<PAGE>   1
================================================================================

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                                    FORM 10-Q


(Mark One)

    [X]        QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE 
               SECURITIES EXCHANGE ACT OF 1934


               For the quarterly period ended March 31, 1999.

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

                        COMMISSION FILE NUMBER: 00-23473


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


               DELAWARE                                         33-0617379
    (State or other jurisdiction of                          (I.R.S. Employer
     incorporation or organization)                       Identification Number)

  9050 Camino Santa Fe, San Diego, CA                              92121
(Address of principal executive offices)                         (Zip Code)

      REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE IS (619) 530-0484


     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.

               (1) [X] Yes    [ ] No;    (2) [X] Yes    [ ] No

As of May 12, 1999, there were 13,489,499 shares of $.001 par value common stock
outstanding.


================================================================================

<PAGE>   2

                                 COMBICHEM, INC.
                                      INDEX

<TABLE>
<CAPTION>
                                                                                      Page No.
                                                                                      --------
<S>                                                                                   <C>
PART I - FINANCIAL INFORMATION

Item 1.    Financial Statements

               Condensed Balance Sheets at  March 31, 1999 (unaudited)
                  and December 31, 1998.............................................     1

               Condensed Statements of Operations (unaudited) for the Three Months
                  Ended March 31, 1999 and 1998.....................................     2

               Condensed Statements of Cash Flows (unaudited) for the
                  Three Months Ended March 31, 1999 and 1998........................     3

               Notes To Condensed Financial Statements..............................     4

Item 2.    Management's Discussion and Analysis of Financial Condition and Results
           of Operations............................................................     5

Item 3.    Quantitative and Qualitative Disclosures About Market Risk...............    14


PART II - OTHER INFORMATION

Item 1.    Legal Proceedings *......................................................    15

Item 2.    Change in Securities and Use of Proceeds.................................    15

Item 3.    Defaults Upon Senior Securities *........................................    15

Item 4.    Submission of Matters to a Vote of Security Holders *....................    15

Item 5.    Other Information *......................................................    15

Item 6.    Exhibits and Reports on Form 8-K..........................................   15
</TABLE>

        *   Not Applicable

<PAGE>   3

                                 COMBICHEM, INC.
                            CONDENSED BALANCE SHEETS
                                 (In Thousands)


<TABLE>
<CAPTION>
                                                                                      MARCH 31,     DECEMBER 31,
                                                                                        1999           1998
                                                                                      ---------     ------------
                                                                                     (UNAUDITED)       (NOTE)
<S>                                                                                  <C>             <C>     
ASSETS
Current assets
       Cash and cash equivalents                                                      $ 14,177        $ 20,334
       Short-term investments                                                           14,068           9,025
       Accounts receivable                                                               1,378           2,892
       Prepaid expenses and other current assets                                         1,612           1,310
                                                                                      --------        --------
              Total current assets                                                      31,235          33,561

Property and equipment, net                                                              7,829           7,902
Restricted cash                                                                            279             279
Deposits and other assets                                                                  602             238
Notes receivable from employees                                                             75              --
                                                                                      --------        --------
              Total assets                                                            $ 40,020        $ 41,980
                                                                                      ========        ========


LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
       Accounts payable and accrued expenses                                          $  1,766        $  1,102
       Accrued liabilities                                                                 813           1,295
       Deferred revenue                                                                  3,900           3,193
       Current portion of obligations under capital leases                               2,281           1,825
                                                                                      --------        --------
              Total current liabilities                                                  8,760           7,415

Deferred rent                                                                               20             142
Obligations under capital leases, less current portion                                   3,838           4,246

Stockholders' equity (deficit):
       Preferred stock, $.001 par value, 5,000,000 shares authorized; no shares
        issued or outstanding at March 31, 1999 or December 31, 1998                        --              --
       Common stock, $.001 par value, 40,000,000 shares authorized; 13,450,145
        and 13,399,201 shares issued and outstanding at March 31, 1999 and
        December 31, 1998, respectively                                                     13              13
       Additional paid-in capital                                                       52,100          51,862
       Notes receivable from employees                                                    (411)           (425)
       Deferred compensation                                                            (1,030)         (1,140)
       Accumulated deficit                                                             (23,270)        (20,133)
                                                                                      --------        --------
              Total stockholders' equity                                                27,402          30,177
                                                                                      --------        --------
              Total liabilities and stockholders' equity                              $ 40,020        $ 41,980
                                                                                      ========        ========
</TABLE>


Note:  The balance sheet at December 31, 1998 has been derived from the audited
       financial statements at that date but does not include all of the
       information and footnotes required by generally accepted accounting
       principles for complete financial statements.


