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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

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FORM 10-Q

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(Mark One)

||X|  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE 
|-------------------------------------------------------------
|SECURITIES EXCHANGE ACT OF 1934                              
|For the quarterly period ended September 30, 2004            
|OR                                                           
||_|  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
|SECURITIES EXCHANGE ACT OF 1934                              
|For the transition period from  to .                         
|                                                             
|Commission file number 0-28494                               
|MILLENNIUM PHARMACEUTICALS, INC.                             
|(Exact name of registrant as specified in its charter)       

|Delaware                                                      |  | 04-3177038                         
|------------------------------------------------------------- |  | -----------------------------------
|(State or other jurisdictionof incorporation or organization) |  | (I.R.S. EmployerIdentification No.)

40 Landsdowne Street, Cambridge, Massachusetts 02139
(Address of principal executive offices) (zip code)

(617)  679-7000
(Registrant's telephone number, including area code)

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

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes |X| No |_|

Number of shares of the registrant's Common Stock, $0.001 par value, outstanding on November 4, 2004: 305,960,455

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MILLENNIUM PHARMACEUTICALS, INC.

FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 30, 2004

TABLE OF CONTENTS

|        |                                                                                                                 | Page | 
|------- | --------------------------------------------------------------------------------------------------------------- | ---- | 
|PART I  | FINANCIAL INFORMATION                                                                                           |      | 
|        |                                                                                                                 |      | 
|Item 1. | Condensed Consolidated Financial Statements                                                                     |      | 
|        |                                                                                                                 |      | 
|        | Condensed Consolidated Balance Sheets as of
September 30, 2004 and December 31, 2003                            | 3    | 
|        |                                                                                                                 |      | 
|        | Condensed Consolidated Statements of Operations for the
three and nine months ended September 30, 2004 and 2003 | 4    | 
|        |                                                                                                                 |      | 
|        | Condensed Consolidated Statements of Cash Flows for thenine months ended September 30, 2004 and 2003            | 5    | 
|        |                                                                                                                 |      | 
|        | Notes to Condensed Consolidated Financial Statements                                                            | 6    | 
|        |                                                                                                                 |      | 
|Item 2. | Management's Discussion and Analysis of Financial
Condition and Results of Operations                           | 15   | 
|        |                                                                                                                 |      | 
|        | Risk Factors That May Affect Results                                                                            | 26   | 
|        |                                                                                                                 |      | 
|Item 3. | Quantitative and Qualitative Disclosures About Market Risk                                                      | 38   | 
|        |                                                                                                                 |      | 
|Item 4. | Controls and Procedures                                                                                         | 38   | 
|        |                                                                                                                 |      | 
|PART II | OTHER INFORMATION                                                                                               |      | 
|        |                                                                                                                 |      | 
|Item 6. | Exhibits and Reports on Form 8-K                                                                                | 39   | 
|        |                                                                                                                 |      | 
|        | Signatures                                                                                                      | 40   | 
|        |                                                                                                                 |      | 
|        | Exhibit Index                                                                                                   | 41   | 
|        |                                                                                                                 |      | 

The following Millennium
trademarks are used in this Quarterly Report on Form 10-Q:Millennium®, the
Millennium M logo and design (registered), Millennium Pharmaceuticals,
VELCADE® (bortezomib) for Injection, and INTEGRILIN® (eptifibatide) Injection. All
are covered by registrations or pending applications for registration in the U.S. Patent
and Trademark Office and many other countries. Campath® is a registered trademark of
ILEX Pharmaceuticals, L.P., ReoPro® (abciximab) is a trademark of Eli Lilly &
Company, Aggrastat® (tirofiban) is a trademark of Merck & Co., Inc., Thalomid®
(thalidomide) is a trademark of Celgene Corporation and Angiomax® (bivalirudin) is a
trademark of The Medicines Company. Other trademarks used in this Quarterly Report on
Form 10-Q are the property of their respective owners.

2

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PART I     FINANCIAL INFORMATION

Item 1.    Condensed Consolidated Financial Statements

Millennium Pharmaceuticals, Inc.Condensed Consolidated Balance Sheets

|                                                                                                                                                               | September 30, 2004 |  | December 31, 2003 |           
|-------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------ |  | ----------------- | ----------
|
|
|
|Current assets:                                                                                                                                                |                    |  |                   |           
|Cash and cash equivalents                                                                                                                                      |                    |  | $                 | 5,465     
|Marketable securities                                                                                                                                          |                    |  |                   | 756,151   
|Accounts receivable                                                                                                                                            |                    |  |                   | 96,264    
|Inventory                                                                                                                                                      |                    |  |                   | 100,590   
|Prepaid expenses and other current assets                                                                                                                      |                    |  |                   | 22,509    
|                                                                                                                                                               |                    |  |                   |           
|Total current assets                                                                                                                                           |                    |  |                   | 980,979   
|Property and equipment, net                                                                                                                                    |                    |  |                   | 220,426   
|Restricted cash                                                                                                                                                |                    |  |                   | 16,121    
|Other assets                                                                                                                                                   |                    |  |                   | 15,651    
|Goodwill                                                                                                                                                       |                    |  |                   | 1,203,020 
|Developed technology, net                                                                                                                                      |                    |  |                   | 347,163   
|Intangible assets, net                                                                                                                                         |                    |  |                   | 62,551    
|                                                                                                                                                               |                    |  |                   |           
|Total assets                                                                                                                                                   |                    |  | $                 | 2,845,911 
|                                                                                                                                                               |                    |  |                   |           
|                                                                                                                                                               |                    |  |                   |           
|Liabilities and Stockholders Equity                                                                                                                           |                    |  |                   |           
|Current liabilities:                                                                                                                                           |                    |  |                   |           
|Accounts payable                                                                                                                                               |                    |  | $                 | 27,050    
|Accrued expenses                                                                                                                                               |                    |  |                   | 99,981    
|Other current liabilities                                                                                                                                      |                    |  |                   | 87,595    
|Current portion of capital lease obligations                                                                                                                   |                    |  |                   | 11,447    
|                                                                                                                                                               |                    |  |                   |           
|Total current liabilities                                                                                                                                      |                    |  |                   | 226,073   
|Other long term liabilities                                                                                                                                    |                    |  |                   | 69,286    
|Capital lease obligations, net of current portion                                                                                                              |                    |  |                   | 82,424    
|Long term debt, net of current portion                                                                                                                         |                    |  |                   | 105,461   
|                                                                                                                                                               |                    |  |                   |           
|Commitments and contingencies                                                                                                                                  |                    |  |                   |           
|                                                                                                                                                               |                    |  |                   |           
|Stockholders equity:                                                                                                                                          |                    |  |                   |           
|Preferred Stock, $0.001 par value; 5,000 shares authorized, noneissued                                                                                         |                    |  |                   |          
|Common Stock, $0.001 par value; 500,000 shares authorized:
305,484 shares at September 30, 2004 and 302,291 shares at December 31, 2003 issued and outstanding |                    |  |                   | 305       
|Additional paid-in capital                                                                                                                                     |                    |  |                   | 4,539,897 
|Deferred compensation                                                                                                                                          |                    |  |                   |          
|Accumulated other comprehensive income                                                                                                                         |                    |  |                   | (3,453    
|Accumulated deficit                                                                                                                                            |                    |  |                   | (2,174,082
|                                                                                                                                                               |                    |  |                   |           
|Total stockholders' equity                                                                                                                                     |                    |  |                   | 2,362,667 
|                                                                                                                                                               |                    |  |                   |           
|Total liabilities and stockholders' equity                                                                                                                     |                    |  | $                 | 2,845,911 
|                                                                                                                                                               |                    |  |                   |           

