<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 June 30, 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)

<TABLE>
<CAPTION>
                DELAWARE                                    33-0617379
     ------------------------------                   ----------------------
<S>                                                   <C>
    (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)
</TABLE>

      REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE IS (858) 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.

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


As of August 13, 1999, there were 13,489,593 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  June 30, 1999 (unaudited)

        and December 31, 1998                                                             3

        Condensed Statements of Operations (unaudited) for the Three and Six Months
        Ended June 30, 1999 and 1998                                                      4

        Condensed Statements of Cash Flows (unaudited) for the
        Six Months Ended June 30, 1999 and 1998                                           5

        Notes To Condensed Financial Statements                                           6

Item 2. Management's Discussion and Analysis of Financial Condition and Results
        of Operations                                                                     7

Item 3. Quantitative and Qualitative Disclosures About Market Risk                       15


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*                                                 16

Item 4. Submission of Matters to a Vote of Security Holders                              16

Item 5. Other Information*                                                               16

Item 6. Exhibits and Reports on Form 8-K                                                 16
</TABLE>
----------
*    Not Applicable


                                       2
<PAGE>   3

                                 COMBICHEM, INC.
                            CONDENSED BALANCE SHEETS
                                 (In Thousands)

<TABLE>
<CAPTION>
                                                                          JUNE 30,      DECEMBER 31,
                                                                            1999          1998
                                                                        ---------       ----------
                                                                       (UNAUDITED)        (NOTE)
<S>                                                                     <C>              <C>
ASSETS
Current assets
   Cash and cash equivalents                                            $  15,878        $ 20,334
   Short-term investments                                                   8,049           9,025
   Accounts receivable                                                        144           2,892
   Prepaid expenses and other current assets                                1,328           1,310
                                                                        ---------        --------
       Total current assets                                                25,399          33,561

 Property and equipment, net                                                7,873           7,902
 Restricted cash                                                              279             279
 Deposits and other assets                                                    824             238
 Notes receivable from employees                                               71              --
                                                                        ---------        --------
               Total assets                                             $  34,446        $ 41,980
                                                                        =========        ========

 LIABILITIES AND STOCKHOLDERS' EQUITY
 Current liabilities
   Accounts payable and accrued expenses                                $   1,307        $  1,102
   Accrued liabilities                                                        943           1,295
   Deferred revenue                                                         2,239           3,193
   Current portion of obligations under capital leases                      2,205           1,825
                                                                        ---------        --------
     Total current liabilities                                              6,694           7,415

 Deferred rent                                                                 32             142
 Obligations under capital leases, less current portion                     3,725           4,246

 Stockholders' equity:

   Preferred stock, $.001 par value, 5,000,000 shares authorized;
     no shares issued or outstanding at June 30, 1999 or December 31,
     1998                                                                      --              --

   Common stock, $.001 par value, 40,000,000 shares authorized;
     13,443,863 and 13,399,201 shares issued and outstanding at
     June 30, 1999 and December 31, 1998, respectively                         13              13
   Additional paid-in capital                                              52,071          51,862
   Notes receivable from employees                                           (361)           (425)
   Deferred compensation                                                     (920)         (1,140)
   Accumulated deficit                                                    (26,808)        (20,133)
                                                                        ---------        --------
     Total stockholders' equity                                            23,995          30,177
                                                                        ---------        --------
     Total liabilities and stockholders' equity                         $  34,446        $ 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


                                       3
<PAGE>   4

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

<TABLE>
<CAPTION>
                                                     THREE MONTHS ENDED                          SIX MONTHS ENDED
                                                          JUNE 30,                                    JUNE 30,
                                               ---------------------------                 ----------------------------
                                                  1999              1998                     1999                1998
                                               ---------------------------                 ----------------------------
                                                       (Unaudited)                                  (Unaudited)
<S>                                             <C>               <C>                      <C>                 <C>
Revenues:
     Project initiation fees and
          milestone payments                    $    300          $  2,300                 $    375            $  3,050
     Research and development
          funding                                  2,254             2,083                    4,497               3,955
     Joint venture service revenue                   665                --                    1,265                  --
                                                --------          --------                 --------            --------
          Total revenue                            3,219             4,383                    6,137               7,005