                             See accompanying notes



                                       1
<PAGE>   4

                                 COMBICHEM, INC.
                       CONDENSED STATEMENTS OF OPERATIONS
                      (In Thousands, Except Per Share Data)

<TABLE>
<CAPTION>
                                            THREE MONTHS ENDED
                                                MARCH 31,
                                        ------------------------
                                          1999            1998
                                        --------        --------
                                              (unaudited)
<S>                                     <C>             <C>     
Revenue:
    Project initiation fees and
         milestone payments             $     75        $    750
    Research and development
         funding                           2,243           1,872
    ChiroChem service revenue                600              --
                                        --------        --------
         Total revenue                     2,918           2,622
Expenses:
    Research and development
         Collaborative                     2,509           1,923
         Proprietary                       1,539           1,315
                                        --------        --------
                                           4,048           3,238
    General and administrative             1,202             892
    ChiroChem service expense                600              --
                                        --------        --------
         Total operating expenses          5,850           4,130
                                        --------        --------
Loss from operations                      (2,932)         (1,508)
Interest income                              360             236
Interest expense                            (140)           (122)
Foreign tax expense                           --             (30)
Equity in net loss of 50%
    owned joint venture                     (425)             --
                                        --------        --------

Net loss                                $ (3,137)       $ (1,424)
                                        ========        ========

Net loss per share                      $  (0.24)       $  (0.60)
                                        ========        ========
Shares used in calculating
    net loss per share                    12,979           2,368
                                        ========        ========
</TABLE>



                             See accompanying notes



                                       2
<PAGE>   5

                                 COMBICHEM, INC.
                       CONDENSED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                  THREE MONTHS ENDED MARCH 31
                                                                  ---------------------------
                                                                      1999           1998
                                                                    --------        --------
                                                                          (unaudited)
<S>                                                               <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES:

     Net loss                                                       $ (3,137)       $ (1,424)
     Adjustments to reconcile net loss to net cash
     used in operating activities
         Depreciation and amortization                                   525             331
         Amortization of premium on short-term investments                23              41
         Deferred rent                                                  (122)             13
         Deferred revenue                                                707           1,191
         Amortization of deferred compensation                           110             110
         Change in operating assets and liabilities:
            Accounts receivable                                        1,514          (1,394)
            Prepaid expenses and other current assets                   (270)            (19)
            Accounts payable and accrued liabilities                     182              26
                                                                    --------        --------
            NET CASH USED IN OPERATING ACTIVITIES                       (468)         (1,125)

CASH FLOWS FROM INVESTING ACTIVITIES:

     Purchases of short-term investments                              (8,067)         (2,561)
     Maturities of short-term investments                              3,000           3,000
     Purchase of accrued interest on short-term investments              (32)           (108)
     Purchases of property and equipment                                (451)         (1,493)
     Deposits and other assets                                          (364)           (150)
     Notes receivable from employees                                     (75)             --
                                                                    --------        --------
            NET CASH USED IN INVESTING ACTIVITIES                     (5,989)         (1,312)

CASH FLOWS FROM FINANCING ACTIVITIES:

     Advances on capital lease obligations                               635             871
     Principal repayments on capital lease obligations                  (587)           (387)
     Issue of common stock, net of repurchased shares                    239              --
     Receipt of payment on note from stockholder                          13              --
     Restricted cash given as collateral for letter of credit             --              --
                                                                    --------        --------
            NET CASH PROVIDED BY FINANCING ACTIVITIES                    300             484
                                                                    --------        --------

NET DECREASE IN CASH AND CASH EQUIVALENTS                             (6,157)         (1,953)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                      20,334           5,867
                                                                    --------        --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD                          $ 14,177        $  3,914
                                                                    ========        ========
</TABLE>



                             See accompanying notes



                                       3
<PAGE>   6

                                 COMBICHEM, INC.
                     NOTES TO CONDENSED FINANCIAL STATEMENTS
                                   (Unaudited)


1.      Basis of Presentation

        The unaudited financial statements have been prepared in accordance with
        generally accepted accounting principles for interim financial
        information. Accordingly, they do not include all of the information and
        footnotes required by generally accepted accounting principles for
        complete financial statements. In the opinion of management, all
        adjustments (consisting of normal recurring accruals) considered
        necessary for a fair presentation have been included. Interim results
        are not necessarily indicative of the results that may be expected for
        the year. For further information refer to the financial statements and
        footnotes thereto for the year ended December 31, 1998 included in the
        Company's annual report on Form 10-K.

2.      Equity in Net Loss of 50% Owned Joint Venture

        The Company owns a 50% interest in ChiroChem Discovery Services, LLC, a
        limited liability corporation created to develop and market
        computationally designed libraries of single-isomer, chiral compounds.
        Pursuant to the terms of the agreement entered into with ChiroChem
        Discovery Services, LLC, the Company will design and synthesize
        information-rich chiral compound libraries. For the three months ended
        March 31, 1999, the Company earned $0.6 million related to reimbursement
        for expenses incurred on behalf of the joint venture and recognized a
        $0.4 million loss for its equity in the loss of the joint venture.

3.      Computation of Net Loss Per Share

        Interpretations by the Securities and Exchange Commission have altered
        the treatment of preferred stock previously included in computing
        certain loss per share data. The Company previously considered
        redeemable convertible preferred stock, which converted in conjunction
        with the Company's initial public offering in May 1998, as outstanding
        in pre-IPO periods from the date of original issuance ("as if converted
        method"). To conform with the interpretations, the Company has revised
        its calculation of loss per share for all pre-IPO periods to exclude the
        impact of redeemable convertible preferred shares.




                                       4
<PAGE>   7

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

     This quarterly report may contain predictions, estimates and other
forward-looking statements that involve a number of risks and uncertainties,
including our dependence on the execution of new collaborative agreements and
other factors relating to our growth as well as those discussed below under
"Risks and Uncertainties." While this outlook represents our current judgment on
the future direction of our business, such risks and uncertainties could cause
actual results to differ materially from any future performance suggested below.
We undertake no obligation to release publicly the results of any revisions to
these forward-looking statements to reflect events or circumstances arising
after the date hereof.

