  affect  work  habits or cause
problems with concentration, memory and decision-making.

         A number of different pharmacological approaches have been developed to
treat  depression.  The first  generation  of drugs shown to be effective in the
treatment of depression, such as the tricyclic antidepressants,  lithium and the
monoamine oxidase inhibitors,  have side effects that limit their effectiveness.
More  recently,   selective  serotonin  reuptake  inhibitors  (SSRIs),  such  as
Prozac(R),  Zoloft(R),  Paxil(R)  and  Celexa(R),  have been  shown to be highly
effective  in the  treatment  of many  forms of  depression.  A  number  of SSRI
compounds  are now  approved  for  marketing,  and these  drugs have  captured a
significant market share.  However,  all of these currently available drugs have
deleterious side effects that may limit their use in many patients. In addition,
these  drugs are  effective  only after a lag period of days to weeks  following
initial  administration.  This lag time can be a serious problem,  especially in
the depressed suicidal patient.  Furthermore,  there are a significant number of
patients who do not  adequately  respond to any of the currently  available drug
therapies.


                                       8


         Synaptic,  utilizing its genomics and  functional  genomics  expertise,
believes  that  it  has  identified  a  function  in  the  body  for  one of its
proprietary  GPCRs.  Compounds that interact with this  receptor,  which we call
SCT- 11, when tested in vivo show similar effects to the SSRIs. Since this novel
approach targets a GPCR, we believe that compounds acting through this mechanism
may have a rapid  onset of  action  and may be safer and more  efficacious  than
existing antidepressants. Our lead compound is in preclinical development.


         Trace Amines

         Scientists  at  Synaptic  have  discovered  and  cloned a new  class of
receptors that are sensitive to "Trace Amines," a family of chemical  messengers
thought  to  play  a  role  in a  variety  of  illnesses  including  depression,
psychosis, migraine, asthma, and hypertension. The Company is expanding its drug
discovery  efforts to include  this new class of GPCRs.  Over the last 20 years,
several lines of evidence have pointed to trace amines as neurotransmitters  and
neuromodulators,  however,  researchers  had been  unable  to find  Trace  Amine
receptors in mammalian systems, until our discovery.

         Trace  Amines  that  act  on the  newly  discovered  receptors  include
Tyramine, Tryptamine and (beta)-Phenylamine. Trace Amines are closely related to
biogenic  amines,  which  include  the  classical  neurotransmitters  serotonin,
dopamine and norepinephrine.  The receptors and transporters for biogenic amines
are the targets for a number of drugs for the  treatment  of  depression,  heart
disease, migraine headache, ulcers and allergy. We believe that the similarities
between Trace Amines and biogenic amines make Trace Amine  receptors  attractive
targets for  discovering  drugs and developing  treatments for a wide variety of
disorders.

         Using the SNAP Discovery platform,  Synaptic has advanced several Trace
Amine  receptors,  and is  using  the  small  molecule  selective  leads  it has
identified, into proof of concept studies for a variety of disorders.


         Diabetes

         Diabetes  Mellitus is a significant  health  problem  characterized  by
hyperglycemia  resulting  from  impairment in insulin  secretion  and/or insulin
action.  Type II  diabetes  affects  more than 16  million  adults in the United
States and places these  individuals at high risk for serious  complications  of
the eyes, nerves,  kidneys and cardiovascular system. As obesity rates worldwide
are  increasing,  so too is the  prevalence  of  diabetes.  Points for  possible
intervention  in diabetes  include the  stimulation of insulin  release from the
pancreas,  either directly or through the central nervous system,  inhibition of
glucose  production  in the liver,  blockade of  cholesterol  absorption  in the
intestines and  alterations in the  sensitivity  of insulin  receptors.  Current
therapies for diabetes include insulin  replacement via injections which must be
timed and dosed very carefully,  insulin  sensitizers such as Rezulin(R),  which
can cause liver toxicity, and Avandia(R) and Actos(R), which are very new to the
market. Sulfonylureas and meglitinides such as Prandin(R) can cause hypoglycemia
and are  contraindicated in kidney disease.  Glucose production blockers such as
Glucophage(R)  can cause GI irritation and are not recommended if liver,  kidney
or heart disease are present and alpha glucosidase  blockers such as Acarbose(R)
can cause GI cramping and flatulence.

         Scientists  at  Synaptic,  utilizing  their  expertise  in GPCRs,  have
identified  a  novel  receptor  that is  localized  predominantly  in the  human
pancreas.  Using the Company's UFA(TM)  technology,  the natural ligand for this
receptor was identified.  Taken together,  the  localization of this GPCR in the
human  pancreas,  as well


                                       9


as the  biology  that is known  about  the  endogenous
ligand,  make this receptor a candidate for the discovery and  development  of a
drug that will stimulate glucose-dependent insulin release.  Preliminary studies
at Synaptic  have  verified  that the ligand for this  receptor  stimulates  the
secretion  of insulin from  isolated rat  pancreatic  islets.  We are  currently
applying our SNAP Discovery platform to perform high throughput screening of the
Company's  GPCR-biased  compound  library to identify  small molecule tools that
will be useful in exploiting this novel mechanism of action.

                       Summary of Joint Research Programs

-------------------------------------------------------------------------------
      Company                   Program                 Primary Indication
-------------------------------------------------------------------------------

Grunenthal                  Drug Discovery                    Pain


Kissei                      Gene Discovery, Cloning
                               and Proof of Concept           Undisclosed
-------------------------------------------------------------------------------


Joint Research Programs

         A key element of Synaptic's  business strategy is to leverage resources
and to attempt to generate  royalty-based  revenues  through  collaborative  and
licensing arrangements with pharmaceutical  companies.  The Company is currently
collaborating with two pharmaceutical companies pursuant to: (i) the Cooperation
Agreement dated January 12, 1998, as amended (the "Grunenthal Agreement"),  with
Grunenthal GmbH  ("Grunenthal") and (ii) the Collaborative  Research and License
Agreement  dated  January  24,  2000  (the  "Kissei  Agreement"),   with  Kissei
Pharmaceutical  Co., Ltd.  ("Kissei").  Concurrently  with the  establishment of
these collaborative  arrangements,  Synaptic granted certain rights with respect
to its technology and patent rights to Grunenthal and Kissei. Set forth below is
a brief summary of these collaborative arrangements.

         Grunenthal Collaboration

         In January 1998, the Company and Grunenthal entered into the Grunenthal
Agreement pursuant to which they agreed to collaborate in the identification and
development of drugs for the alleviation of pain. The basis of the collaboration
has been the  complementary  technologies  of the two  companies.  Synaptic  has
cloned the genes for many receptors  whose  biological  functions are not known.
Grunenthal  has a broad  expertise in various animal models of pain. The work of
the collaboration involves the coupling of the Company's human receptor-targeted
drug design technology with Grunenthal's expertise in pain-related technology in
an  attempt  first to  identify  receptors  that  could be targets of drugs that
alleviate pain and then to design and develop drugs targeted to these receptors.

         Under the terms of the Grunenthal  Agreement,  Synaptic  agreed to make
available to Grunenthal  for evaluation all receptors (to the extent not already
licensed  exclusively  to a third  party)  cloned by Synaptic for which there is
evidence of a role in the  mediation of pain or whose  function has not yet been
elucidated  but which were first cloned by Synaptic  from tissues known to be so
implicated. Synaptic further agreed not to pursue these receptors, independently
or with any third party,  as targets of potential  drugs for the  alleviation of
pain during the  evaluation  period  applicable  to the  receptors or during the
period over which  activities  involving  any such  receptor  are being  jointly
conducted with Grunenthal.

                                       10



         The terms of the  Grunenthal  Agreement  provide that the companies are
responsible  for their own expenses  incurred  during the research  stage of any
project undertaken as part of the collaboration but will each be responsible for
50% of all development costs incurred as part of the project with respect to any
resulting drug candidates up to the  commencement of Phase III clinical  trials.
Synaptic will retain  manufacturing  and marketing  rights in the United States,
Canada  and  Mexico  with  respect  to any drug  candidates  resulting  from the
collaboration,  while Grunenthal will retain  manufacturing and marketing rights
in Europe, Central America (other than Mexico) and South America with respect to
any of these drug  candidates.  The two companies will share these rights in all
other countries.  With respect to each country in its own territories and in the
shared  territories  in which it  desires  to market a drug  candidate,  each of
Synaptic and Grunenthal  will be responsible  for conducting  Phase III clinical
trials, if required,  for obtaining any necessary regulatory  approval,  and for
all associated costs.


         Kissei Collaboration

         In  January  2000,  the  Company  and  Kissei  entered  into the Kissei
Agreement.  Under the  agreement  Synaptic  will  conduct  both a  genomics  and
functional  genomics  program  on behalf  of  Kissei.  As part of this  program,
scientists  at  Synaptic  are   attempting  to  clone  genes  that  code  for  G
protein-coupled  receptors  from tissues  selected by Kissei and to identify the
ligands  for these  receptors.  Kissei  will  attempt to  discover  and  develop
compounds that act at these  receptors.  The term of the  collaboration is three
years.

         Under  the terms of the  Kissei  Agreement,  Kissei  will  provide  the
Company  with  funding  to support  Synaptic's  research.  Kissei  will have the
opportunity to select up to a specified  number of receptors that are discovered
by Synaptic during the course of the  collaboration  and to receive an exclusive
worldwide  license to use the  selected  receptors to develop,  manufacture  and
market drugs that act through those receptors.  Kissei's license will convert to
a nonexclusive  license in all countries  except Japan following its achievement
of  certain  milestones.  In  consideration  for this  license,  Kissei  will be
required  to pay the  Company  license  fees,  milestone  payments  and  royalty
payments on any drug that reaches the marketplace.

         Kissei has the right to  terminate  the Kissei  Agreement  effective in
January 2001, 2002 or 2003 upon at least three months' prior written notice.  In
the event of this kind of  termination,  Kissei  will not be required to provide
the Company with research funding that has not come due prior to termination.

                                       11




                      Summary of Other Licensees' Programs

-------------------------------------------------------------------------------
                                                              Types and Numbers
                                                                of Synaptic's
                                            Primary            Issued U.S. and
Licensee               Program            Indications          Foreign Patents
-------------------------------------------------------------------------------
Lilly               Serotonin               Various            Receptor   41
                                                               Functional Use 1

Novartis            NPY                     Obesity and
                                             Cardiovascular
                                              Disorders        Receptor   23

Glaxo (1)           Alpha 1a, 1b, 1d        Unknown            Receptor    7

PRI                 Alpha 1a, 1b, 1d        BPH                Receptor    7
                                                               Functional Use 9
-------------------------------------------------------------------------------


(1)   Glaxo has a nonexclusive  license to use Synaptic's  alpha 1 receptors for
      certain  purposes,  but is not  required  to  provide  Synaptic  with  any
      information   regarding   such   use   unless   it  files  an  NDA  for  a
      royalty-bearing  compound under its agreement with Synaptic. Glaxo has not
      notified Synaptic of an NDA filing.


Other Licensees' Programs

         In addition to the licenses  granted in  connection  with the Company's
ongoing  collaborative  arrangements,  licenses  to  certain  of  the  Company's
technology  and patent  rights have been  granted to three other  pharmaceutical
companies  pursuant to: (A) the  Research,  Option and License  Agreement  dated
January 25, 1991, as amended (the "Lilly Agreement"), with Eli Lilly and Company
("Lilly");  (B) the Research  and License  Agreement  dated  August 4, 1994,  as
amended (the "First Novartis  Agreement") and the Research and License Agreement
dated May 31, 1996 (the "Second Novartis Agreement," and together with the First
Novartis  Agreement,  the  "Novartis  Agreements"),   with  Novartis  Pharma  AG
("Novartis");  and (C) the Option and License Agreement dated March 2, 1998 (the
"Glaxo Agreement"),  with Glaxo Group Limited ("Glaxo").  The Lilly and Novartis
licenses  were  granted  concurrently  with the  establishment  by  Synaptic  of
collaborative   arrangements   with   these   companies.   While  the   Novartis
collaboration  and the Lilly  collaboration  ended in August 1998 and July 1999,
respectively,  the  associated  licenses  continue  for the  respective  periods
provided in the Novartis Agreements and the Lilly Agreement.

         Lilly Programs

         Serotonin is one of the major neurotransmitters of the body. It affects
mood,  sleep  rhythms,   sexual  functions,   appetite,   temperature   control,
gastro-intestinal movement and the cardiovascular,  pulmonary and genito-urinary
systems.  Drugs that inhibit or enhance the actions of serotonin  have proven to
be  effective  in the  treatment  of an array  of  disorders,  such as  migraine
headache,  depression  and  anxiety.  However,  many of the  serotonergic  drugs
currently  available were designed without the use of cloned serotonin  receptor
subtype genes and some of these drugs have unacceptable side effect profiles. It
is  generally  believed  that  the  poor

                                       12



side  effect  profiles  stem  from the
interaction  of these  drugs with  multiple  serotonin  receptor  subtypes.  The
serotonin family is extremely large,  comprising at least 14 receptor  subtypes.
While each of these  receptor  subtypes  may be  implicated  in a  physiological
function distinct from the other subtypes,  all of the receptor subtypes respond
to the neurotransmitter serotonin--and may be responding to nonsubtype-selective
drugs.  As a  consequence,  a  nonsubtype-selective  drug  intended to exert its
effects  on  one  physiological   function  may  in  fact  have  the  unintended
consequence of exerting its effects on other  physiological  functions,  thereby
causing the undesirable side effects.

         During the course of the collaboration, one of the serotonin receptors,
the  serotonin  1F  receptor,  was  validated  as a target for the  treatment of
migraine headaches.  In addition to migraine headache,  there are a wide variety
of  additional  applications  for  serotonin-based  drugs,  including  potential
therapies  for the treatment of obesity and novel  receptor-based  therapies for
the treatment of depression. Although many years of research have been committed
to the serotonin  receptor  system by dozens of research teams around the world,
the  understanding of the biological role of most of the serotonin  receptors is
still in a very early stage. Considerable work must be done in order to validate
many of the serotonin receptors as drug targets.

         Under the terms of the Lilly  Agreement,  Lilly  received an  exclusive
worldwide  license to use all but two of the Company's  existing  serotonin drug
discovery systems for the development and commercialization of drugs that affect
serotonergic  transmission.  The Company retained the unlimited right to use two
of its existing  serotonin drug discovery systems and a limited right to use all
of its other serotonin drug discovery systems for cross-reactivity  screening of
compounds in nonserotonin drug discovery programs.

         The terms of the Lilly Agreement  provide that Lilly is responsible for
all development,  manufacturing, marketing and sales of drugs resulting from the
use of Synaptic's technology. The Company will be entitled to receive from Lilly
payments  upon the  achievement  of  certain  drug  development  milestones  and
royalties  on sales of any  drugs  developed  through  the use of the  Company's
technology.  Royalties  will be payable in respect of sales in any country  over
the period  commencing with the date of the first  commercial sale of a drug and
ending with the  expiration of related  patent  rights in that country.  Lilly's
milestone and royalty payment  obligations  under the Lilly Agreement  continue,
notwithstanding the expiration of the term of the collaboration.


         Novartis Programs

         From August 1994 to August 1998, the Company and Novartis  engaged in a
collaboration  directed  primarily to the  identification and development of NPY
drugs  for  the  treatment  of  obesity  and  eating  disorders.  As part of its
collaboration with the Company, Novartis received an exclusive worldwide license
to use the Company's NPY receptor subtype drug discovery systems for the limited
purpose of developing and  commercializing Y5 antagonists,  as well as any other
NPY drugs,  for the  treatment  of  obesity  and  eating  disorders,  as well as
cardiovascular  disorders.  Novartis also  received  rights under several of the
Company's  patents  and patent  applications.  The  license  and  rights  remain
exclusive until August 2001, following which time they become nonexclusive.

         The Y5 receptor was initially isolated by the Company's scientists from
rat hypothalamus.  In laboratory tests, the activity of NPY and related peptides
on the Y5 receptor  correlates  with the ability of these  peptides to stimulate
feeding in animals. As part of its collaboration with the Company, Novartis then
showed in proof of concept  studies that several  peptides that activated the Y5
receptor  preferentially over other known NPY receptors increased food intake in
rats.  Additional  proof of concept studies by Synaptic and Novartis showed that
small molecules that selectively block the Y5 receptor significantly reduce food

                                       13



intake  in rats  and  reduce  body  weight  after  chronic  administration.  The
Company's  collaboration  with Novartis  focused on discovering and developing a
potent  and  selective  Y5  antagonist  for the  treatment  of  obesity.  To our
knowledge  Novartis is  continuing  its efforts to identify a Y5 antagonist as a
development candidate for this obesity program.

         Under the license agreement  Novartis will be required to make payments
to the Company  upon the  achievement  by Novartis of certain  drug  development
milestones and, subject to certain limitations,  to pay the Company royalties on
the sale of any drugs developed through the use of the Company's technology.


         Glaxo Agreement

         In March 1998,  the Company and Glaxo entered into the Glaxo  Agreement
pursuant to which the Company  granted  Glaxo a  nonexclusive  license under the
Company's  alpha 1  adrenergic  receptor  patents to develop  and sell  alpha-1a
selective  compounds for  therapeutic  applications  other than the treatment of
BPH.  Synaptic  will be entitled to receive  royalties  on sales of any alpha-1a
selective  drugs sold by Glaxo so long as Synaptic has an issued patent relating
to an alpha 1 adrenergic  receptor  subtype in at least one major market country
at that time.