The accompanying notes are an integral part of these condensed consolidated financial statements.

3

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Millennium Pharmaceuticals, Inc.Condensed Consolidated Statements of Operations(unaudited)

|                                                                         | Three Months Ended September 30, |  | Nine Months Ended September 30, |        
|------------------------------------------------------------------------ | -------------------------------- |  | ------------------------------- | -------
|
|
|                                                                         |                                  |  |                                 |        
|Revenues:                                                                |                                  |  |                                 |        
|Net product sales                                                        |                                  |  | $                               | 37,668 
|Co-promotion revenue                                                     |                                  |  |                                 | 62,557 
|Revenue under strategic alliances                                        |                                  |  |                                 | 9,749  
|                                                                         |                                  |  |                                 |        
|Total revenues                                                           |                                  |  |                                 | 109,974
|                                                                         |                                  |  |                                 |        
|Costs and expenses:                                                      |                                  |  |                                 |        
|Cost of sales (excludes amortization of      acquired intangible assets) |                                  |  |                                 | 18,630 
|Research and development                                                 |                                  |  |                                 | 98,961 
|Selling, general and administrative                                      |                                  |  |                                 | 45,903 
|Restructuring                                                            |                                  |  |                                 | (414   
|Amortization of intangibles                                              |                                  |  |                                 | 8,378  
|                                                                         |                                  |  |                                 |        
|Total costs and expenses                                                 |                                  |  |                                 | 171,458
|                                                                         |                                  |  |                                 |        
|Loss from operations                                                     |                                  |  |                                 | (61,484
|                                                                         |                                  |  |                                 |        
|Other income (expense):                                                  |                                  |  |                                 |        
|Investment income, net                                                   |                                  |  |                                 | 1,115  
|Interest expense                                                         |                                  |  |                                 | (2,725 
|Gain on sale of equity interest in joint venture                         |                                  |  |                                 |       
|Debt financing charge                                                    |                                  |  |                                 |       
|                                                                         |                                  |  |                                 |        
|Net loss                                                                 |                                  |  | $                               | (63,094
|                                                                         |                                  |  |                                 |        
|Amounts per common share:                                                |                                  |  |                                 |        
|Net loss per share, basic and diluted                                    |                                  |  | $                               | (0.21  
|                                                                         |                                  |  |                                 |        
|Weighted average shares, basic and diluted                               |                                  |  |                                 | 305,202
|                                                                         |                                  |  |                                 |        

The accompanying notes are an integral part of these condensed consolidated financial statements.

4

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Millennium Pharmaceuticals, Inc.Condensed Consolidated Statements of Cash Flows(unaudited)

|                                                                                                                 | Nine Months Ended September 30, | 
|---------------------------------------------------------------------------------------------------------------- | ------------------------------- | 
|
|
|                                                                                                                 |                                 | 
|Cash Flows from Operating Activities:                                                                            |                                 | 
|Net loss                                                                                                         |                                 | 
|Adjustments to reconcile net loss to cashused in operating activities:                                           |                                 | 
|Depreciation and amortization                                                                                    |                                 | 
|Restructuring (reversals) charges, net                                                                           |                                 | 
|Amortization of deferred financing costs                                                                         |                                 | 
|Realized (gain) loss on securities, net                                                                          |                                 | 
|Stock compensation expense                                                                                       |                                 | 
|Changes in operating assets and liabilities:                                                                     |                                 | 
|Accounts receivable                                                                                              |                                 | 
|Inventory                                                                                                        |                                 | 
|Prepaid expenses and other current assets                                                                        |                                 | 
|Restricted cash and other assets                                                                                 |                                 | 
|Accounts payable and accrued expenses                                                                            |                                 | 
|Deferred revenue                                                                                                 |                                 | 
|Other long term liabilities                                                                                      |                                 | 
|                                                                                                                 |                                 | 
|Net cash used in operating activities                                                                            |                                 | 
|                                                                                                                 |                                 | 
|                                                                                                                 |                                 | 
|Cash Flows from Investing Activities:                                                                            |                                 | 
|Investments in marketable securities                                                                             |                                 | 
|Proceeds from sales and maturities of marketable securities                                                      |                                 | 
|Purchases of property and equipment                                                                              |                                 | 
|Other investing activities                                                                                       |                                 | 
|                                                                                                                 |                                 | 
|Net cash provided by (used in) investing activities                                                              |                                 | 
|                                                                                                                 |                                 | 
|                                                                                                                 |                                 | 
|Cash Flows from Financing Activities:                                                                            |                                 | 
|Net proceeds from issuance of common stock                                                                       |                                 | 
|Net proceeds from employee stock purchases                                                                       |                                 | 
|Repayment of principal of long-term debt obligations, including payment of debt premium                          |                                 | 
|Principal payments on capital leases                                                                             |                                 | 
|                                                                                                                 |                                 | 
|Net cash provided by (used in) financing activities                                                              |                                 | 
|                                                                                                                 |                                 | 
|Decrease in cash and cash equivalents                                                                            |                                 | 
|Equity adjustment from foreign currency translation                                                              |                                 | 
|Cash and cash equivalents, beginning of period                                                                   |                                 | 
|                                                                                                                 |                                 | 
|Cash and cash equivalents, end of period                                                                         |                                 | 
|                                                                                                                 |                                 | 
|                                                                                                                 |                                 | 
|Supplemental Cash Flow Information:                                                                              |                                 | 
|Cash paid for interest                                                                                           |                                 | 
|                                                                                                                 |                                 | 
|Supplemental Disclosure of Noncash Investing and Financing Activities:                                           |                                 | 
|Services to be received as consideration in the sale of assets                                                   |                                 | 
|Payment in ILEX stock of contingent consideration on sale of equity interest in Millennium &
ILEX Partners, L.P. |                                 | 
|Construction costs for laboratory and office space                                                               |                                 | 
|Equipment acquired under capital leases                                                                          |                                 | 

