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                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                             Washington, DC 20549

                               ----------------

                                   FORM 10-K

                               ----------------

             ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934

                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999

                          Commission File No. 0-27698

                                  CHIREX INC.
            (Exact name of registrant as specified in its charter)

<TABLE>
<S>                                            <C>
                  DELAWARE                                       04-3296309
       (State or other jurisdiction of              (IRS Employer Identification Number)
       incorporation or organization)
       300 Atlantic Street, Suite 402
            Stamford, Connecticut                                  06901
   (Address of principle executive office)                       (Zip Code)
                                (203) 351-2300
             (Registrant's telephone number, including area code)

       TITLE OF EACH CLASS SECURITIES
    REGISTERED PURSUANT TO SECTION 12(g)
       OF THE SECURITIES EXCHANGE ACT                         NAME OF EXCHANGE
                   OF 1934                                  ON WHICH REGISTERED
    ------------------------------------                 --------------------------
        Common Stock, $.01 par value             The Nasdaq Stock Market's National Market
</TABLE>

Securities registered pursuant to Section 12(b) of the Securities Exchange Act
                                of 1934: none.

  Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.Yes [X]    No [_]

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

  The aggregate market value of the voting stock held by non-affiliates of the
registrant was approximately $361,189,427 as of March 2, 2000.

                   APPLICABLE ONLY TO CORPORATE REGISTRANTS

  As of March 2, 2000 there were 15,178,290 shares outstanding (excluding as
of such date 2,476,724 shares of common stock issuable upon exercise of
options with a weighted average price of $18.38 per share).

                      DOCUMENTS INCORPORATED BY REFERENCE

  Items 7 and 8 of Part II incorporate by reference the Registrant's 1999
Annual Report to Stockholders. Part III incorporates by reference the
Registrant's Proxy Statement for the 2000 Annual Meeting of Stockholders.

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                                  CHIREX INC.

                               TABLE OF CONTENTS

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                                     PART I

 ITEM  1. BUSINESS.......................................................     1

 ITEM  2. PROPERTIES.....................................................    23

 ITEM  3. LEGAL PROCEEDINGS..............................................    23

 ITEM  4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS...........    23

                                    PART II

 ITEM  5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
          MATTERS........................................................    24

 ITEM  6. SELECTED HISTORICAL FINANCIAL DATA.............................    25

 ITEM  7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
          AND FINANCIAL CONDITION........................................    25

 ITEM  8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA....................    26

 ITEM  9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
          FINANCIAL DISCLOSURE...........................................    26

                                    PART III

 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.............    27

 ITEM 11. EXECUTIVE COMPENSATION.........................................    27

 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.    27

 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................    27

                                    PART IV

 ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
          FORM 8-K.......................................................    27
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                                    PART I

ITEM 1. BUSINESS

General

  ChiRex Inc., The Drug Substance Company, is an integrated pharmaceutical
outsourcing company that provides contract process research and development
(contract chemistry) and contract manufacturing of active pharmaceutical
ingredients. The Company owns a widely-applicable portfolio of proprietary
process chemistry patents. The Company operates through two operating
divisions, the development division and the manufacturing division. The
Company's development division is engaged in every aspect of drug substance
development from discovery support before submission of IND (Investigational
New Drug) and process research and development and manufacture of active
ingredients for clinical trials. The Company's manufacturing division produces
bulk active pharmaceutical ingredients. Together, the two divisions span all
of the steps needed to prepare the Drug Substance subsection of a FDA New Drug
Application. The range of services provided by the company include:

  .  proprietary process research to create and produce previously
     unaffordable chiral materials using the Company's patented process
     chemistry technologies, and production of unique proprietary building
     blocks that aid in the drug discovery process;

  .  customer-sponsored innovative process research to solve process
     chemistry challenges using either traditional chemistry techniques or
     proprietary techniques;

  .  process research and development including discovery support, route
     design, route development and synthesis of pre-clinical and clinical
     molecules;

  .  scale-up of clinical trial quantities of active pharmaceutical
     ingredients including laboratory synthesis, validated process
     demonstration, analytical methods development, hazard evaluation, and
     pilot plant production; and

  .  production of commercial-scale active ingredients for launch and later
     for sale in all markets globally.

  We are one of only a few outsourcing companies to offer all of these
services in-house in addition to offering proprietary process technologies. By
offering integrated services, we are able to minimize the risks, costs and
time associated with our customers bringing new drugs to market.

  Since completing our initial public offering in March, 1996, we have taken
steps to become a high-quality, full-service outsourcing company, structured
into a development division and manufacturing division, and complemented by
our proprietary process chemistry technologies. For example, we (i) optimized
our Dudley manufacturing facility and disposed of non-core products, primarily
our acetaminophen business; (ii) opened our development division's research
and development laboratories and an associated pilot plant at the Dudley site,
which currently employs 31 scientists, and which has allowed us to develop
products successfully for our customers, many of which products are based on
our proprietary process chemistry technologies; (iii) purchased a cGMP
manufacturing facility in Annan, Scotland, in the fall of 1997 from
GlaxoWellcome ("Glaxo") and entered into a five-year supply agreement with
Glaxo; (iv) redesigned, reconfigured and upgraded the Annan facility to
manufacture products under the Glaxo supply agreement and to increase the
general flexibility of the facility to produce products for other leading
pharmaceutical companies; (v) opened our development division research and
development laboratories in Boston, Massachusetts, which as of December 31,
1999 employed 16 research scientists; and (vi) acquired the assets of Cauldron
Process Development in Malvern, Pennsylvania, which as of December 31, 1999
employed 13 research scientists and operates a pilot plant utilizing 4
reactors having a total capacity of 220 gallons. In addition, during 2000 we
plan to expand our development division facilities in Boston and Malvern, and
build a pilot plant facility at our Annan, Scotland facility. This will allow
a total complement of over 100 research scientists in our development
division. The expansion to the Malvern site will also increase the pilot plant
to 6 reactors having a total capacity of 520 gallons. These expansions will
further increase our capacity to assist our customers in discovery support,
route design, route development and synthesis of clinical and pre-clinical
molecules. The expansions also increase our ability to develop further our
proprietary technologies.

                                       1
<PAGE>

  ChiRex conducts its operations in four FDA cGMP facilities in Boston,
Massachusetts, Malvern, Pennsylvania, Dudley, England and Annan, Scotland.
Currently, we manufacture in excess of 50 products on a commercial scale. We
have approximately 45 U.S. patents and several patent applications with
respect to our technologies. Our customers include 30 of the top 40 global
pharmaceutical companies and more than 25 smaller pharmaceutical companies.

Industry Trends

  Recent trends in the industry are resulting in the increased outsourcing of
drug design, development and manufacturing. Pharmaceutical companies are under
pressure to deliver new drugs to market in the shortest period of time in
order to capture market share, accelerate the realization of revenues and
maximize the impact of the limited life of patent protection. As a result,
they have increasingly focused their resources on the discovery of new drugs
and sought to outsource more and more services. We believe this trend towards
outsourcing drug design, development and manufacture will continue for the
following reasons:

  .  the development of new technologies that have resulted in the
     identification of a larger number of promising therapeutics, increasing
     the demand for the services which we offer;

  .  the pressure to reduce drug development time in order to enhance
     competitive position and maximize return on investment;

  .  the continuing cost containment pressures in the consumer market, led by
     health maintenance organizations and other health insurance
     intermediaries, resulting in pharmaceutical companies shifting more of
     their fixed cost base to variable cost alternatives through outsourcing;

  .  the increasing complexity of the chemical synthesis used to produce new
     drugs, particularly in commercial quantities; and

  .  the growth of the biotechnology industry, in which many companies do not
     have the chemical expertise and capabilities needed to conduct their own
     process development, scale up work or commercial scale manufacture.

Business Strategy

  Our strategy is to increase shareholder value by capitalizing on our
technological strengths and our process research and development and
manufacturing capabilities to be the preferred partner to major pharmaceutical
and smaller pharmaceutical companies in discovery support, route design, route
development and synthesis of pre-clinical and clinical molecules and for the
production of commercial-scale active ingredients for launch and later for
sale in all markets globally. The key elements of our strategy are:

 Provide Integrated Services/"One Stop" Shopping

  We believe that significant opportunities exist for a company that provides
a broad range of outsourcing services. With the growth of our development
division, we are now able to offer our customers a complete and integrated
package of services throughout the life cycle of a product. By providing
process research and development expertise, pilot plant capacity and full-
scale manufacturing facilities, we offer a convenient and seamless solution to
our customers' outsourcing needs. Our integrated approach offers technical and
commercial synergies and the potential to reduce the time, costs and risks
associated with the development of new drugs.

 Commercialization of Proprietary Technology

  Our development division assists customers in the early stages of process
development to devise manufacturing processes that will be viable and cost
efficient for scale-up and full-scale commercial production.

                                       2
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The development division relies on traditional chemistry technologies and our
proprietary technologies to solve process chemistry challenges for our
customers and to reduce drug development time. The development division:

  .  advances the commercialization of a variety of our technologies, with an
     emphasis on our hydrolytic kinetic resolution process technologies
     developed by Professor Eric N. Jacobsen which enables the production of
     single-isomer pharmaceutical chiral intermediates;

  .  provides process research and development services, including discovery
     support, route design, route development and synthesis of pre-clinical
     and clinical molecules;

  .  serves as a source of new commercial-scale product opportunities for our
     manufacturing division;

  .  develops and markets non-regulated, proprietary chiral building blocks
     to innovative pharmaceutical companies to save them time and money and
     to infuse the benefit of our technologies into their development
     pipelines;

  .  serves as a source of licensing revenues derived from our technologies
     where our customer has other manufacturing capacity, the technology is
     being used for non-pharmaceutical purposes, or capacity constraints
     prevent us from offering manufacturing services; and

  .  enhances our presence in the United States, the world's largest
     pharmaceutical market.

  The development division's research scientists in Boston are under the
direction of Professor Eric N. Jacobsen, Professor of Chemistry and Chemical
Biology at Harvard University. Professor Jacobsen is a member of our Board of
Directors and Scientific Advisory Board.

 Focus on the Manufacture of High-Margin, Value-Added Products

  We intend to continue focusing on the manufacture of high-margin, highly-
engineered, value-added products using a variety of chemistry technologies.
Because of the high level of development engineering and synthesis design
required for these products and because these products must be made in
strictly controlled, FDA inspected facilities, their manufacture requires the
expertise of a company such as ours. These products offer the potential for
higher margins than specialty chemicals and non-regulated fine chemicals. In
addition, once full production of these products is commenced, the commercial
relationship for such products is generally stable due to the significant
costs and regulatory impediments of transferring production to a new facility.

 Continue Developing Significant, Long-Term Relationships with Industry
Leaders

  We intend to expand our customer base by developing significant, long-term
relationships with new pharmaceutical companies. We believe that the
development division is a valuable platform for forging new relationships as
customers seek the benefits of our process chemistry expertise and proprietary
technologies. In addition, our manufacturing division has substantial
available capacity which we are marketing to potential customers.