         The R.W. Johnson Pharmaceutical Research Institute

         In  September  2000,  Synaptic  and  The  R.W.  Johnson  Pharmaceutical
Research  Institute,  a Division of  Ortho-McNeil  Pharmaceutical,  Inc.  (PRI),
entered  into an  agreement  in which  Synaptic  granted  nonexclusive  licenses
covering   Synaptic's   alpha-1   adrenergic   receptors  and  benign  prostatic
hypertrophy  (BPH)  patents.  The license  agreement  between  Synaptic  and PRI
provides PRI the freedom to operate under Synaptic's  functional use patents for
BPH and  Synaptic's  alpha-1  adrenergic  receptor  patents for all  therapeutic
indications.  In exchange for the  nonexclusive  licenses,  PRI paid provide and
up-front  licensing  fee. PRI is required to make  payments to Synaptic upon the
achievement of certain drug  development  milestones and to pay royalties on the
sales of any drugs developed, if any.


Other Agreements

         It  is  the  Company's   practice  to  meet  with   pharmaceutical  and
biotechnology  companies on an on-going basis to discuss possible collaborations
on projects of mutual interest and/or out-licensing of Synaptic's  technology on
a  non-collaborative  basis.  At present,  the Company is in the early stages of
discussing  a  number  of  possible  arrangements.  There  can be no  assurance,
however, that these discussions will result in the consummation of collaborative
or licensing arrangements.

Patents, Proprietary Technology and Trade Secrets

         The Company's  success  depends,  in part, on its ability to establish,
protect and enforce  its  proprietary  rights  relating to its  technology.  The
Company's  policy  is  to  seek,  when  appropriate,  protection  for  its  gene
discoveries,  compound  discoveries and other  proprietary  technology by filing
patent  applications in the United States and other  countries.  The Company has
filed  numerous  patent  applications  both in the  United  States  and in other
countries covering its inventions.


                                       14



         As of  February  28,  2001,  the  Company had been issued a total of 76
patents worldwide  relating to the genes that code for various G protein-coupled
receptors.  These patents expire between 2008 and 2019. In addition,  as of that
date  additional  patent  applications  relating to the Company's  receptor gene
discoveries had been filed in the United States and in other countries.

         In April 1995,  the Company was issued its first  functional use patent
in  the  United  States.  This  patent  covers  the  use of  selective  alpha-1a
antagonists  for the treatment of BPH. As of February 28, 2001,  the Company had
been issued a total of nine patents  relating to the same subject  matter in the
United  States and in other  countries.  These patents  expire  between 2012 and
2015. Additional related or corresponding patent applications of the Company are
on file in the United States and in other countries.

         In August 1999,  the Company  received a  functional  use patent in the
United  States  covering  the use of  selective  serotonin  1D agonists  for the
treatment of migraine headache.  Additional patent applications  relating to the
same subject matter have been filed in other countries.

         The Company has also filed patent applications in the United States and
in  other  countries  covering  its  neurotransmitter  transporter  discoveries.
Whereas  receptors  are  protein  molecules  that bind to and are  activated  by
certain ligands,  transporters are protein molecules that serve to terminate the
action of certain  ligands by carrying  them back into the cells from which they
are released.  As of February 28, 2001, the Company had been issued nine patents
relating to six of these  transporter  discoveries  in the United  States and in
another  country.  Additional  related or corresponding  applications  have been
filed by the Company in the United  States and abroad.  The Company is no longer
actively working on its transporter program.  However, the Company is seeking to
license its transporter technology to others.

         Additional  patent   applications   covering  the  Company's   compound
discoveries  and other  inventions  have been filed in the United  States and in
other countries and the Company expects to file additional  patent  applications
in the future.

         The Company has granted certain rights under several of its patents and
patent applications to Lilly, Novartis, Grunenthal, Glaxo and Kissei.

         Patent law as it relates to  inventions in the  biotechnology  field is
still evolving, and involves complex legal and factual questions for which legal
principles are not firmly  established.  Accordingly,  there can be no assurance
that  patents  will be  granted  with  respect  to any of the  Company's  patent
applications  currently  pending in the United States or in other countries,  or
with respect to applications  filed by the Company in the future. The failure by
the Company to receive patents pursuant to the  applications  referred to herein
and any future applications could have a material adverse effect on the Company.

         There is no clear  policy  involving  the breadth of claims  allowed in
patents or the degree of protection afforded  thereunder.  Accordingly,  no firm
predictions  can be made  regarding  the  breadth  or  enforceability  of claims
allowed in the patents  that have been issued to the Company or in patents  that
may be issued to the Company in the future,  and there can be no assurance  that
claims in the  Company's  patents,  either as  initially  allowed  by the United
States Patent and Trademark Office or any of its non-United States  counterparts
or as  subsequently  interpreted  by courts inside or outside the United States,
will be sufficiently broad to protect the Company's proprietary rights.

         On June 5, 2000,  the Company filed suit in the United States  District
Court for the District of New Jersey against M.D.S. Panlabs,  Inc., a Washington
corporation,  and Panlabs  Taiwan Ltd., a Taiwanese  corporation  (collectively,
"Panlabs").  The suit  alleges that Panlabs has  infringed  several  issued U.S.
Patents

                                       15


owned by the Company that relate to cloned human receptors and their use
in binding  assays.  The suit also  alleges  that  Panlabs  has been  importing,
selling and offering to sell  products of the Company's  patented  binding assay
processes  to  pharmaceutical  companies  and  others in the  United  States and
particularly in New Jersey. See "Legal Proceedings" in PART I, Item 3, hereof.

         Also,  there can be no assurance  that the Company's  patents or patent
applications  will  not be  challenged  by way of  interference  proceedings  or
opposed by third parties or that the Company will not be required to participate
in  interference  proceedings  or oppose the patents or patent  applications  of
third  parties in order to  protect  its  rights.  Interference  and  opposition
proceedings  can be  expensive  to  prosecute  and defend.  As  of  February 28,
2001,  the Company was seeking to provoke an  interference  by the United States
Patent and Trademark Office between one of its patent applications and an issued
patent of a third  party.  There can be no  assurance  that the  outcome  of the
anticipated  interference  proceeding  will be favorable to the Company.  In the
event that the outcome of the  interference  proceeding were  unfavorable to the
Company,  the Company  might not be able to practice  the subject  matter of the
relevant patent  application in the United States.  Accordingly,  an unfavorable
outcome  in an  interference  proceeding  would  have an  adverse  effect on the
Company.  Even  if the  ultimate  outcome  of  the  interference  proceeding  is
favorable  to  the  Company,   the  Company's   participation  could  result  in
substantial cost.

         Further,  no assurance can be given that patents  issued to the Company
will not be infringed, invalidated or circumvented by others, or that the rights
granted  thereunder  will be commercially  valuable or will provide  competitive
advantages  to the Company and its present or future  collaborative  partners or
licensees.  Moreover,  because  patent  applications  in the  United  States are
maintained  in secrecy until  patents  issue,  because  patent  applications  in
certain other  countries  generally  are not published  until more than eighteen
months  after  they  are  filed  and  because   publication   of   technological
developments in the scientific or patent  literature  often lags behind the date
of these  developments,  the Company  cannot be certain that it was the first to
invent the subject matter covered by its patents or patent  applications or that
it was the first to file patent applications for these inventions.

         The commercial  success of the Company depends in part on the Company's
ability to operate without  infringing  patents and proprietary  rights of third
parties.  The  Company  is  aware  of a  large  number  of  patents  and  patent
applications  of third  parties  that  contain  claims to genes  that code for G
protein-coupled  receptors,  and/or compounds that interact with GPCRs.  Patents
issued to others may preclude the Company from using or licensing certain of its
receptor  discoveries or may preclude the Company or its collaborative  partners
and other  licensees from  commercializing  drugs  developed with the use of the
Company's  technology.  The  Company  has  acquired  a  license  to use  certain
technologies  covered by a patent  owned by Columbia  University.  The  Columbia
University license is a worldwide nonexclusive license to manufacture, use, sell
and sublicense drugs derived from the use of certain recombinant DNA technology.
In  consideration  for this license,  the Company has agreed to pay royalties on
sales of drugs developed through the use of the license. The term of the license
extends until the  expiration of the last to expire of the patent rights covered
by the license.  The Company has procured licenses to several  technologies that
are used in several of its  programs.  The  Company  may be  required  to obtain
additional  licenses to patents or other proprietary  rights of other parties in
order to  pursue  its own  technologies.  No  assurance  can be  given  that any
additional  licenses would be made available on terms acceptable to the Company,
if at all.  The  failure  to  obtain  licenses  could  result  in  delays in the
Company's or its collaborative partners' or licensees' activities, including the
development,  manufacture or sale of drugs requiring these licenses, or preclude
their development, manufacture or sale.


                                       16



         In some cases,  litigation  or other  proceedings  may be  necessary to
assert   infringement  claims  against  others,  to  defend  against  claims  of
infringement,  to  enforce  patents  issued to the  Company,  to  protect  trade
secrets, know-how or other intellectual property rights owned by the Company, or
to determine the scope and validity of the proprietary  rights of third parties.
Such litigation could result in substantial  costs to and diversion of resources
by the Company and could have a material  adverse  effect on the Company.  There
can be no assurance that any of the Company's  patents would  ultimately be held
valid or that efforts to defend any of its patents,  trade secrets,  know-how or
other  intellectual  property rights would be successful.  An adverse outcome in
litigation  or  in  a  proceeding  could  subject  the  Company  to  significant
liabilities,  require  the  Company to cease  using the  subject  technology  or
require the Company to license the subject  technology from the third party, all
of which could have a material adverse effect on the Company's business.

         In  addition  to patent  protection,  the  Company  relies  upon  trade
secrets,  proprietary know-how and continuing  technological advances to develop
and maintain its competitive  position.  To maintain the  confidentiality of its
trade secrets and proprietary  information,  the Company requires its employees,
consultants and  collaborative  partners to execute  confidentiality  agreements
upon the commencement of their  relationships  with the Company.  In the case of
employees,  the agreements also provide that all inventions  resulting from work
performed  by them  while in the  employ of the  Company  will be the  exclusive
property  of  the  Company.  There  can be no  assurance,  however,  that  these
agreements will not be breached,  that the Company would have adequate  remedies
in the event of a breach or that the  Company's  trade  secrets  or  proprietary
information  will not  otherwise  become  known or  developed  independently  by
others.

Competition

         Synaptic and its collaborators and licensees are pursuing areas of drug
discovery and development in which we believe there is a potential for extensive
technological  innovation in  relatively  short periods of time. We operate in a
field in which new discoveries occur at a rapid pace. Competitors may succeed in
developing  technologies  or products  that are more  effective  than ours or in
obtaining regulatory approvals for their drugs more rapidly than we are able to,
which could render our products obsolete or  noncompetitive.  Competition in the
pharmaceutical industry is intense and is expected to continue to increase. Many
competitors,  including biotechnology and pharmaceutical companies, are actively
engaged in research and development in the areas of obesity, depression, urology
and CNS disorders. Many of our competitors have substantially greater financial,
technical,  marketing,  and personnel resources.  In addition, some of them have
considerable experience in preclinical testing, human clinical trials, and other
regulatory  approval  procedures.   Moreover,   certain  academic  institutions,
governmental  agencies, and other research organizations are conducting research
in the same  areas in which we are  working.  These  institutions  are  becoming
increasingly  aware  of the  commercial  value of  their  findings  and are more
actively  seeking  patent  protection  and  licensing  arrangements  to  collect
royalties for the technology that they have developed.  These  institutions  may
also  market  competitive  commercial  products  on their own or  through  joint
ventures and will  compete with us in  recruiting  highly  qualified  scientific
personnel.  There can be no assurance that a pharmacological method of treatment
for certain disorders, such as obesity or depression,  will prove to be superior
to existing or newly discovered approaches to the treatment of those disorders.


Government Regulation

         The development, manufacturing and marketing of drugs developed through
the use of the  Company's  technology  are  subject to  regulation  by  numerous
Federal,  state and local  governmental  authorities in the United  States,  the
principal  one of which is the FDA, and by similar  agencies in other

                                       17



countries
(each of such  Federal,  state,  local and other  authorities  and  agencies,  a
"Regulatory  Agency").  Regulatory  Agencies  impose  mandatory  procedures  and
standards for the conduct of certain preclinical testing and clinical trials and
the  production  and  marketing  of drugs for  human  therapeutic  use.  Product
development and approval of a new drug are likely to take many years and involve
the expenditure of substantial resources.

         The steps  required  by the FDA before new drugs may be marketed in the
United States include: (i) preclinical  studies;  (ii) the submission to the FDA
of a request for authorization to conduct clinical trials on an  investigational
new drug (an "IND");  (iii)  adequate  and  well-controlled  clinical  trials to
establish  the  safety  and  efficacy  of the drug for its  intended  use;  (iv)
submission to the FDA of a new drug  application (an "NDA");  and (v) review and
approval of the NDA by the FDA.

         In the United States, preclinical testing includes both in vitro and in
vivo laboratory  evaluation and characterization of the safety and efficacy of a
drug and its  formulation.  Laboratories  involved in  preclinical  testing must
comply with FDA  regulations  regarding Good Laboratory  Practices.  Preclinical
testing  results are submitted to the FDA as part of the IND and are reviewed by
the FDA prior to the  commencement  of human  clinical  trials.  Unless  the FDA
objects to an IND, the IND will become  effective 30 days  following its receipt
by the FDA. There can be no assurance  that  submission of an IND will result in
the commencement of human clinical trials.

         Clinical   trials,    which   involve   the   administration   of   the
investigational  drug to healthy volunteers or to patients under the supervision
of  a  qualified  principal  investigator,  are  typically  conducted  in  three
sequential  phases,  although the phases may overlap with one another.  Clinical
trials must be  conducted  in  accordance  with Good  Clinical  Practices  under
protocols that detail the objectives of the study,  the parameters to be used to
monitor safety and the efficacy criteria to be evaluated.  Each protocol must be
submitted to the FDA as part of the IND.  Further,  each clinical  study must be
conducted under the auspices of an independent  Institutional  Review Board (the
"IRB")  at the  institution  where  the study  will be  conducted.  The IRB will
consider,  among other things, ethical factors, the safety of human subjects and
the  possible  liability  of  the  institution.  Compounds  must  be  formulated
according to the FDA's Good Manufacturing Practices ("GMP").

         Phase I clinical  trials  represent the initial  administration  of the
investigational drug to a small group of healthy human subjects or, more rarely,
to a group of selected patients with the targeted disease or disorder.  The goal
of Phase I clinical  trials is typically to test for safety  (adverse  effects),
dose tolerance, absorption, bio-distribution, metabolism, excretion and clinical
pharmacology and, if possible, to gain early evidence regarding efficacy.

         Phase II clinical  trials involve a small sample of the actual intended
patient  population and may seek to assess the efficacy of the drug for specific
targeted  indications,  to determine  dose  tolerance and the optimal dose range
and/or to gather additional information relating to safety and potential adverse
effects.

         Once an  investigational  drug is found to have  some  efficacy  and an
acceptable safety profile in the targeted patient population, Phase III clinical
trials are initiated to establish  further  clinical  safety and efficacy of the
investigational  drug in a broader sample of the general  patient  population at
geographically   dispersed  study  sites  in  order  to  determine  the  overall
risk-benefit  ratio of the drug and to provide an adequate basis for all package
labeling.  The results of the research and product  development,  manufacturing,
preclinical  testing,  clinical trials and related  information are submitted to
the FDA in the form of an NDA for approval of the  marketing and shipment of the
drug.


                                       18



         Timetables for the various  phases of clinical  trials and NDA approval
cannot be predicted with any certainty.  The Company, its collaborative partners
or other  licensees or the FDA may suspend  clinical trials at any time if it is
believed  that  individuals   participating  in  trials  are  being  exposed  to
unacceptable  health risks. Even assuming that clinical trials are completed and
that an NDA is submitted to the FDA, there can be no assurance that the NDA will
be reviewed by the FDA in a timely manner or that once reviewed, the NDA will be
approved. The approval process is affected by a number of factors, including the
severity of the targeted indications, the availability of alternative treatments
and the risks and benefits  demonstrated in clinical trials. The FDA may deny an
NDA if  applicable  regulatory  criteria  are  not  satisfied,  or  may  require
additional testing or information with respect to the investigational drug. Data
obtained from  preclinical  and clinical  activities are  susceptible to varying
interpretations  that  could also  delay,  limit or  prevent  Regulatory  Agency
approval. Even if initial FDA approval is obtained,  further studies,  including
post-market  studies,  may be  required in order to provide  additional  data on
safety and will be required in order to gain  approval  for the use of a product
as a treatment for clinical  indications  other than those for which the product
was initially tested.  The FDA will also require  post-market  reporting and may
require  surveillance  programs to monitor the side effects of the drug. Results
of  post-marketing  programs  may limit or expand the further  marketing  of the
drug. Further, if there are any modifications to the drug,  including changes in
indication, manufacturing process or labeling, an NDA supplement may be required
to be submitted to the FDA.  Finally,  delays or rejections  may be  encountered
based  upon  changes  in  Regulatory  Agency  policy  during  the period of drug
development and/or the period of review of any application for Regulatory Agency
approval for a compound.  Moreover,  because most of the Company's collaborative
partners and other licensees are generally  responsible for preclinical testing,
clinical trials,  regulatory  approvals,  manufacturing and commercialization of
drugs,  the  ability to obtain and the timing of  regulatory  approvals  are not
within the control of the Company. There can be no assurance that the regulatory
framework  described above will not change or that additional  regulations  will
not arise that may affect approval of a potential drug.