The accompanying notes are an integral part of these condensed consolidated financial statements.

5

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# Millennium
Pharmaceuticals, Inc.Notes to Condensed Consolidated Financial Statements

# 1.     Basis of Presentation

The
accompanying condensed consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
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 and revisions of
estimates, considered necessary for a fair presentation of the accompanying condensed
consolidated financial statements have been included. Interim results for the three and
nine months ended September 30, 2004 are not necessarily indicative of the results that
may be expected for the year ended December 31, 2004. For further information, refer to
the financial statements and accompanying footnotes included in the Companys Annual
Report on Form 10-K for the fiscal year ended December 31, 2003, which was filed with the
Securities and Exchange Commission (SEC) on March 10, 2004.

# 2.     Summary of
Significant Accounting Policies

# Cash Equivalents and
Marketable Securities

Cash
equivalents consist principally of money market funds and corporate bonds with maturities
of three months or less at the date of purchase. Marketable securities consist primarily
of investment-grade corporate bonds, asset-backed debt securities and U.S. government
agency debt securities.

Management
determines the appropriate classification of marketable securities at the time of purchase
and reevaluates such designation at each balance sheet date. Marketable securities at
September 30, 2004 and December 31, 2003 are classified as
available-for-sale. Available-for-sale securities are carried at fair value,
with the unrealized gains and losses reported in a separate component of
stockholders equity. The cost of debt securities in this category is adjusted for
amortization of premiums and accretion of discounts to maturity. Such amortization and
accretion are included in investment income. Realized gains and losses and declines in
value judged to be other-than-temporary on available-for-sale securities and other
investments are included in investment income. The cost of securities sold is based on the
specific identification method. Interest and dividends on securities classified as
available-for-sale are included in investment income.

During
the three months ended September 30, 2004 and 2003, the Company recorded realized gains on
marketable securities of $0.5 million and $3.0 million, respectively, and
realized losses on marketable securities and other investments of $5.1 million and
$0.9 million, respectively. During the nine months ended September 30, 2004 and 2003, the
Company recorded realized gains on marketable securities of $1.8 million and $6.1 million,
respectively, and realized losses on marketable securities and other investments of $5.6
million and $3.1 million, respectively.

Segment
Information

Statement
of Financial Accounting Standards (SFAS) No. 131, Disclosures about
Segments of an Enterprise and Related Information (SFAS No. 131),
establishes standards for the way that public business enterprises report information
about operating segments in their financial statements. SFAS No. 131 also establishes
standards for related disclosures about products and services, geographic areas, and major
customers.

The
Company operates in one business segment, which focuses on the research, development and
commercialization of proprietary therapeutic products. All of the Companys product
sales are currently related to sales of VELCADE® (bortezomib) for Injection. All of
the Companys co-promotion revenue is currently related to sales of INTEGRILIN®
(eptifibatide) Injection. The remainder of the Companys total revenues is currently
related to its strategic alliances.

6

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# Millennium
Pharmaceuticals, Inc.Notes to Condensed Consolidated Financial Statements (continued)

Revenues
from Ortho Biotech Products, L.P. (Ortho Biotech) accounted for
approximately 6% and 27% of total revenues for the three months
ended September 30, 2004 and 2003, respectively, and 21% and 11% of total revenues for the
nine months ended September 30, 2004 and 2003, respectively.

Revenues
from Bayer, AG (Bayer) accounted for approximately 2% and 12% of total
revenues for the three months ended September 30, 2004 and 2003, respectively, and 1% and
15% of total revenues for the nine months ended September 30, 2004 and 2003, respectively.

Revenues
from Aventis Pharmaceuticals, Inc. (Aventis) accounted for approximately
1% and 9% of total revenues for the three months ended September 30, 2004 and 2003,
respectively, and 2% and 18% of total revenues for the nine months ended September 30,
2004 and 2003, respectively.

There were no other significant
customers under strategic alliances in the three and nine months ended September 30, 2004
and 2003, respectively.

# Information Concerning
Market and Source of Supply Concentration

INTEGRILIN®
(eptifibatide) Injection has received regulatory approvals in the United States, the
countries of the European Union and a number of other countries for various indications.
The Company and Schering-Plough Ltd. and Schering Corporation (collectively
SGP) co-promote INTEGRILIN in the United States and share any profits and
losses. The Company exclusively licensed to SGP rights to market INTEGRILIN outside of the
United States, and SGP pays the Company royalties based on these sales of INTEGRILIN. In
June 2004, the Company acquired from SGP the rights to market the
product in Europe and entered into a new agreement with GlaxoSmithKline plc (GSK). SGP
continues to co-promote the product in the United States with the Company as well as
exclusively market the product in areas outside of the United States and Europe. Under the
agreement with GSK, GSK will exclusively market INTEGRILIN in Europe upon the approved
transfer of marketing authorizations, which is anticipated to be complete by December
2004. SGP will continue to promote and sell INTEGRILIN in Europe until the transfer is
complete.

The
Company has two manufacturers for the supply of eptifibatide, the raw material necessary
to make INTEGRILIN. The Company has one manufacturer that currently performs fill/finish
services for INTEGRILIN. The Company is qualifying an alternative fill/finish supplier and
has identified an alternative packaging supplier to serve as future sources of supply for
the United States and international markets.