 Pursue Selective Acquisitions, Affiliations and Expansions

  We intend to expand our business activities through selective acquisitions,
strategic affiliations and internal expansion, including:

  .  in the technology area, we intend to seek opportunities to acquire or
     license complementary technologies and to collaborate or form alliances
     with third parties with valuable, complementary technologies;

  .  we intend to pursue strategic acquisitions to extend our geographical
     presence and customer base by acquiring or building development
     capability in North America and Continental Europe; and

  .  we intend to double the capacity of our current development division
     operations at Boston and Malvern, and build a pilot plant at our Annan
     site.

                                       3
<PAGE>

Competitive Strengths

  We believe we maintain a strong competitive position in our industry. This
is attributable to a number of factors, including:

 Full Complement of Integrated Services

  We believe that our ability to address our customers' outsourcing needs at
each stage in the chemical development process of a molecule allows us to
compete effectively for the entire range of outsourcing arrangements that
customers require. In addition, we believe we have a competitive advantage
because we can internally transfer technology throughout the product
lifecycle, saving time and money and reducing risk. Our ability to provide
services at the earliest stages of the drug development process should give us
a competitive advantage during clinical trial and full scale manufacturing.

 Leading Proprietary Technologies

  In addition to our expertise in traditional chemistry technologies, we hold
numerous licenses and patents in chiral and non-chiral process chemistries,
including an exclusive license with Harvard University for the application of
hydrolytic kinetic resolution. Based on industry estimates, more than two-
thirds of pharmaceuticals currently in development are chiral molecules. We
believe that utilizing our proprietary technologies, in particular our chiral
technologies, in the production process may allow us to achieve higher margins
than possible with non-proprietary technologies. Also, we have found that our
customers value suppliers who invest in technology as such investment allows
customers to reduce their drug development time and provides unique solutions
to their process development challenges. In addition, we can leverage our
proprietary technologies to forge relationships for our high-margin
manufacturing operations.

 World-Class Manufacturing Facilities

  Since January 1, 1996, we have invested over $275 million to acquire and
upgrade our two world-class cGMP manufacturing facilities. The manufacturing
operations at Dudley are flexibly designed so that they can be used for a
large number of products. The Annan facility is a modern state-of-the-art
pharmaceutical manufacturing facility with substantial space to expand future
production.

 Relationships with Industry Leaders

  Our reputation for high quality contract process research and development,
contract manufacturing and innovative proprietary technologies have enabled us
to establish relationships with leading pharmaceutical companies. Our
customers include 30 of the top 40 global pharmaceutical companies and more
than 25 smaller pharmaceutical companies.

 Barriers to Entry

  We believe there are significant entry barriers to our industry, including:

  .  access to and expertise in leading manufacturing and process
     technologies and the ability to manage the complex regulatory regime
     governing new product development; and

  .  the significant cost and lead time necessary to construct state-of-the-
     art pilot plant facilities, such as at our Malvern and Dudley sites, and
     to qualify cGMP commercial scale manufacturing facilities, such as at
     our Annan and Dudley sites.

  In addition, world-class facilities typically require experienced management
and highly trained technical personnel familiar with specific production
facilities and processes. Pharmaceutical companies are generally reluctant to
outsource their needs to companies that do not have production facilities or a
staff with a proven track record. We believe that our management and technical
personnel, almost all of whom have substantial experience at FDA inspected
cGMP facilities, are experienced and highly trained to meet these needs.

                                       4
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Business

  We provide a broad range of outsourcing services to pharmaceutical
companies, from the early stages of post-discovery drug substance development
to manufacturing of bulk active pharmaceutical ingredients. By providing
process research and development expertise, pilot plant capacity and full
scale manufacturing capabilities, we are able to offer our customers a
complete and integrated package of services throughout the product life cycle.
The diagram below sets forth the different phases of drug discovery and
development and indicates the various services which we offer as our customers
move through the drug development process:

                        PRODUCT DEVELOPMENT LIFE CYCLE

             Pre-
Discovery  clinical IND Phase I Phase II Phase III NDA Commercialization
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                       PROCESS RESEARCH AND DEVELOPMENT
 . Proprietary technology to speed process research
 . Contract process research and development
 . Technology licensing
 . cGMP small scale capability (0.1-15 Kilograms)
 . cGMP pilot plant (220 gallon total capacity)
 . Analytical methods development
                           SCALE-UP PLANT PRODUCTION
 . Scale-up synthesis
 . Hazard evaluation
 . cGMP pilot plant (10-1,000 kilograms)
 . Analytical validation for cGMP
 . Drug master file preparation
 . In-house regulatory expertise
 . Supply clinical trial quantities of pharmaceutical active ingredients
                          COMMERCIAL SCALE PRODUCTION
 . 2 large scale cGMP manufacturing facilities
 . Multi-hundred metric ton capability
 . Process and plant design
 . Multi-step complex organic synthesis at scale
 . Drug master file and support for new drug applications

                                       5
<PAGE>

Product Development Life Cycle

 Discovery

  The initial challenge in the drug development process is discovery of a
compound which may have a therapeutic effect for a particular disease. Our
pharmaceutical customers identify a lead compound which interacts with certain
biological targets, such as an enzyme or other protein, which are associated
with a disease. The discovery process involves screening or testing multiple
chemical compounds and their interactions with biological targets to identify
the most promising lead compounds for further study.

  As pharmaceutical companies face increasing pressure to bring new drugs to
market in the shortest period of time, our customers have focused their
efforts and resources on the discovery stage. As a result, these customers
have increasingly sought to outsource services in the subsequent stages of the
drug development process to companies such as ours to minimize costs and
development time.

 Pre-Clinical

  After a lead compound is identified and selected in the discovery phase, the
compound is evaluated for efficacy and safety during pre-clinical tests on
animal models.

  While a product progresses through pre-clinical trials, customers require
process research and development services to determine a cost-effective, safe
and timely scale-up of a compound as it progresses from the laboratory to
pilot plant and ultimately to commercial scale manufacturing. Process research
and development seeks to provide a simple, economic and non-hazardous route to
production of a lead compound at the required scale. In addition, customers
often require small scale cGMP capabilities to produce quantities of a product
for clinical trials and analytical methods development for regulatory and
quality control purposes.

  Customers are increasingly seeking outsourcing companies, such as ours,
which can provide seamless technology transfer throughout the development
process to push a product through the development life cycle as rapidly as
possible. As a result, process development and other related services provided
by our development division can be a valuable source for developing
relationships with customers for pilot plant production and ultimately
commercial scale manufacturing by our manufacturing division. In addition,
once a company has received certification for a product by the applicable
regulatory authority, it is advantageous for the customer to maintain the
relationship with such company. Accordingly, expertise in process development
can solidify a relationship with a customer early in the product development
timeline and help secure longer term commercial-scale supply arrangements.

 IND/Phase I/Phase II/Phase III/NDA

  An investigational new drug application ("IND") is one of the first steps in
the clinical trial phase of drug development. Clinical trials are divided into
three investigational phases which test the use of a drug in humans. Phase I
tests the drug for safety; Phase II tests the drug for efficacy and safety in
a relatively small sample of patients; and Phase III tests the drug for
efficacy in a larger sample of patients.

  Upon completion of the clinical trial phases, a new drug application ("NDA")
is prepared which bridges the development process from clinical trial to full
scale commercial manufacture. The Chemistry, Manufacturing and Controls
("CMC") section of an NDA fully describes the composition, manufacture and
specifications of the drug substance, including its physical and chemical
characteristics and stability. Together, our development and manufacturing
divisions span all of the steps needed to prepare the CMC drug substance
subsection of an NDA.

  As a drug proceeds through the clinical testing phases, it is crucial that
its production conform with appropriate cGMP standards. In addition, the
process developed in the laboratories needs to be validated at a larger scale
to establish that it can be consistently produced at the required
specifications as it is scaled-up to

                                       6
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commercial quantities. These steps are often conducted in a pilot plant
environment which can provide hazard evaluation, analytical method validation,
identity and purity testing as well as significant regulatory expertise and
documentation services.

 Commercialization

  After a drug has been approved, commercial quantities of the drug are
manufactured and marketed for commercial sale. Pharmaceutical companies
frequently outsource the manufacture of bulk intermediates and pharmaceutical
active ingredients. Companies which provide such services must have facilities
that conform to strict guidelines and can pass FDA inspections. In addition,
manufacturers of pharmaceutical intermediates and active pharmaceutical
ingredients require significant expertise due to the high level of development
engineering and synthesis design required for these products.

Relationship with Glaxo

  In the fall of 1997, we purchased Glaxo's pharmaceutical production facility
located in Annan, Scotland, for approximately (Pounds)41 million,
(approximately $68 million, assuming an exchange rate of $1.66 per
(Pounds)1.00) including payment for certain working capital. We entered into a
supply agreement with Glaxo to supply certain pharmaceutical intermediates and
active ingredients over the five-year life of the contract. In connection with
the Glaxo supply agreement, we invested approximately (Pounds)18 million
(approximately $30 million, assuming an exchange rate of $1.66 per
(Pounds)1.00) to remodel two of the production buildings to accommodate
multiple products. Prior to its acquisition by us, the Annan facility was one
of only four primary facilities that Glaxo operated in the United Kingdom. In
connection with the acquisition of the Annan facility, we hired most of the
facility staff formerly employed by Glaxo.

  The Glaxo supply agreement provides for the purchase by Glaxo from us of
intermediates and active ingredients. In collaboration with Glaxo, we
undertook to install production capacity for the main products covered by the
Glaxo supply agreement in excess of the contracted quantities.

  Under the Glaxo supply agreement, Glaxo agreed to purchase a certain amount
of products each year from us on a firm commitment basis. If Glaxo does not
purchase such products from us in the amount of such firm commitment (other
than as a result of our default), it will pay to us the Added Value of such
products. As defined in the Glaxo supply agreement, "Added Value" means the
difference between the price at which we are to sell the product to Glaxo and
the cost of the raw materials and variable costs directly incurred in the
manufacture, packaging and waste disposal processes. The Glaxo supply
agreement provides that if any amounts are owed by Glaxo under such provision,
we will use reasonable endeavors to evaluate in good faith the possibility of
manufacturing additional products or volumes for Glaxo on the same terms.

  In addition to products to be supplied by us on a firm commitment basis, the
Glaxo supply agreement provides that certain products will be purchased by
Glaxo on an intended purchase basis ("Intended Quantity Products"). In the
event that such products cannot be purchased by Glaxo in the volumes specified
or at all due to lack of regulatory approval or market uncertainties in
relation to such products, the Glaxo supply agreement provides that Glaxo will
use its best endeavors to purchase certain specified replacement products in a
volume which will result in the equivalent Added Value to us.

