n our first full year of selling Niaspan, our unique, once-daily product for treating coronary heart disease, we made significant strides in positioning Kos for substantial long-term growth within the $4 billion cholesterol market. While sales of Niaspan did not reach the first-year levels we had hoped, we firmly believe the components are now in place to ensure the rapid growth of this important therapy in 1999 and beyond. After more than a year on the market, the experience of physicians and patients has confirmed that Niaspan’s broad efficacy and patient-friendly formulation are every bit as strong as we had anticipated based on our pre-approval clinical research. Significantly, physicians who know the most about treating coronary heart disease (or “CHD”) are Niaspan’s strongest prescribers and advocates. In 1998, more than half of the cardiologists who had been visited by a Kos representative began to prescribe Niaspan, and more than 25,000 physicians prescribed Niaspan at least once, resulting in a 20 percent average monthly gain in prescriptions. One of the primary reasons for this steady increase—as well as for our optimism about the future—is Kos’ highly experienced sales force that collectively represents possibly the strongest concentration of high quality cardiovascular sales talent in the industry. We put in place last year an extensive marketing infrastructure and an array of activities to enhance and reinforce the efforts of our national field sales organization. Several of those initiatives are described in the following section of this Annual Report. Reinforcing the efforts of our sales force are the extraordinarily positive results of a recently reported study conducted by the Veterans Administration—the HDL Intervention Trial (or “HIT”). This landmark, seven-year study confirmed that raising HDL (high density lipoprotein or the “good cholesterol”) is at least as important as lowering LDL (low density lipoprotein or the “bad cholesterol”) for reducing the incidence of coronary events and strokes in CHD patients. The reason these findings are critical to Kos is that Niaspan is the most potent clinically-tested drug on the market for raising HDL cholesterol. The results of HIT, therefore, give us the biggest single weapon previously missing from our sales and marketing arsenal: a landmark study clearly establishing a link between the unique benefits of Niaspan therapy and reduced coronary events. Further positioning the Company for success is Kos’ own research and development team, which is working closely with sales and marketing to support Niaspan and our future products through clinical studies, medical symposia and physician conferences. In 1998, that team received clearance from the U.S. Food and Drug Administration to commence human trials on Nicostatin, a highly promising drug that combines the benefits of Niaspan with those of the “statin” class of cholesterol compounds. Looking at the broad financial picture, Kos had net sales in 1998 of $13 million and a net loss of $79 million, or $4.50 per share, compared with net sales of $3 million and a net loss of $41 million, or $2.79 per share, in 1997. Those losses largely reflect the costs associated with our accelerated sales and marketing program, including the hiring and training of the rapidly expanded specialty sales force. In the year ahead, we are particularly excited about the prospects for Kos. We will have the opportunity, for the first time since Niaspan was launched, to concentrate almost exclusively on selling the drug and accelerating its acceptance, rather than spending considerable time on recruiting and developing support systems. This will enable us to leverage the skills and capabilities of our sales force to the fullest. We also hope to achieve this through possible co-marketing partnerships, including in-licensing one or more products that are complementary to Niaspan. The enterprise we began more than ten years ago has clearly reached a threshold. The key pieces of our business are inexorably drawing together, and when coupled with fundamental changes taking place in the treatment of cardiovascular disease, we believe Kos is better positioned than ever for success in the period ahead. We are especially grateful to the people who have helped us get to this juncture, including our talented and dedicated family of employees and you, our loyal shareholders. Michael Jaharis Chairman of the Board Daniel M. Bell President and Chief Executive Officer