Expenses:
     Research and development
          Collaborative                            2,723             2,327                    5,232               4,250
          Proprietary                              1,697             1,400                    3,236               2,715
                                                --------          --------                 --------            --------
                                                   4,420             3,727                    8,468               6,965
     General and administrative                    1,467             1,117                    2,669               2,009
     Joint venture service expense                   665                --                    1,265                  --
                                                --------          --------                 --------            --------
          Total operating expenses                 6,552             4,844                   12,402               8,974
                                                --------          --------                 --------            --------
Loss from operations                              (3,333)             (461)                  (6,265)             (1,969)
Interest income                                      305               290                      665                 525
Interest expense                                    (135)             (136)                    (275)               (257)
Foreign tax expense                                   --                --                       --                 (30)
Equity in net loss of 50%
     owned joint ventures                           (375)               --                     (800)                 --
                                                --------          --------                 --------            --------
Net loss                                        $ (3,538)         $   (307)                $ (6,675)           $ (1,731)
                                                ========          ========                 ========            ========
Net loss per share                              $  (0.27)         $  (0.03)                $  (0.52)           $  (0.16)
                                                ========          ========                 ========            ========
Shares used in calculating
     net loss per share                           13,086            11,464                   12,916              10,799
                                                ========          ========                 ========            ========
</TABLE>

                             See accompanying notes


                                       4
<PAGE>   5


                                 COMBICHEM, INC.
                        CONDENSED STATEMENTS OF CASH FLOW
                                 (In Thousands)

<TABLE>
<CAPTION>
                                                                   SIX MONTHS ENDED JUNE 30,
                                                                   ------------------------
                                                                      1999          1998
                                                                   ---------     ----------
                                                                  (Unaudited)   (Unaudited)
<S>                                                               <C>           <C>
Cash flows from operating activities:
        Net loss                                                   $ (6,675)     $ (1,731)
        Adjustments to reconcile net loss to net cash
        used in operating activities
             Depreciation and amortization                            1,078           837
             Amortization of premium on short-term investments           42            --
             Deferred rent                                             (110)           25
             Deferred revenue                                          (953)          753
             Amortization of deferred compensation                      220           221
             Change in operating assets and liabilities:
                Accounts receivable                                   2,748          (735)
                Prepaid expenses and other current assets                17           (40)
                Accounts payable and accrued liabilities               (146)         (273)
                                                                   --------      --------
                Net cash used in operating activities                (3,779)         (943)

Cash flows from investing activities:

        Purchases of short-term investments                          (8,066)       (7,677)
        Maturities of short-term investments                          9,000         7,530
        Purchase of accrued interest on short-term investments          (32)           --
        Purchases of property and equipment                          (1,047)       (2,205)
        Deposits and other assets                                      (585)           --
        Notes receivable from employees                                 (71)            5
                                                                   --------      --------
                Net cash used in investing activities                  (801)       (2,347)

Cash flows from financing activities:

        Advances on capital lease obligations                         1,068         1,355
        Principal repayments on capital lease obligations            (1,217)         (829)
        Receipt of payment on notes from employees                       64            29
        Deferred public offering costs                                   --          (685)
        Issue of common stock, net of repurchased shares                209        17,559
                                                                   --------      --------
                Net cash provided by financing activities               124        17,429

Net (decrease) increase in cash and cash equivalents                (4,456)       14,139
Cash and cash equivalents at beginning of period                     20,334         5,867
                                                                   --------      --------
Cash and cash equivalents at end of period                         $ 15,878      $ 20,006
                                                                   ========      ========
</TABLE>

                             See accompanying notes


                                       5
<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 Ventures

     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
six months ended June 30, 1999, the Company earned $1.3 million related to
reimbursement for expenses incurred on behalf of the joint venture and
recognized a $0.8 million loss for its equity in the loss of the joint venture.