  During November 1999, Glaxo provided us their preliminary forecast for 2000
demand under the supply agreement. A final forecast was provided on December
1, 1999. The forecast provides that Glaxo will not purchase any Intended
Quantity Products during 2000. Glaxo and we have had numerous meetings and
correspondence to address Glaxo's obligation to use best endeavors to replace
the Intended Quantity Products with products of equivalent Added Value. Glaxo
has agreed to undertake a review by June 30, 2000 "to identify opportunities
to purchase products in 2000 to compensate ChiRex in accordance with Glaxo's
contractual obligations." We can not assure you that Glaxo will place orders
with us to replace the Intended Quantity

                                       7
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Products with products of equivalent Added Value during 2000, or thereafter.
We can not assure you that Glaxo will comply with its contractual obligations
under the supply agreement.

  The Glaxo supply agreement also contains certain profit sharing terms which
provide that if orders in excess of volumes of products to be supplied on a
firm commitment basis and an intended purchase basis are placed, then any
Added Value to which we shall be entitled shall be shared between us and Glaxo
in accordance with the terms of the agreement.

  We have agreed under the Glaxo supply agreement to have sufficient capacity
to manufacture at least 10% in excess of orders placed by Glaxo under the
terms of the Glaxo supply agreement. The products to be supplied by us under
the Glaxo supply agreement may be manufactured at either the Dudley or Annan
facilities.

  The initial term of the Glaxo supply agreement is through December 31, 2002,
and is automatically renewed for successive periods of twelve months unless
terminated by either party at the end of its initial term or at the end of any
renewal period by 24 months prior written notice. The Glaxo supply agreement
may also be terminated upon the occurrence of an insolvency event by either
party, a material breach of the terms of the agreement (subject to certain
cure periods), or upon 60 days notice by Glaxo if at any time prior to
December 31, 2002, there occurs a Change of Control (as such term is defined
in the Glaxo supply agreement) of ChiRex (Annan) Limited.

  The aggregate sales volume under the Glaxo supply agreement during 1998 and
1999 was approximately $43 million and $82 million, respectively. The forecast
supplied by Glaxo on December 1, 1999 contemplates sales volume under the
Glaxo supply agreement during 2000 of approximately $53 million. We also
perform additional services and manufacturing for Glaxo that are separate from
the Glaxo supply agreement.

Services Offered

  We believe that we are one of only a few companies to offer an integrated
package of services from post-discovery to full-scale manufacturing of active
pharmaceutical ingredients. Through the interaction of our development
division and manufacturing division, and supported by our proprietary
technologies, we offer a convenient and seamless solution to our customers'
outsourcing needs.

 ChiRex Development Division, Boston

  We commenced operations at our Boston, Massachusetts site in April 1999. As
of December 31, 1999, the Boston site included 11,500 square feet of
laboratories and employed 16 research scientists. The Boston site is currently
undergoing an expansion to 15,000 square feet of laboratories to accommodate
up to 32 research scientists and a 50 liter glassware scale-up suite.
Professor Eric N. Jacobsen, Professor of Chemistry and Chemical Biology at
Harvard University and inventor of some of our leading proprietary
technologies, is the scientific director of the Boston site.

 ChiRex Development Division, Malvern

  We acquired the Malvern, Pennsylvania site in May 1999. As of December 31,
1999, the Malvern site included 23,460 square feet of laboratories and pilot
plant facilities and employed 13 research scientists. The Malvern site is
currently undergoing an expansion to accommodate up to 28 research scientists.
The Malvern facility operates a pilot plant which, as of December 31, 1999,
included 4 reactors having a total capacity of 220 gallons. The Malvern pilot
plant is currently undergoing an expansion to 6 reactors having a total
capacity of 520 gallons. The pilot plant expansion includes infrastructure
improvements to allow multiple projects to be handled simultaneously.

                                       8
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  The Boston and Malvern sites focus on discovery support, route design, route
development and synthesis of pre-clinical and clinical molecules. These sites
offer various contract process research and development services under cGMP
guidelines, including: (i) contract process development; (ii) custom
synthesis; (iii) contract analytical development; and (iv) process research
utilizing our proprietary technologies. These sites also serve as a source of
licensing revenue derived from our technologies.

 ChiRex Development Division, Dudley

  Opened in 1996, the development division's facility in Dudley, England
consists of research and development laboratories and an associated pilot
plant. The facility serves customers with early-stage route design and route
development of molecules, and prepares chemical processes for commercial
manufacturing by conducting economic, hazard and engineering evaluations. The
Dudley development facility can also produce clinical trial material
quantities. These quantities are produced in the facility's pilot plant, which
allows for rapid scale-up from 50-1,000 kilograms under cGMP conditions.

  The Dudley development facility is staffed with over 31 scientists,
including experts in process development, analytical development and hazard
evaluation. These scientists manage the product between laboratory production
and commercial scale manufacture. During this intermediate process and before
commencing commercial manufacture, each scientific team carefully considers
the safety, speed and cost of each project. The Dudley development facility
uses small-scale (25L and 50L) equipment to pilot plant size reactors to
replicate processes which assists in evaluations and seamless technology
transfer. With safety a primary consideration, the hazard evaluation
laboratory enables us to analyze each process before it is scaled up in the
pilot plant. Equipment in the hazard evaluation laboratory includes RC1
calorimeters, ARC and vent sizing equipment, DSC and other standard hazard
evaluation equipment.

 ChiRex Development Division, Annan

  The development division has initiated construction of a pilot plant at our
Annan, Scotland site. This facility will provide a one-tenth minimum scale
replica of the commercial scale equipment utilized on the Annan site. The
pilot plant will manufacture clinical trial quantities and enable early
qualification of Annan as a site of manufacture with the FDA and relevant
regulatory bodies while the detailed design of the commercial scale equipment
runs in parallel. The pilot plant is scheduled to be completed during 2000,
and will be supported by 6 chemists.

 ChiRex Development Division Services

  Process development and custom synthesis services offered by the development
division include:

  .  synthesis route selection;

  .  process research to make finished quality products;

  .  production of samples of material and supply of small quantities;

  .  production of samples of material and supply of clinical quantities;

  .  development work to generate a technology package to allow us or our
     customer to manufacture at scale; and

  .  transfer of technology to the manufacturing location.

  Analytical development services offered by the development division include:

  .  test method development and validation;

  .  quality control and release testing;


                                       9
<PAGE>

  .  high performance liquid and/or gas chromatography for the separation of
     enantiomers and identification of impurities; and

  .  nuclear magnetic resonance services.

  Process research utilizing our proprietary technology includes:

  .  process development and sample quantities to qualify with customers;

  .  scale-up to 50 liter scale at our Boston facility, scale-up to 100
     gallon scale at our Malvern facility, or kilogram to ton production at
     our cGMP manufacturing facilities in Dudley, England and Annan,
     Scotland; and

  .  validated scaled technology transfer package.

 ChiRex Development Division, Projects Utilizing Our Proprietary Technologies

  The following table sets forth the number of projects worked on by our
development division during the past three years and the number of those
projects which incorporated our proprietary technologies:

<TABLE>
<CAPTION>
                                                                1997  1998  1999
                                                                ----  ----  ----
   <S>                                                          <C>   <C>   <C>
   Projects (1)................................................   53    48   85
   Projects with ChiRex technologies (1).......................   22    24   37
   Percentage of projects with ChiRex technologies (1)......... 41.5% 50.0%  44%
</TABLE>
--------
(1) A project can span more than one fiscal year.

  Of the projects that include our proprietary technologies, the following
table sets forth the number of projects sponsored by customers or by us:

<TABLE>
<CAPTION>
                                                                  1997 1998 1999
                                                                  ---- ---- ----
   <S>                                                            <C>  <C>  <C>
   Customer sponsored............................................  15   12   14
   ChiRex sponsored..............................................   7   12   23
                                                                  ---  ---  ---
   Total projects with ChiRex technologies.......................  22   24   37
                                                                  ===  ===  ===
</TABLE>

  Development division projects generated revenues for the years ended
December 31, 1997, 1998 and 1999 as follows (dollars in thousands):

<TABLE>
<CAPTION>
                                                       1997     1998     1999
                                                      -------  -------  -------
   <S>                                                <C>      <C>      <C>
    Product development revenues (2)(3).............  $10,566  $12,947  $23,183
    Percentage of total revenues....................     11.2%    10.8%    15.8%
</TABLE>
--------
(2) The revenue on a particular project may be recognized over more than one
    fiscal year.
(3) Excludes a product that was manufactured in our Dudley pilot plant but in
    sufficient quantities to be treated as a commercial product.

 ChiRex Manufacturing Division, Dudley and Annan Facilities

  Our manufacturing division operates two cGMP facilities, one in Dudley,
England, and the other in Annan, Scotland. Our manufacturing facilities
specialize in the scale-up and commercial manufacture of intermediates and
pharmaceutical active ingredients under cGMP guidelines. Whether we design the
initial synthesis or evaluate and adapt a customer's process to our regulatory
and efficiency standards, we produce intermediates and pharmaceutical active
ingredients in a highly-regulated environment. Our facilities and processes
used in the manufacture of products for clinical use or for sale in the United
States must be operated in conformity with cGMP guidelines and must pass
inspections by the FDA. We also support the commercial production process with
regulatory support, including NDA and drug master file assistance.

                                      10
<PAGE>

  The Dudley facility specializes in the scale-up and commercial-scale
production of intermediates and active pharmaceutical ingredients. The
facility is located on 45 acres and consists of a former Sterling Winthrop
facility with a production capacity of 650 cubic meters (over 160,000
gallons). There are two main production buildings at the Dudley site which
have a variety of advanced equipment to provide a flexible FDA-inspected, cGMP
and ISO 9002 certified manufacturing base. These buildings provide flexible,
multi-process facilities (including a segregated bulk pharmaceutical
purification suite fitted with reactors, isolation and finishing equipment)
capable of performing an extensive range of chemical transformations.

  The Annan facility, one of the world's best-equipped cGMP facilities,
specializes in the production of bulk pharmaceutical active ingredients. The
facility is located on a 154-acre site and was a former Glaxo facility. The
site encompasses three main production buildings, as well as a fourth
production building currently being remodeled to house the Annan pilot plant
and support 6 associated chemists. Two of the main production buildings,
operated as a unit since 1980 to produce large volumes of an anti-hypertensive
drug, have been extensively remodeled since being acquired in the fall of 1997
at a cost of $30.0 million to accommodate multiple products. Special features
of these two buildings include a computerized process control system, a single
fluid heat transfer system and a totally enclosed plant with bulk handling
systems (for both powders and liquids) to ensure safe processing of chemicals
and solvents. The third main production building, built in 1990 at a cost of
$60.0 million, comprises nearly half the site capacity and is available for
future contract manufacturing demand.

Product Portfolio

 Commercial Products

  During 1999 we manufactured more than 50 products on a commercial scale.
Approximately 89% of our product portfolio is pharmaceutical products with the
remaining 11% consisting of fragrance and flavor, agrichemical and polymer
products. Nearly all of the products produced or under development by us are
governed by secrecy agreements which contain, among other things, restrictions
on the disclosure of the customer, the product and the therapeutic indication.
Our customers' pharmaceutical products are used in the treatment of, among
others, cancer, cardiovascular disease, AIDS, urinary tract infections and
high cholesterol.