OVERVIEW

     CombiChem is a computational product discovery company that is applying
proprietary design technology and rapid synthesis capabilities to accelerate the
discovery process for new drugs and chemical products. We believe our approach
offers pharmaceutical and chemical companies the opportunity to conduct their
discovery efforts in a more productive and cost-effective manner. Using our
proprietary Discovery Engine(TM) process, we focus on the generation, evolution
and optimization of potential new lead candidates for our collaborative partners
who will then develop, manufacture, market and sell any resulting products. We
believe that our process is widely applicable to a variety of disease targets
and therapeutic indications as well as to other industries such as agrochemical,
industrial chemical and materials science. To date, we have established
collaborative agreements with Athena Neurosciences, Inc., a wholly owned
subsidiary of Elan Corporation, plc, ICOS Corporation, ImClone Systems
Incorporated, Novartis Crop Protection AG, Ono Pharmaceutical Co., Ltd., Roche
Bioscience, a division of Syntex (U.S.A.) Inc., Sumitomo Pharmaceuticals Co.,
Ltd. and Teijin Limited. In addition, we are using our approach on internal
programs to discover new lead candidates that will then be outlicensed to third
parties, while retaining a larger economic interest. In December 1998, we
further broadened the application of our technology by establishing a joint
venture with Chirotech Technology, Ltd., a member of the Chiroscience Group of
companies, to commercialize libraries of chiral compounds. The joint venture,
ChiroChem Discovery Services, LLC, was established to develop and sell
specifically designed chiral compound libraries.

     Our revenue to date is primarily attributable to the receipt of project
initiation fees, milestone payments and research funding. Project initiation
fees are received from our collaborators upon, or shortly following, execution
of the collaborative agreement. Milestone payments are received from
collaborators upon achievement of certain pre-determined objectives. In
connection with the performance of research services, we receive research
funding under our collaborative agreements. Research funding typically is
received only during the life of the research program under the particular
collaboration. In addition, we may receive advance payments from our
collaborators or potential collaborators, which require us to complete certain
performance obligations. Such payments are recorded as deferred revenue when
received and are recognized as revenue when our performance obligations have
been met, as evidenced by our collaborator's written approval and acceptance.
The collaborative activities for which we receive revenue typically occur over a
one- to three-year period, if multiple projects are anticipated, or one to two
years for single project collaborations. The agreements provide for earlier
termination in certain circumstances. We expect that a significant portion of
our revenue for the foreseeable future will be comprised of such payments. The
receipt of project initiation fees is dependent on our ability to enter into
additional collaborative agreements that provide for such fees; the timing of
such payments will be difficult to predict. In addition, the timing of certain
revenue in the future will depend upon the completion of certain milestones as
provided for in our collaborative agreements, which are contingent and
uncertain. Milestone fees may be earned for different events or achievements in
different agreements. For certain collaborations, such fees may not be earned
until the collaborator has advanced products into human testing. In any one
fiscal quarter we may earn multiple or no payments from our collaborators.
Operating results may therefore vary substantially from period to period and
will not necessarily be indicative of results in subsequent periods. Completion
of the research phase of a single project collaboration or a single project
within a broad multiple project collaboration is not expected to have a material
adverse effect on our business. However, the termination or conclusion of any
collaborative agreement could have a material adverse effect on our business. In
addition, our failure to enter into additional collaborative agreements on
favorable terms would have a material adverse effect on our business.

     We have not been profitable since inception and have incurred a cumulative
net loss of $23.3 million through March 31, 1999. Losses have resulted
principally from costs incurred in research and development 

                                       5
<PAGE>   8

activities related to efforts to develop our technologies and from the
associated administrative costs of supporting these efforts. Our ability to
achieve profitability is dependent on our ability to market our technology and
capabilities to pharmaceutical, biotechnology and agrochemical companies.

RESULTS OF OPERATIONS

THREE MONTHS ENDED MARCH 31, 1999 AND 1998

     Revenue

     Our revenue for the three months ended March 31, 1999 was $2.9 million, up
from $2.6 million for the same period in 1998. An increase in the number of
projects in the active collaboration phase accounted for $0.4 million of the
increase while $0.6 million is attributable to the reimbursement of costs
incurred on behalf of ChiroChem Discovery Services, LLC. These increases were
offset by a $0.7 million decrease in project initiation fees and milestone
payments.

     Operating Expenses

     Research and development expenses for the three months ended March 31, 1999
totaled $4.0 million compared to $3.2 million for the same period in 1998.
Research and development costs incurred on behalf of our collaborators increased
$0.6 million due to an increase in the number of projects in the active
collaboration phase. Research and development costs incurred to advance our
proprietary technologies increased $0.2 million as we further expanded the
application of our technologies. We expect research and development spending to
increase over the next several years due to increased activities related to
collaborators, internal programs and technology development.

     General and administrative expenses for the three months ended March 31,
1999 totaled $1.2 million compared to $0.9 million for the same period in 1998.
The increase is primarily attributable to increased payroll and personnel
expenses incurred as we continue to expand both the size and activities of our
business development group in support of our continued expansion.

     In conjunction with supporting the operations of our 50%-owned joint
venture, ChiroChem Discovery Services, other operating expenses increased $0.6
million for the period ended March 31, 1999. This increase was entirely
reimbursed by the joint venture.

     Interest Income/Expense

     Interest income totaled $0.4 million and $0.2 million in the three months
ended March 31, 1999 and 1998, respectively. The increase is a result of the
increase of the average balance of cash, cash equivalents and marketable
securities. Interest expense of $0.1 million for both periods relates to our
capital lease obligations.