     Additionally, the Company owns a 50% interest in Aperion LLC, a limited
liability corporation formed to provide catalytic-based combinatorial discovery
services to the materials and process industries. Pursuant to the terms and
conditions of the agreement entered into with Catalytica Advanced Technologies,
Inc., the Company, through its proprietary and patented technologies, will
provide rapid screening of catalysts and evaluation of processes and products
that are designed to optimize the manufacture of a wide variety of important
industrial products. Aperion LLC, was established in June 1999 and has no
material financial impact for the reporting period ending June 30, 1999.


                                       6
<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 could potentially be outlicensed
to third parties, while retaining a larger economic interest. Additionally, we
further broadened the application of our technology by establishing 2 joint
ventures, ChiroChem Discovery Services, LLC, established in December 1998 and
Aperion LLC, established in June 1999. ChiroChem Discovery Services LLC, our
50%-owned joint venture with Chirotech Technology, Ltd., a member of the
Chiroscience Group of companies, was established to develop and sell
specifically designed chiral compound libraries. Aperion LLC, our 50%-owned
joint venture with Catalytica Advanced Technologies, Inc., a subsidiary of
Catalytica, Inc., was established to provide catalytic-based combinatorial
discovery services to the materials and process industries.

     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 $26.8 million through June 30, 1999. Losses have resulted
principally from costs incurred in research and development 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


                                       7
<PAGE>   8

on our ability to market our technology and capabilities to pharmaceutical,
biotechnology, agrochemical, and materials science companies.

RESULTS OF OPERATIONS

THREE AND SIX MONTHS ENDED JUNE 30, 1999 AND 1998

     Revenues

     Revenues for the three and six months ended June 30, 1999 were $3.2 million
and $6.1 million, respectively, down from $4.4 million and $7.0 million for the
same periods in 1998. For the six month period ended June 30,1999, a $2.7
million decrease in project initiation fees and milestone payments were offset
by a $1.8 million increase in revenue due to an increased number of projects in
the active collaboration phase and reimbursement of costs incurred on behalf of
ChiroChem Discovery Services, LLC.


     Operating Expenses

     Research and development expenses for the three and six months ended June
30, 1999 were $4.4 million and $8.5 million, respectively, compared to $3.7
million and $7.0 million for the same periods in 1998. For both the three and
six months ended June 30, 1999, research and development costs incurred on
behalf of our collaborators increased by $0.4 million and $1.0 million,
respectively, due to an increase in the number of projects in the active
collaboration phase. During the three and six months ended June 30, 1999, our
research and development costs for the advancement of our proprietary
technologies increased by $0.3 million and $0.5 million, respectively, as we
further expanded the application of our technologies into new fields. 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 and six months ended June
30, 1999 were $1.5 million and $2.7 million, respectively, up from $1.1 million
and $2.0 million for the same periods in 1998. Increases in expenses for both
the three and six months ended June 30, 1999, were primarily related to the
expansion of both the size and activities of our business development group and
CombiChem's being a public company for a full six months as of June 30, 1999
versus only two months as of June 30, 1998.

     In conjunction with supporting the operations of our 50%-owned joint
venture, ChiroChem Discovery Services, other operating expenses were $0.7
million and $1.3 million for the three and six months ended June 30, 1999.
These operating expenses were entirely reimbursed by the joint venture.

     Interest Income/Expense

     Interest income totaled $0.3 million and $0.7 million in the three and six
months ended June 30, 1999, as compared to $0.3 million and $0.5 million for the
same period in 1998. The increase for both the three and six months ended June
30, 1999, is a result of higher average balances of cash, cash equivalents and
short-term investments during the first half of 1999. Interest expense relates
to our capital lease obligations.

     Net Loss

     For the three and six months ended June 30, 1999, our net losses were $3.5
million and $6.7 million, respectively, up from $0.3 million and $1.7 million
for the same periods in 1998. The increased losses are attributable to decreased
revenues and increased research and development and general and administrative
expenses as discussed above. In addition, we reported losses of $0.4 million and
$0.8 million for the three and six months ended June 30, 1999 for our 50% equity
interest in ChiroChem Discovery Services.