Manufacturing and Process Development Technology

  We have developed expertise in the large-scale operation of many classical
chemical transformation technologies and have the exclusive right to use our
proprietary technologies in a defined field on a perpetual basis. Our
proprietary technologies consist of proprietary synthesis and separation
technologies used in the manufacture of single-isomer and non-single isomer
products. The cost and time of pharmaceutical product development has become
significantly greater for compounds developed as racemic mixtures as compared
to single-isomer chemicals, creating a demand for new processes and process
technologies that can produce single-isomer drugs quickly, efficiently and
economically.

  We have approximately 45 U.S. patents and several patent applications with
respect to our proprietary technologies. In addition, we have accumulated
experience in the effective management of the risks inherent in handling toxic
or hazardous raw materials and products and in carrying out hazardous chemical
reactions. Our expertise allows pharmaceutical companies to have complex
multi-step procedures carried out at a single site, which increases the
ability of such companies to maintain confidentiality, product supervision and
management.

  Our proprietary technologies consist of a broad platform of asymmetric
synthesis and resolution technologies, which we believe provide multiple
manufacturing routes to produce single-isomer chiral pharmaceutical
intermediates and active ingredients. We select the most appropriate
technology for a particular

                                      11
<PAGE>

application based on several factors, including the cost of any required
catalyst and the availability and cost of the starting materials. The
following table summarizes certain aspects of our proprietary technologies:

<TABLE>
<CAPTION>
                                                             Development
                                                   -------------------------------
                                                                   Method of
       Technology                   Use              Phase        Manufacture
       ----------         ------------------------ ---------- --------------------
<S>                       <C>                      <C>        <C>
Hydrolytic Kinetic        Catalytic ring opening   Commercial Asymmetric Synthesis
 Resolution.............  of epoxides to make
                          chiral epoxides and
                          diols
Asymmetric                Catalytic asymmetric     Commercial Asymmetric Synthesis
 Dihydroxylation........  reaction to make chiral
                          diols using Sharpless
                          catalyst
Asymmetric Epoxidation..  Catalytic oxidation to   Commercial Asymmetric Synthesis
                          make chiral epoxides
                          using Jacobsen catalyst
Enzymatic Resolution....  Enzymatic                Commercial Enzymatic Resolution
                          biotransformation
Diastereomeric            Resolution by            Commercial Chemical Resolution
 Crystallization........  crystallization
Asymmetric Reduction....  Catalytic reduction to   Laboratory Asymmetric Synthesis
                          make chiral alcohols
Metal-Catalyzed Aromatic
 Carbon-Heteroatom
 Bonding- Forming         Manufacture of aromatic  Laboratory Aromatic Coupling
 Technologies (ABT).....  amines, indoles and
                          diphenyl ethers
Asymmetric Aminoacid      Manufacture of           Laboratory Asymmetric Synthesis
 Technology.............  aminoacids and
                          derivatives
</TABLE>

  Single-isomer chiral chemicals are generally manufactured by asymmetric
synthesis or resolution. In asymmetric synthesis, the single-isomer form of
the drug or intermediate is synthesized directly from a precursor compound
that is achiral. With resolution, the single-isomer is separated from a
racemic mixture. Asymmetric synthesis is often the preferred method of
producing single-isomer drugs or intermediates due to potential higher
attainable yields. Due to the technical challenges of developing a cost-
effective process, however, there are few asymmetric synthesis processes used
at commercial scale.

  We continue to improve our technology position through significant research
and development expenditures, licensing third party technology and by
maintaining close relationships with our Scientific Advisory Board and
institutional research partners.

  In January 1997, we entered into an exclusive license agreement with Harvard
University for the application of hydrolytic kinetic resolution technology to
a wide range of pharmaceutical products. Hydrolytic kinetic resolution is a
technology developed by Professor Eric N. Jacobsen, a member of our Board of
Directors and Scientific Advisory Board, which enables us to produce single-
isomer pharmaceutical chiral intermediates using more cost-effective processes
than others currently available. We believe that this technology has
significant commercial potential, including in the production of drugs for the
treatment of asthma, arthritis, cardiovascular disease, AIDS, cancer and
hepatitis and also including extensive non-pharmaceutical applications. In May
1998, we also entered into an exclusive license agreement with MIT for the
metal-catalyzed aromatic carbon-heteroatom bond forming technologies
discovered by Professor Stephen Buchwald of MIT. We believe that these
technologies can reduce the complexity and cost of manufacturing certain aryl
and heterocyclic intermediates, which are core building blocks for both
existing and emerging pharmaceuticals, and thus extend the range of products
we can manufacture at a competitive advantage.

Patents and Proprietary Technology

  Our proprietary rights with respect to our products and processes are
generally protected only to the extent that they are covered by valid and
enforceable patents or are maintained in confidence as trade secrets. Our

                                      12
<PAGE>

principal patents expire at various times beginning in 2008. Some of our
technology remains uncovered by any patent or patent application. In addition,
we have ongoing research efforts and expect to seek additional patents in the
future covering patentable results of such research. We cannot assure you that
any pending patent applications we file will result in patents being issued,
or that any patents or licenses:

  .  will protect us against competitors with similar technologies;

  .  will not be infringed upon or designed around by others;

  .  will not be challenged by others and held to be invalid or
     unenforceable; or

  .  will not be terminated by a licensor pursuant to various terms in such
     licenses or due to any breach.

  In the absence of patent protection, our business may be adversely affected
by competitors who independently develop substantially equivalent technology.

  There may be third-party patents relating to technology we use. We may need
to acquire licenses to, or to contest the validity of, any such patents.
Defending any claim that we are infringing a third-party patent would most
likely prove costly, and any such claim could adversely affect us until the
claim is resolved. Furthermore, any such dispute could result in a rejection
of our patent applications or the invalidation of our patents. We cannot
assure you that we could obtain any licenses required under such patents on
acceptable terms or that we would prevail in any litigation involving such
patents. Any of the foregoing negative results could have a material adverse
effect on us and our results of operations.

  We use our own proprietary technology, including technology that may not be
patented or patentable. We seek to protect our proprietary technology through,
among other things, confidentiality agreements and, if applicable, inventors'
rights agreements with our collaborators, advisors, employees and consultants.
We cannot assure you that these agreements will not be breached, that we will
have adequate remedies for any breach or that our trade secrets will not
otherwise be disclosed to, or discovered by, our competitors. In addition, we
cannot assure you that these collaborators, advisors, employees and
consultants will not claim rights to intellectual property arising out of
their research.

Business Development, Customers

  We market the majority of our products directly to pharmaceutical companies.
An important component of our strategy is to pursue long-term supply
relationships with selected major customers. We employ business development
professionals who possess the requisite technical backgrounds to communicate
effectively with both prospective customers and our research and development
personnel. During 1999, our business development personnel more than doubled
to six professionals in order to support the expansion of our development
division.

  We have implemented a new product management approach by shifting from a
departmental to a product management philosophy. This approach is a departure
from the traditional plant management focus and involves organizing our
activities around products instead of facilities. We believe this approach
improves accountability to customers by vesting ultimate authority for every
product with a single person, or product manager, at our company. This
approach parallels our customers' business activities, thus facilitating
communication and cooperation during the production process, and thereby
reducing the time needed to take a particular product to market.

  To facilitate this focus on product management, we have implemented a more
formalized product evaluation process, including a review of potential new
products by a committee involving senior marketing, manufacturing and
technology staff. We are reducing overall product complexity by focusing on
products that play to our chemistry strengths, such as multi-stage synthesis
of complex molecules.

  As part of our ongoing commercial development efforts, we maintain a
presence at important international trade shows and host a bi-annual
international technical symposium to which selected senior representatives and
executives of the research and development organizations of major
pharmaceutical companies are invited. In addition, our technical and business
development professionals present papers at symposia on a regular basis.

                                      13
<PAGE>

  We are dependent on a small number of customers. In 1999, our three largest
customers accounted for approximately 81% of total revenues. Glaxo, Rohm and
Haas Company and Sanofi S.A. accounted for approximately 59%, 17% and 15%,
respectively, of our 1999 revenues. We will continue to rely on a limited
number of customers, particularly Glaxo, as well as a limited number of
products for a great deal of our revenues. The loss of one or more of these
customers or products would have a material adverse effect on our business. In
particular, while our supply agreement with Glaxo contains certain provisions
for renewal, we cannot assure you that the contract will be renewed. Our
customers may also be susceptible to adverse effects on their own businesses
due to changes in government regulation, including those regarding health care
reform. This could in turn lead to a decrease in the amount of services and
products these customers purchase from us.

Contracts

  We conduct business on both a purchase order basis and a formal contract
basis. Where we conduct business on a formal contract basis, we have entered
into a variety of contractual arrangements with our customers, on both a fixed
price and a cost plus basis. In cases where the contracts are fixed price, we
bear the cost of overruns but benefit if the costs are lower than anticipated.
In cases where the contracts are on a cost plus basis, we are guaranteed
reimbursement for our actual costs of performance and an agreed upon profit,
with certain exceptions.

  Contracts may have terms ranging from a few months to several years
depending upon the nature of the work being performed and the approval status
of the product in question. Some of our contracts are terminable by our
customer upon notice. Contracts may also be terminated for a variety of
reasons including unexpected or undesired results of the product, the failure
of a product to satisfy safety requirements, the failure of a product to gain
regulatory approval or a party's failure to properly discharge its obligations
under such agreement.

Environmental Regulation

  Our manufacturing and research and development processes involve the
controlled use of hazardous materials. We are subject to numerous laws and
regulations governing the use, manufacture, storage, handling and disposal of
such materials and waste products in the United Kingdom and United States. In
the event of contamination or injury from hazardous materials, we could be
held liable for any resulting damages and any such liability could exceed our
resources.

 Dudley, England Facility

  Our manufacturing plant in Dudley, England, is subject to the U.K.
Environmental Protection Act 1990 ("EPA 1990"), which requires authorizations
for any industrial air and certain water discharges and solid waste disposal.
The individual authorizations are contained within several Integrated
Pollution Control ("IPC") authorizations under the 1991 Environmental
Protection Regulations adopted pursuant to the EPA 1990. Our IPC
authorizations for the Dudley facility are administered by the U.K.'s
Environment Agency ("EA"). In addition, the Dudley plant is also subject to
the U.K. Water Resources Act 1991 ("WRA") governing the discharge of liquid
waste, and the U.K. Water Industry Act 1991 ("WIA") governing discharges to
sewers.

  We believe we are in compliance in all material respects with our IPC
authorization conditions, limitations and compliance schedules for Dudley. We
possess "envelope" authorizations for our air pollutant emissions, which
enable us to alter our production lines and processes to a degree without
seeking additional authorizations. We have committed ourselves in a plan
submitted to the EA to implement certain air pollution emission reduction
programs.