# Inventory

Inventory
consists of currently marketed products and from time to time, product candidates awaiting
regulatory approval which were capitalized based upon managements judgment of
probable near term commercialization. The Company assesses the probability of
commercialization based upon several factors including estimated launch date, time to
manufacturer and shelf life. At September 30, 2004 or December 31, 2003, inventory does
not include amounts for products that have not been approved for sale.

Inventories
are stated at the lower of cost (first in, first out) or market. Inventories are reviewed
periodically for slow-moving or obsolete status based on sales activity, both projected
and historical.

Inventory
consists of the following (in thousands):

|                |  | September 30, 2004 |         | December 31, 2003
|--------------- |  | ------------------ | ------- | -----------------
|Raw materials   |  | $                  | 80,052  |                  
|Work in process |  |                    | 10,081  |                  
|Finished goods  |  |                    | 10,457  |                  
|                |  |                    |         |                  
|                |  | $                  | 100,590 |                  
|                |  |                    |         |                  

7

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# Millennium
Pharmaceuticals, Inc.Notes to Condensed Consolidated Financial Statements (continued)

# Goodwill and Intangible
Assets

Intangible
assets consist of specifically identified intangible assets. Goodwill is the excess of any
purchase price over the estimated fair market value of net tangible assets acquired not
allocated to specific intangible assets.

Intangible
assets consist of the following (in thousands):

|                                    | September 30, 2004 |   | December 31, 2003
|----------------------------------- | ------------------ | - | -----------------
|
|Developed technology                |                    | $ | 435,000          
|                                    |                    |   |                  
|Core technology                     |                    | $ | 18,712           
|Other                               |                    |   | 20,060           
|                                    |                    |   |                  
|Total amortizable intangible assets |                    |   | 38,772           
|Total indefinite-lived trademark    |                    |   | 59,000           
|                                    |                    |   |                  
|                                    |                    | $ | 97,772           
|                                    |                    |   |                  

On
February 12, 2002, the Company acquired COR Therapeutics, Inc. (COR) for an
aggregate purchase price of $1.8 billion. The transaction was recorded as a purchase for
accounting purposes and the Companys consolidated financial statements include
CORs operating results from the date of the acquisition. The purchase price was
allocated, based upon an independent valuation, to the assets purchased and liabilities
assumed based upon their respective fair values, with the excess of the purchase price
over the estimated fair market value of net tangible assets acquired allocated to
in-process research and development, developed technology, trademark and goodwill.

During
the year ended December 31, 2002, the Company recorded a one-time charge of $242.0 million
for acquired in-process research and development representing the estimated fair value
related to five incomplete projects that, at the time of the COR acquisition, had no
alternative future use and for which technological feasibility had not been established.
The most significant purchased research and development project that was in-process at the
date of the acquisition consisted of inhibitors of certain growth factor receptors in the
tyrosine kinase family. These inhibitors have the potential to reduce the narrowing of
blood vessels. Cancers such as certain leukemias appear to harbor activated forms of some
of these receptors. This project represented 62% of the total in-process value and was in
pre-clinical testing at the time of the acquisition. The Company has advanced this project
into Phase I clinical testing. The Company discontinued the remaining four of the five
projects acquired as part of its restructuring efforts.

CORs
developed technology consisted of an existing product, INTEGRILIN® (eptifibatide)
Injection and related patents. This developed technology was determined to be separable
from goodwill and was valued at approximately $435.0 million. Because the INTEGRILIN name
was well recognized in the marketplace and was considered to contribute to the product
revenue, the trademark was determined to be separable from goodwill. The INTEGRILIN
trademark was valued at approximately $59.0 million and is considered to have an infinite
life.

The
excess of the purchase price over the fair value of the net tangible and identifiable
intangible assets was recorded as goodwill. Intangible assets that were not specifically
identifiable, had indeterminate lives or were inherent in the continuing business and
related to the Company as a whole were classified as goodwill. The significant factors
contributing to the existence of goodwill related to company management, a specialized
cardiovascular sales force, market position and operating experience.

Amortization
of intangibles is computed using the straight-line method over the useful lives of the
respective assets as follows:

8

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# Millennium
Pharmaceuticals, Inc.Notes to Condensed Consolidated Financial Statements (continued)

|Developed technology | 13 years     
|-------------------- | -------------
|Core technology      | 4 years      
|Other                | 2 to 12 years

Amortization
expense for the three months ended September 30, 2004 and 2003 was approximately
$8.4 million and $9.7 million, respectively. Amortization expense for the nine
months ended September 30, 2004 and 2003 was approximately $25.1 million and $29.0
million, respectively. In addition, in connection with its restructuring initiative
discussed in Note 3, the Company recognized an impairment charge in the nine months
ended September 30, 2003 of approximately $11.3 million for technology it no longer
intends to pursue.

As
required by SFAS No. 142, Goodwill and Other Intangible Assets, goodwill
and indefinite lived intangible assets are not amortized but are reviewed annually for
impairment, or more frequently if impairment indicators arise. Separable intangible assets
that are not deemed to have an indefinite life are amortized over their useful lives and
reviewed for impairment when events or changes in circumstances suggest that the assets
may not be recoverable. The Company tests for goodwill impairment annually, on
October 1, and whenever events or changes in circumstances suggest that the carrying
amount may not be recoverable.

On
October 1, 2004, the Company performed its annual goodwill impairment test and
determined that no impairment existed on that date. The Company continually monitors
business and market conditions to assess whether an impairment indicator exists. If the
Company were to determine that an impairment indicator exists, it would be required to
perform an impairment test which might result in a material impairment charge to the
statement of operations.

# Revenue Recognition

The
Company recognizes revenue from the sale of its products, co-promotion collaboration and
strategic alliances. The Companys revenue arrangements with multiple elements are
divided into separate units of accounting if certain criteria are met, including whether
the delivered element has stand-alone value to the customer and whether there is objective
and reliable evidence of the fair value of the undelivered items. The consideration
received is allocated among the separate units based on their respective fair values, and
the applicable revenue recognition criteria are applied to each of the separate units.
Advance payments received in excess of amounts earned are classified as deferred revenue
until earned.

Net
product sales

The
Company records product sales of VELCADE® (bortezomib) for Injection when delivery has
occurred, title passes to the customer, collection is reasonably assured and the Company
has no further obligations. Allowances are recorded as a reduction to product sales for
estimated returns and discounts at the time of sale. Costs incurred by the Company for
shipping and handling are recorded in cost of sales.