         Each  manufacturing  establishment for new drugs is required to receive
some form of  approval  by the FDA.  Among the  conditions  for  approval is the
requirement   that  the   prospective   manufacturer's   quality   control   and
manufacturing procedures conform to GMP, which must be followed at all times. In
complying  with  standards set forth in these  regulations,  manufacturers  must
continue to expend time, monies and effort in the area of production and quality
control to ensure full technical compliance.  Manufacturing establishments, both
foreign and domestic,  are also subject to inspections by or under the authority
of the FDA and may be subject to inspections by foreign and other Federal, state
or local agencies.

         Prior to the  commencement  of marketing a product in other  countries,
approval by the  regulatory  agencies  is  required,  regardless  of whether FDA
approval has been  obtained for such  product.  The  requirements  governing the
conduct of clinical  trials and product  approvals  vary widely from  country to
country,  and the time  required  for approval may be longer or shorter than the
time required for FDA approval.  Although there are some  procedures for unified
filings for certain  European  countries,  in general,  each country has its own
procedures and requirements.

         Delays in obtaining  Regulatory Agency approvals could adversely affect
the  marketing  of any  drugs  developed  by the  Company  or its  collaborative
partners or other licensees,  impose costly procedures upon the Company's or its
collaborative partners' or other licensees' activities, diminish any competitive
advantages that the Company or its collaborative partners or other licensees may
attain and  adversely  affect the  Company's  ability  to  receive  revenues  or
royalties.  There  can  be no  assurance  that,  even  after  these  delays  and
expenditures,  Regulatory  Agency  approvals  will be obtained for any compounds
developed  by, in collaboration  with or pursuant to licenses from the Company.
Moreover,  even if Regulatory  Agency  approval for a compound is granted,  this
approval  may  entail  limitations  on the  indicated  uses for  which it may be
marketed.  Further,  approved  drugs  and their  manufacturers  are  subject  to
continual  review,  and discovery of


                                       19


previously  unknown problems with a drug or
its  manufacturer  may  result in  restrictions  on such  drug or  manufacturer,
including withdrawal of the drug from the market.  Regulatory Agency approval of
prices is required in many  countries  and may be required for the  marketing of
any  drug  developed  by the  Company  or its  collaborative  partners  or other
licensees.

         As with many biotechnology and pharmaceutical  companies, the Company's
activities involve the use of radioactive compounds and hazardous materials. The
Company is subject to local, state and Federal laws and regulations  relating to
occupational safety,  laboratory practices, the use, handling and disposition of
radioactive materials, environmental protection and hazardous substance control.
Although  the Company  believes  that its safety  procedures  for  handling  and
disposing of  radioactive  compounds and other  hazardous  materials used in its
research and  development  activities  comply with the  standards  prescribed by
Federal,  state and local regulations,  the risk of accidental  contamination or
injury from these materials cannot be completely eliminated.  In the event of an
accident,  the Company  could be held liable for any damages that result and any
such liability could exceed the resources of the Company.

Employees

         As of February 28, 2001, the Company had 97 full-time employees,  25 of
who hold Ph.D. or M.D. degrees.  Of the Company's full-time  employees,  80 were
engaged  directly  in  scientific  research  and 17 were  engaged in general and
administrative   functions.   The  Company's   scientific   staff  members  have
diversified   experience   and   expertise  in  molecular   and  cell   biology,
biochemistry,  molecular pharmacology,  medicinal, structural, combinatorial and
computer-assisted chemistry and information systems.

         All employees have entered into agreements with the Company pursuant to
which  they are  prohibited  from  disclosing  to third  parties  the  Company's
proprietary  information and assign to the Company all rights to inventions made
by them during their employment with the Company.

         The  Company's  employees  are not covered by a  collective  bargaining
agreement,  and the Company believes that its relationship with its employees is
good.


Item 2.  Properties

         The Company  leases  laboratory  and office  space in a facility at 215
College Road in Paramus,  New Jersey.  The total square footage currently leased
by the  Company is 83,843.  The lease will  expire on  December  31,  2015.  The
Company is  subleasing  5,000 square feet and 23,008 square feet of its premises
to two non-affiliated  third parties under agreements expiring in 2001 and 2010,
respectively.  The Company believes that the 55,835 square feet of space that it
currently  occupies is adequate to  accommodate  the  anticipated  research  and
administrative needs of the Company for the foreseeable future.



Item 3.  Legal Proceedings

         On June 5, 2000,  the Company filed suit in the United States  District
Court for the District of New Jersey against M.D.S. Panlabs,  Inc., a Washington
corporation,  and Panlabs  Taiwan Ltd., a Taiwanese  corporation  (collectively,
"Panlabs").  The suit  alleges that Panlabs has  infringed  several  issued U.S.
Patents  owned by the Company  which relate to cloned human  receptors and their
use in binding  assays.  The suit also alleges that Panlabs has been  importing,
selling and offering to sell  products of the Company's  patented

                                       20



binding assay
processes  to  pharmaceutical  companies  and  others in the  United  States and
particularly in New Jersey.

         In  the  suit,  the  Company  seeks  an  injunction   against  Panlabs'
infringing  activities,  an award of damages for the Company's lost profits, the
destruction  of data  obtained by the  infringement  of its  patents,  and other
relief.

         Company management  believes that its complaint against Panlabs is well
founded  and  necessary  to  protect  the  value  of its  intellectual  property
portfolio.

         Management  believes  that the ultimate  resolution of the above matter
could have a material  impact on the Company's  financial  position,  results of
operations and cash flows.


Item 4.  Submission of Matters to a Vote of Securityholders

None










                                       21













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                                       22




                                     Part II


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

         The Common Stock of the Company trades on The Nasdaq Stock Market under
the symbol SNAP. As of February 20, 2001, there were approximately 2,850 holders
of record of the  Company's  Common  Stock.  No dividends  have been paid on the
Common Stock to date,  and the Company does not  currently  intend to declare or
pay dividends for the foreseeable future.

         The  following  tables set forth the high and low last trade prices for
the  Common  Stock as  reported  by The  Nasdaq  Stock  Market  for the  periods
indicated below.


                                2000 Fiscal Year

                                      High              Low
                                      ----              ----
         1st Quarter 2000             16 1/2            5 13/16

         2nd Quarter 2000             8                 4 1/2

         3rd Quarter 2000             7 3/8             5 3/32

         4th Quarter 2000             7 3/8             5



                                 1999 Fiscal Year

                                     High              Low
                                     ----              ----
         1st Quarter 1999            19 1/4            6 1/16

         2nd Quarter 1999            7 1/2             4 1/2

         3rd Quarter 1999            9                 4 1/2

         4th Quarter 1999            7 1/4             4





                                       23




Item 6.  Selected Financial Data


         The  following  table  presents  selected  information  relating to the
financial  condition  and results of operations of the Company for the past five
years.  The  following  data should be read in  conjunction  with the  Company's
financial statements.

(In thousands, except per share information)

                          2000       1999        1998       1997         1996
-------------------------------------------------------------------------------
Total revenues         $  3,836   $  1,855    $  9,352   $ 10,307    $  9,481
Total expenses         $ 20,212   $ 19,652    $ 19,576   $ 17,853    $ 14,319
Other income, net      $  2,110   $  2,676    $  3,731   $  2,200    $  2,205
Net loss               $(13,859)  $(15,121)   $ (6,493)  $ (5,346)   $ (2,633)
Basic and diluted net
 loss per share        $  (1.28)  $  (1.41)   $  (0.61)  $  (0.66)   $  (0.35)
Total assets           $ 37,571   $ 48,750    $ 64,696   $ 69,402    $ 40,355
Accumulated deficit    $(64,789)  $(50,930)   $(35,809)  $(29,316)   $(23,970)
Stockholders' equity   $ 34,529   $ 47,106    $ 62,676   $ 67,704    $ 39,040
-------------------------------------------------------------------------------

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

Overview

         Synaptic Pharmaceutical  Corporation ("Synaptic" or the "Company") is a
drug  discovery  company  utilizing G  protein-coupled  receptors  ("GPCRs")  as
targets for novel therapeutics.  The Company is utilizing its large portfolio of
patented  GPCR  targets as a basis for the  creation of improved  drugs that act
through these targets.  The Company and its licensees are first  utilizing these
receptor  targets  to  discover  their  function  in the body and thus  specific
physiological  disorders  with which they may be  associated,  and secondly,  to
design compounds that can potentially be developed as drugs.

         The  Company  is   currently   collaborating   with   Grunenthal   GmbH
("Grunenthal") and Kissei Pharmaceutical Co., Ltd. ("Kissei"). Concurrently with
the establishment of the collaborative arrangement,  Synaptic granted Grunenthal
a license to certain of its technology and patent rights.

         In   addition  to  its  ongoing   collaborative   arrangements,   other
pharmaceutical  companies  have licenses to certain of our technology and patent
rights.  For  convenience  of reference,  the  agreements  pursuant to which the
licenses  referred to in this  paragraph and the preceding  paragraph  have been
granted are collectively referred to as the "License Agreements."

         Since  inception,  the Company has  financed its  operations  primarily
through  the sale of its stock,  through  contract  and  license  revenue  under
certain of its License Agreements, and through interest income and capital gains
resulting from its investments.  We also have received monies through government
grants under the Small  Business  Innovative  Research  ("SBIR")  program of the
National  Institutes  of Health and  through the sale of a portion of New Jersey
State net operating losses carryforwards.

                                       24



         Under the  License  Agreements,  the Company may receive one or more of
the following  types of revenue:  license  revenue,  contract  revenue,  royalty
revenue  or  revenue  from  the  sales  of  drugs.  License  revenue  represents
non-refundable  payments  for a license to one or more of our  patents  and/or a
license to our  technology.  Payments for licenses  are  recognized  as they are
received  or,  if  earlier,  when  they  become  guaranteed,  provided  they are
independent of any continuing research activity,  otherwise, they are recognized
pro-rata  during the term of the related  research  agreement in accordance with
Staff Accounting Bulletin No. 101 "Revenue Recognition in Financial Statements".
Contract  revenue  includes  research  funding to support a specified  number of
Synaptic's  scientists and payments upon the  achievement of specified  research
and development milestones.  Research funding revenue is recognized ratably over
the  period  of  the  collaboration  to  which  it  relates  and is  based  upon
predetermined funding  requirements.  Research and development milestone payment
revenue is  recognized  when the related  research or  development  milestone is
achieved.  Under  each of the  License  Agreements  (other  than the  Grunenthal
Agreement),  we are entitled to receive royalty payments based upon the sales of
drugs that may be developed  using our  technology or that may be covered by our
patents. Under the Grunenthal Agreement,  Synaptic has development and marketing
rights in certain  geographical  areas with respect to drugs,  if any,  that are
jointly identified as part of the collaboration with Grunenthal. Accordingly, we
may receive revenue from sales in our  geographical  areas (as defined) of drugs
if we market  them  independently,  or we may  receive  royalty  payments  if we
license our  marketing  rights to a third party.  To date,  we have not received
either  royalty  revenue or revenue from the sales of drugs and we do not expect
to receive such revenues for a number of years, if at all.

         To  date,  the  Company's  expenditures  have  been  for  research  and
development related expenses, general and administrative related expenses, fixed
asset purchases and various patent related  expenditures  incurred in protecting
our  technologies.  Synaptic  has  been  historically  unprofitable  and  had an
accumulated  deficit of  $64,789,000 at December 31, 2000. We expect to continue
to incur operating  losses for a number of years and may not become  profitable,
unless and until we receive  royalty revenue or revenue from sales of drugs that
may be developed with the use of our technology or patent rights.


Results of Operations

         Comparison of Fiscal Years Ended December 31, 2000, 1999 and 1998

         Revenues. The Company recognized revenue of $3,836,000,  $1,855,000 and
$9,352,000  for the  fiscal  years of 2000,  1999 and  1998,  respectively.  The
increase  of  $1,981,000  from 1999 to 2000 was  attributable  to an increase in
license  revenue  of  $2,750,000   resulting  primarily  from  the  grant  of  a
non-exclusive  license to certain of Synaptic's  technology  and patent  rights,
offset by a reduction  in contract  revenue of $769,000  resulting  from the net
reduction  in  the  number  of  scientists  being  funded  under   collaborative
arrangements.

         The decrease of $7,497,000 from 1999 to 1998 was attributable primarily
to the  following:  a net decrease in contract  revenue of $5,347,000  resulting
from the contractual termination of three of our collaborative  arrangements and
the receipt in 1998 of $2,000,000  of  non-recurring  license  revenue under the
Glaxo Agreement.

         Research and Development  Expenses.  The Company incurred  research and
development expenses of $14,360,000,  $14,592,000 and $15,274,000 for the fiscal
years of 2000,  1999 and 1998,  respectively.  The decrease of $232,000,  or 2%,
from 1999 to 2000 was attributable  primarily to a net decrease in headcount and
a  corresponding  decrease  in  supplies  which  were  partially  offset  by  an
increase in preclinical testing costs.


                                       25



         The  decrease of  $682,000,  or 4%, from 1998 to 1999 was  attributable
primarily to a reduction in  compensation  and fringe benefit  expenses due to a
net  decrease in  headcount as well as  corresponding  reductions  in travel and
supply  costs,  which  were  partially  offset by  increased  rent  expense  for
facilities resulting from previously contracted increases in square footage.

         General and Administrative  Expenses.  The Company incurred general and
administrative expenses of $5,852,000,  $5,060,000 and $4,302,000 for the fiscal
years of 2000, 1999 and 1998,  respectively.  The increase of $792,000,  or 16%,
from 1999 to 2000 was  attributable  primarily to the following:  an increase in
rent  expense;  an increase in  consulting  and finder's  fees  associated  with
business development activities; and an increase in legal and patent costs.

         The increase of $758,000,  or 18%,  from 1998 to 1999 was  attributable
primarily  to increases in rent expense  resulting  from  previously  contracted
increases in square footage and compensation and fringe benefit expenses.

         Other Income,  Net. The Company  recorded  other income of  $2,110,000,
$2,676,000  and  $3,731,000  for the  fiscal  years  of  2000,  1999  and  1998,
respectively.  The  decrease of $566,000  from 1999 to 2000 in other  income was
primarily due to lower average cash, cash  equivalent and marketable  securities
balances  during 2000 as a result of the  utilization of these resources to fund
Synaptic's operations.

         The  decrease  of  $1,055,000  from  1998 to 1999 in other  income  was
primarily due to lower interest  income as a result of lower average cash,  cash
equivalent and marketable securities balances during 1999.

         Income Tax Benefit.  In November 2000, the Company recognized  $407,000
from the sale of a portion of its state net operating loss carryforwards.

         Net Loss and  Basic  and  Diluted  Net  Loss  Per  Share.  The net loss
incurred by the Company was $13,859,000  ($1.28 per share),  $15,121,000  ($1.41
per share) and $6,493,000  ($0.61 per share) for the fiscal years of 2000,  1999
and 1998,  respectively.  The  decrease in net loss per share of $0.13  resulted
primarily from higher  revenues and an income tax benefit,  which were partially
offset by higher total operating expenses and lower other income during the year
ended December 31, 2000, as described above.

         The increase in net loss per share of $0.80 from 1998 to 1999  resulted
primarily  from the  recognition  of lower  total  revenue  and of higher  total
expenses.

         Operating Trends.  Revenues may vary from period to period depending on
numerous  factors  including  the timing of  revenue  earned  under the  License
Agreements  and revenue  that may be earned under  future  collaborative  and/or
license  agreements.  Synaptic  will  recognize  revenue  under its research and
licensing agreement with Kissei Pharmaceutical Co., Ltd. during 2001 and expects
to recognize  additional  revenues under this agreement  during 2002.  Under the
terms of  certain of the  License  Agreements,  revenues  may be  recognized  if
certain  milestones  are  achieved.  We continue to assess the  opportunity  for
obtaining  additional funding under new collaborative  and/or license agreements
as well as  obtaining  financing  through  equity  transactions.  We continue to
monitor our  spending  level in order to insure that we have enough cash to last
through the year 2002.

         Preclinical expenses are expected to increase as Synaptic moves its own
drug discovery projects forward.

                                       26



         Legal  expenses are expected to increase as a result of a suit filed by
the Company. See "Legal Proceedings" in PART I, Item 3, hereof.

         Other  income,  net is expected to decline in 2001 and 2002 as existing
funds are  utilized to support the  Company's  operations.  This decline will be
partially offset by rental income that we expect to recognize under our sublease
agreements.

         The Company is pursuing  further sales of its State net operating  loss
("NOL")  carryforwards and its State research and development  credits under the
State of New Jersey's Technology Business Tax Certificate  Transfer Program (the
"Program").  No  assurance  can  be  given,  however,  as to the  amount  of NOL
carryforwards  that may be sold  under the  Program  in any one  year.  External
factors  that may have an  effect  on  future  NOL  sales  are  such  items  as:
limitations imposed by State law, the availability of buyers and related demand.

         Property  and  equipment  spending  may  vary  from  period  to  period
depending on numerous  factors,  including the number of collaborations in which
we are  involved  at any  given  time and  replacement  due to  normal  wear and
obsolescence.  Equipment  spending in 2001 is expected to increase  from that of
2000.