     Net Loss

     For the three months ended March 31, 1999, our net loss increased to $3.1
million from $1.4 million for the same period in 1998. The increased loss for
the current period is attributable to increased operating expenses as discussed
above. In addition, we reported a $0.4 million loss for our 50% equity interest
in ChiroChem Discovery Services.

LIQUIDITY AND CAPITAL RESOURCES

     From inception through March 31, 1999, we financed our operations through
proceeds from our initial public offering and private placements of equity
securities, payments from corporate collaborators and the utilization of capital
equipment lease financing. Net cash used in operating activities for the three
months ended March 31, 1999 was $0.5 million compared to $1.1 million for the
corresponding period in 1998. The decrease in net cash used in operating
activities was primarily attributable to the collection of advance payments from
collaborators.

                                       6
<PAGE>   9

     At March 31, 1999, we held cash and cash equivalents and short-term
investments with a value of $28.2 million. Working capital at March 31, 1999 was
$22.5 million. We have maintained capital lease arrangements since 1994. Under
these arrangements, we have funded certain capital expenditures with lease terms
ranging from 36 to 48 months in duration. As of March 31, 1999, we had utilized
$9.8 million of an available $11.4 million financing facility. We expect that
the net proceeds from our initial public offering completed in May 1998, and the
interest income generated from these proceeds, together with the existing cash
and cash equivalents, short-term investments, operating revenues and lease
financing arrangements, will be sufficient to finance our working capital and
capital requirements for the foreseeable future. Our capital requirements depend
on numerous factors. These factors include: (1) our ability to enter into
additional collaborative arrangements, (2) competing technological and market
developments, (3) changes in our existing collaborative relationships, (4) the
cost of filing, prosecuting, defending and enforcing patent claims and other
intellectual property rights, (5) the purchase of additional capital equipment,
(6) the progress of our drug discovery programs and (7) the progress of the
commercialization of milestone-and royalty-bearing compounds by our
collaborators. We may be required to raise additional capital over a period of
several years in order to continue to conduct our operations. Such capital may
be raised through additional public or private financing arrangements, as well
as collaborative arrangements, borrowings and other available sources. In
addition, we may from time to time earn milestone fees under our collaborations.
Milestone fees may be earned for different events or achievements in different
agreements. Furthermore, for certain collaborations, such fees may not be earned
until the collaborator has advanced products into later stage testing. Such
milestones may not be earned for several years, if at all. Our collaborative
arrangements may not produce revenue adequate to fund our operating expenses.
Additional funding, if necessary, may not be available on favorable terms, if at
all. If adequate funds are not available, we may be required to curtail
operations significantly or obtain funds through arrangements with collaborative
partners or others that may require us to relinquish rights to certain of our
technologies, product candidates, products or potential markets that we would
not otherwise relinquish. The failure to receive additional funding would have a
material adverse effect on our business and results of operations.

YEAR 2000 ISSUE

     Description of the Issue. The Year 2000 issue refers to the inability of
certain date-sensitive computer chips, software, and systems to recognize a
two-digit date field as belonging to the 21st century. Mistaking "00" for 1900
or any other incorrect year could result in a system failure or miscalculations
causing disruptions to operations, including manufacturing, a temporary
inability to process transactions, or send invoices, or engage in other normal
business activities. This is a significant issue for most, if not all companies,
with far reaching implications, some of which cannot be anticipated or predicted
with any degree of certainty. The Y2K issue may create unforeseen risks from our
internal computer systems as well as from computer systems of third parties with
which we deal. Our failures and/or those of third parties' computer systems
could have a material adverse impact on our ability to conduct our business.

     Year 2000 Readiness. We have formed a committee, including the Vice
President of Software R&D and the Information Technology Manager, to evaluate
Y2K risks and readiness. The committee has addressed both information technology
and non-information technology systems. Examples of information technology
systems include hardware and software purchased from external sources and
internally developed software. Examples of non-information technology systems
include laboratory equipment and those systems that operate the facilities
infrastructure. The committee has also considered the systems of those third
parties with which we maintain a material relationship.

     We have substantially completed an assessment of our information technology
and non-information technology systems. The assessment phase is, however, an
on-going effort. As part of this effort, we are assessing the potential severity
of the impact of Y2K induced failures, conducting an inventory of information
systems for each business area, prioritizing systems or components to be
converted or replaced, and developing a contingency plan for mission critical
systems.

     Renovation procedures have begun on those systems that we have identified
in our assessment as being non-Y2K compliant. This renovation entails
installation of commercially-available software and firmware updates and
performance of system tests. The renovation phase of our Year 2000 efforts is
approximately 90% complete.

                                       7
<PAGE>   10

     Although the assessment and renovation phases are not 100% complete, based
on the work performed to date, we do not foresee an inherently complex Y2K
problem. Accordingly, we will concurrently validate and implement converted or
replaced mission-critical systems. Validation will take place in an environment
that is representative of the true operating environment. Implementation will
address the integration of Y2K compliant systems into our true operating
environment and will take into consideration the interdependencies of the
systems involved. Finally, we will ensure that the Y2K contingency plan is
available for each business area. The validation phase is currently in process
and we expect this phase to be competed in the third quarter of 1999.

     For material third parties, we are obtaining written assurances that their
systems and/or products are, or will be, Y2K compliant. However, we are not
independently verifying their representations. In addition, while we are not
dependent on any sole-source suppliers to conduct our laboratory operations,
efforts are ongoing to monitor the progress of the Y2K preparations of our
current major suppliers of laboratory materials.