Co-promotion
revenue

Co-promotion
revenue includes the Companys share of profits from the sale of INTEGRILIN®
(eptifibatide) Injection in co-promotion territories by SGP. Also included in co-promotion
revenue are reimbursements from SGP of the Companys manufacturing-related costs,
development costs, advertising and promotional expenses associated with the sale of
INTEGRILIN within co-promotion territories and royalties from SGP on sales of INTEGRILIN
outside of the co-promotion territory. The Company recognizes revenue when SGP ships
INTEGRILIN to wholesalers and records it net of allowances, if any. The Company defers
certain manufacturing-related expenses until the time SGP ships related product to its
customers inside and outside of co-promotion territories. Deferred revenue also includes
cash advances from SGP to the Company for the Companys prepayments to its
manufacturers of INTEGRILIN.

9

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# Millennium
Pharmaceuticals, Inc.Notes to Condensed Consolidated Financial Statements (continued)

Revenue
under strategic alliances

The
Company recognizes revenue from nonrefundable license payments, milestone payments,
royalties and reimbursement of research and development costs. Nonrefundable upfront fees
for which no further performance obligations exist are recognized as revenue on the
earlier of when payments are received or collection is assured.

Nonrefundable
upfront licensing fees and certain guaranteed, time-based payments that require continuing
involvement in the form of research and development, manufacturing or other
commercialization efforts by the Company are recognized as revenue:

| |  |  | ratably over the development period if development risk is significant,                                                                  
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------
| |   |  |                                                                                                                                          
| |  |  | ratably over the manufacturing period or estimated product useful life if development risk has been
         substantially eliminated, or
| |   |  |                                                                                                                                          
| |  |  | based upon the level of research services performed during the period of the research contract.                                          

Milestone
payments are recognized as revenue when the performance obligations, as defined in the
contract, are achieved. Performance obligations typically consist of significant
milestones in the development life cycle of the related technology, such as initiation of
clinical trials, filing for approval with regulatory agencies and approvals by regulatory
agencies.

Royalties
are recognized as revenue when earned.

Reimbursements
of research and development costs are recognized as revenue as the related costs are
incurred.

# Advertising and
Promotional Expenses

Advertising
and promotional expenses are expensed as incurred. During the three months ended September
30, 2004 and 2003, advertising and promotional expenses were $8.9 million and
$5.5 million, respectively. During the nine months ended September 30, 2004 and 2003,
advertising and promotional expenses were $28.6 million and $20.2 million,
respectively.

# Net Loss Per Common Share

Basic
net loss per common share is computed using the weighted average number of common shares
outstanding during the period. Diluted net loss per common share is typically computed
using the weighted average number of common and dilutive common equivalent shares from
stock options, warrants and convertible debt using the treasury stock method. However, for
all periods presented, diluted net loss per share is the same as basic net loss per share
as the inclusion of weighted average shares of common stock issuable upon the exercise of
stock options, warrants and convertible debt would be antidilutive.

# Comprehensive Loss

Comprehensive
loss is composed of net loss, unrealized gains and losses on marketable securities and
cumulative foreign currency translation adjustments. The following table displays
comprehensive loss (in thousands):

|                                                | Three Months EndedSeptember 30, |         | Nine Months EndedSeptember 30, |  
|----------------------------------------------- | ------------------------------- | ------- | ------------------------------ | -
|
|Net loss                                        | $                               | (63,094 | )                              | $
|Unrealized gain (loss) on marketable securities |                                 | 2,478   |                                |  
|Cumulative translation adjustments              |                                 | 99      |                                |  
|                                                |                                 |         |                                |  
|Comprehensive loss                              | $                               | (60,517 | )                              | $
|                                                |                                 |         |                                |  

10

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# Millennium
Pharmaceuticals, Inc.Notes to Condensed Consolidated Financial Statements (continued)

The components of accumulated other
comprehensive income (loss) were as follows (in thousands):

|                                                | September 30, 2004 |        | December 31, 2003 |  
|----------------------------------------------- | ------------------ | ------ | ----------------- | -
|Unrealized gain (loss) on marketable securities | $                  | (3,197 | )                 | $
|Cumulative translation adjustments              |                    | (256   | )                 |  
|                                                |                    |        |                   |  
|Accumulated other comprehensive income (loss)   | $                  | (3,453 | )                 | $
|                                                |                    |        |                   |  

# Stock-Based Compensation

The
Company follows the intrinsic value method under Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees (APB 25) and
related interpretations, in accounting for its stock-based compensation plans, rather than
the alternative fair value accounting method provided for under SFAS No. 123,
Accounting for Stock-Based Compensation (SFAS No. 123). Under
APB 25, when the exercise price of options granted equals the market price of the
underlying stock on the date of grant, no compensation expense is recognized. In
accordance with Emerging Issues Task Force (EITF) 96-18, the Company records
compensation expense equal to the fair value of options granted to non-employees over the
vesting period, which is generally the period of service.

The
following table illustrates the effect on net loss and loss per share if the Company had
applied the fair value recognition provisions of SFAS No. 123 to stock-based employee
compensation (in thousands, except per share amounts):

|                                                                                                       | Three Months EndedSeptember 30, |         | Nine Months EndedSeptember 30, |  
|------------------------------------------------------------------------------------------------------ | ------------------------------- | ------- | ------------------------------ | -
|
|Net loss                                                                                               | $                               | (63,094 | )                              | $
|Add: Stock-based compensation as reported in the Statement of Operations                               |                                 |        |                                |  
|Deduct: Total stock-based compensation expense determined under fair value based method for all awards |                                 | (14,276 | )                              |  
|                                                                                                       |                                 |         |                                |  
|Pro forma net loss                                                                                     | $                               | (77,370 | )                              | $
|                                                                                                       |                                 |         |                                |  
|Amounts per common share:                                                                              |                                 |         |                                |  
|Basic and diluted - as reported                                                                        | $                               | (0.21   | )                              | $
|Basic and diluted - pro forma                                                                          | $                               | (0.25   | )                              | $

The
weighted-average per share fair value of options granted during the three months ended
September 30, 2004 and 2003 was $6.87 and $9.64, respectively, and during the nine months
ended September 30, 2004 and 2003 was $9.02 and $7.23, respectively.