         At December 31,  2000,  Synaptic  held  marketable  securities  with an
estimated fair value of $29,565,000.  Synaptic's  primary interest rate exposure
results from changes in short-term  interest rates. We do not purchase financial
instruments  for  trading  or  speculative  purposes.   All  of  the  marketable
securities held by Synaptic are classified as available-for-sale securities. The
following  table  provides  information  about  marketable  securities  held  by
Synaptic at December 31, 2000:
                                                             Estimated
    Principal Amount and Weighted Average Stated Rate           Fair
                by Expected Maturity                           Value
----------------------------------------------------         ---------
(000's)      2001      2002     2003     Total                (000's)
----------------------------------------------------         ---------
Principal   $20,440   $2,500   $6,500   $29,440               $29,565

Weighted
 Average
 Stated
 Rates       7.91%    6.50%     5.77%    7.31%                     --
----------------------------------------------------        ---------

         The  stated  rates of  interest  expressed  in the above  table may not
approximate  the actual yield of the securities  which Synaptic  currently holds
since we have  purchased  some  marketable  securities at other than face value.
Additionally,  some of the  securities  represented  in the  above  table may be
called or  redeemed,  at the option of the issuer,  prior to their  expected due
dates. If early redemptions occur, we may reinvest the proceeds realized on such
calls or redemptions in marketable  securities  with stated rates of interest or
yields that are lower than those of current holdings, affecting both future cash
interest streams and future earnings.

         In addition to investments in marketable securities, the Company places
some of its cash in money market  funds in order to keep cash  available to fund
operations  and to hold  cash  pending  investments  in  marketable  securities.
Fluctuations  in short  term  interest  rates  will  affect  the yield on monies
invested in money market funds.  These fluctuations can have an impact on future
cash interest streams and future earnings of the Company, but the impact of such
fluctuations are not expected to be material.

         The Company does not believe that  inflation has had a material  impact
on its results of operations.

                                       27



Liquidity and Capital Resources

         At December 31, 2000 and December 31, 1999,  cash, cash equivalents and
marketable securities aggregated $31,602,000 and $42,143,000, respectively. This
decrease  was a  result  of the  utilization  of  these  resources  to fund  the
Company's operations.

         To date, Synaptic has met its cash requirements through the sale of its
stock,  through contract and license revenue,  through interest income and gains
resulting  from its  investments,  through SBIR grants and through the sale of a
portion of its State NOL carryforwards.  If the current biotechnology  financing
environment remains unfavorable, raising additional capital may be difficult.

         Synaptic  leases  laboratory and office  facilities  under an agreement
expiring on December 31, 2015.  The minimum  annual  payment  under the lease is
currently $2,074,000.  The lease provides for fixed escalations in rent payments
in the years 2005 and 2010.

         At  December  31,  2000,  the  Company had  $31,602,000  in cash,  cash
equivalents and marketable securities.  The Company currently intends to utilize
these funds  primarily to conduct certain of its research  programs,  for patent
related  expenditures,   for  general  corporate  purposes,  to  make  leasehold
improvements to its facilities and to purchase property and equipment. We expect
to continue to incur  operating  losses for a number of years.  We believe  that
cash on hand and cash that we expect to receive  through  interest  payments  on
investments,  will be  sufficient  to fund  operations,  as well as our share of
certain development costs under the Grunenthal Agreement, through the year 2002.

         As  of  December  31,  2000,  the  Company  had  NOL  carryforwards  of
approximately  $57,000,000  for  Federal  income tax  purposes  that will expire
principally  in the years 2002  through  2020.  In  addition,  the  Company  had
research and development credit carryforwards of approximately $1,610,000, which
will  expire  principally  in 2002  through  2018.  Also at December  31,  2000,
Synaptic had NOL carryforwards of approximately $41,637,000 for State income tax
purposes and State research and development  credit  carryforwards  of $475,000.
For financial reporting  purposes,  a valuation allowance has been recognized to
offset the  deferred  tax  assets  related  to these  carryforwards.  Due to the
limitations  imposed  by  the  Tax  Reform  Act of  1986,  and  as a  result  of
significant changes in the Company's ownership in 1993 and 1997, the utilization
of $25,000,000 of Federal NOL carryforwards is subject to annual limitation. The
utilization of the research and development credits is similarly limited.

Recent Accounting Pronouncements

         In June 1998, the Financial Accounting Standards Board issued Statement
of Financial  Accounting  Standards No. 133,  "Accounting  for  Derivatives  and
Hedging  Activities"  ("SFAS 133"),  which establishes  accounting and reporting
standards for derivative  instruments,  including certain derivative instruments
embedded in other contracts  (collectively  referred to as derivatives)  and for
hedging  activities.  SFAS 133, as amended, is effective for all fiscal quarters
of fiscal years beginning after June 15, 2000. As we do not currently  intend to
engage in  derivatives  or in hedging  transactions,  we do not  anticipate  any
effect on Synaptic's  results of  operations,  financial  position or cash flows
upon the adoption of SFAS 133.

Disclosure Regarding Forward-Looking Statements

         This Report includes "forward-looking statements" within the meaning of
Section 27A of the  Securities  Act and Section 21E of the Exchange  Act.  These
forward-looking  statements  include,  but are not

                                       28


limited to, those relating to
future  cash  and  spending   plans,   amounts  of  future   research   funding,
patent-related  plans,  additional drug discovery  programs,  the effectiveness,
efficacy,  or other results of any of Synaptic's  technology or drugs, any other
statements  regarding  future  growth,  future  cash needs,  future  operations,
business plans and financial  results,  and any other  statements  which are not
historical  facts.  When  used  in  this  document,   the  words   "anticipate,"
"estimate,"  "expect," "may," "project," and similar expressions are intended to
be  among  the  statements  that  identify  forward-looking  statements.   These
statements involve risks and uncertainties, including, but not limited to, those
risks and  uncertainties  relating to those  described  below,  as well as other
factors  detailed  elsewhere in this Report,  including in Item 1 of this Report
under  the  captions  "Patents,   Proprietary  Technology  and  Trade  Secrets,"
"Competition"  and  "Government  Regulation"  ("Cautionary  Statements").  These
Cautionary  Statements qualify the  forward-looking  statements included in this
Report.  Should  one or more of these  risks or  uncertainties  materialize,  or
should  underlying  assumptions  prove  incorrect,   actual  outcomes  may  vary
materially from those indicated. All subsequent written and oral forward-looking
statements  attributable  to  Synaptic  or  persons  acting  on its  behalf  are
expressly qualified in their entirety by the Cautionary Statements.


Early Stage of Product Development; Technological Uncertainty

         Since  its  inception  in  January  1987,   Synaptic  has  focused  its
activities on the  discovery and cloning of receptor  genes and the use of these
genes as tools in the design of precisely  targeted  compounds for a broad range
of  therapeutic  applications.   To  date,  neither  Synaptic  nor  any  of  its
collaborative  partners  or  any  of  its  other  licensees  has  completed  the
development of drugs  designed with the use of Company  technology and we do not
expect that any drugs resulting from our or our collaborative partners' or other
licensees' research and development efforts will be commercially available for a
number of  years,  if at all.  All  compounds  discovered  by  Synaptic  and its
collaborative  partners and other licensees will require  extensive  preclinical
and clinical  testing  prior to  submission of any  regulatory  application  for
commercial use. Extensive preclinical and clinical testing required to establish
safety  and  efficacy  will  take  several  years,  and  the  time  required  to
commercialize new drugs cannot be predicted with accuracy.  Moreover,  potential
products  that appear to be promising at early stages of  development  may never
reach the market for a number of reasons.  These  reasons  include,  but are not
limited  to,  the  possibilities   that  potential  products  are  found  during
preclinical  testing or clinical  trials to be  ineffective  or to cause harmful
side effects,  that they fail to receive necessary  regulatory  approvals,  that
they are difficult or  uneconomical  to manufacture on a large scale,  that they
fail  to  achieve   market   acceptance   or  that  they  are   precluded   from
commercialization  by  proprietary  rights  of third  parties.  There  can be no
assurance  that the  Company's  approach to drug  discovery,  its  research  and
development  efforts or the efforts of Grunenthal,  Kissei,  Lilly,  Novartis or
Glaxo,  or any future  collaborative  partner or other  licensee of the Company,
will result in the  development of any drugs, or that any drugs, if successfully
developed,  will be proven to be safe and effective in clinical trials,  receive
required  regulatory  approvals,  be capable of being manufactured in commercial
quantities  at  reasonable  costs  or be  successfully  commercialized.  Product
development  of new  pharmaceuticals  is  highly  uncertain,  and  unanticipated
developments,  including  clinical  or  regulatory  delays,  unexpected  adverse
effects  and  inadequate  therapeutic  efficacy,  would slow or prevent  product
development  efforts of the Company  and its  collaborative  partners  and other
licensees and have a material adverse effect on the Company's operations.


Dependence  on  Collaborative  Partners  and  Licensees  for  Development,
         Regulatory  Approvals,  Manufacturing, Marketing and Other Resources

         A key element of Synaptic's  business strategy is to leverage resources
by entering into  collaborative and licensing  arrangements with  pharmaceutical
companies.  Under the agreements with Kissei, Lilly and

                                       29


Novartis,  the Company's
collaborative  partners  and  licensees  are  each  responsible  for  conducting
preclinical  testing and clinical trials of compounds  developed through the use
of the Company's  technology,  obtaining  regulatory approvals and manufacturing
and  commercializing  any  resulting  drugs.  Under  the  Grunenthal  Agreement,
Grunenthal  is  responsible  for  conducting  certain  preclinical  testing  and
clinical  trials  of  compounds  developed  through  the  use of  the  Company's
technology.  Synaptic  has  no  involvement  in  the  research  and  development
activities  of Glaxo  under the Glaxo  Agreement.  As a  result,  the  Company's
receipt  of  revenues  (whether  in the  form  of drug  development  milestones,
royalties on sales or net sales proceeds) in respect of drugs resulting from its
collaborative and licensing arrangements is dependent upon the activities of its
collaborative  partners and other licensees.  The amount and timing of resources
dedicated by our  collaborative  partners and other licensees to the development
of drugs that would be subject to  royalties  payable to Synaptic are not within
our control.  Moreover, there can be no assurance that the interests of Synaptic
will  continue to  coincide  with those of its  collaborative  partners or other
licensees,  that  one or more of  Synaptic's  collaborative  partners  or  other
licensees will not develop  independently or with third parties drugs that could
compete with drugs of the types covered by their arrangements with Synaptic,  or
that disagreements over rights or technology or other proprietary interests will
not occur.

         If any of Synaptic's collaborative partners or other licensees breaches
its  agreement  with the Company,  or fails to devote  adequate  resources to or
conduct in a timely manner its collaborative or licensed activities, the related
research  programs or the development and  commercialization  of drug candidates
subject to such arrangement could be materially adversely affected. There can be
no assurance that the Company's  collaborative or licensing arrangements will be
successful.  Further,  there can be no assurance  that  Synaptic will be able to
enter  into  acceptable  collaborative  or  licensing  arrangements  with  other
pharmaceutical   companies  in  the  future,   or  that,  if  negotiated,   such
arrangements will be successful.


History of Operating Losses and Accumulated Deficit

         The  Company  has  incurred  significant  operating  losses  since  its
inception in January 1987. At December 31, 2000, Synaptic's  accumulated deficit
was  $64,789,000.  Losses  have  resulted  principally  from costs  incurred  in
connection  with the  Company's  research and  development  activities  and from
general  and  administrative  costs  associated  with  operations.  We expect to
continue to incur  substantial  operating  losses at least over the next several
years and expect  losses to  increase as research  funding  under  collaborative
arrangements  diminish.  As of December 31, 2000, the only revenues generated by
the  Company  had  resulted  from  payments  under   collaborative  and  license
agreements,  and  government  grants  under  the SBIR  program  of the  National
Institutes of Health. The Company's revenues,  expenses and losses may fluctuate
from quarter to quarter and year to year.  Research  payments under the Novartis
Agreements expired in 1998,  research payments under the Merck Agreement expired
in February 1999, and research  payments  under the Lilly  Agreement  expired in
July 1999. We anticipate that there will initially be little, if any, biological
knowledge regarding many of Synaptic's future gene discoveries and, as a result,
Synaptic may have fewer  opportunities to enter into collaborative  arrangements
focused on these discoveries.  We do not expect to achieve revenues or royalties
from  sales of drugs for a number  of years,  if at all.  The  Company  will not
achieve  revenues  or  royalties  from  drug  sales  unless  it or  one  of  its
collaborative partners or other licensees successfully completes clinical trials
with respect to a drug  candidate,  obtains  regulatory  approvals for that drug
candidate and commercializes the resulting drug. Failure to achieve  significant
revenue or profitable  operations could impair the Company's  ability to sustain
operations  and there can be no  assurance  that the Company  will ever  achieve
significant revenues or profitable operations.

                                       30




Future Capital Needs; Uncertainty of Additional Funding

         The  operation of  Synaptic's  business  requires  substantial  capital
resources  and this  requirement  is  likely  to  increase  in the  future.  The
Company's future financial  requirements will depend on many factors,  including
the continued progress of its research and development programs,  the timing and
results of  preclinical  testing  and  clinical  trials,  if any,  of its or its
collaborative  partners'  or other  licensees'  drug  candidates,  the timing of
regulatory approvals, if any, technological  advances,  determinations as to the
commercial  potential of its or its collaborative  partners' or other licensees'
proposed  products and the status of competitive  products.  Synaptic's  capital
requirements  will  also  depend  on  its  ability  to  establish  and  maintain
collaborative  or licensing  arrangements  with others and on whether its future
collaborative  partners  provide  research  funding and are  responsible for all
development  activities,  preclinical  testing and regulatory  approvals and, if
these approvals are obtained,  the manufacturing  and marketing of products.  In
addition,  these  capital  requirements  will  depend  on the time  and  expense
associated  with filing and, if  necessary,  prosecuting  and  enforcing  patent
claims.

         The Company  entered into the  Grunenthal  Agreement  in January  1998.
Under this agreement,  Synaptic will retain certain ownership rights to products
that result from the collaboration.  In addition, Synaptic will be significantly
involved in the  development of any potential  products but may also be required
to  contribute   substantial   financial  resources  towards  such  development.
Accordingly,  the cost to  Synaptic  of this  arrangement  may be  significantly
greater than the cost to it of participating in a royalty-based collaboration.

         No assurance can be given that the Company's  existing cash on hand and
marketable  securities  and funds it will receive  under its  collaborative  and
license agreements, together with interest income, will be sufficient. We expect
that Synaptic will, in the future,  seek to raise additional  funding from other
sources,  including  other  collaborative  partners and  licensees,  and through
public or private financings,  including sales of equity or debt securities. Any
collaborative  or  licensing  arrangement  could  result in  limitations  on the
Company's ability to control the research and development of potential drugs and
the  commercialization  of  resulting  drugs,  if any,  as  well as its  profits
therefrom.  Any equity  financing  could result in dilution to  Synaptic's  then
existing  stockholders.  There can be no assurance that additional funds will be
available on favorable terms or at all, or that these funds, if raised, would be
sufficient  to permit the  Company to continue  to conduct  its  operations.  If
adequate  funds  are  not  available,   Synaptic  may  be  required  to  curtail
significantly  or  eliminate  one or more  of its  receptor  or  drug  discovery
programs.


Uncertainties Related to Clinical Trials

         Before obtaining required regulatory  approvals for the commercial sale
of each product under  development,  the Company or its  collaborators and other
licensees must demonstrate  through preclinical studies and clinical trials that
such product is safe and efficacious for use. The results of preclinical studies
and initial clinical trials are not necessarily  predictive of results that will
be obtained from large-scale clinical trials, and there can be no assurance that
clinical trials of any product under development will demonstrate the safety and
efficacy of such product or will result in a marketable product.  The safety and
efficacy  of  a  therapeutic  product  under  development  by  Synaptic  or  its
collaborative  partners or other  licensees  must be supported by extensive data
from clinical trials. A number of companies have suffered  significant  setbacks
in advanced clinical trials,  despite  promising results in earlier trials.  The
failure to demonstrate  adequately the safety and efficacy of a therapeutic drug
under development would delay or prevent regulatory approval of the product that
could have a material  adverse  effect on the Company.  In addition,  the FDA or
other

                                       31



regulatory  agency may require  additional  clinical  trials,  which could
result in increased costs and significant development delays.

         The rate of  completion  of  clinical  trials of the  Company's  or its
collaborative  partners' and other licensees'  products is dependent upon, among
other  factors,  obtaining  adequate  clinical  supplies and the rate of patient
accrual.  Patient  accrual is a function of many factors,  including the size of
the patient  population,  the  proximity  of patients to clinical  sites and the
eligibility  criteria for the trial.  Delays in planned  patient  enrollment  in
clinical  trials may result in increased  costs,  program delays or both,  which
could have a material  adverse  effect on the Company.  In addition,  Synaptic's
collaborative  partners and other licensees  generally have the right to control
the planning and execution of product  development  and clinical  programs,  and
there can be no assurance that partners and licensees  will conduct  programs in
accordance with schedules that are satisfactory to the Company.  There can be no
assurance that, if clinical trials are completed,  Synaptic or its collaborative
partners  and other  licensees  will submit NDAs with  respect to any  potential
products or that any  application  will be reviewed and approved by the FDA in a
timely manner, if at all.


Lack of Manufacturing Experience; Reliance on Contract Manufacturers

         The Company currently has no manufacturing facilities and relies on its
collaborative partners and other licensees or other manufacturers to produce its
compounds for research and development,  preclinical and clinical purposes.  The
products under development by Synaptic and its collaborative  partners and other
licensees have never been manufactured on a commercial scale and there can be no
assurance that products can be manufactured at a cost or in quantities necessary
to make them  commercially  viable.  If Synaptic  were unable to contract  for a
sufficient  supply  of  its  compounds  on  acceptable  terms,  or if it  should
encounter delays or difficulties in its relationships  with  manufacturers,  any
preclinical  or  clinical  testing  schedule  of the  Company  would be delayed,
resulting in delay in the submission of products for regulatory  approval or the
market  introduction  and  subsequent  sales of  products,  which  could  have a
material adverse effect on the Company.  Moreover,  manufacturers  that Synaptic
may use must adhere to current GMP  regulations  enforced by the FDA through its
facilities  inspection  program.  If these facilities cannot pass a pre-approval
plant  inspection,  the FDA  pre-market  approval  of the  products  will not be
granted.