     Year 2000 Costs. The total cost of our Y2K activities is funded through
operating cash flows. We are expensing these costs as they are incurred. As of
March 31, 1999, we have not incurred any incremental costs to resolve our Y2K
issue and we expect that the total cost to become fully compliant will not
exceed $50,000.

     Year 2000 Risks and Contingencies. In the event that systems of third-party
providers or vendors of laboratory supplies fail to resolve Y2K issues that
effect services or product deliveries to us, we may have to change providers or
vendors. Such changes are not anticipated to have a material adverse effect on
our business. As previously indicated, we are preparing a Y2K contingency plan
which addresses each of the mission-critical systems of our business areas. This
plan will also identify strategies and available resources necessary to restore
operations.  We expect this plan to be completed by September 30, 1999.

RISKS AND UNCERTAINTIES

     The following is a summary of some of the many risks we face in our
business. You should carefully review these risks in evaluating our business.

THE TECHNOLOGY WE USE IN OUR BUSINESS IS NEW AND HAS NOT BEEN SHOWN TO BE
SUCCESSFUL IN DISCOVERING NEW COMPOUNDS THAT ARE USEFUL.

     Our discovery process is new. We have not yet shown that it can
successfully be used to discover candidates that ultimately become commercial
products. Furthermore, our discovery efforts are focused on some targets with
unknown functions. Development of new drugs and other useful products is highly
uncertain. Our discovery process may not result in candidates that will be safe
or effective or commercially successful as products. If our technology is not
validated through the successful discovery of candidates, our business will be
adversely affected.

     Our strategy, which is unproven, is to use our proprietary technology to
rapidly identify, optimize and obtain rights to as many product candidates as
possible. Our near-term profitability depends entirely on whether we can enter
into additional collaborative agreements and maintain our current agreements.
The pricing and nature of our collaborative relationships, however, is such that
our potential customers may include only a limited number of drug,
biotechnology, agrochemical and materials science companies. Our strategy also
involves conducting our own discovery programs by choosing targets of current
scientific interest and working in collaboration with screening companies to
discover drug candidates. Accordingly, we cannot be certain that our strategy
will prove successful.

     Our success also depends on whether potential customers view our process as
an effective discovery tool. Historically, drug, biotechnology, agrochemical and
materials science companies have identified and optimized new compounds in their
own research departments. They have done so primarily to protect the proprietary
nature of their activities. To achieve our business objectives, we must convince
these companies that our technology and capabilities justify the outsourcing of
their programs to us. We may not, however, be able to attract any future
customers on acceptable terms for our products and services or develop a
sustainable, profitable business. Any failure to do so would adversely affect
our business.

                                       8
<PAGE>   11

     We generally structure each of our collaborative agreements to provide us
with payments for:

     -    initiating the collaboration,

     -    providing research for a specified period (typically over one or two
          years),

     -    attaining specifically negotiated milestones, and

     -    earning royalties from the commercial sale of any successfully
          developed drug candidate.

     To date, we have generated most of our revenues from providing research
services under our collaborative agreements. We receive these revenues, however,
only for a limited period and they are generally offset by corresponding
research costs. After we complete the research phase of each collaborative
agreement, we will receive additional revenues only if our collaborators achieve
the specified milestones or sell products on which we earn royalties from
commercial sales. Any failure to achieve the milestones or to earn royalties
could adversely affect our business.

WE MAY NEVER BE PROFITABLE.

     Our near term profitability depends entirely on whether we can enter into
additional collaborative agreements and maintain our current agreements. As a
result, we are unable to predict when, or if, we will become profitable. We have
not yet received, and may never receive, any revenues from royalties for
commercial sales by a customer. In addition, our strategy includes potentially
developing and licensing drug candidates that we have identified through our
internal programs, at our own expense, to others for further development. To
date, we have not entered into any of these licenses. We may never enter into
any of these licenses on acceptable terms or at all.

THE SUCCESSFUL IMPLEMENTATION OF OUR STRATEGY IS DEPENDENT ON THE ACTIVITIES OF
OTHERS, OVER WHICH WE HAVE NO CONTROL.

     Our strategy depends on our ability to enter into collaborative
arrangements with others on a regular basis. We may not be able to continue to
establish additional collaborative arrangements. If we are successful in
establishing additional arrangements, they may not be on favorable terms. The
collaborative arrangements also may not ultimately be successful. Any failure to
enter into additional collaborative arrangements on favorable terms would
adversely affect our business. The timing of when we receive revenues from
collaborative arrangements depends on both our efforts and our collaborators'
efforts.

     We will depend on others' expertise and commitment to develop and
commercialize products based on candidates we discovered or optimized. The
amount and timing of resources that current and future collaborators devote to
our collaborations are not within our control, and we cannot be certain that
their efforts will be successful.

     In addition, when we are eligible to earn milestone payments differs for
each agreement. For instance, for some collaborations, we may not earn milestone
fees until the collaborator has advanced drug products into human testing, which
may be well into the future. Furthermore, our collaborative partners are not
obligated to develop or commercialize product candidates we have discovered.
Rather, each collaborative partner may independently move forward with a
competing product candidate that the partner developed either internally or in
collaboration with others, including our competitors. The potential products a
collaborative partner develops also may be derivatives of the product candidates
we provided to the partner. While our existing collaborative agreements allow us
to retain milestone and royalty payment rights with respect to products
developed from certain derivatives, disputes may arise over how the payment
provisions in our agreements apply to those types of products.