  We have a consent to discharge our process waste water in Dudley, following
treatment in our biological waste water pretreatment plant, into local sewers
for further treatment by the company that owns and operates the local area
wastewater treatment facility, which discharges its effluent to the River
Tyne. Northumbrian Water ("NW") is the local sewer operator and the EA is the
governmental regulatory body responsible for the regulation of NW and the
country's rivers. In the past, we have had periodic difficulties in meeting
our consent

                                      14
<PAGE>

limits and ends for suspended solids in waste water. During 1996, we reached
agreement with NW which resulted in a relaxation of the consent limit for
suspended solids. We also made certain capital improvements to our biological
waste water treatment plant, and it is now consistently in compliance with the
consent limit. If the consent limit is exceeded, the plant must adhere to
certain notice and corrective action procedures. This compliance program was
developed in consultation with and has received the approval of the EA.

  Since the initial public offering, we have reached agreement with NW and the
EA on a set of contingency measures that would be taken in the event our
biological pretreatment plant in Dudley experienced a treatment upset or, due
to malfunction or other failure, had to be bypassed for a period of time. The
procedures are designed to minimize the impact of such occurrences while
allowing us to continue our production operations, which in the absence of
such agreed procedures, would have been subject to potential shutdown.

  The Environment Act 1995 ("1995 Act") imposes strict, retroactive cleanup
liability on persons responsible for creating or contributing to contaminated
sites. Landowners are presumptively liable under this statute for conditions
existing on their property where a different responsible party can not be
found. We believe that the limited areas of subsurface contamination presently
known to exist at the Dudley site are confined and will not give rise to
liability under the 1995 Act.

  During May 1999, there was a release of approximately 50 liters of ethylene
glycol from our Dudley facility to a stream running along the northern border
of the site. This stream is classified as a "controlled water" and the loss of
glycol was deemed an offense under EPA 1990. During February, 2000, the
Company accepted a formal caution under EPA 1990, which concludes all action
associated with this incident. However, the caution remains on the Company's
record, and may be cited in any future actions taken by the agency.

  During November 1999, there was an unauthorized release at our Dudley
facility of approximately 30kg. of gaseous hydrochloric acid to the atmosphere
from an authorized process. The Environment Agency has deemed this to be a
breach of the Company's site authorization and are currently investigating the
incident. We expect that the Environment Agency may assess a fine in regard to
the incident. Although we cannot reliably predict the magnitude of such fine,
we do not expect it to have a material adverse effect on our financial
position or results of operation.

 Annan, Scotland Facility

  Our manufacturing plant in Annan, Scotland, is also subject to the EPA 1990
and the 1995 Act. Our IPC authorizations for Annan are administered by the
Scottish Environmental Protection Agency ("SEPA"). In addition, the facility
is also subject to the Sewerage (Scotland) Act 1968 and the Control of
Pollution Act 1974 providing for the regulation of trade or sewage effluent to
streams and other inland waters, as well as certain provisions of The Rivers
(Prevention of Pollution) (Scotland) Acts 1951 and 1965.

  We possess certain IPC authorizations for the Annan site that cover existing
products. During 1999 we agreed with the SEPA to revise our authorizations to
the "envelope" type, which will encompass the existing products and allow us
the flexibility to introduce new products by means of variation to the
"envelope." these "envelope" authorizations have been granted for operations
in two of the operating plant buildings at the Annan site. We expect during
2000 to receive such authorization for the third operating plant building at
the Annan site, as well as ancillary "envelope" authorizations for solvent
recovery and bulk storage.

  Phase I of the environmental improvement program for the site incinerator,
involving burner modifications, was completed during the fourth quarter of
1998. Phase II, involving installation of a bag-house filter to manage
particulate emissions was completed during 1999. The program to reduce
volatile organic compound emissions by installing new vacuum pumps and
scrubbers was completed during 1999.

  An oil spill following the off-loading of a road tanker occurred on the
Annan site in 1992 when Glaxo owned the facility. Actions to control the oil
spill were taken at such time. However, sporadic problems have

                                      15
<PAGE>

been encountered since such spill, involving the appearance of fuel in the
site's drainage system. To address this issue, we have applied for permission
to install a land drainage interceptor to capture minor residual oil before it
can enter any waterways or the land drainage system. Design work has been
completed for the interceptor; however, the project is not expected to be
completed during 2000. Under the Asset Purchase Agreement between us and
Glaxo, Glaxo is responsible for remediation costs relating to such oil spill
and has agreed to provide us with certain indemnities in the event of
governmental and other claims.

 Malvern, Pennsylvania Facility

  Our research and development facility in Malvern, Pennsylvania, United
States, is subject to regulation or potential liability under various federal
environmental laws, including the Clean Air Act ("CAA") the Solid Waste
Disposal Act ("SWDA"), as amended by the Resource Conservation and Recovery
Act ("RCRA"), the Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA") and the Hazard Communication Rules of the
Occupational Safety and Health Act ("OSHA"). In addition, the facility is
subject to Pennsylvania state laws, including the Hazardous Sites Cleanup Act
("HSCA") and regulations that either implement the above referenced federal
laws or operate in addition to those laws. Specifically, the remediation of
any environmental contamination of the soil or groundwater at the facility is
governed on the state level by the Pennsylvania Land Recycling and
Environmental Remediation Standards Act (aka "Act 2") .

  During July 1999, there was a leak of approximately 50 gallons of a mixture
of waste fluid containing principally methylene chloride, from a storage drum
onto the facility's concrete floor. Methylene chloride is a RCRA listed
hazardous waste, and the seepage of some of the material into the soil beneath
the floor constituted a release to the environment of a hazardous substance
under CERCLA and HSCA. We reported the release to the Pennsylvania Department
of Environmental Protection ("DEP") and to appropriate federal and local
authorities, and proceeded to excavate and properly dispose of the
contaminated soil. We are in the process of completing a final Act 2
remediation report to DEP, which if accepted will protect the company against
further regulatory liability under Pennsylvania law. We expect that before
final acceptance of the report DEP will assess a fine in regard to the
incident. Although we cannot reliably predict the magnitude of such fine, we
do not expect it to have a material adverse effect on our financial position
or results of operation. In addition, while the acceptance of the Act 2 report
does not provide protection from liability under federal or common law, we
believe that the federal Environmental Protection Agency ("EPA") is unlikely
to take further enforcement action under the circumstances. As a result of the
incident, we have reviewed and revised our material handling and storage
procedures at the Malvern facility to minimize the possibility of any future
release.

  We cannot assure you that we will not be required to incur future
expenditures for environmental compliance and control at our facilities in the
United Kingdom or United States. Such costs, and other unanticipated costs of
compliance with environmental laws and regulations in the future, could have a
material adverse effect on our financial position or results of operations.

Other Governmental Regulation

  Our operations, as well as those of our customers, are subject to extensive
regulation by numerous governmental authorities in the United States, the
United Kingdom and other countries. In particular, we are required to adhere
to applicable FDA regulations for cGMP, including extensive record keeping and
reporting and periodic inspections of our manufacturing facilities. Similar
requirements are imposed by governmental agencies in other countries. The
concept of cGMP encompasses all aspects of the production process and involves
changing and evolving standards. Consequently, continuing compliance with cGMP
is a particularly difficult part of regulatory compliance, especially since
the FDA and certain other analogous international governmental agencies have
increased the number of regular inspections to determine compliance. Failure
to comply with the applicable regulatory requirements can, among other things,
result in fines, suspensions of regulatory approvals, product recalls,
operating restrictions and criminal prosecution.


                                      16
<PAGE>

  Continuing studies of the proper utilization, safety and efficacy of
pharmaceutical products are being conducted by government agencies, industry
and others. Such studies, which employ increasingly sophisticated methods and
techniques, can call into question the utilization, safety and efficacy of
previously marketed products and in some cases have resulted, and may in the
future result, in the discontinuance of their marketing and, in certain
countries, give rise to claims for damages for persons who allege they have
been injured as a result of their use.

  We are subject to environmental, labor, health and workplace safety
regulation pursuant to a variety of national and local legislation in the
United Kingdom, including the Health and Safety at Work Act 1974, which
requires management to take all reasonably practicable steps to ensure the
safety of its employees, visitors and other parties who may be affected by
acts and omissions of its employees. We are also subject to FDA regulation
under the Federal Food, Drug, and Cosmetic Act, the Public Health Service Act
and the Toxic Substances Control Act. In addition, numerous other domestic and
foreign government regulations govern our company.

  The evolving and complex nature of regulatory requirements, the broad
authority and discretion of governmental agencies, continuing studies
involving the safety of currently marketed pharmaceutical products and the
generally high level of regulatory oversight results in the continuing
possibility that we may be adversely affected by regulatory actions despite
our ongoing efforts and commitment to achieve and maintain compliance with
regulatory requirements.

  In addition, compliance with governmental laws and regulations, including
environmental laws and regulations, requires us to obtain permits issued by
appropriate regulatory agencies. Permits generally require periodic renewal or
review of their conditions, and public comment may be solicited in the
permitting process. We cannot assure you that we will be able to renew or
obtain all necessary permits, or that material changes in permit conditions
will not be imposed or that material public opposition will not surface.
Failure to obtain or renew certain permits could result in the shutdown of our
facilities, the imposition of significant fines or the incurrence of
significant expenditures to comply with the law.

Financial Information About Foreign and Domestic Operations and Export Sales

  A significant majority of our operations are conducted outside the United
States. We operate two manufacturing facilities in the United Kingdom, where a
significant majority of our employees are located. For 1997, 1998 and 1999,
net sales of our products and services outside the United States totaled
approximately $93 million, $119 million and $139 million, representing 99%,
99% and 95%, respectively, of our net sales for those periods. As a result of
our international operations, we are subject to risks associated with
operating in foreign countries, including devaluations and fluctuations in
currency exchange rates, imposition or increase of withholding and other taxes
on remittances and other payments by foreign subsidiaries, trade barriers,
political risks and imposition or increase of investment and other
restrictions by foreign governments. Because over 90% of our revenues and
expenses are denominated in Great Britain Pounds Sterling, our revenues, cash
flows and earnings are directly and materially affected by fluctuations in the
exchange rate between the Pound Sterling and the U.S. Dollar. These risks
could have a material adverse effect on our business and operating results.

Employees

  As of December 31, 1999, we had 568 full-time employees. 298 of our full
time employees are unionized. We believe our labor relations are satisfactory.

Legal Proceedings

  We are involved in various legal proceedings incidental to the conduct of
our business. While it is not possible to determine the ultimate disposition
of these proceedings, we believe that the outcome of such proceedings will not
have a material adverse effect on our financial position or results of
operations.


                                      17
<PAGE>

Risk Factors

  The following is a description of certain risks that our company faces. This
list is not exhaustive. Additional risks not currently known to us or that we
currently deem immaterial may also impair our business operations.