Lack of Sales and Marketing Capability

         The creation of infrastructure to commercialize pharmaceutical products
is a difficult,  expensive and time-consuming process. Synaptic currently has no
sales or marketing  capability.  To market  directly any product it may develop,
the Company would need to establish a marketing  and sales force with  technical
expertise and  distribution  capability  or contract  with other  pharmaceutical
and/or health care companies with distribution  systems and direct sales forces.
There can be no assurance that the Company would be able to establish  direct or
indirect sales and distribution  capabilities or be successful in gaining market
acceptance  for licensing  arrangements.  To the extent that the Company  enters
into  co-promotion  or  licensing  arrangements,  any  revenues  received by the
Company will be dependent on the efforts of third  parties,  and there can be no
assurance that these efforts will be successful.


Dependence on Key Personnel

         The Company is highly dependent on its management and scientific staff.
Loss of the services of any key  individual  could have an adverse effect on the
Company. We believe that our future success will depend,


                                       32



in part, on our ability
to attract and retain  highly  talented  managerial,  scientific,  software  and
bioinformatics personnel and consultants. Synaptic faces intense competition for
personnel from, among others,  biotechnology and  pharmaceutical  companies,  as
well as academic and other research institutions. There can be no assurance that
it will be able to attract and retain the  personnel  it requires on  acceptable
terms.  Failure  to  attract  and retain  such  personnel  could have a material
adverse effect on the Company.


External Environment

         Over the past several years, there has been a significant  reduction in
the number of investors who are willing to commit  capital to the  biotechnology
industry.  With over 300 public  biotechnology  companies and over 1,000 private
biotechnology  companies,  the lack of capital is severely impairing the ability
of many of these  companies  to carry out  their  research.  Additionally,  many
pharmaceutical  companies  are now  routinely  performing  many of the  types of
research and services that have  historically  been  performed by  biotechnology
companies. As a consequence,  many pharmaceutical  companies are less interested
than in the past both in engaging in collaborations with biotechnology companies
in a number  of areas and in  providing  them with  research  funding  and other
sources of revenue.

         Over time,  Synaptic  could be materially  and adversely  affected by a
lack  of  available  capital  and/or  a lack  of  interest  on the  part  of the
pharmaceutical  industry in its services or products.  This unfavorable external
environment  could result in the Company's  inability to complete certain of its
research projects and/or in the need for Synaptic to downsize until it begins to
receive royalty income pursuant to outstanding licensing arrangements.


Item 7A.  Quantitative and Qualitative Disclosures About Market Risk

         Quantitative  and  qualitative  disclosures  about  market  risk (i.e.,
interest rate risk) are included in Item 7 of this Report.






                                       33



Item 8.  Financial Statements



                       SYNAPTIC PHARMACEUTICAL CORPORATION

                          INDEX TO FINANCIAL STATEMENTS






                                                                            Page
                                                                            ----
Report of Independent Auditors...............................................35

Balance Sheets at December 31, 2000 and 1999.................................36

Statements of Operations and Comprehensive Income (Loss) for the years ended
 December 31, 2000, 1999 and 1998............................................37

Statements of Stockholders' Equity for the years ended
 December 31, 2000, 1999 and 1998............................................38

Statements of Cash Flows for the years ended
 December 31, 2000, 1999 and 1998............................................39

Notes to Financial Statements................................................40









                                       34











                         REPORT OF INDEPENDENT AUDITORS




The Board of Directors and Shareholders
SYNAPTIC PHARMACEUTICAL CORPORATION

         We  have   audited  the   accompanying   balance   sheets  of  Synaptic
Pharmaceutical  Corporation  as of December  31, 2000 and 1999,  and the related
statements of operations and comprehensive  income (loss),  stockholders' equity
and cash flows for each of the three  years in the  period  ended  December  31,
2000.  These  financial  statements  are  the  responsibility  of the  Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audits.

         We conducted our audits in accordance with auditing standards generally
accepted in the United States.  Those standards require that we plan and perform
the audit to obtain reasonable  assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.  An
audit also includes  assessing the accounting  principles  used and  significant
estimates  made by  management,  as well as  evaluating  the  overall  financial
statement  presentation.  We believe that our audits provide a reasonable  basis
for our opinion.

         In our opinion,  the  financial  statements  referred to above  present
fairly,  in  all  material   respects,   the  financial   position  of  Synaptic
Pharmaceutical Corporation at December 31, 2000 and 1999, and the results of its
operations  and its cash flows for each of the three  years in the period  ended
December 31, 2000, in conformity with accounting  principles  generally accepted
in the United States.



                                                ERNST & YOUNG LLP


MetroPark, New Jersey
February 2, 2001




                                       35





                       SYNAPTIC PHARMACEUTICAL CORPORATION

                                 BALANCE SHEETS

(in thousands, except share and per share information)

December 31, 2000 and 1999
Assets                                                           2000      1999
--------------------------------------------------------------------------------
Current assets:
Cash and cash equivalents                                      $ 2,037  $ 6,236
Marketable securities--current maturities                       20,627    6,471
Other current assets                                               814      847
--------------------------------------------------------------------------------
Total current assets                                            23,478   13,554

Property and equipment, net                                      4,781    5,186

Marketable securities                                            8,938   29,436

Patent and patent application costs, net of                        227      574
      accumulated amortization (2000--$2,148; 1999--$1,801)

Other assets                                                       147        -
--------------------------------------------------------------------------------
                                                              $ 37,571 $ 48,750
================================================================================


Liabilities and Stockholders' Equity
--------------------------------------------------------------------------------
Current liabilities:
Accounts payable                                               $ 1,128    $ 486
Accrued liabilities                                                648      525
Accrued compensation                                               348      386
Deferred revenue                                                   354        -
--------------------------------------------------------------------------------
Total current liabilities                                        2,478    1,397

Deferred rent obligation                                           564      247

Stockholders' equity:
Preferred Stock, $.01 par value; authorized--1,000,000 shares        -        -
Common Stock, $.01 par value; authorized--25,000,000 shares
issued and outstanding--10,935,772 shares in 2000 and
10,764,661 shares in 1999                                          109      108
Additional paid-in capital                                      99,392   98,719
Accumulated other comprehensive income--net unrealized            (183)    (791)
      losses on securities
Accumulated deficit                                            (64,789) (50,930)
--------------------------------------------------------------------------------
Total stockholders' equity                                      34,529   47,106
--------------------------------------------------------------------------------
                                                              $ 37,571 $ 48,750
================================================================================

                       See notes to financial statements.


                                       36





                       SYNAPTIC PHARMACEUTICAL CORPORATION

            STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(in thousands, except share and per share information)

For the Years Ended December 31, 2000, 1999 and 1998

                                                    2000        1999     1998
-------------------------------------------------------------------------------

Revenues:
Contract revenue                                  $ 1,086   $ 1,855    $ 7,202
License revenue                                     2,750         -      2,000
Grant revenue                                           -         -        150
-------------------------------------------------------------------------------
Total revenues                                      3,836     1,855      9,352

Expenses:
Research and development                           14,360    14,592     15,274
General and administrative                          5,852     5,060      4,302
-------------------------------------------------------------------------------
Total expenses                                     20,212    19,652     19,576
-------------------------------------------------------------------------------
Loss from operations                              (16,376)  (17,797)   (10,224)

Other income, net:
Interest income                                     2,106     2,674      3,603
Gain on sale of securities                              -         2        128
Other                                                   4         -          -
-------------------------------------------------------------------------------
Other income, net                                   2,110     2,676      3,731
-------------------------------------------------------------------------------
Net loss before benefit from income taxes         (14,266)  (15,121)    (6,493)

Income tax benefit                                    407         -          -
-------------------------------------------------------------------------------
Net loss                                         $(13,859)  $(15,121) $ (6,493)
===============================================================================

Comprehensive loss:

Net loss                                         $(13,859)  $(15,121) $ (6,493)

Unrealized gains (losses) arising
    during period                                     608      (702)       (82)
Less: reclassification adjustment for gains             -       (12)       (21)
    included in net income
-------------------------------------------------------------------------------
Comprehensive loss                              $ (13,251) $(15,835)  $ (6,596)
===============================================================================

Basic and diluted net loss per share            $   (1.28) $  (1.41)  $  (0.61)
===============================================================================

Shares used in computation of
 net loss per share                            10,850,262 10,742,296 10,684,892
===============================================================================

                       See notes to financial statements.

                                       37







                       SYNAPTIC PHARMACEUTICAL CORPORATION

                       STATEMENTS OF STOCKHOLDERS' EQUITY

(in thousands, except share information)



                                                                                      

                                                                  Net
                                                               Unrealized
                                                                 Gains                                          Total
                                                    Additional  (Losses)   Deferred       Accumu-               Stock-
                                   Common Stock      Paid-In      on        Compen-        lated     Treasury   holders'
                                 Shares   Amount     Capital   Securities    sation       Deficit     Stock      Equity
                                 ------   ------     -------   ----------    ------       -------     -----   ------------
Balance at January 1, 1998   10,526,585  $  105    $ 97,049  $      26   $   (160)    $   (29,316)   $  --  $     67,704
Purchase of 375 shares of
 Treasury Stock at cost              --     --           --          --         --             --       (1)           (1)
Forfeiture of Deferred
 Compensation related to
 Stock Incentive Plan                --     --          (20)         --         20             --       --            --
Amortization of Deferred
 Compensation                        --     --           --          --         79             --       --            79
Issuance of 47,516, shares
 of common stock pursuant        47,141      1          127          --         --             --        1           129
 to exercise of stock options
Issuance of 137,648 shares of
 common stock pursuant to
 exercise of stock warrants     137,648      1        1,307          --         --             --       --         1,308
Adjustment to reflect net
 unrealized loss on
 securities                          --     --          --        (103)         --             --       --          (103)
Adjustment to reflect
 recognition of short-swing
 profits realized on sale of
 stock by stockholder                --     --          53          --          --             --       --            53
Net loss for the year ended
 December 31, 1998                   --     --          --          --          --         (6,493)      --        (6,493)
                             ----------  -------   --------  ----------  ---------   ------------    -----  ------------
Balance at December 31, 1998 10,711,374  $  107    $ 98,516  $     (77)   $   (61)    $   (35,809)   $  --  $     62,676

Forfeiture of Deferred
 Compensation related to
 Stock Incentive Plan                --       --          (11)          --        11             --      --             --
Amortization of Deferred
 Compensation                        --       --           --           --        50             --      --             50
Issuance of 53,287, shares
 of common stock pursuant
 to exercise of stock options    53,287        1          214           --        --             --      --            215
Adjustment to reflect net
 unrealized loss on
 securities                          --       --           --         (714)       --             --      --           (714)
Net loss for the year ended
 December 31, 1999                   --       --           --           --        --        (15,121)     --        (15,121)
                               ----------  -----    ---------    ----------  --------     ---------   -----    -----------
Balance at December 31, 1999   10,764,661  $ 108     $ 98,719    $    (791)   $  (--)     $ (50,930)  $  --    $    47,106

Issuance of 171,111, shares
 of common stock pursuant
 to exercise of stock options   171,111        1          673           --        --             --      --            674
Adjustment to reflect net
 unrealized gain on
 securities                          --       --           --          608        --             --      --            608
Net loss for the year ended
 December 31, 2000                   --       --           --           --        --        (13,859)     --        (13,859)
                               ----------  -----    ---------    ----------  --------     ---------   -----    -----------
Balance at December 31, 2000   10,935,772  $ 109     $ 99,392    $    (183)   $  (--)     $ (64,789)  $  --    $    34,529
                               ==========  =====    =========    ==========  ========     ==========  =====    ===========

                       See notes to financial statements.

                                       38






                       SYNAPTIC PHARMACEUTICAL CORPORATION

                            STATEMENTS OF CASH FLOWS

(in thousands)

For the Years Ended December 31, 2000, 1999 and 1998

                                                    2000       1999      1998
-------------------------------------------------------------------------------
Operating activities:
Net loss                                        $ (13,859) $ (15,121) $ (6,493)
Adjustments to reconcile net loss to net cash
(used in) operating activities:
Depreciation and patent amortization                1,626      1,609     1,505
Amortization of premiums (discounts) on
securities                                            463        479       226
Amortization of deferred compensation                   -         50        79
Gains on sales of securities                            -         (2)     (128)
Loss on sale of equipment                             100         32         -
Deferred rent, net                                    270        247         -
Changes in operating assets and liabilties:
Decrease (increase) in other current assets            33        817      (390)
Increase (decrease) in accounts payable,
accrued liabilities and accrued compensation          727       (540)      239
Decrease in license agreement revenue
receivable                                              -          -        40
Increase in other assets                             (100)         -         -
Increase (decrease) in deferred revenue               354        (83)       83
-------------------------------------------------------------------------------
Net cash (used in) operating activities           (10,386)   (12,512)   (4,839)

Investing activities:
Proceeds from sale or maturity of investments       6,487     19,039    70,797
Purchases of investments                                -    (16,349)  (71,799)
Proceeds from sales of equipment                       70         80         -
Reimbursement for leasehold improvements              129          -         -
Purchases of property and equipment                (1,173)      (827)   (2,171)
-------------------------------------------------------------------------------
Net cash provided by (used in)
 investing activities                               5,513      1,943    (3,173)

Financing activities:
Issuance of common stock, net of purchases            674        215     1,436
Short-swing profits realized on sale of stock
by stockholder                                          -          -        53
-------------------------------------------------------------------------------
Net cash provided by financing activities             674        215     1,489
-------------------------------------------------------------------------------
Net decrease in cash and cash equivalents          (4,199)   (10,354)   (6,523)
Cash and cash equivalents at
 beginning of period                                6,236     16,590    23,113
-------------------------------------------------------------------------------
Cash and cash equivalents at end of period        $ 2,037    $ 6,236  $ 16,590
===============================================================================

                       See notes to financial statements.

                                       39





                       SYNAPTIC PHARMACEUTICAL CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                                December 31, 2000


Note 1 -- Summary of Significant Accounting Policies

         Organization.  Synaptic  Pharmaceutical  Corporation ("Synaptic" or the
"Company") is a drug discovery  company  utilizing G  protein-coupled  receptors
("GPCRs") as targets for novel therapeutics.  The Company is utilizing its large
portfolio of patented GPCR targets as a basis for the creation of improved drugs
that act  through  these  targets.  The  Company  and its  licensees  are  first
utilizing these receptor targets to discover their function in the body and thus
specific  physiological  disorders  with  which  they  may  be  associated,  and
secondly, to design compounds that can potentially be developed as drugs.

         Basic and  Diluted  Net Loss Per Share.  Net loss per share is computed
using the weighted  average number of shares of common stock  outstanding.  As a
result of the Company's operating losses and the anti-dilutive effect from stock
options and warrants,  these  instruments  are excluded from the  computation of
diluted net loss per share.

         Revenue Recognition. License revenue represents non-refundable payments
for a license to one or more of the  Company's  patents  and/or a license to the
Company's technology.  Payments for licenses are recognized as they are received
or, if earlier,  when they become  guaranteed,  provided they are independent of
any continuing research activity, otherwise, they are recognized pro-rata during
the term of the related research  agreement.  Contract revenue includes research
funding to support a specified  number of the Company's  scientists and payments
upon the achievement of specified research and development milestones.  Research
funding revenue is recognized  ratably over the period of the  collaboration  to
which it relates.  Payments  received in advance under the related contracts are
recorded as deferred revenue until the research is performed. Research milestone
payment  revenue is  recognized  at the time the related  research  milestone is
achieved.  Government  grant  receipts  are recorded as revenue in the period in
which the related research is performed.

         Cash Equivalents. Cash equivalents consist of highly liquid investments
with  maturities  of three  months  or less  when  purchased.  Included  in cash
equivalents  at  December  31,  2000,  is  approximately  $1,651,000  related to
investments  in money market funds.  At December 31, 1999,  this amount  totaled
$6,234,000.

         Marketable  Securities.  All of Synaptic's  marketable  securities  are
classified as available-for-sale  securities and are carried at fair value, with
the  unrealized   gains  and  losses   reported  as  a  separate   component  of
stockholders'  equity.  The cost of debt securities is adjusted for amortization
of premiums  and  accretion  of discounts  to  maturity.  This  amortization  is
included in interest  income.  Realized  gains and losses and  declines in value
judged to be other than  temporary,  if any, are included in other  income.  The
cost  of  securities  sold  is  based  on the  specific  identification  method.
Investments  held as of December 31, 2000 consist  primarily of U.S.  Government
and  Federal   Agency   obligations,   U.S.   corporate   debt   securities  and
mortgage-backed  securities. The maturities range from January 15, 2001, through
November 17, 2003.

         The Company has  established  guidelines  relative to  diversification,
credit ratings and maturities to maintain  safety and liquidity.  The guidelines
are periodically reviewed and modified to take advantage of trends in yields and
interest rates.

         Property  and  Equipment.  Property and  equipment  are stated at cost.
Depreciation  is computed  using the  straight-line  method  over the  estimated
useful lives of the assets. Scientific equipment, office equipment and

                                       40



furniture
and fixtures are depreciated over a life of 7 years.  Leasehold improvements are
depreciated  principally over the life of the facility lease, which is currently
15 years. Software is depreciated over a life of 3 years.