The
fair value of stock options and common shares issued pursuant to the stock option and
stock purchase plans at the date of grant were estimated using the Black-Scholes model
with the following weighted-average assumptions:

11

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# Millennium
Pharmaceuticals, Inc.Notes to Condensed Consolidated Financial Statements (continued)

|                      | Stock Options |                                 | Stock Purchase Plan
|--------------------- | ------------- | ------------------------------- | -------------------
|                      |               | Three Months EndedSeptember 30, |                    
|                      | 2004          |                                 | 2003               
|Expected life (years) |               | 5.5                             |                    
|Interest rate         |               | 2.89%                           |                    
|Volatility            |               | .60                             |                    

Through
the end of the second quarter of 2004, the fair value of stock options granted was
determined utilizing a historical volatility rate. In the third quarter of 2004, the
Company changed the volatility assumption. The Company now uses the most recent three-year
time period for purposes of calculating the expected volatility. Additionally, the Company
considered implied volatilities of currently traded options to provide an estimate based
upon current trading activity. After considering other such factors as its stage of
development, the length of time the Companys stock has been publicly traded and the impact of having two
marketed products, the Company believes this volatility rate better reflects the expected
volatility of its stock going forward.

The
Company has never declared cash dividends on any of its capital stock and does not expect
to do so in the foreseeable future.

On
March 31, 2004, the FASB issued an Exposure Draft, Share-Based Payment  An
Amendment of FASB Statements No. 123 and 95 (proposed FAS 123R), which currently is
expected to be effective for public companies in periods beginning after June 15, 2005.
The Company would be required to implement the proposed standard no later than the quarter
that begins July 1, 2005. The cumulative effect of adoption, if any, applied on a modified
prospective basis, would be measured and recognized on July 1, 2005. The proposed FAS 123R
addresses the accounting for transactions in which an enterprise receives employee
services in exchange for (a) equity instruments of the enterprise or (b) liabilities that
are based on the fair value of the enterprises equity instruments or that may be
settled by the issuance of such equity instruments. The proposed FAS 123R would eliminate
the ability to account for share-based compensation transactions using APB 25, and
generally would require instead that such transactions be accounted for using a fair-value
based method. As proposed, companies would be required to recognize an expense for
compensation cost related to share-based payment arrangements including stock options and
employee stock purchase plans. The FASB expects to issue a final standard by December 31,
2004. The Company is currently evaluating option valuation methodologies and assumptions
in light of the proposed FAS 123R related to employee stock options. Current estimates of
option values using the Black-Scholes method (as shown above) may not be indicative of
results from valuation methodologies ultimately adopted in the final rules.

# Accounting Pronouncements

In
January 2003, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 46, Consolidation of Variable Interest Entities, an
Interpretation of Accounting Research Bulletin No. 51 (FIN 46) and
in December 2003 issued a revised FIN 46 (FIN 46R) which addressed the period
of adoption of FIN 46 for entities created before January 31, 2003. FIN 46 provides a
new consolidation model which determines control and consolidation based on potential
variability in gains and losses. The provisions of FIN 46 are effective for enterprises
with variable interests in variable interest entities created after January 31, 2003.
For its interests in variable interest entities created before February 1, 2003, the
Company adopted FIN 46 in the first quarter of fiscal 2004 and the adoption did not have a
material impact on the Companys consolidated financial position or results of
operations.

# 3.     Restructuring

In
December 2002 and June 2003, the Company took steps to realign its resources to
become a commercially-focused biopharmaceutical company. The Company discontinued certain
discovery research efforts, reduced overall headcount, primarily in its discovery group
and consolidated its research and development facilities. As of

12

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# Millennium
Pharmaceuticals, Inc.Notes to Condensed Consolidated Financial Statements (continued)

December 1, 2002, the
Company adopted SFAS No. 146, Accounting for Costs Associated with Exit or
Disposal Activities (SFAS No. 146). SFAS No. 146 requires that
a liability for a cost associated with an exit or disposal activity be recognized and
measured initially at its fair value in the period in which the liability is incurred,
except for one-time termination benefits that meet certain requirements. These actions
resulted in the recognition of restructuring charges in the fourth quarter of 2002, the
year ended 2003 and the first nine months of 2004. During the remainder of 2004 and 2005,
the Company will continue to recognize additional restructuring charges primarily related
to lease obligations as part of its overall restructuring plan.

These
costs are included in restructuring charges in the statements of operations and other
current and other long term liabilities on the balance sheet at September 30, 2004. The
following table displays the restructuring activity and liability balances (in thousands):

|                       | Balance at December 31, 2003 |   | Charges |  | Payments |        | Stock Compensation |   | Other   |   | Balance atSeptember 30, 2004 |    
|---------------------- | ---------------------------- | - | ------- |  | -------- | ------ | ------------------ | - | ------- | - | ---------------------------- | ---
|Termination benefits   |                              | $ | 14,139  |  | $        | 307    |                    | $ | (13,192 | ) | $                            | (22
|Facilities             |                              |   | 58,585  |  |          | 35,444 |                    |   | (22,703 | ) |                              |   
|Asset impairment       |                              |   |        |  |          | (290   | )                  |   |        |   |                              |   
|Contract termination   |                              |   | 10,352  |  |          | 660    |                    |   | (5,360  | ) |                              |   
|Other associated costs |                              |   | 110     |  |          | 249    |                    |   | (359    | ) |                              |   
|                       |                              |   |         |  |          |        |                    |   |         |   |                              |    
|Total                  |                              | $ | 83,186  |  | $        | 36,370 |                    | $ | (41,614 | ) | $                            | (22
|                       |                              |   |         |  |          |        |                    |   |         |   |                              |    

The
projected timing of payment of the remaining restructuring liabilities at September 30,
2004 are approximately $28.6 million due through September 30, 2005 and $51.1 million
thereafter through 2022.

Costs
of termination benefits relate to severance packages, out-placement services and career
counseling for employees affected by the restructuring. Charges related to facilities
include estimated remaining rental obligations, net of estimated sublease income, for
facilities that the Company no longer occupies. Included in Other facilities
charges is the write-off of deferred rent recorded in accordance with SFAS No. 13,
Accounting for Leases. The Companys decisions to vacate certain
facilities and abandon the related leasehold improvements as well as terminate certain
research programs were deemed to be impairment indicators under SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets. As a result of
performing the impairment evaluations, asset impairment charges were recorded to adjust
the carrying value of the related long-lived assets to their net realizable values. The
fair values of the assets were estimated based upon anticipated future cash flows,
discounted at a rate commensurate with the risk involved.