 Product Development Risks; Dependence on Others

  Part of our business strategy involves collaborating with our customers in
the early stage of product development. This enables us to establish long-term
relationships for the manufacture of these products upon their
commercialization. We currently collaborate with customers on a substantial
number of development products, the majority of which are currently in
clinical trials. Our success depends in large part on the following factors:

  .  the commercial viability of new pharmaceutical products being developed
     by our customers;

  .  our customers' willingness to attempt to commercialize such products;
     and

  .  the ability of our pharmaceutical customers to conduct clinical trials,
     obtain required regulatory approvals and successfully market such
     products.

  In particular, the marketing and sale of pharmaceutical products in the
United States will require FDA approvals and will require similar approvals in
foreign countries. To obtain such approvals, the safety and efficacy of these
products must be demonstrated through human clinical trials which, if
permitted, can take several years. We cannot assure you that any of these
products will be safe or effective. Each stage in the development of these
products can require substantial investment and take a long time without any
assurance as to the commercial viability of these products, the absence of
competing drugs or alternative therapies. We cannot assure you that our
product development efforts will be successful, that required regulatory
approvals can be obtained on a timely basis, if at all, that products can be
manufactured at an acceptable cost and with appropriate quality, that any
products, if approved, can be successfully marketed or that our customers will
commercialize such products.

 Dependence on Key Customers and Products

  We are dependent on a small number of customers. In 1999, our three largest
customers accounted for approximately 81% of total revenues. Glaxo, Rohm and
Haas Company and Sanofi S.A. accounted for approximately 59%, 17% and 15%,
respectively, of our 1999 revenues. We will continue to rely on a limited
number of customers, particularly Glaxo, as well as a limited number of
products for a great deal of our revenues. The loss of one or more of these
customers or products would have a material adverse effect on our business. In
particular, while our supply agreement with Glaxo contains provisions for
renewal, we cannot assure you that the contract will be renewed. Our customers
may also be susceptible to adverse effects on their own businesses due to
changes in government regulation, including those regarding health care
reform. This could in turn lead to a decrease in the amount of services and
products these customers purchase from us.

  During November 1999, Glaxo provided us their preliminary forecast for 2000
demand under the 1997 Glaxo supply agreement. A final forecast was provided on
December 1, 1999. The forecast provided that Glaxo would not purchase any
Intended Quantity Products during 2000. Glaxo and we have had numerous
meetings and correspondence to address Glaxo's obligation to use best
endeavors to replace the Intended Quantity Products with products of
equivalent Added Value. Glaxo has agreed to undertake a review by June 30,
2000 "to identify opportunities to purchase products in 2000 to compensate
ChiRex in accordance with Glaxo's contractual obligations." We can not assure
you that Glaxo will place orders with us to replace the Intended Quantity
Products with products of equivalent Added Value during 2000, or thereafter.
We can not assure you that Glaxo will comply with its contractual obligations
under the 1997 supply agreement. See "Business--Relationship with Glaxo."


                                      18
<PAGE>

 Risks Associated With Operating Facilities

  Many factors, such as production disruptions, industrial accidents,
environmental hazards, technical difficulties or equipment failures, labor
disputes, late delivery of supplies, and periodic or extended interruptions
due to inclement or hazardous weather conditions, fires, explosions or other
accidents or acts of force majeure, could cause serious operational problems
at the Annan, Dudley, Boston and Malvern facilities. These events could damage
or destroy those facilities, cause personal injury, environmental damage,
delays in productions, or result in financial losses and legal liability. Any
prolonged downtime or shutdowns of the Annan, Dudley, Boston or Malvern
facilities would have a material adverse effect on our business, results of
operations, financial conditions or prospects.

 Competition

  We operate in an extremely competitive environment. Many of our competitors
are major chemical, pharmaceutical, and process research and development
companies, including a number of our own customers, that have much greater
financial resources, technical skills and marketing experience than we do. Our
competitive market is characterized by extensive research efforts and rapid
technological progress. We expect new developments to continue, and we cannot
assure you that discoveries by our competitors will not render our research
and development, our technologies or our potential products obsolete or
noncompetitive. Competition may grow more intense as industry-wide
technological progress accelerates and more money is invested in these fields.

  Competition in our market is based upon reputation, service, manufacturing
capability and expertise, price and reliability of supply. We cannot assure
you that we will be successful in obtaining customer contracts on commercially
favorable terms, if at all. Furthermore, our success depends to a significant
extent on our ability to provide manufacturing services to potential customers
at an early stage of product development. We cannot assure you that we will be
successful in such efforts. In addition, we may not be able to attract and
retain experienced management and technical personnel.

 Dependence on Key Personnel

  We are highly dependent on some of the key members of our senior management
and scientific staff, including, in particular, Michael A. Griffith, Chairman
of the Board and Chief Executive Officer, Ian D. Shott, President,
Manufacturing Division, Bruce P. Shutts, President, Development Division, and
Eric N. Jacobson, the Scientific Director of the Boston facility on a
consultancy basis and a member of our Board of Directors and Scientific
Advisory Board. We cannot assure you that we will be able to retain such
personnel. The loss of one or more members of our senior management or
scientific staff could have a material adverse effect on our business, results
of operations, financial conditions or prospects.

 Environmental Risks; Hazardous Materials

  Our manufacturing and research and development processes involve the
controlled use of hazardous materials. We are subject to laws and regulations
in the United Kingdom and the United States governing the use, manufacture,
storage, handling and disposal of such materials and certain waste products.
In the event of contamination or injury from hazardous materials, we could be
held liable for any damages that result. Our liability for these damages could
exceed our resources. In addition, we may have to incur significant costs to
comply with environmental laws and regulations in the future. Any
environmental regulatory action taken by U.K. or U.S. environmental
authorities causing the temporary cessation of production operations at the
Dudley, Annan, Boston or Malvern facilities could have a material adverse
effect on our results of operations. Maintaining our permitted effluent
discharge limits and implementing air emission improvement programs acceptable
to the regulatory authorities may also prove costly. These programs may
require significant ongoing capital expenditures in an amount greater than we
currently anticipate, which could have a material adverse effect on our
results of operations.

                                      19
<PAGE>

 Comprehensive Governmental Regulation

  Our operations, as well as those of our customers, are subject to extensive
regulation by numerous governmental authorities in the United States, the
United Kingdom and other countries. In particular, we are required to adhere
to applicable FDA regulations for cGMP, including extensive record keeping and
reporting and periodic inspections of our manufacturing facilities. Similar
requirements are imposed by governmental agencies in other countries. The
concept of cGMP encompasses all aspects of the production process and involves
changing and evolving standards. Consequently, continuing compliance with cGMP
is a particularly difficult part of regulatory compliance. Failure to comply
with the applicable regulatory requirements can, among other things, result in
fines, suspensions of regulatory approvals, product recalls, operating
restrictions and criminal prosecution. We are also subject to numerous
environmental, health and workplace safety laws and regulations, including
those governing emissions control, laboratory procedures and the handling of
hazardous materials. Any violation of, and cost of compliance with, these laws
and regulations could adversely affect our operations.

  Governmental laws and regulations, including environmental laws and
regulations, require us to obtain permits from appropriate regulatory agencies
to continue to operate our manufacturing facilities. These permits generally
require periodic renewal or review of their conditions, and public comment may
be solicited in the permitting process. We cannot assure you that we will be
able to obtain all necessary permits or renew all existing permits, or that
material changes in permit conditions will not be imposed or that material
public opposition will not surface. Failure to obtain or renew certain permits
could result in the shutdown of our facilities or the imposition of
significant fines, each of which would have a material adverse effect on our
business and results of operations. See "--Environmental Risks; Hazardous
Materials," "Environmental Regulation" and "Other Governmental Regulation."

 Patents and Proprietary Technology

  Our proprietary rights with respect to our products and processes are
generally protected only to the extent that they are covered by valid and
enforceable patents or are maintained in confidence as trade secrets. Our
principal patents expire at various times beginning in 2008. Some of our
technology remains uncovered by any patent or patent application. In addition,
we have ongoing research efforts and expect to seek additional patents in the
future covering patentable results of such research. We cannot assure you that
any pending patent applications we file will result in patents being issued,
or that any patents or licenses:

  .  will protect us against competitors with similar technologies;

  .  will not be infringed upon or designed around by others;

  .  will not be challenged by others and held to be invalid or
     unenforceable; or

  .  will not be terminated by a licensor pursuant to various terms in such
     licenses or due to any breach.

  In the absence of patent protection, our business may be adversely affected
by competitors who independently develop substantially equivalent technology.

  There may be third-party patents relating to technology we use. We may need
to acquire licenses to, or to contest the validity of, any such patents.
Defending any claim that we are infringing a third-party patent would most
likely prove costly, and any such claim could adversely affect us until the
claim is resolved. Furthermore, any such dispute could result in a rejection
of our patent applications or the invalidation of our patents. We cannot
assure you that we could obtain any licenses required under such patents on
acceptable terms or that we would prevail in any litigation involving such
patents. Any of the foregoing negative results could have a material adverse
effect on us and our results of operations.

  We use our own proprietary technology, including technology that may not be
patented or patentable. We seek to protect our proprietary technology through,
among other things, confidentiality agreements and, if

                                      20
<PAGE>

applicable, inventors' rights agreements with our collaborators, advisors,
employees and consultants. We cannot assure you that these agreements will not
be breached, that we will have adequate remedies for any breach or that our
trade secrets will not otherwise be disclosed to, or discovered by, our
competitors. In addition, we cannot assure you that these collaborators,
advisors, employees and consultants will not claim rights to intellectual
property arising out of their research.

 Product Liability Risks; Lack of Insurance

  Our business exposes us to product liability risks inherent in the testing,
manufacturing and marketing of pharmaceuticals and life science products. We
have limited product liability insurance coverage, and we cannot assure you
that we will be able to obtain further product liability insurance on
acceptable terms or that our current or future insurance will provide adequate
coverage against any or all potential claims. In addition, we have no clinical
trial liability insurance.

 Significant Risks Relating to International Operations; Currency
Fluctuations; Introduction of the Euro

  A significant majority of our operations are conducted outside the United
States. We operate two manufacturing facilities in the United Kingdom, where a
significant majority of our employees are located. For 1997, 1998 and 1999,
net sales of our products outside the United States totaled approximately $93
million, $119 million and $139 million, representing 99%, 99% and 95%,
respectively, of our net sales for those periods. As a result of our
international operations, we are subject to risks associated with operating in
foreign countries, including devaluations and fluctuations in currency
exchange rates, imposition or increase of withholding and other taxes on
remittances and other payments by foreign subsidiaries, trade barriers,
political risks and imposition or increase of investment and other
restrictions by foreign governments. Because over 90% of our revenues and
expenses are denominated in Great Britain Pounds Sterling, our revenues, cash
flows and earnings are directly and materially affected by fluctuations in the
exchange rate between the Pound Sterling and the U.S. Dollar. These risks
could have a material adverse effect on our business and operating results.