     Conflicts also may arise between collaborative partners about who has the
proprietary rights to particular compounds or product candidates. Additionally,
our collaborators generally may terminate their agreements with us upon short
notice and following an uncured material breach. Termination of our existing or
future collaborative agreements would result in a loss of anticipated revenue
and could adversely affect our business.

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<PAGE>   12

     Furthermore, even though we use independent teams for each collaborative
project, conflicts may arise among our collaborators about which collaborator
has rights to any overlapping compounds or product candidates developed with our
technologies. Any failure to manage our collaborative relationships
successfully, maintain confidentiality among our relationships or prevent these
types of conflicts could lead to costly and time-consuming disputes and a loss
of reputation, capital or current or future collaborators. Any of these events
could adversely affect our business.

SIGNIFICANT FLUCTUATIONS IN OUR QUARTERLY RESULTS COULD MATERIALLY IMPACT OUR
STOCK PRICE.

     Our operating results may vary substantially from quarter to quarter and
will not necessarily be indicative of results in later periods. Any quarterly
fluctuations in revenue or financial results may materially impact our stock
price. To date, we have received revenues from project initiation fees, research
funding and milestone fees paid under our collaborative agreements. We expect
that most of our revenues for the foreseeable future will continue to consist of
these payments. In any one quarter, we may receive multiple or no payments from
our collaborators.

OUR SUCCESS IS DEPENDENT ON OUR ABILITY TO BUILD AND MAINTAIN A STRONG
INTELLECTUAL PROPERTY POSITION; FAILURE TO DO SO WOULD HAVE AN ADVERSE EFFECT ON
OUR BUSINESS.

     Our success will depend on our ability and the ability of our licensors to
obtain and defend patents and other proprietary rights for our technologies and
the compounds and other products resulting from our technologies. In addition,
to be successful we must avoid infringing the proprietary rights of others. Our
patent position, like that of many companies, is uncertain and involves complex
legal and factual questions for which important legal principles are unresolved.
We may not develop or obtain rights to products or processes that are
patentable. Even if we do obtain patents, they may not adequately protect the
technology we own or have licensed. In addition, others may challenge, seek to
invalidate, infringe or circumvent any patents we own or license, and rights we
receive under those patents may not provide competitive advantages to us.
Further, our activities may infringe the patent rights of others.

     We cannot be certain that any patents will issue as a result of any pending
applications. In addition, any issued patents still may not provide sufficient
protection against competitors with similar technologies. Although we believe
that our current activities do not infringe any patents of others, we
continually assess our position. We cannot be certain that we would be
successful in any litigation over patents or that our future technological
developments will be outside the scope of others' patent rights.

     We may also need to initiate litigation, which could be time consuming and
expensive, to enforce our proprietary rights or to determine the scope and
validity of others' rights. If litigation results, a court may find our patents
or those of our licensors invalid or may find that we have infringed on a
competitor's rights. If any of our competitors have filed patent applications in
the United States which claim technology we also have invented, the Patent and
Trademark Office may require us to participate in expensive interference
proceedings to determine who has the right to a patent for the technology.

     We currently license rights from other parties. In the future, we may
require additional licenses from other parties to refine our drug discovery
process further and to allow our collaborators to develop, manufacture and
market commercially viable products effectively. We cannot be certain that:

     -    we will be able to obtain any licenses on commercially reasonable
          terms, or at all,

     -    any patents underlying such licenses will be valid and enforceable, or

     -    the proprietary nature of any patented technology underlying such
          licenses will remain proprietary.

     In addition, if we breach any of our licenses, we may lose important
rights.

     We also rely on unpatented trade secrets and know-how to maintain our
competitive position, which we seek to protect, in part, by confidentiality
agreements with employees, consultants and others. These parties may 


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<PAGE>   13

breach or terminate these agreements, and we may not have adequate remedies for
any breach. In addition, our competitors may independently discover our trade
secrets. We also rely substantially on certain technologies that are not
patentable or proprietary and are therefore available to our competitors.

OUR INDUSTRY IS EXTREMELY COMPETITIVE AND WE MAY ULTIMATELY PROVE UNSUCCESSFUL.

     Many organizations are actively attempting to identify, optimize and
generate compounds for potential drug, agrochemical and materials science
development. We compete with the research departments of drug companies,
biotechnology companies, agrochemical companies, combinatorial chemistry
companies and research and academic institutions as well as other product
discovery companies. Many of our competitors have greater financial and human
resources and more experience in research and development than us. We anticipate
that we will face increased competition in the future as new companies enter the
market and advanced technologies become available. Ultimately, our processes may
become obsolete or uneconomical as a result of new technologies or approaches
our competitors develop.

FAILURE TO EXPAND OUR OPERATIONS AND MANAGE OUR EXPANDED OPERATIONS WOULD HAVE
AN ADVERSE EFFECT ON OUR BUSINESS.

     Our success will depend on whether we can expand our operations to service
additional collaborative arrangements and manage our expanded operations. To be
cost-effective, we must enhance our productivity by further automating our
processes and improving our technology generally. In addition, we must
successfully structure and manage additional collaborative relationships,
including maintaining the confidentiality of the research being provided to our
customers. We may not be able to add the technical personnel needed to meet the
staffing requirements of any additional collaborative relationships. In
addition, our efforts to automate our processes further or to improve our
technology may not be successful. Any failure to achieve these goals could
adversely affect our business.