# 4.     Revenue
and Strategic Alliances

The
Company has entered into research, development, technology transfer and commercialization
arrangements with major pharmaceutical and biotechnology companies relating to a broad
range of therapeutic products. These alliances provide the Company with the opportunity to
receive various combinations of license fees, research funding, co-promotion revenue,
distribution fees and may provide certain additional payments contingent upon the
achievement of research and regulatory milestones and royalties and/or profit shares if
the Companys collaborations are successful in developing and commercializing
products.

Product Alliances

During
September 2004, the Company initiated the process, contemplated by the original agreement
with SGP, to transition U.S. distribution responsibilities for INTEGRILIN®
(eptifibatide) Injection from SGP to the Company. The Company expects this transition to
take place during the last quarter of 2005, at the earliest.

In
June 2004, the Company executed an agreement with GSK under which GSK will exclusively
market INTEGRILIN in Europe. The commercialization alliance is designed to provide
significant sales and marketing

13

---

# Millennium
Pharmaceuticals, Inc.Notes to Condensed Consolidated Financial Statements (continued)

support to capitalize on market opportunities for
INTEGRILIN® (eptifibatide) Injection in Europe. Under the terms of the agreement, the
Company is entitled to license fees and royalties from GSK on INTEGRILIN sales in Europe
upon the achievement of certain objectives.

GSK
will actively commercialize INTEGRILIN in Europe upon the approved transfer of marketing
authorizations, which is anticipated to be complete by December 2004. The execution of
this agreement between the Company and GSK for INTEGRILIN follows the Companys
acquisition of the rights to market the product in Europe from its partner SGP. SGP will
continue to promote and sell INTEGRILIN in Europe until the transfer is complete.

SGP
continues to co-promote INTEGRILIN with the Company in the United States and sell the
product in all other territories outside Europe, and continues to pay the Company
royalties on INTEGRILIN sales outside of the United States and Europe.

# 5.     Convertible
Debt

The
Company had the following convertible notes outstanding at September 30, 2004:

| |  |  | $16.3 million of principal of 5.0% convertible subordinated notes due March 1, 2007,
that are convertible into the Companys common stock at any time prior to maturity at
a price equal to $34.21 per share (the 5.0% notes);   
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |  |                                                                                                                                                                                                                                    
| |  |  | $5.9 million of principal of 4.5% convertible senior notes due June 15, 2006, that
are convertible into the Companys common stock at any time prior to maturity at a
price equal to $40.61 per share (the 4.5% notes); and      
| |   |  |                                                                                                                                                                                                                                    
| |  |  | $83.3 million of principal of 5.5% convertible subordinated notes due January 15,
2007, that are convertible into the Companys common stock at any time prior to
maturity at a price equal to $42.07 per share (the 5.5% notes).

Under
the terms of these notes, the Company is required to make semi-annual interest payments on
the outstanding principal balance of the 5.0% notes on March 1 and September 1
of each year, of the 4.5% notes on June 15 and December 15 of each year and of
the 5.5% notes on January 15 and July 15 of each year. All required interest
payments to date have been made.

14

---

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

Our
managements discussion and analysis of our financial condition and results of our
operations include the identification of certain trends and other statements that may
predict or anticipate future business or financial results that are subject to important
factors that could cause our actual results to differ materially from those indicated. See
Risk Factors That May Affect Results.

# Overview

We
have set aggressive goals for 2004, and we have made significant progress towards
achieving these goals. Our net loss decreased from $337.3 million for the nine months
ended September 30, 2003 to $157.6 million for the same period in 2004, driven by
decreased restructuring charges, decreased research and development expenses and increased
product-related revenues, offset by decreased strategic alliance revenue. Our financial
position remains strong with $761.6 million in cash, cash equivalents and marketable
securities.

In
December 2002 and June 2003, we took steps to realign our resources to become a
commercially-focused biopharmaceutical company. We discontinued certain discovery research
efforts, reduced overall headcount, primarily in our discovery group, streamlined our
discovery and development projects and consolidated our research and development
facilities. As a result of this restructuring and other cost containment efforts, our
total costs and expenses, excluding restructuring charges, have decreased approximately
11% for the nine months ended September 30, 2004 from the same period last year.

In
addition to our two marketed products, VELCADE and INTEGRILIN® (eptifibatide)
Injection, we have ten drug candidates in clinical development. Our strategy is to develop
multiple products in our disease areas of focus, including cancer, cardiovascular and
inflammation, through clinical trials and regulatory approvals and to be involved in the
marketing and sale of many of these products. We plan to advance the clinical development
of these drug candidates based on our assessment of their market potential, the results of
clinical trials and our available resources. We plan to develop and commercialize many of
our products on our own in the United States, but will seek development and commercial
collaborators outside of the United States when we believe that this will maximize product
value.

# Our Products

VELCADE® (bortezomib)
for Injection

VELCADE,
the first of a new class of medicines called proteasome inhibitors, is the first treatment
in more than a decade to be approved in the United States for patients with multiple
myeloma. We received accelerated approval from the FDA on May 13, 2003 to market
VELCADE for the treatment of multiple myeloma patients who have received at least two
prior therapies and have demonstrated disease progression on their most recent therapy.

In
April 2004, the European Commission granted Marketing Authorization for VELCADE for the
treatment of patients with multiple myeloma who have received at least two prior therapies
and have demonstrated disease progression on their last therapy. Under this Authorization,
a single license was granted to Millennium for marketing VELCADE in the 15 member states
of the European Union, plus Norway and Iceland. On May 1, 2004, VELCADE was also approved
for marketing in the ten accession member countries when those countries officially joined
the European Union. VELCADE has also been approved in Argentina, Israel, South Korea and Turkey.

In
September 2004, we submitted a supplemental New Drug Application (sNDA) to the FDA for
VELCADE for the treatment of patients with multiple myeloma who have received at least one
prior therapy. Also in September 2004, the European Medicines Evaluation Agency, or EMEA,
accepted for review a filing by Ortho Biotech Products, L.P., a wholly owned subsidiary of Johnson & Johnson, or Ortho Biotech, for the
same indication in Europe.