  As of January 1, 1999 the Euro replaced some of the currencies of the member
states of the European Union, including countries in which we market our
products. We cannot assure you that the introduction of the Euro will not
increase the volatility of Pounds Sterling exchange rates or result in the
future appreciation of Pounds Sterling, which could, in either case, adversely
affect our results of operations. It is possible that under certain
circumstances the United Kingdom may participate in the European Monetary
Union in the future. If the United Kingdom were to participate in the European
monetary union, the Pound Sterling will be replaced by the Euro.

 Dependence on Raw Material Suppliers

  We purchase raw materials, primarily chemicals, from suppliers throughout
the world. These chemicals range from basic commodities to more sophisticated
advanced intermediates. In many instances we use only one supplier to get a
volume discount and to ensure the chemicals meet our stringent quality
standards. If the supply of a key raw material is interrupted for any reason,
this could have an adverse impact on our ability to manufacture a particular
intermediate or active pharmaceutical ingredient for our customers. In most
situations, there are alternate suppliers throughout the world of any chemical
that we require. If there was a significant delay in identifying and
qualifying a new supplier or if there are no alternate suppliers, there could
be a loss of sales and of customers, or an increase in the cost of production.
Any of these events could have a material adverse effect on our results of
operations. We do not have a long-term supply agreement with most of our
suppliers. We purchase the chemicals on a purchase order basis and forecast
our needs based on our customers' requirements. There can be no assurance that
such suppliers will continue to make available to us the required raw
materials on reasonable terms, if at all. The availability and price of raw
materials may be subject to curtailment or change due to limitations that may
be imposed under new legislation or governmental regulations, suppliers'
allocations to meet demand of other purchasers, interruptions in production by
suppliers and other conditions. In addition, raw materials used by us may be
subject to significant price fluctuations. A substantial increase in prices or
a continued interruption in supply would have a material adverse effect on our
business and results of operations.

                                      21
<PAGE>

 Anti-Takeover Effects of Certain Charter and by-Law Provisions and Delaware
Law; Rights Plan

  Certain provisions of our Certificate of Incorporation and Amended and
Restated By-Laws and the Delaware General Corporation Law may have the effect
of delaying or preventing changes in control or management of our company,
which could adversely affect the market price of our Common Stock. These
provisions include:

  (1) a board divided into three classes, each of which serves for a
      staggered three-year term;

  (2) provisions restricting the removal of directors, the filling of board
      vacancies and the taking of stockholder action;

  (3) advance notice provisions with respect to shareholder proposals; and

  (4) the authority of our Board of Directors to issue up to 4,000,000 shares
      of Preferred Stock and to determine the price, rights, preferences and
      privileges of those shares without any further vote or action by the
      stockholders.

  The rights of the holders of our Common Stock will be subject to, and may be
adversely affected by, the rights of the holders of any shares of Preferred
Stock that may be issued in the future. We are also subject to Section 203 of
the Delaware General Corporation Law which, subject to certain exceptions,
prohibits a Delaware corporation from engaging in a broad range of business
combinations with any interested stockholder for a period of three years
following the date that such stockholder became an interested stockholder.

  In addition, the Board of Directors has adopted a Rights Plan, which may
render an unsolicited takeover of our company more difficult or less likely to
occur or might prevent such a takeover, even though such takeover may offer
our stockholders the opportunity to sell their stock at a price substantially
above the prevailing market rate and may be favored by a majority of our
stockholders. The Rights Plan could adversely affect the market price of the
Common Stock.

 Potential Volatility of Stock Price

  The market price of the shares of our Common Stock, like that of the common
stock of many other pharmaceutical and chemical companies, may be highly
volatile. Factors such as announcements of technological innovations or new
commercial products by us or our competitors, disclosure of results of
clinical testing or regulatory proceedings, developments in our relationships
with our customers, FDA announcements, FDA and other governmental regulation
and approvals, developments in patent or other proprietary rights, public
concern as to the safety of products developed by us and general market
conditions may have a significant effect on the market price of our common
stock. In addition, U.S. stock markets have experienced extreme price and
volume fluctuations. This volatility has significantly affected the market
prices of securities of many pharmaceutical and chemical companies for reasons
frequently unrelated or disproportionate to the operating performance of the
specific companies. These broad market fluctuations may adversely affect the
market price of our Common Stock.

                                      22
<PAGE>

ITEM 2. PROPERTIES

  Our corporate offices are located in Stamford, Connecticut, and our
development division operates at facilities in Boston, Massachusetts, Malvern,
Pennsylvania and Dudley, England. Our manufacturing division facilities are
located in Dudley, England and Annan, Scotland.

<TABLE>
<CAPTION>
                            LAND    SIZE
   LOCATION         TITLE  (Acres) (sq.ft.) USE
   --------         ------ ------  -------  ---------------------------------------
   <S>              <C>    <C>     <C>      <C>
   Stamford, CT     Leased  --       4,500  Corporate Office
   Boston, MA       Leased  --      11,000  R&D, Laboratories, Offices
   Malvern, PA      Leased  --      23,460  R&D, Laboratories, Pilot Plant, Offices
   Dudley, England   Owned   45    443,108  Manufacturing, Warehousing, Offices
   Annan, Scotland   Owned  154    158,446  Manufacturing, Warehousing, Offices
</TABLE>

ITEM 3. LEGAL PROCEEDINGS

  We are involved in various legal proceedings incidental to the conduct of
our business. While it is not possible to determine the ultimate disposition
of these proceedings, we believe that the outcome of such proceedings will not
have a material adverse effect on our financial position or results of
operation.

ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS

  None.

                                      23
<PAGE>

                                    PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Price Range of Our Common Stock

  The Common Stock was initially offered to the public on March 5, 1996 at a
price of $13.00 per share. Our Common Stock is listed and traded on The Nasdaq
Stock Market's National Market ("Nasdaq") under the symbol "CHRX." The
following table sets forth for the periods indicated the high and low sales
prices of our Common Stock as reported by Nasdaq.

<TABLE>
<CAPTION>
      1998:                                                         High   Low
      -----                                                        ------ ------
      <S>                                                          <C>    <C>
      First Quarter............................................... $19.31 $11.63
      Second Quarter..............................................  23.25  14.19
      Third Quarter...............................................  19.00   9.75
      Fourth Quarter..............................................  21.38  10.50
<CAPTION>
      1998:                                                         High   Low
      -----                                                        ------ ------
      <S>                                                          <C>    <C>
      First Quarter............................................... $24.50 $18.16
      Second Quarter..............................................  33.25  21.87
      Third Quarter...............................................  35.62  25.81
      Fourth Quarter..............................................  34.87  12.50
</TABLE>

  On March 2, 2000, the last reported sale price of our Common Stock as
reported by Nasdaq was $23.875. As of March 2, 2000, there were approximately
7,100 holders of record of our Common Stock.

Dividend Policy

  We have never declared or paid cash dividends on our capital stock. We
currently intend to retain any future earnings for use in our business and,
therefore, do not anticipate paying cash dividends in the foreseeable future.

                                      24
<PAGE>

ITEM 6. SELECTED HISTORICAL FINANCIAL DATA

  The following selected historical financial data of our company as of
December 31, 1995 and for the year then ended have been derived from the
financial statements of our company which have been audited by Coopers &
Lybrand L.L.P., independent public accountants. The selected historical
financial data for our company as of December 31, 1996, 1997, 1998 and 1999
and for the years then ended, have been derived from the financial statements
of our company which are incorporated by reference elsewhere in this document
and which have been audited by Arthur Andersen LLP, independent public
accountants. This information should be read in conjunction with "Item 8.
Financial Statements and Supplementary Data" and "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations."

                              ChiRex Inc.

<TABLE>
<CAPTION>
                                          Years Ended December 31
                                -----------------------------------------------
                                 1995      1996      1997      1998      1999
                                -------  --------  --------  --------  --------
                                   (in thousands except per-share data)
<S>                             <C>      <C>       <C>       <C>       <C>
Statement of Operations Data:
Revenues......................  $ 2,754  $ 74,615  $ 94,100  $119,663  $146,989
Cost and expenses:
  Cost of goods sold..........    1,715    56,508    71,440    87,876    93,800
  Research and development....      595     3,517     3,937     4,389     6,958
  Selling, general and
   administrative.............    2,099     7,952     9,423    12,622    14,909
  Goodwill amortization.......      --        924     1,164     1,164     1,383
  Restructuring and other
   expense, net of proceeds
   from disposition of
   acetaminophen business
   in 1997....................      --      5,611     8,069     3,242     7,399
  Write-off of in-process
   research and development...      --      5,790       --        --        --
                                -------  --------  --------  --------  --------
    Total operating expenses..    4,409    80,302    94,033   109,293   124,449
                                -------  --------  --------  --------  --------
Operating income (loss).......   (1,655)   (5,687)       67    10,370    22,540
Interest expense, net.........      --        755     1,052     5,829     5,934
Other expenses................      797       --        --        --        --
                                -------  --------  --------  --------  --------
Income (loss) before income
 taxes........................   (2,452)   (6,442)     (985)    4,541    14,513
(Provision) benefit for income
 taxes........................      --     (1,867)      335    (2,373)   (5,843)
                                -------  --------  --------  --------  --------
Net income (loss) before
 extraordinary loss...........   (2,452)   (8,309)     (650)    2,168    10,763
                                -------  --------  --------  --------  --------
Extraordinary loss net of $633
 thousand benefit for income
 taxes........................      --        --        --        --     (1,460)
Net income (loss).............  $(2,452) $ (8,309) $   (650) $  2,168  $  9,303
                                =======  ========  ========  ========  ========
Diluted income (loss) per
 common share.................  $ (0.70) $  (0.88) $  (0.06) $   0.18  $   0.62
                                =======  ========  ========  ========  ========
Balance Sheet Data (as of
 December 31):
Cash..........................  $     1  $    291  $  5,347  $    128  $  4,480
Total assets..................    2,692   130,806   203,067   238,538   263,052
Long-term debt................      --      3,933    69,675    76,544    38,880
Stockholders' equity..........    2,692    90,068    93,095    97,213   160,047
</TABLE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
        FINANCIAL CONDITION

  Management's discussion and analysis of results of operations and financial
condition as set forth on pages 13 through 18 of the Registrant's 1999 Annual
Report to Stockholders is incorporated herein by reference.


                                      25
<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                   REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Stockholders and Board of Directors of ChiRex Inc.:

We have audited, in accordance with auditing standards generally accepted in
the United States, the consolidated financial statements of ChiRex Inc.
included in ChiRex Inc.'s Form 10-K and have issued our report thereon dated
February 3, 2000. Our audits were made for the purpose of forming an opinion
on the basic consolidated financial statements taken as a whole. ChiRex Inc.'s
schedule of Valuation and Qualifying Accounts, included in Schedule II
immediately below, is the responsibility of the Company's management and is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic consolidated financial
statements. This schedule has been subjected to the auditing procedures
applied in the audits of the basic consolidated financial statements and, in
our opinion, fairly states, in all material respects, the financial data
required to be set forth therein in relation to the basic consolidated
financial statements taken as a whole.