THE LOSS OF ONE OR MORE OF THE KEY MEMBERS OF OUR SCIENTIFIC AND MANAGEMENT
STAFF COULD ADVERSELY AFFECT OUR BUSINESS

     The loss of one or more of the key members of our scientific and management
staff could adversely affect our business. Our future success also depends on
the continued service of our key design, engineering, scientific, software and
management personnel and on our ability to identify, hire and retain any
additional personnel. There is intense competition for these qualified
personnel. We may not be able to continue to attract and retain the personnel
necessary to develop our business. Any failure to attract and retain key
personnel could adversely affect our business.

FAILURE TO COMPLY WITH REGULATORY REQUIREMENTS WOULD HAVE AN ADVERSE EFFECT ON
OUR BUSINESS.

     Any failure to comply with regulatory requirements in the United States and
overseas can result in fines, warning letters, recall or seizure of products,
clinical study holds or delays, total or partial suspension of production,
refusal of the government to grant approvals, and civil and criminal penalties.
United States and foreign government regulation will be a significant factor in
the production and marketing of any products that we, our customers or our
collaborators develop. The scope of the regulation will vary depending on the
type of products involved. Virtually all products our customers develop will
require regulatory approval. For example, the FDA and foreign regulatory
authorities require vigorous early state and human testing and other procedures
for human drug products. Numerous regulations also govern the manufacturing,
safety, labeling, storage, record keeping, reporting and marketing of products
developed by our customers.

     The process of obtaining and complying with regulatory approvals is time
consuming and expensive. The testing and approval processes require substantial
time and we cannot be certain if or when any approval will be granted for any
products resulting from our technologies.

     Even if regulatory clearances are obtained, a marketed product may be
subject to continual review. Later discovery of previously unknown problems or
failure to comply with the applicable regulatory requirements may 


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<PAGE>   14

result in restrictions on a product's marketing or withdrawal of the product
from the market, as well as possible civil or criminal sanctions. In addition,
domestic manufacturing facilities are subject to inspections and must comply
with certain manufacturing practices regulations. To comply with these
regulations, a manufacturer must spend funds, time and effort on production and
quality control. For marketing outside the United States, we, our collaborators
or customers may be subject to foreign regulatory requirements.

OUR FUTURE CAPITAL NEEDS ARE UNCERTAIN AND MAY HAVE AN ADVERSE EFFECT ON OUR
BUSINESS.

     Our capital requirements depend on many factors, including:

     -    our ability to enter into additional collaborative arrangements,

     -    competing technological and market developments,

     -    changes in our existing collaborative arrangements,

     -    the cost of filing, prosecuting, defending and enforcing patent claims
          and other proprietary rights,

     -    the purchase of additional equipment,

     -    the progress in our discovery programs, and

     -    our collaborators' ability to commercialize milestone and
          royalty-bearing compounds.

     We may be required to raise additional capital over a period of several
years to continue our operations. Additional funding, if necessary, may not be
available on favorable terms. If adequate funds are not available, we may be
required to curtail operations significantly or obtain funds through
arrangements with collaborative partners or others that may require us to
relinquish rights to certain of our technologies, product candidates, products
or potential markets that we would not otherwise relinquish. Any failure to
receive additional funding would adversely affect our business.

THE EFFORTS OF THE GOVERNMENT AND OTHERS TO REDUCE THE COST OF HEALTH CARE MAY
HAVE AN ADVERSE EFFECT ON OUR COLLABORATORS AND OUR BUSINESS.

     We expect that a substantial portion of our revenue in the foreseeable
future will be derived from products and services provided to the drug,
biotechnology, agrochemical and materials science industries. Accordingly, our
success in the foreseeable future depends on the success of the companies within
those industries and continued demand for our products and services.

     The efforts of governments and third party payors to contain or reduce the
cost of health care will continue to affect the business and financial condition
of these companies. For example, in certain foreign markets, pricing or
profitability of prescription pharmaceuticals is subject to governmental
control. In the United States, a number of legislative and regulatory proposals
to change the health care system have been proposed in recent years. In
addition, an increasing emphasis on managed care in the United States has and
will continue to increase pressure on drug pricing. We cannot predict whether
legislative or regulatory proposals will be adopted. If proposals or reforms are
adopted and adversely affect the business of our collaborators or customers, our
business may also be adversely affected.

OUR USE OF HAZARDOUS MATERIALS MAY SUBJECT US TO SIGNIFICANT ENVIRONMENTAL
RISKS.

     We use hazardous materials in our research and development activities. As a
result, we are subject to federal, state and local laws and regulations
governing the use, manufacture, storage, handling and disposal of hazardous
materials. The risk of accidental contamination or injury exists. If an accident
occurs, we could be responsible for any damages and the amount of the damages
could exceed our resources. In addition, we may incur 

                                       12
<PAGE>   15

significant costs to comply with environmental laws and regulations in the
future. Any of these events could adversely affect our business.

THE MARKET PRICE OF OUR COMMON STOCK IS VOLATILE AND YOU MAY NOT BE ABLE TO MAKE
A RETURN ON YOUR INVESTMENT.

     The market price of our common stock is likely to be volatile and could
fluctuate widely in response to many factors, including:

     -    announcements of new technologies or products by us or our
          competitors,

     -    developments concerning patents or other proprietary rights,

     -    publicity regarding the status of compounds we or our collaborators
          are developing,

     -    regulatory developments, both in the United States and foreign
          countries,

     -    public concern about the effectiveness of new technologies,

     -    changes in expectations of securities analysts concerning our company
          or our industry in general;

     -    quarterly fluctuations in our revenues and financial results, and

     -    general market conditions.