         Patents.  Prior to October 1, 1996, patent and patent application costs
were capitalized and amortized over 7 years or the estimated life of the patent,
if less, using the  straight-line  method.  Capitalized costs through October 1,
1996  will  continue  to be  amortized  over  the  remaining  portions  of their
seven-year lives. Effective October 1, 1996, patent and patent application costs
are expensed as incurred.  The Company periodically reviews capitalized costs to
assess ongoing recoverability.

         Accrued  Liabilities.  Included in accrued  liabilities at December 31,
2000 and 1999 are accrued  professional  fees  totaling  $340,000 and  $270,000,
respectively.

         Stock-Based Compensation.  The Company has elected to follow Accounting
Principles  Board  Opinion No. 25,  "Accounting  for Stock Issued to  Employees"
("APB No. 25"), in accounting for its employee stock options.  Under APB No. 25,
compensation  expense is recognized  only when the exercise  price of options is
below  the  market  price of the  underlying  stock on the date of  grant.  This
expense is recognized ratably over the vesting period.

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

         Comprehensive Income (Loss).  Comprehensive income (loss) is defined as
the change in equity of a business  enterprise  during a period  resulting  from
transactions  and  other  events  and   circumstances   from  nonowner  sources.
Comprehensive loss for Synaptic,  in addition to net loss,  includes  unrealized
gains and losses on marketable  securities held for sale,  currently recorded in
stockholders' equity.

         Recent   Accounting   Pronouncements.   In  June  1998,  the  Financial
Accounting  Standards Board issued Statement of Financial  Accounting  Standards
No. 133, "Accounting for Derivatives and Hedging Activities" ("SFAS 133"), which
establishes  accounting  and  reporting  standards for  derivative  instruments,
including   certain   derivative   instruments   embedded  in  other   contracts
(collectively referred to as derivatives) and for hedging activities.  SFAS 133,
as amended, is effective for all fiscal quarters of fiscal years beginning after
June 15, 2000. As the Company does not currently intend to engage in derivatives
or in hedging  transactions,  the Company does not  anticipate any effect on its
results of  operations,  financial  position or cash flows upon the  adoption of
SFAS 133.

         Reclassifications. Certain prior year amounts have been reclassified to
conform with the current year presentation.


                                       41




Note 2 -- Marketable Securities

         The following is a summary of all of Synaptic's marketable  securities.
All  of  these  securities  are  classified  as  available-for-sale  securities.
Determination of estimated fair value is based on quoted market prices:


                                              Gross         Gross
                                            Unrealized   Unrealized  Estimated
                                 Cost          Gains      (Losses)   Fair Value
--------------------------------------------------------------------------------
December 31, 2000:
U.S. Treasury obligations and
 obligations of U.S.
 government agencies            $ 8,000,000  $    --    $ (57,000)  $ 7,943,000
U.S. corporate debt securities   21,748,000       --     (126,000)   21,622,000
--------------------------------------------------------------------------------
                                $29,748,000  $    --    $(183,000)  $29,565,000
================================================================================
December 31, 1999:
U.S. Treasury obligations and
 obligations of U.S.
 government agencies            $ 8,000,000  $    --    $(279,000)  $ 7,721,000
U.S. corporate debt securities   28,698,000       --     (512,000)   28,186,000
--------------------------------------------------------------------------------
                                $36,698,000  $    --    $(791,000)  $35,907,000
================================================================================

         The gross realized gains on sale of  available-for-sale  securities for
the years  ending  December  31,  2000,  1999 and 1998  totaled  $0,  $2,000 and
$128,000,  respectively.  There were no gross realized  losses during 2000, 1999
and 1998. The net adjustment to unrealized gains (losses) on  available-for-sale
securities  included as a separate  component of  stockholders'  equity  totaled
$608,000 in 2000, $(714,000) in 1999 and $(103,000) in 1998.


Note 3 -- Collaborative and Licensing Arrangements

         At December  31,  2000,  Synaptic  was engaged in  collaborations  with
Kissei  Pharmaceutical Co., Ltd. ("Kissei") and Grunenthal GmbH  ("Grunenthal").
In addition to these ongoing collaborative  arrangements,  at December 31, 2000,
four other  pharmaceutical  companies  have licenses to certain of the Company's
technology and patent rights. Details of these arrangements are set forth below:

         Kissei  Pharmaceutical  Co., Ltd.  Synaptic and Kissei are parties to a
research and  licensing  agreement to identify  novel  receptors,  which will be
identified  utilizing the Company's  genomics and functional  genomics discovery
technologies.  Under the term of the three-year  agreement,  Kissei will provide
funding to  Synaptic  to support  research  that is aimed at  discovering  novel
receptors through the use of the Company's proprietary technologies. In addition
to the research  funding,  the agreement  provides for a license fee,  milestone
payments  and  royalty  payments  to the  Company on sales of any  products.  In
return,  Synaptic  granted  Kissei  worldwide  exclusive  rights to use selected
receptors resulting from the collaboration to discover, develop, manufacture and
market drugs that act through these receptors.


                                       42



         During 2000,  the Company  recognized  $1,271,000 in revenue under this
agreement. Revenues that have been recognized are not subject to repayment.

         At December  31, 2000,  the Company had  recorded  $354,000 in deferred
revenue representing  advance funding for research and license revenue,  both of
which will be recognized in 2001.

         Grunenthal GmbH. Synaptic and Grunenthal are parties to a collaborative
and licensing agreement pursuant to which they are collaborating to discover and
develop drugs for the treatment of pain. Synaptic is using its receptor-targeted
drug design technology to identify compounds of interest and Grunenthal is using
its  expertise  to  evaluate  the  compounds  in pain model  systems and conduct
preclinical  studies.  Grunenthal will conduct  clinical  studies with promising
compounds.  The companies will each be responsible  for their own research costs
and equally  share the  development  costs  through  Phase IIa clinical  trials.
Synaptic will retain  manufacturing and marketing rights in the U.S., Canada and
Mexico and share these rights in countries outside of Europe,  South and Central
America where  Grunenthal  retains these  rights.  To date,  the Company has not
recognized any revenue under this collaboration.

         The R.W. Johnson Research Pharmaceutical  Research Institute.  Synaptic
and The R.W. Johnson Pharmaceutical  Research Institute ("PRI") are parties to a
licensing agreement under which PRI was granted nonexclusive  licenses under the
Company's alpha 1 adrenergic  receptor patents and benign prostatic  hyperplasia
functional use patent to develop and sell alpha-1a  selective  compounds for all
therapeutic applications.  PRI is required to make payments upon the achievement
of certain  milestones  and pay  royalties to Synaptic on sales of products,  if
any.

         During 2000,  the Company  recognized  $2,500,000 in revenue under this
licensing  arrangement.  Revenue  that has been  recognized  is not  subject  to
repayment.

         Eli Lilly and Company. Synaptic and Eli Lilly and Company ("Lilly") are
parties to a  collaborative  and  licensing  agreement  under  which the Company
granted Lilly an exclusive license to use all but two of the Company's serotonin
drug  discovery  systems to promote the  discovery and  development  of receptor
subtype-selective  drugs  for  the  treatment  of  serotonin-related  disorders.
Through  July 1999,  Lilly  provided  funding to Synaptic to support a specified
number  of  Company   scientists   who   conducted   research  as  part  of  the
collaboration.   Under  the  terms  of  the  agreement,  the  collaboration  and
associated  research  funding  ended on July 30, 1999.  Lilly is required to pay
royalties on sales of any products  developed  through the use of the  Company's
technology  and is required to make  payments  upon the  achievement  of certain
milestones.

         During 1999 and 1998, the Company recognized $1,676,000 and $4,659,000,
respectively,   in  revenue  under  this  agreement.  Revenues  that  have  been
recognized are not subject to repayment.

         Novartis Pharma AG.  Synaptic and Novartis  Pharma AG ("Novartis")  are
parties to two  collaborative  and licensing  agreements under which the Company
granted   Novartis  an  exclusive   worldwide   license  to  use  the  Company's
neuropeptide Y technology to develop,  manufacture  and sell compounds that work
through neuropeptide Y receptor subtypes for the treatment of obesity and eating
disorders.  Through  August 4, 1998,  Novartis  provided  funding to Synaptic to
support a specified number of the Company's scientists who conducted research as
part of the collaboration.  Under the terms of the agreements, the collaboration
and associated  research  funding ended on August 4, 1998. After August 4, 2001,
all of these  licenses and rights become  nonexclusive.  Novartis is required to
pay royalties on certain product sales and is required to make payments upon the
achievement of certain milestones.

         During 1998 the Company  recognized  $2,041,000  in revenue  under this
agreement. Revenues that have been recognized are not subject to repayment.

                                       43



         At December 31, 2000,  Novartis  held 695,715  shares of the  Company's
common stock, which represents 6.36% of the outstanding shares of the Company.

         Glaxo Group  Limited.  Synaptic  and Glaxo Group  Limited of the United
Kingdom  ("Glaxo")  are  parties to a  licensing  agreement  under  which  Glaxo
currently  holds a nonexclusive  license under the Company's  alpha 1 adrenergic
receptor  patents  to  develop  and  sell  alpha-1a   selective   compounds  for
therapeutic  applications  other than the treatment of BPH. Synaptic is entitled
to receive  royalties on sales of all alpha-1a  selective drugs sold by Glaxo so
long as Synaptic has an issued patent relating to an alpha 1 adrenergic receptor
subtype in at least one major market country.

         During 1998,  the Company  recognized  $2,000,000 in revenue under this
licensing  arrangement.  Revenue  that has been  recognized  is not  subject  to
repayment.

         Merck & Co., Inc. Synaptic and Merck & Co., Inc. ("Merck") were parties
to a collaborative and licensing agreement.  Synaptic had granted Merck licenses
that were subsequently relinquished.

         During 1999 and 1998,  the  Company  recognized  $83,000 and  $482,000,
respectively,   in  revenue  under  this  agreement.  Revenues  that  have  been
recognized are not subject to repayment.


Note 4 -- Property and Equipment

         Property  and  equipment  consists of the  following as of December 31,
2000 and 1999:

                                                      2000            1999
-----------------------------------------------------------------------------
Scientific equipment                              $ 7,943,000    $ 7,169,000
Furniture and fixtures                                192,000        192,000
Office equipment                                      533,000        521,000
Leasehold improvements                              2,352,000      2,452,000
Software                                            1,035,000        967,000
-----------------------------------------------------------------------------
                                                   12,055,000     11,301,000
Accumulated depreciation and amortization          (7,274,000)    (6,115,000)
-----------------------------------------------------------------------------
                                                  $ 4,781,000    $ 5,186,000
=============================================================================

Note 5 -- Stockholders' Equity

         Common Stock. In January 1998,  warrants to purchase  137,648 shares of
the  Company's  Common  Stock  were  exercised  at $9.50  per  share.  There are
currently no common stock warrants outstanding.

         Stockholders'  Rights  Plan.  In  November  1995,  Synaptic's  Board of
Directors  approved  the  adoption of a  stockholders'  rights plan (the "Rights
Plan").  The Rights Plan provides for the  distribution of one right (a "Right")
with respect to each share of outstanding  common stock and any new issuances of
common stock.  Upon  completion of the initial public offering in December 1995,
the Board of Directors designated Series A Junior Participating  Preferred Stock
and  declared a dividend of one Right with respect to each share of common stock
outstanding. Each Right will become exercisable to purchase from the Company, at
an  exercise  price  of  $160.00,  1/1000th  of  a  share  of  Series  A  Junior
Participating  Preferred Stock or that number of shares of common stock having a
market  value  equal to two times the  exercise  price of the Right.  The Rights
generally  become  exercisable for the Series A Junior  Participating  Preferred
Stock ten days following the announcement by any person or group of an intention
to make a tender offer or exchange offer,  the consummation of which would cause
any person or group to become the owner of 15% or more of the outstanding common
stock, and generally become  exercisable for common stock ten days

                                       44


following the
acquisition  by any person or group of more than 15% of the  outstanding  common
stock.  The Rights will expire in the year 2005.  The Rights Plan may discourage
certain types of transactions involving an actual or potential change in control
of the Company.

         Each  1/1000th  of a share of Series A Junior  Participating  Preferred
Stock will have one vote. Each share of Series A Junior Participating  Preferred
Stock will be entitled to a preferential  quarterly  dividend per share equal to
the larger of (i) an amount equal to any  dividend  declared on the common stock
and (ii) $.00025.  Additionally, in the event of a liquidation, each 1/1000th of
a share of the Series A Junior  Participating  Preferred Stock would be entitled
to a preferential liquidation payment equal to $0.01 plus an amount equal to the
amount that would be distributed with respect to each share of common stock.

         Preferred Stock. Synaptic is authorized to issue up to 1,000,000 shares
of  preferred  stock,  200,000  of  which  is  designated  as  Series  A  Junior
Participating  and 800,000 of which is  undesignated.  The Board of Directors is
authorized to provide for the issuance of preferred stock in one or more classes
or series and to fix the number of shares constituting any such class or series,
and the voting powers,  designations,  preferences and relative,  participating,
optional or other special rights and qualifications, limitations or restrictions
thereof,  including the dividend  rights,  dividend  rate,  terms of redemption,
redemption price or prices, conversion rights and liquidation preferences of the
shares  constituting any class or series,  without any further vote or action by
the shareholders of the Company.

Note 6 -- Incentive/Stock Plans

         Synaptic  currently has three stock incentive plans: the 1996 Incentive
Plan (the "1996 Plan"),  the 1988 Amended and Restated Incentive Plan (the "1988
Plan" and,  together  with the 1996 Plan,  the  "Incentive  Plans") and the 1996
Nonemployee Director Stock Option Plan (the "Director Plan").

         The  Company  has  elected to follow APB No. 25 in  accounting  for its
employee stock options  because,  as discussed below, the alternative fair value
accounting provided for under Financial Accounting Standards Board Statement No.
123 "Accounting for Stock-Based  Compensation"  ("SFAS No. 123") requires use of
option  valuation  models that were not  developed  for use in valuing  employee
stock  options.  Under  APB No.  25,  compensation  expense  is  required  to be
recognized when the exercise price of the Company's employee stock options is at
a price below the market price of the underlying stock on the date of grant.

         Incentive  Plans.  The 1996  Plan and the 1988  Plan  were  adopted  in
October  1995  and  June  1988,   respectively.   In  May  1998,  the  Company's
stockholders  approved an amendment to the 1996 Plan that  increased the maximum
number of shares  available  for awards  under the 1996 Plan from  1,100,000  to
2,100,000. Effective as of January 1, 1996, the 1996 Plan replaced the 1988 Plan
with  respect  to all  future  stock and  option  awards by the  Company  to its
employees and consultants.  A committee of the Company's Board of Directors (the
"Committee")  approves  the sale of shares and the granting of  nonstatutory  or
incentive  stock  options.  In addition,  under the 1996 Plan, the Committee may
grant stock appreciation rights to employees and consultants of the Company. The
purchase  price for shares and the exercise  price of options are  determined by
the Committee (although, the exercise price of incentive stock options may be no
less than the fair market value of the common stock on the date of grant).

         In  general,  options  granted  under the  Incentive  Plans vest over a
four-year  period.  Unvested  options  are  forfeited  upon  termination  of the
employee or consulting  relationship.  Vested options, if not exercised within a
specified  period  of  time  following  the  termination  of the  employment  or
consulting relationship,  are also forfeited.  Options generally expire 10 years
from the date of grant.  Shares of common stock sold under the  Incentive  Plans
are also  generally  subject to  vesting.  Options  granted  and shares  sold to
employees  under the  Incentive  Plans  generally  become  fully vested upon the
occurrence  of a change in control of the

                                       45


Company  (as  defined) if the holders
thereof are terminated in connection  with such change in control other than for
cause (as defined).  At December 31, 2000,  713,945 shares remain  available for
future  awards  under  the  1996  Plan.  As  of  December  31,  2000,  no  stock
appreciation rights had been awarded under the 1996 Plan.

         Director  Plan. The Director Plan was adopted by the Board of Directors
in March 1996 and approved by the  stockholders in June 1996. In general,  under
the Director Plan,  each  nonemployee  director of the Company is  automatically
granted an option on the date that he or she first becomes a member of the Board
of Directors.  In addition,  on June 1 of each year,  commencing  in 1997,  each
nonemployee director is granted an additional option to purchase 2,500 shares of
common stock at an exercise  price equal to the fair market value on the date of
grant. The maximum number of shares subject to the Director Plan is 250,000.  In
general, options granted under the Director Plan become exercisable as to 1/24th
of the total  number of shares  subject to the option  for each  calendar  month
elapsed after the date of the option grant.  In the event of a change in control
of the Company (as  defined) or the death or  disability  of the  optionee,  any
unvested portion of the options will become exercisable in full. Options granted
under the Director Plan will expire upon the earliest to occur of the following:
(a) the  expiration  of ten years from the date of grant of the option,  (b) one
year  after the  optionee  ceases to be a director  of the  Company by reason of
death or  disability  of the  optionee,  or (c) three  months after the date the
optionee  ceases to be a director of the Company for any reason other than death
or disability.