                                          ARTHUR ANDERSEN LLP

Boston, Massachusetts
February 3, 2000

  Financial statements and supplementary data as set forth on pages 20 through
41 of the Registrant's 1999 Annual Report to Stockholders is incorporated
herein by reference. In addition, the following is included herein as Schedule
II:

                SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
             For the years ended December 31, 1997, 1998 and 1999

<TABLE>
<CAPTION>
                                            Charged
                              Balance    (credited) to             Balance at
                            beginning of Statements of               end of
                               Period     Operations   Deductions    period
                            ------------ ------------- ----------  ----------
   <S>                      <C>          <C>           <C>         <C>
   Allowance for doubtful
    accounts
     1997..................     300,000     (236,000)     (42,000)     22,000
     1998..................      22,000          --        (3,000)     19,000
     1999..................      19,000      (19,000)         --          --
   Restructuring reserves
     1997..................  $      --    $1,272,150   $      --   $1,272,150
     1998..................   1,272,150          --      (172,150)  1,100,000
     1999..................   1,100,000   $7,400,000   $4,500,000   4,000,000
</TABLE>

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

  None.

                                      26
<PAGE>

                                   PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

  The required information is hereby incorporated by reference from our Proxy
Statement for the 2000 Annual Meeting of Stockholders to be filed with the
Securities and Exchange Commission on or before March 13, 2000.

ITEM 11. EXECUTIVE COMPENSATION

  The required information is hereby incorporated by reference from our Proxy
Statement for the 2000 Annual Meeting of Stockholders to be filed with the
Securities and Exchange Commission on or before March 13, 2000.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

  The required information is hereby incorporated by reference from the
Company's Proxy Statement for the 2000 Annual Meeting of Stockholders to be
filed with the Securities and Exchange Commission on or before March 13, 2000.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

  The required information is hereby incorporated by reference from the
Company's Proxy Statement for the 2000 Annual Meeting of Stockholders to be
filed with the Securities and Exchange Commission on or before March 13, 1999.

                                    PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

  (a)(1) Financial Statements. The following financial statements as set forth
on pages 19 through 41 of the Registrant's 1999 Annual Report to Stockholders
are incorporated herein by reference:

   .Reports of Independent Public Accountants;
   . Consolidated Balance Sheets as of December 31, 1998 and 1999;
   . Consolidated Statements of Operations and Comprehensive Income for the
     years ended December 31, 1997, 1998 and 1999;
   . Consolidated Statements of Cash Flows for the years ended December 31,
     1997, 1998 and 1999;
   . Consolidated Statements of Stockholder's equity for the years ended
     December 31, 1997, 1998 and 1999; and
   . Notes to Consolidated Financial Statements.

  (a)(2) Financial Statement Schedule. Schedules have been omitted as they are
not applicable or the required information is shown in the financial
statements or notes thereto.

  (a)(3) Exhibits. The Exhibits listed on the accompanying Index to Exhibits
are filed as part of this Annual Report on Form 10-K.

  (b) Reports on Form 8-K. In 1999 we filed the following Report on Form 8-K:

   . On December 10, 1999, announcing a shortfall in demand from
     GlaxoWellcome during 2000.

                                      27
<PAGE>

                                  CHIREX INC.
                               INDEX TO EXHIBITS
                                Item 14 (a) (3)

<TABLE>
<CAPTION>
 Exhibit No.                             Description
 -----------                             -----------
 <C>         <S>
  2.1*       Agreement for the Sale and Purchase of the Entire Issued Share
             Capital of Sterling Organics
             Limited by and among Sanofi Winthrop Limited, Crossco (157)
             Limited and Sanofi, dated
             August 10, 1995.
  2.2*       Contribution Agreement by and among the Registrant, SepraChem Inc.
             and the shareholders of Crossco (157) Limited listed on Schedule 1
             attached thereto, dated February 7, 1996.
  2.3*       Agreement and Plan of Merger by and among the Registrant,
             SepraChem, Sepracor, SepraChem. Merger Corporation, Roger B.
             Pettman and Certain Trusts Affiliated with Victor H. Wooley, dated
             as of February 6, 1996, as amended.
  2.4****    Asset Purchase Agreement between ChiRex Limited, ChiRex Inc. and
             Rhone Poulenc Chimie S.A.
  2.5*****   Asset Purchase Agreement between ChiRex Inc. and GlaxoWellcome plc
  3.1*       Certificate of Incorporation of the Registrant.
  3.2***     Amended and Restated By-Laws of the Registrant.
  4.1*       Specimen Certificate for Shares of Common Stock, $.01 par value,
             of the Registrant.
  4.2        Amending and Restating Agreement dated December 24, 1999, between
             ChiRex Inc., its subsidiaries, National Westminster Bank plc., and
             the lenders and other parties named therein.
  4.3*****   Pledge Agreement between ChiRex Inc. and Bankers Trust Company.
 10.1*       1995 Employee Stock Purchase Plan.
 10.2***     1997 Stock Incentive Plan.
 10.3*****   Amended and Restated 1995 Director Stock Option Plan.
 10.4##      Employment Agreement with Michael A. Griffith dated as of
             September 1, 1998.
 10.5##      Amended and Restated Employment Agreement with Frank J. Wright
             dated as of June 24, 1998 and Amendment No. 1 dated December 16,
             1998.
 10.6##      Amended and Restated Employment Agreement with Jon E. Tropsa dated
             as of April 15, 1998.
 10.7##      Employment Agreement with Ian D. Shott dated as of June 9, 1998.
 10.8##      Employment Agreement with Roger B. Pettman dated as of April 15,
             1998.
 10.9        Employment Agreement with Stuart E. Needleman dated as of February
             1, 1999.
 10.10       Employment Agreement with Thomas I.H. Dubin dated as of February
             26, 1999.
 10.11       Employment Agreement with Bruce P. Shutts dated as of July 5,
             1999.
 10.12***    ChiRex Pension Scheme.
 10.13***    License Agreement dated as of February 3, 1997, between ChiRex
             Inc. and President and Fellows of Harvard College.
 10.15*      Technology Transfer and License Agreement by and between the
             Registrant and Sepracor, dated as of January 1, 1995.
 10.16*      Technology Development Agreement by and between SepraChem and
             Sandoz PhaLma Ltd., dated October 1, 1995.
</TABLE>

                                       28
<PAGE>

<TABLE>
<CAPTION>
 Exhibit No.                             Description
 -----------                             -----------
 <C>         <S>
 10.17*      License Agreement by and between Sepracor and Massachusetts
             Institute of Technology, dated May 5, 1989.
 10.18*      License Agreement by and between Sepracor and Massachusetts
             Institute of Technology, dated June 21, 1991.
 10.19*      License Agreement by and between Sepracor and Research Corporation
             Technologies, Inc., dated March 13, 1991.
 10.20*      License Agreement by and between Sepracor and Research Corporation
             Technologies, Inc., dated September 10, 1992.
 10.21*      License Agreement by and between Sepracor and Tanabe Seiyaku Co.,
             Ltd., dated October 30, 1990.
 10.22*      Toll Manufacturing Agreement by and between Sterling Organics and
             Rohm and Haas (UK) Limited, dated August 27, 1987.
 10.23*      Supply Agreement by and between Sterling Organics and Sanofi
             Winthrop Limited and Sterling Winthrop, Inc. dated June 17, 1994.
 10.24*      Supply Agreement by and between Sterling Organics and Sanofi S.A.,
             dated August 10, 1995.
 10.25*      Supply Agreement by and between Sterling Organics and Sanofi S.A.,
             dated August 10, 1995.
 10.26*      Procedural Joint Union Agreement by and between Sterling Organics
             and AEEU, dated July 7, 1975.
 10.27*      House Agreement by and between Sterling Organics and AEEU, dated
             February 1976.
 10.28*      Procedural Agreement by and between Sterling Organics and EESA,
             dated November 3, 1977.
 10.29*      Agreement by and between Sterling Organics and ACTS, dated July
             19, 1978.
 10.30*****  Supply Agreement between ChiRex Inc. and GlaxoWellcome p1c.
 10.31##     Consulting Agreement with Eric N. Jacobsen dated as of October 1,
             1998.
 10.32##     Assignment Agreements to ChiRex America, Inc. dated as of May 19,
             1998, of the License Agreements listed under Exhibits 10.19, 10.20
             and 10.22.
 10.33##     Amendment No. 3 dated as of May 19, 1998, to the Technology and
             Transfer Agreement.
 13          ChiRex Inc. 1999 Annual Report.
 21##        Subsidiaries of the Registrant.
 23.1        Consent of Arthur Andersen LLP.
 27          Financial Data Schedule
</TABLE>
--------
*    Incorporated by reference to the corresponding exhibits in the
     Registration Statement on Form S-1 previously filed by the Registrant
     (File no. 33-80831).

**   Incorporated by reference to the Form 8-K previously filed by the
     Registrant on September 11, 1996.

***  Incorporated by reference to the corresponding exhibits in the
     Registration Statement on Form S-1 previously filed by the Registrant on
     February 26, 1997 (File no. 333-22401).

****  Incorporated by reference to the Form 8-K previously filed by the
      Registrant on April 11, 1997.

*****  Incorporated by reference to the Form 8-K previously filed by the
       Registrant on November 17, 1997.

#    Previously filed by the Registrant on the Company's 1996 Annual Report on
     Form 10-K and is incorporated by reference.

##   Previously filed by the Registrant on the Company's 1998 Annual Report on
     Form 10-K and is incorporated by reference.

+    Confidential treatment received as to certain portions.

                                      29
<PAGE>

                                  SIGNATURES

  Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this Annual
Report on Form 10-K to be signed on its behalf by the undersigned, thereunto
duly authorized, in the Town of Stamford, Connecticut on this 6th day of
March, 2000.

                                          CHIREX INC.

                                          By:      /s/ Michael A. Griffith
                                             ----------------------------------
                                                    Michael A. Griffith
                                                Chairman and Chief Executive
                                                          Officer

  Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, this Annual Report on Form 10-K has been
signed below by the following persons in the capacities indicated below on
this 6th day of March, 2000.

<TABLE>
<CAPTION>
                 Signature                                      Title
                 ---------                                      -----

<S>                                         <C>
          /s/ Michael A. Griffith           Chairman of the Board of Directors and Chief
___________________________________________  Executive Officer (Principal Executive
            Michael A. Griffith              Officer)

             /s/ Jon E. Tropsa              Vice President, Finance (Principal Financial
___________________________________________  Officer)
               Jon E. Tropsa

           /s/ Eric N. Jacobsen             Director
___________________________________________
             Eric N. Jacobsen

            /s/ Dirk H. Detert              Director
___________________________________________
              Dirk H. Detert

           /s/ W. Dieter Zander             Director
___________________________________________
</TABLE>     W. Dieter Zander



                                      30