     As a result, our operating results may be below the expectations of market
analysts and investors, which could reduce the market price of our common stock.

     The stock market has experienced extreme price and volume fluctuations that
have particularly affected the market prices of the securities of many companies
in our industry. Often, these fluctuations have been unrelated or
disproportionate to the operating performance of the companies. These market
fluctuations, as well as general economic, political and market conditions, may
reduce the market price of our common stock. In addition, in the past,
securities class action litigation has often been instituted following periods
of volatility in the market prices of securities. If we face such litigation in
the future, it would be costly and time consuming and could adversely affect our
business.

OUR CHARTER, DELAWARE LAW AND CONTRACT PROVISIONS MAY PREVENT OR DELAY A CHANGE
OF CONTROL WHICH MAY NOT BE IN THE BEST INTERESTS OF OUR STOCKHOLDERS.

     Provisions of our charter and stock options, as well as provisions of
Delaware law, could delay or impede the removal of incumbent directors and could
make more difficult a merger, tender offer or proxy contest involving us, even
if the events could be beneficial to our stockholders. These provisions could
also limit the price that investors might be willing to pay for our common
stock. Our charter also authorizes our Board of Directors to issue shares of
undesignated preferred stock without stockholder approval on terms that the
Board may determine. The issuance of preferred stock could decrease the amount
of earnings and assets available for distribution to our other stockholders or
otherwise adversely affect the rights and powers, including voting rights, of
our other stockholders. Moreover, the issuance of preferred stock may make it
more difficult for another party to acquire, or may discourage another party
from acquiring, voting control of us.

WE MAY NOT BE SUCCESSFUL IN RESOLVING ALL OUR YEAR 2000 ISSUES THAT COULD HAVE
AN ADVERSE EFFECT ON OUR BUSINESS.

     The year 2000 issue refers to the inability of certain date-sensitive
computer chips, software, and systems to recognize a two-digit date field as
belonging to the 21st century. This is a significant issue for most, if not all
companies, with far reaching implications, some of which cannot be anticipated
or predicted with any degree of certainty. The year 2000 issue may create
unforeseen risks to us from our internal computer systems as well as from
computer systems of others with whom we deal. Any failure of our and/or others'
computer systems could 

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<PAGE>   16

adversely affect our business. For a more complete description of the status of
our year 2000 readiness program and contingency plans we have instituted, please
see Part I, Item 2 - "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Year 2000 Issue."

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The information called for by this item has not changed materially since
December 31, 1998. Please see Part I, Item 7A of our annual report on Form 10-K
for the fiscal year ended December 31, 1998 for a discussion of our disclosures
about market risk.

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<PAGE>   17

PART II - OTHER INFORMATION


ITEM 1. LEGAL PROCEEDINGS

     None


ITEM 2. CHANGE IN SECURITIES AND USE OF PROCEEDS

     (a)  None

     (b)  None

     (c)  In February 1999, we issued a common stock purchase warrant
          exercisable into 180,000 shares of common stock at an exercise price
          of $8.00 per share. The warrant was issued to our new landlord in
          connection with the execution of a lease agreement. The warrant first
          becomes exercisable on the commencement date of the lease agreement
          and expires on February 22, 2006. The above securities were offered
          and sold by us in reliance upon exemptions from registration pursuant
          to Section 4(2) of the Securities Act of 1933 as transactions not
          involving any public offering. No underwriters were involved in
          connection with the sales of securities referred to in this Item 2.

     (d)  A Registration Statement on Form S-1 (File No. 333-37981) registering
          2,587,500 shares of common stock filed in connection with our initial
          public offering for an aggregate offering of $20.7 million was
          declared effective by the SEC on May 7, 1998. As of March 31, 1999,
          none of the net offering proceeds has been used.


ITEM 3. DEFAULTS UPON SENIOR SECURITIES

     None


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

     None


ITEM 5. OTHER INFORMATION

     None


ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

          a.   Exhibits

               3.1+   Amended and Restated Certificate of Incorporation
                      of the Company, previously filed as Exhibit 3.2 on
                      Form S-1, File No. 333-37981, and incorporated
                      herein by reference.

               3.2+   Restated Bylaws of the Company, previously filed as
                      Exhibit 3.4 on Form S-1, File No. 333-37981, and
                      incorporated herein by reference.

               10.68  Lease agreement between LMC-Shoreham Investment
                      Company, LLC, Convoy Court Investment Company, LLC,
                      and CombiChem, Inc., dated February 23, 1999.

               10.69  Common Stock Purchase Warrant between the Company
                      and Lee M. Chestnut, dated February 23, 1999.

               27.1   Financial Data Schedules.

          b.   None.

+    Incorporated by reference to the same-numbered exhibit (except as otherwise
     indicated) to the Company's Registration Statement on Form S-1 (No.
     333-37981), as amended.

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<PAGE>   18

                                 COMBICHEM, INC.

                                   SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.


                                        CombiChem, Inc.



Date:  May 14, 1999                     By: /s/ VICENTE ANIDO, JR. 
       -------------                        ------------------------------------
                                            Vicente Anido, Jr., Ph.D.
                                            President, Chief Executive Officer
                                              and Acting Chief Financial Officer
                                              (Principal Financial and 
                                              Accounting Officer)

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