                                       46




         Option  activities  under the Incentive Plans and the Director Plan are
detailed in the following table:

                                                                    Weighted
                                                                    Average
                                                                     Option
                                      1996      1988     Director    Price
                                      Plan      Plan      Plan     Per Share
-------------------------------------------------------------------------------
Outstanding at January 1, 1998       851,063    265,302    30,000   $10.47
Granted                              339,543          -    15,000   $13.36
Exercised                             (4,453)   (43,063)        -   $ 2.70
Canceled/Forfeited                   (60,918)    (4,375)        -   $12.36
-------------------------------------------------------------------------------
Outstanding at December 31, 1998   1,125,235    217,864    45,000   $11.39
Granted                              432,100          -    20,000   $ 4.92
Exercised                            (22,542)   (30,745)        -   $ 4.03
Canceled/Forfeited                  (158,516)      (625)        -   $12.86
-------------------------------------------------------------------------------
Outstanding at December 31, 1999   1,376,277    186,494    65,000   $ 9.69
Granted                              145,750          -    15,000   $ 5.79
Exercised                            (36,363)  (134,748)        -   $ 3.94
Canceled/Forfeited                  (166,092)         -   (22,500)  $10.74
-------------------------------------------------------------------------------
Outstanding at December 31, 2000   1,319,572     51,746    57,500   $ 9.80
===============================================================================
Exercisable at December 31, 2000     487,699     51,746    44,687   $12.32
===============================================================================
Exercisable at December 31, 1999     345,592    186,494    46,562   $ 9.90
===============================================================================
Exercisable at December 31, 1998     202,195    211,276    30,000   $ 8.10
===============================================================================

         The  following  table  discloses at December 31, 2000,  for each of the
following  classes of options as  determined  by range of  exercise  price,  the
information  regarding  weighted-average  exercise  price  and  weighted-average
remaining contractual life of each said class:

                                           Weighted                    Weighted
                             Weighted       Average                     Average
                              Average      Remaining                   Exercise
                              Exercise    Contractual    Number Of      Price of
                 Number Of   Price of       Life Of       Options       Options
                  Options    Outstanding  Outstanding    Currently    Currently
 Option Class   Outstanding   Options       Options     Exercisable  Exercisable
 ------------   -----------   -------       -------     -----------  -----------

Prices ranging
 from
 $1.76-$2.00       51,746      $ 1.80     2.8 years       51,746       $ 1.80

Prices ranging
 from
 $4.25-$8.4375     543,500     $ 5.03     9.2 years       20,937       $ 5.74

Prices ranging
 from
 $10.125-$15.25    730,072     $12.95     7.0 years      410,574       $12.93

Prices ranging
 from
 $16.50-$17.75     103,500     $16.61     5.4 years      100,875       $16.58


         Other Disclosures. During 2000, 1999 and 1998, all options were granted
with an exercise price equal to the market price of the common stock on the date
of grant. Pro forma  information  regarding net income and earnings per share is
required by SFAS No.  123,  and has been  determined  as if the Company had been
accounting  for its employee  stock  options under the fair value method of SFAS
No. 123. The  weighted-average  fair value of options  granted during 2000, 1999
and 1998 approximated $4.07, $3.19 and $7.66,  respectively.  The fair value for
these  options was estimated at the date of grant using a  Black-Scholes  option
pricing  model  with  the  following   assumptions  for  2000,  1999  and  1998,
respectively:  weighted  average  risk-free  interest rates of 5.43%,  6.13% and
4.70%; no dividends;  and a  weighted-average  expected life of the

                                       47


options of 5
years.  Weighted average  volatility factors of the expected market price of the
Company's  common  stock of .852,  .741 and .628,  were used for 2000,  1999 and
1998, respectively.

         The  Black-Scholes  option  valuation  model was  developed  for use in
estimating the fair value of traded options,  which have no vesting restrictions
and are fully  transferable.  In addition,  option  valuation models require the
input of highly  subjective  assumptions  including  the  expected  stock  price
volatility.  Because the Company's  employee stock options have  characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially  affect the fair value estimate,  in
management's  opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.

         For  purposes of pro forma net loss  disclosures,  the  estimated  fair
value of options  granted  subsequent  to 1994 is  amortized to expense over the
options'  vesting  period.  The Company's pro forma net loss  information  is as
follows:
                                    2000             1999               1998
-------------------------------------------------------------------------------
Pro forma net loss           $ (15,814,000)  $   (16,801,000)   $   (7,863,000)
Pro forma net loss per share $       (1.46)  $         (1.56)   $        (0.74)
-------------------------------------------------------------------------------

         For  certain  options  granted  prior to  1997,  the  Company  recorded
pursuant to APB No. 25 deferred compensation expense representing the difference
between the exercise  price  thereof and the market value of the common stock as
of the date of grant.  This  compensation  expense was being  amortized over the
vesting period of each option  granted.  Amortization  of deferred  compensation
under the Incentive Plans amounted to  approximately  $50,000 and $79,000 during
1999 and 1998, respectively.  In addition,  approximately $11,000 and $20,000 of
deferred compensation,  as it relates to the Incentive Plans was reversed during
1999 and 1998,  respectively,  due to the forfeiture of the unvested options. At
December 31, 1999, this deferred compensation had been amortized.


Note 7 -- Income Taxes

         The liability method is used in accounting for income taxes. Under this
method,  deferred tax assets and liabilities are determined based on differences
between  financial  reporting  and tax bases of assets and  liabilities  and are
measured  using the  enacted  tax rates and laws that will be in effect when the
differences are expected to reverse.

         At December  31, 2000 and 1999,  the  Company  had net  operating  loss
("NOL") carryforwards of $57,000,000 and $45,000,000,  respectively, for Federal
income tax purposes that will expire principally in the years 2002 through 2020.
In  addition,  Synaptic had research and  development  credit  carryforwards  of
approximately  $1,610,000,  which will expire  principally in 2002 through 2018.
For financial reporting  purposes,  a valuation allowance has been recognized to
offset the  deferred  tax  assets  related  to these  carryforwards.  Due to the
limitations  imposed  by  the  Tax  Reform  Act of  1986,  and  as a  result  of
significant changes in the Company's ownership in 1993 and 1997, the utilization
of  $25,000,000  of net  operating  loss  carryforwards  is  subject  to  annual
limitation. The utilization of the research and development credits is similarly
limited.

         At December 31, 2000, the Company had NOL  carryforwards of $41,637,000
and research and development  credits of $475,000 for State income tax purposes.
In November 2000, $5,650,000 in gross State NOL carryforwards was sold under the
State of New Jersey's Technology Business Tax Certificate  Transfer Program (the
"Program"). The Program allows qualified technology and biotechnology businesses

                                       48



in New Jersey to sell unused amounts of NOL  carryforwards  and defined research
and  development  credits  for cash.  The tax value  sold was  $509,000  and the
proceeds received by the Company were $407,000,  which was recorded as an income
tax benefit in the statement of operations.

         A reconciliation  of the Company's income tax expense (benefit) at U.S.
federal statutory tax rates to recorded income tax provision is as follows:

                                           2000         1999            1998
-------------------------------------------------------------------------------
Tax at U.S. statutory rates          $(4,713,000)  $(5,141,000)    $(2,208,000)
State income taxes                      (823,000)     (898,000)       (386,000)
Research and development credit                -             -        (110,000)
Expiration/sale of state NOLs            (71,000)      248,000           2,000
Other                                    (30,000)      (16,000)         50,000
Valuation allowance recorded           5,230,000     5,807,000       2,652,000
-------------------------------------------------------------------------------
     Recorded tax provision (benefit)   (407,000)            -               -
===============================================================================


         Significant  components of the Company's federal deferred tax assets as
of December 31, 2000 and 1999 are as follows:

                                                         2000           1999
-------------------------------------------------------------------------------
Deferred tax assets:
     Net operating loss carryforwards               $ 21,930,000  $ 17,233,000
     Research and development credit carryforwards     1,610,000     1,610,000
     Book over tax amortization                        2,171,000     1,638,000
------------------------------------------------------------------------------
          Total deferred tax assets                   25,711,000    20,481,000
     Valuation allowance                             (25,711,000)  (20,481,000)
-------------------------------------------------------------------------------
     Net deferred tax assets                                   -             -
===============================================================================


Note 8 -- Commitments

         Synaptic leases facilities under an agreement  expiring on December 31,
2015 (the "lease").

         Rent  expense  for the years ended  December  31,  2000,  1999 and 1998
approximated $1,895,000,  $1,749,000, and $693,000,  respectively,  and included
executory costs of $524,000, $579,000 and $120,000, respectively.

         As of December 31,  2000,  future  minimum  annual  payments  under the
lease, inclusive of executory costs, are as follows:

       2001          2,074,000
       2002          1,634,000
       2003          1,634,000
       2004          1,634,000
       2005          1,886,000
 Thereafter         20,872,000
                  ------------
      Total       $ 29,734,000
                  ============

         The Company is  subleasing  5,000 square feet and 23,008 square feet of
its premises to two  non-affiliated  third parties under agreements  expiring in
2001 and 2010,  respectively.  During 2000, the Company

                                       49


recognized  $104,000 in
rental  income  under  these  agreements,  which is  included  in other  income.
Additionally,  under the non-cancelable  portions of these sublease  agreements,
the Company  expects to recognize an aggregate of $2,146,000  in rental  income,
inclusive of executory costs.

         The  Company  is party to a  license  agreement  with a major  research
university.  Under the terms of this agreement, the Company received a worldwide
nonexclusive license under a patent issued in January 1991, which patent expires
in 2008.  The Company is  committed  under this  agreement  to pay  royalties on
future net sales of products employing the technology or falling under claims of
the patents covered by this agreement.

         Synaptic has an employment  agreement with its Chairman,  President and
Chief Executive Officer which provides for severance  payments of up to one year
of  base  salary  upon  the  occurrence  of  certain  events,   including  early
termination and termination upon a change in control, as defined. In addition to
severance  payments,  under  certain  circumstances,  the  agreement  calls  for
immediate vesting of any unvested shares of common stock and stock options.

         At December 31, 2000, the Company had entered into  agreements with its
Senior Vice  President  and Chief  Financial  Officer,  its Vice  President  for
Research  and its Vice  President  of  Business  Development  which  provide for
severance   payments  in  amounts  equal  to  50%  of  annual  base  salary,  on
substantially  the same terms as stated above.  In addition to severance,  under
certain circumstances, the agreements call for immediate vesting of any unvested
shares of common stock and stock options.


Note 9 -- Employee Benefit Plans

         The Company established a defined contribution employee retirement plan
(the "Plan")  effective  January 1, 1990,  conforming  to Section  401(k) of the
Internal  Revenue Code ("IRC").  All eligible  employees with six months service
may elect to have a portion of their salary deducted and contributed to the Plan
up to the maximum allowable limitations of the IRC. Synaptic matches 50% of each
participant's  contribution  up to  the  first  5% of  annual  compensation  (as
defined)  with a  maximum  employer  contribution  of  2.5%  of a  participant's
compensation.  The Company's  matching portion,  which amounted to approximately
$117,000,  $133,000 and $117,000 for the years ended December 31, 2000, 1999 and
1998, respectively, vests over a six-year period.

         The Company currently provides medical,  dental,  long-term  disability
and life insurance  benefits for its full-time  employees.  The Company does not
presently provide any post-retirement health benefits.


Note 10 -- Quarterly Data (Unaudited)

     The following tables present selected unaudited information relating to the
results of operations of the Company for the past eight quarters.

(in thousands, except per share information)

                                            2000
                       ------------------------------------------------
                         1st        2nd       3rd      4th        Year
                       ------------------------------------------------
Total revenues         $  214     $  354    $ 2,903    $  365   $ 3,836
Total expenses          4,503      5,014      5,306     5,389    20,212
Net loss               (3,704)    (4,094)    (1,998)   (4,063)  (13,859)
Basic and diluted
 Net loss per share      (.34)      (.38)      (.18)     (.37)    (1.28)
                       ================================================


                                           1999
                       ------------------------------------------------
                         1st        2nd       3rd      4th        Year
                       ------------------------------------------------
Total revenues         $  644     $  843     $  314    $   54   $ 1,855
Total expenses          5,192      5,106      4,823     4,531    19,652
Net loss               (3,811)    (3,568)    (3,887)   (3,855)  (15,121)
Basic and diluted
 Net loss per share      (.36)      (.33)      (.36)     (.36)    (1.41)
                       ================================================



                                       50





Item 9.  Changes in and Disagreements with Accountants on Accounting
           and Financial Disclosure

         None.


                                    Part III


Item 10.  Directors and Executive Officers of the Registrant

         The  information  required  by this  item  is  incorporated  herein  by
reference from the  information  under the captions  "ELECTION OF DIRECTORS" and
"COMPENSATION AND OTHER INFORMATION  CONCERNING OFFICERS,  DIRECTORS AND CERTAIN
STOCKHOLDERS" contained in the Proxy Statement.


Item 11.  Executive Compensation

         The  information  required  by this  item  is  incorporated  herein  by
reference  from the  information  under  the  caption  "COMPENSATION  AND  OTHER
INFORMATION CONCERNING OFFICERS,  DIRECTORS AND CERTAIN STOCKHOLDERS"  contained
in the Proxy Statement.


Item 12.  Security Ownership of Certain Beneficial Owners and Management

         The  information  required  by this  item  is  incorporated  herein  by
reference from the information under the caption "SECURITY  OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT" contained in the Proxy Statement.


Item 13.  Certain Relationships and Related Transactions

         The  information  required  by this  item  is  incorporated  herein  by
reference  from the  information  under  the  caption  "COMPENSATION  AND  OTHER
INFORMATION CONCERNING OFFICERS,  DIRECTORS AND CERTAIN STOCKHOLDERS"  contained
in the Proxy Statement.



                                       51




                                     Part IV


Item 14.  Exhibits, Financial Statement Schedules and Reports on Form 8-K

(a)      (1)      Financial Statements

         Reference  is made to the Index to Financial  Statements  under Item 8,
Part II hereof.


         (2)      Financial Statement Schedules

         The  Financial  Statement  Schedules  have been  intentionally  omitted
either  because  they are not  required  or  because  the  information  has been
included  in the notes to the  Financial  Statements  included in this Report on
Form 10-K.


         (3)      Exhibits


Exhibit
No.               Description
---------         --------------------------------------------------------------
   3.1(a)         Amended  and  Restated  Certificate  of  Incorporation  of the
                  Company, filed December 19, 1995 (incorporated by reference to
                  Exhibit 3.1(a) to the Company's  Quarterly Report on Form 10-Q
                  filed for the quarter  ended June 30,  1996,  Commission  File
                  Number 0-27324)
   3.1(b)         Certificate of Designations  of Series A Junior  Participating
                  Preferred  Stock  filed  December  19, 1995  (incorporated  by
                  reference to Exhibit 3.1(b) to the Company's  Quarterly Report
                  on Form 10-Q filed for the quarter  ended  December  31, 1995,
                  Commission File Number 0-27324)
   3.1(c)         Certificate   of   Amendment   of  the  Amended  and  Restated
                  Certificate  of  Incorporation  of the Company,  filed June 5,
                  1996  (incorporated  by  reference  to  Exhibit  3.1(c) to the
                  Company's  Quarterly Report on Form 10-Q filed for the quarter
                  ended June 30, 1996, Commission File Number 0-27324)
       3.2        Amended and  Restated  By-Laws of the  Company,  as amended on
                  March 24, 1999  (incorporated  by  reference to Exhibit 3.2 to
                  the  Company's  Quarterly  Report on Form  10-Q  filed for the
                  quarter ended March 31, 1999, Commission File Number 0-27324)
       4.1        Specimen  of  Certificate  of  Common  Stock  of  the  Company
                  (incorporated  by  reference  to  Exhibit  4 to the  Company's
                  Registration  Statement  on Form S-1, as amended  (File Number
                  33-98366), which became effective on December 13, 1995)

                                       52



       4.2        Rights  Agreement  dated as of December 11, 1995,  between the
                  Company and Chase Mellon Shareholder Services, as Rights Agent
                  (incorporated  by  reference  to Exhibit 4.2 to the  Company's
                  Annual  Report on Form 10-K  filed for the  fiscal  year ended
                  December 31, 1995, Commission File Number 0-27324)
     *10.1        Research, Option and License Agreement dated as of January 25,
                  1991,  between  the  Company  and Eli  Lilly and  Company,  as
                  amended by Addendum dated as of January 1, 1995  (incorporated
                  by  reference to Exhibit  10.1 to the  Company's  Registration
                  Statement  on Form S-1,  as amended  (File  Number  33-98366),
                  which became effective on December 13, 1995)
     *10.2        Research  Collaboration  and  License  Agreement  dated  as of
                  November 30, 1993,  between the Company and Merck & Co., Inc.,
                  as amended by  Amendment  No. 1 dated as of February 15, 1995,
                  and as modified by the Letter  Agreement dated August 25, 1995
                  (incorporated  by reference  to Exhibit 10.2 to the  Company's
                  Registration  Statement  on Form S-1, as amended  (File Number
                  33-98366), which became effective on December 13, 1995)
     *10.3        Research  and  License  Agreement  dated as of August 4, 1994,
                  between     the     Company     and     Ciba-Geigy     Limited
                  (predecessor-in-interest   of  Novartis   AG,  the  parent  of
                  Novartis Pharma AG) (incorporated by reference to Exhibit 10.3
                  to the  Company's  Registration  Statement  on  Form  S-1,  as
                  amended  (File Number  33-98366),  which  became  effective on
                  December 13, 1995)
     +10.4        1988  Amended  and  Restated  Incentive  Plan  of the  Company
                  (incorporated  by reference  to Exhibit 10.9 to the  Company's
                  Registration  Statement  on Form S-1, as amended  (File Number
                  33-98366), which became effective on December 13, 1995)
     +10.5        Form of Restricted  Stock  Purchase  Agreement  under the 1988
                  Amended   and   Restated   Incentive   Plan  of  the   Company
                  (incorporated  by reference to Exhibit  10.10 to the Company's
                  Registration  Statement  on Form S-1, as amended  (File Number
                  33-98366), which became effective on December 13, 1995)
     +10.6        Form of  Incentive  Stock  Option  Agreement  under  the  1988
                  Amended   and   Restated   Incentive   Plan  of  the   Company
                  (incorporated  by reference to Exhibit  10.11 to the Company's
                  Registration  Statement  on Form S-1, as amended  (File Number
                  33-98366), which became effective on December 13, 1995)
     +10.7        Form of  Nonqualified  Stock Option  Agreement  under the 1988
                  Amended   and   Restated   Incentive   Plan  of  the   Company
                  (incorporated  by reference to Exhibit  10.12 to the Company's
                  Registration  Statement  on Form S-1, as amended  (File Number
                  33-98366), which became effective on December 13, 1995)