LIQUIDITY AND CAPITAL RESOURCES

     From inception through June 30, 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. In May


                                       8
<PAGE>   9

1998, we raised approximately $16.2 million in net cash proceeds from our
initial public offering of common stock. At June 30, 1999, we had cash, cash
equivalents and short-term investments of approximately $23.9 million compared
to $29.4 million at December 31, 1998. The decrease in cash, cash equivalents
and short-term investments during the six months ended June 30, 1999 is largely
due to cash used in operating activities. Cash used in operating activities for
the six months ended June 30, 1999 include a $6.7 million operating loss
partially offset by $2.7 million of advance payments collected from
collaborators.

Working capital at June 30, 1999 was $18.7 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 June 30, 1999, we had utilized $10.9 million of an available $11.4 million
financing facility. We expect that the net proceeds from our initial public
offering 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 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 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 95% complete.

     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


                                       9
<PAGE>   10

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
June 30, 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.

    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


                                       10
<PAGE>   11

     -    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.

     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


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<PAGE>   12

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 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 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.


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<PAGE>   13

     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 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,


                                       13
<PAGE>   14

     -    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 the drug and biotechnology 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 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.


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<PAGE>   15

     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 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 Company's investment portfolio consists of short-term, high quality
debt securities. These securities are subject to interest rate risk, and will
decline in value if interest rates increase. An immediate 10% change in interest
rates would not have a material impact on our financial condition or results of
operations


PART II -- OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

     None

ITEM 2. CHANGE IN SECURITIES AND USE OF PROCEEDS

     (a)  None

     (b)  None

     (c)  None


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<PAGE>   16

     (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 June 30, 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

     On May 6, 1999, the Company held its Annual Meeting of Stockholders. As of
March 31, 1999, the record date, 13,450,421 shares were entitled to vote at the
annual meeting. Of these 13,450,421 shares, 6,291,521 were not voted. The
following actions were taken at the annual meeting:

1.   The following Directors were elected:

     a.   Peter L. Myers, Ph.D. 7,124,923 shares voted in favor of the nominee,
          77,543 shares voted against the nominee.

     b.   Michael J. Pazzani, Ph.D. 7,135,423 shares voted in favor of the
          nominee, 67,043 shares voted against the nominee.

     c.   The following directors continue in office for their existing terms:
          Vicente Anido, Jr., Ph.D.
          Philippe O. Chambon, M.D., Ph.D.
          Arthur Reidel
          William Scott, Ph.D.

2.   A proposal to amend the Company's 1997 Stock Incentive Plan (the "1997
     Plan") to increase the number of shares authorized for issuance thereunder
     by 1,000,000 shares. 5,082,530 shares were voted in favor of the proposal,
     85,748 shares were voted against the proposal, 276,688 shares abstained and
     1,757,770 shares were not voted (includes broker non-votes).

3.   The selection of Ernst & Young LLP as the Company's independent auditor was
     ratified. 7,199,016 shares were voted in favor of the proposal, 1,000
     shares were voted against the proposal, 2,450 shares abstained and 0 shares
     were not voted (includes broker non-votes).


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.

                10.70*  Collaborative Agreement by and between ICOS Corporation
                        and CombiChem, Inc., dated May 7, 1999.

                10.71*  Services Agreement by and between Catalytica Advanced
                        Technologies, Inc., CombiChem Inc., and Aperion, LLC
                        dated June 15, 1999.

                10.72*  License agreement between Aperion LLC., and CombiChem,
                        Inc., dated June 15, 1999.


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<PAGE>   17

                10.73*  Limited Liability Company Operating Agreement of Aperion
                        LLC, between Catalytica Advanced Technologies, Inc., and
                        CombiChem Inc., and Aperion, LLC dated June 15, 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.

*    Certain confidential portions of this Exhibit were omitted by means of
     redacting a portion of the text (the "Mark"). This Exhibit has been filed
     separately with the Secretary of the Commission without the Mark pursuant
     to the Company's application requesting confidential treatment under Rule
     406 under the Securities Act.


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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: August 16, 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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