                                       53



      10.8        Third Amended and Restated Registration Rights Agreement dated
                  as of January 19, 1993, as amended by Amendment No. 1 dated as
                  of August 4, 1994  (incorporated by reference to Exhibit 10.13
                  to the  Company's  Registration  Statement  on  Form  S-1,  as
                  amended  (File Number  33-98366),  which  became  effective on
                  December 13, 1995)
      10.9        Form of Common Stock Purchase Warrant dated as of January 1993
                  (incorporated  by reference to Exhibit  10.15 to the Company's
                  Registration  Statement  on Form S-1, as amended  (File Number
                  33-98366), which became effective on December 13, 1995)
      10.10       License Agreement dated June 3, 1991,  between the Company and
                  the  Trustees of Columbia  University  in the City of New York
                  (incorporated  by reference to Exhibit  10.16 to the Company's
                  Registration  Statement  on Form S-1, as amended  (File Number
                  33-98366), which became effective on December 13, 1995)
     +10.11       Employment  Agreement  dated as of February 14, 1994,  between
                  the Company and Robert I. Taber  (incorporated by reference to
                  Exhibit 10.21 to the Company's  Registration Statement on Form
                  S-1, as amended (File Number 33-98366), which became effective
                  on December 13, 1995)
     +10.12       Employment  Agreement  dated as of April 6, 1995,  between the
                  Company and Richard L. Weinshank (incorporated by reference to
                  Exhibit 10.24 to the Company's  Registration Statement on Form
                  S-1, as amended (File Number 33-98366), which became effective
                  on December 13, 1995)
      10.13       Form of Indemnification Agreement between the Company and each
                  of  its  executive  officers  and  directors  (incorporated by
                  reference  to  Exhibit  10.25  to  the  Company's Registration
                  Statement  on  Form  S-1,  as  amended (File Number 33-98366),
                  which became effective on December 13, 1995)
     +10.14       1996 Incentive Plan of the Company, as amended on May 12, 1998
                  (incorporated  by reference to Exhibit  10.14 to the Company's
                  Annual  Report on Form 10-K  filed for the  fiscal  year ended
                  December 31, 1998, Commission File Number 0-27324)
     +10.15       Incentive  Stock  Option  Agreement  dated  October  1,  1993,
                  between the Company and Kathleen P. Mullinix  (incorporated by
                  reference  to  Exhibit  10.28  to the  Company's  Registration
                  Statement  on Form S-1,  as amended  (File  Number  33-98366),
                  which became effective on December 13, 1995)
     +10.16       Incentive  Stock  Option  Agreement  dated  February 14, 1994,
                  between  the  Company  and  Robert I. Taber  (incorporated  by
                  reference  to  Exhibit  10.29  to the  Company's  Registration
                  Statement  on Form S-1,  as amended  (File  Number  33-98366),
                  which became effective on December 13, 1995)


                                       54



     +10.17       Incentive  Stock  Option  Agreement  dated  February  7, 1994,
                  between  the  Company  and  Lisa L.  Reiter  (incorporated  by
                  reference  to  Exhibit  10.30  to the  Company's  Registration
                  Statement  on Form S-1,  as amended  (File  Number  33-98366),
                  which became effective on December 13, 1995)
     +10.18       Incentive  Stock Option  Agreement dated as of March 21, 1996,
                  between the Company and Kathleen P. Mullinix  (incorporated by
                  reference to Exhibit 10.25 to the Company's  Quarterly  Report
                  on Form  10-Q  filed for the  quarter  ended  March 31,  1996,
                  Commission File Number 0-27324)
     +10.19       Incentive  Stock Option  Agreement dated as of March 21, 1996,
                  between  the Company  and Robert L.  Spence  (incorporated  by
                  reference to Exhibit 10.26 to the Company's  Quarterly  Report
                  on Form  10-Q  filed for the  quarter  ended  March 31,  1996,
                  Commission File Number 0-27324)
     +10.20       Incentive  Stock Option  Agreement dated as of March 21, 1996,
                  between  the  Company  and  Lisa L.  Reiter  (incorporated  by
                  reference to Exhibit 10.27 to the Company's  Quarterly  Report
                  on Form  10-Q  filed for the  quarter  ended  March 31,  1996,
                  Commission File Number 0-27324)
     +10.21       Nonqualified  Stock  Option  Agreement  dated as of March  21,
                  1996,   between  the   Company   and   Richard  L.   Weinshank
                  (incorporated  by reference to Exhibit  10.28 to the Company's
                  Quarterly  Report on Form 10-Q  filed  for the  quarter  ended
                  March 31, 1996, Commission File Number 0-27324)
     +10.22       Form of  Incentive  Stock  Option  Agreement  under  the  1996
                  Incentive Plan  (incorporated by reference to Exhibit 10.29 to
                  the  Company's  Quarterly  Report on Form  10-Q  filed for the
                  quarter ended March 31, 1996, Commission File Number 0-27324)
     +10.23       Form of  Nonqualified  Stock Option  Agreement  under the 1996
                  Incentive Plan  (incorporated by reference to Exhibit 10.30 to
                  the  Company's  Quarterly  Report on Form  10-Q  filed for the
                  quarter ended March 31, 1996, Commission File Number 0-27324)
   ***10.24       Research  and  License  Agreement  dated  as of May 31,  1996,
                  between     the     Company     and     Ciba-Geigy     Limited
                  (predecessor-in-interest  of Novartis  AG,  parent of Novartis
                  Pharma AG)  (incorporated by reference to Exhibit 10.31 to the
                  Company's  Quarterly  Report  on  Form  10-Q/A  filed  for the
                  quarter ended June 30, 1996, Commission File Number 0-27324)
   ***10.25       Supplement No. 1 to Research and License Agreement dated as of
                  August 4, 1994,  between the Company  and  Ciba-Geigy  Limited
                  (predecessor-in-interest  of Novartis  AG,  parent of Novartis
                  Pharma AG)  (incorporated by reference to Exhibit 10.32 to the
                  Company's  Quarterly  Report  on  Form  10-Q/A  filed  for the
                  quarter ended June 30, 1996, Commission File Number 0-27324)


                                       55




      10.26       1996  Nonemployee  Director  Stock  Option Plan of the Company
                  (incorporated  by reference to Exhibit  10.33 to the Company's
                  Quarterly Report on Form 10-Q filed for the quarter ended June
                  30, 1996, Commission File Number 0- 27324)
      10.27       Form of Stock  Option  Agreement  under  the 1996  Nonemployee
                  Director  Stock  Option Plan of the Company  (incorporated  by
                  reference  to  Exhibit  A  attached  to  Exhibit  10.33 to the
                  Company's  Quarterly Report on Form 10-Q filed for the quarter
                  ended June 30, 1996, Commission File Number 0-27324)
    **10.28       Addendum No. 2 to Research, Option and License Agreement dated
                  as of  October 31, 1996, between the Company and Eli Lilly and
                  Company (incorporated  by  reference  to  Exhibit 10.35 to the
                  Company's Annual Report on Form 10-K filed for the fiscal year
                  ended December 31, 1996, Commission File No. 0-27324)
   ***10.29       Amendment No.2 to Research Collaboration and License Agreement
                  dated as  of  October 9, 1996, between the Company and Merck &
                  Co., Inc.  (incorporated  by reference to Exhibit 10.36 to the
                  Company's Annual Report on Form 10-K filed for the fiscal year
                  ended December 31, 1996, Commission File No. 0-27324)
     +10.30       Incentive  Stock  Option  Agreement  dated as of December  13,
                  1996,   between   the  Company   and   Kathleen  P.   Mullinix
                  (incorporated  by reference to Exhibit  10.37 to the Company's
                  Annual  Report on Form 10-K  filed for the  fiscal  year ended
                  December 31, 1996, Commission File No. 0-27324)
     +10.31       Form of Incentive Stock Option Agreement dated as of  December
                  13, 1996, entered  into between the Company and each of Robert
                  L. Spence, Robert I. Taber,  Lisa  L.  Reiter  and  Richard L.
                  Weinshank (incorporated by reference  to  Exhibit 10.38 to the
                  Company's Annual Report on Form 10-K filed for the fiscal year
                  ended December 31, 1996, Commission File No. 0-27324)
   ***10.32       Collaborative  Research and License Agreement dated as of July
                  28, 1997, between the Company and the  Warner-Lambert  Company
                  (incorporated  by reference to Exhibit  10.39 to the Company's
                  Quarterly  Report on Form 10-Q  filed  for the  quarter  ended
                  September 30, 1997, Commission File Number 0- 27324)
     +10.33       Executive Employment Agreement effective as of October 1,1997,
                  between the Company and Dr. Kathleen P. Mullinix (incorporated
                  by reference to   Exhibit 10.34 to the Company's Annual Report
                  on  Form 10-K filed for the fiscal  year  ended  December  31,
                  1997, Commission File No. 0-27324)
      10.34       Lease Agreement  dated November 19, 1997,  between the Company
                  and Century  Associates,  which becomes  effective  January 1,
                  1998  (incorporated  by  reference  to  Exhibit  10.35  to the
                  Company's Annual Report on Form 10-K filed for the fiscal year
                  ended December 31, 1997, Commission File No. 0-27324)


                                       56




      10.35       Amendment  No.  3  to  Research   Collaboration   and  License
                  Agreement  dated as of December  1, 1997,  between the Company
                  and Merck & Co.,  Inc.  (incorporated  by reference to Exhibit
                  10.36 to the  Company's  Annual  Report on Form 10-K filed for
                  the fiscal year ended December 31, 1997,  Commission  File No.
                  0-27324)
     +10.36       Amended and Restated Employment  Agreement dated as of January
                  1,  1998,   between   the   Company   and  Robert  L.   Spence
                  (incorporated  by reference to Exhibit  10.37 to the Company's
                  Annual  Report on Form 10-K  filed for the  fiscal  year ended
                  December 31, 1997, Commission File No. 0-27324)
   ***10.37       Cooperation  Agreement  dated as of January 12, 1998,  between
                  the Company and Grunenthal GmbH  (incorporated by reference to
                  Exhibit  10.38 to the  Company's  Annual  Report  on Form 10-K
                  filed for the fiscal year ended December 31, 1997,  Commission
                  File No. 0-27324)
     +10.38       Amended and Restated Employment Agreement dated as of February
                  7, 1998, between the Company and Lisa L. Reiter  (incorporated
                  by reference to Exhibit 10.39 to the  Company's  Annual Report
                  on Form 10-K filed for the  fiscal  year  ended  December  31,
                  1997, Commission File No. 0-27324)
      10.39       Amendment No.4 to Research Collaboration and License Agreement
                  dated as of March 2,1998, between the Company and Merck & Co.,
                  Inc. (incorporated  by  reference  to  Exhibit  10.40  to  the
                  Company's Annual Report on Form 10-K filed for the fiscal year
                  ended December 31, 1997, Commission File No. 0-27324)
   ***10.40       Option  and  License  Agreement  dated as of  March  2,  1998,
                  between the Company and Glaxo Group Limited  (incorporated  by
                  reference to Exhibit 10.41 to the  Company's  Annual Report on
                  Form 10-K filed for the fiscal year ended  December  31, 1997,
                  Commission File No. 0-27324)
     +10.41       Employment  Agreement  dated as of April 1, 1998,  between the
                  Company and Theresa A. Branchek  (incorporated by reference to
                  Exhibit 10.1 to the  Company's  Quarterly  Report on Form 10-Q
                  filed for the quarter  ended March 31, 1998,  Commission  File
                  Number 0-27324)
     +10.42       Incentive  Stock  Option  Agreement  dated as of May 12, 1998,
                  between the Company and Theresa A. Branchek  (incorporated  by
                  reference to Exhibit 10.1 to the Company's Quarterly Report on
                  Form  10-Q  filed  for  the  quarter   ended  June  30,  1998,
                  Commission File Number 0-27324)
     +10.43       Nonqualified  Stock Option Agreement dated as of May 12, 1998,
                  between the Company and Theresa A. Branchek  (incorporated  by
                  reference to Exhibit 10.2 to the Company's Quarterly Report on
                  Form  10-Q  filed  for  the  quarter   ended  June  30,  1998,
                  Commission File Number 0-27324)


                                       57



      10.44       Amendment No. 1 to Cooperation  Agreement  between the Company
                  and Grunenthal GmbH (incorporated by reference to Exhibit 10.1
                  to the Company's  Quarterly  Report on Form 10-Q filed for the
                  quarter  ended  September  30,  1998,  Commission  File Number
                  0-27324)
      10.45       First  Amendment  to Lease  dated  as of  November  25,  1998,
                  between   ARE-215   College   Road,   LLC,   and  the  Company
                  (incorporated  by reference to Exhibit  10.45 to the Company's
                  Annual  Report on Form 10-K  filed for the  fiscal  year ended
                  December 31, 1998, Commission File No. 0-27324)
      10.46       Amendment  No.  5  to  Research   Collaboration   and  License
                  Agreement  dated as of December  1, 1998,  between the Company
                  and Merck & Co.,  Inc.  (incorporated  by reference to Exhibit
                  10.46 to the  Company's  Annual  Report on Form 10-K filed for
                  the fiscal year ended December 31, 1998,  Commission  File No.
                  0-27324)
      10.47       Addendum  No. 3 to  Research,  Option  and  License  Agreement
                  effective  as of January 1, 1999,  between the Company and Eli
                  Lilly and Company  (incorporated by reference to Exhibit 10.47
                  to the  Company's  Annual  Report on Form  10-K  filed for the
                  fiscal  year ended  December  31,  1998,  Commission  File No.
                  0-27324)
      23.1        Consent of Independent Auditors, Ernst & Young LLP
      24          Powers of Attorney









*     Portions of this Exhibit were omitted and confidential  treatment  thereof
      has  been  granted  by  the  Secretary  of  the  Securities  and  Exchange
      Commission  in  response  to  the  Registrant's   Application   Requesting
      Confidential Treatment under Rule 406 under the Securities Act of 1933, as
      amended.

**    Portions of this Exhibit have been omitted and filed  separately  with the
      Secretary  of the  Securities  and  Exchange  Commission  pursuant  to the
      Registrant's  Application  Requesting  Confidential  Treatment  under Rule
      24b-2 under the Securities Exchange Act of 1934, as amended.

***   Portions of this Exhibit were omitted and confidential  treatment  thereof
      has  been  granted  by  the  Secretary  of  the  Securities  and  Exchange
      Commission  in  response  to  the  Registrant's   Application   Requesting
      Confidential  Treatment under Rule 246-2 under the Securities Act of 1933,
      as amended.

+     Management contracts and compensatory plans or arrangements


(b)      Reports on Form 8-K

      There  were no  reports  on Form 8-K filed by the  Registrant  during  the
fourth quarter of the fiscal year ended December 31, 2000.


                                       58




Supplemental Information

      Copies of the Registrant's Proxy Statement and copies of the form of proxy
to be used at the Annual  Meeting of  Stockholders  to be held on May 10,  2001,
will be furnished to the Securities and Exchange Commission at the time they are
distributed to the Registrant's stockholders.










         Imitrex(R)  and Zantac(R) are  registered  trademarks of Glaxo Wellcome
Inc. Hytrin(R) is the registered trademark of Abbott  Laboratories.  Claritin(R)
is  the  registered  trademark  of  Schering  Corporation.  Propulsid(R)  is the
registered  trademark of Johnson & Johnson.  All other brand names or trademarks
appearing in this Report are the property of their respective owners.





                                       59


                                SIGNATURE PAGE


      Pursuant  to the  requirements  of Section  13 or 15(d) of the  Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                SYNAPTIC PHARMACEUTICAL CORPORATION

Date: March 23, 2001             By:   /s/ Kathleen P. Mullinix
                                      ---------------------------
                                Name:     Kathleen P. Mullinix
                                Title:    Chairman, President and
                                           Chief Executive Officer


      Pursuant to the  requirements  of the Securities Act of 1934,  this report
has been  signed by the  following  persons on behalf of the  registrant  in the
capacities and on the dates indicated.



    Signature                   Title                                  Date
---------------------------     --------------------------------  --------------

/s/ Kathleen P. Mullinix        Chairman, President and
---------------------------       Chief Executive Officer         March 23, 2001
Kathleen P. Mullinix, Ph.D.


/s/ Robert L. Spence            Senior Vice President and
---------------------------       Chief Financial Officer
Robert L. Spence                  (Principal Accounting Officer)  March 23, 2001


         *                      Director                          March 23, 2001
---------------------------
Zola P. Horovitz, Ph.D.


         *                      Director                          March 23, 2001
---------------------------
John E. Lyons


         *                      Director                          March 23, 2001
---------------------------
Patrick J. McDonald


         *                      Director                          March 23, 2001
---------------------------
Sandra Panem, Ph.D.


         *                      Director                          March 23, 2001
---------------------------
Alison Taunton-Rigby, Ph.D.




* By:   /s/ Kathleen P. Mullinix
        -------------------------------
      Name: Kathleen P. Mullinix, Ph.D.
      Title:   Attorney-in-Fact


                                       60