In
November 2004, we announced that the FDA had granted VELCADE fast track designation for
relapsed and refractory mantle cell lymphoma, an aggressive form of non-Hodgkins
lymphoma. This designation allows for the FDA to accept on a rolling basis portions of a
marketing application for review prior to the submission of a final document.

15

---

Ortho Biotech
Collaboration

In
June 2003, we entered into an agreement with Ortho Biotech to collaborate on the commercialization and continued
clinical development of VELCADE® (bortezomib) for Injection. Under the terms of the agreement, we retain all
commercialization rights to and profits from VELCADE in the United States. Ortho Biotech and its affiliate, Janssen-Cilag, have agreed to
commercialize VELCADE outside of the United States. We receive distribution fees from
Ortho Biotech and its affiliates on sales of VELCADE outside of the United States. We also
retain an option to co-promote VELCADE with Ortho Biotech at a future date in certain
European countries.

Under
this agreement, we are engaged with Ortho Biotech in an extensive global program for
further clinical development of VELCADE with the purpose of maximizing the clinical and
commercial potential of VELCADE. This program is investigating the potential of VELCADE to
treat multiple forms of solid and hematological tumors, including continued clinical
development of VELCADE for multiple myeloma. Ortho Biotech is responsible for 40% of the
joint development costs through 2005 and for 45% of those costs after 2005. In addition,
we may receive payments from Ortho Biotech for achieving clinical development milestones,
regulatory milestones outside of the United States or agreed-upon sales levels of VELCADE.

INTEGRILIN®
(eptifibatide) Injection

In
collaboration with Schering-Plough Corporation and Schering-Plough Ltd., together referred
to as SGP, INTEGRILIN is currently marketed in the United States, in all member states of
the European Union and in other countries, including Argentina, Australia, Brazil, Canada,
India, Japan, Mexico, Singapore, South Africa, Switzerland and Thailand.

During
September 2004, we initiated the process, contemplated by our original agreement with SGP,
to transition U.S. distribution responsibilities for INTEGRILIN from SGP to us. We expect
this transition to take place during the last quarter of 2005, at the earliest.

In
June 2004, we acquired the rights to market INTEGRILIN in Europe from SGP and entered into
an agreement with GlaxoSmithKline plc, or GSK, in which GSK will exclusively market
INTEGRILIN in Europe. This commercialization alliance with GSK is designed to provide
significant sales and marketing support to capitalize on market opportunities for
INTEGRILIN in Europe. Under the terms of the agreement, we are entitled to license fees
and royalties from GSK on INTEGRILIN sales in Europe upon the achievement of certain
objectives.

GSK
will actively commercialize INTEGRILIN in Europe upon the approved transfer of marketing
authorizations, which is anticipated to be complete by December 2004. SGP will continue to promote and sell INTEGRILIN in
Europe until the transfer is complete.

SGP
continues to co-promote INTEGRILIN with us in the United States and sell the product in
all other territories outside Europe, and continues to pay us royalties on INTEGRILIN
sales outside of the United States and Europe.

# Critical Accounting
Policies and Significant Judgments and Estimates

Our
managements discussion and analysis of our financial condition and results of
operations are based on our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States. The
preparation of these financial statements requires us to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements as well as the
reported revenues and expenses during the reporting periods. On an ongoing basis, we
evaluate our estimates and judgments, including those related to revenue recognition,
inventory, intangible assets and goodwill. We base our estimates on historical experience
and on various other factors that are believed to be appropriate under the circumstances,
the results of which form the basis for making judgments about the carrying value of
assets and liabilities that are not readily apparent from other sources. Actual results
may differ from these estimates under different assumptions or conditions.

16

---

While
our significant accounting policies are more fully described in Note 2 to our
consolidated financial statements included in our Form 10-K, filed with the SEC on March
10, 2004, we believe the following accounting policies are most critical to aid in fully
understanding and evaluating our reported financial results.

Revenue

We
recognize revenue from the sale of our products, our co-promotion collaboration and
strategic alliances. Our revenue arrangements with multiple elements are divided into
separate units of accounting if certain criteria are met, including whether the delivered
element has stand-alone value to the customer and whether there is objective and reliable
evidence of the fair value of the undelivered items. The consideration we receive is
allocated among the separate units based on their respective fair values, and the
applicable revenue recognition criteria are applied to each of the separate units. Advance
payments received in excess of amounts earned are classified as deferred revenue until
earned.

We
recognize revenue from the sales of VELCADE® (bortezomib) for Injection in the United
States when delivery has occurred and title has transferred to the wholesalers. Allowances
are recorded as a reduction to product sales for product returns and discounts at the time
of sale. As VELCADE is a fairly new product, we estimate product returns based on an
on-going analysis of industry trends for similar products and historical return patterns
as they become available. VELCADE returns are expected to be generally low because the
shelf life for the product is 18 months in the United States and we expect wholesalers not
to stock much inventory due to the expensive nature of the product. Additionally, we
consider several factors in our estimation process including our internal sales forecasts,
inventory levels as provided by certain wholesalers and third-party market research data.
As we continually monitor actual product returns and inventory levels in the domestic
distribution channel, if circumstances change or conditions become more competitive in the
market for therapeutic products that address multiple myeloma, we may take actions to
increase our product return estimates. This would result in an incremental reduction of
future product sales at the time the return estimate is changed. Since product launch, we
have made no material revisions to our estimate of product returns or other dilution
reserves. Accruals for rebates, chargebacks, and other discounts are immaterial as a
result of the recent introduction of VELCADE and the current lack of competitive product
available.

We
recognize co-promotion revenue based on SGPs reported shipments of INTEGRILIN®
(eptifibatide) Injection to wholesalers. Co-promotion revenue includes our share of the
profits from the sales of INTEGRILIN, reimbursements of our manufacturing-related costs,
development costs, advertising and promotional expenses and royalties from SGP on sales of
INTEGRILIN outside of the co-promotion territory. We communicate with SGP to calculate our
share of the profits from the sales of INTEGRILIN on a monthly basis. The calculation
includes estimates of the amount of advertising and promotional expenses and other costs
incurred on a monthly basis. We also communicate with SGP to estimate royalties earned on
sales outside of the co-promotion territory. Adjustments to our estimates are based upon
actual information that we receive subsequent to our reporting deadlines. Our estimates
are adjusted on a monthly basis and historically have not been significant due to periodic
communication with SGP. Significant adjustments in future reporting periods could impact
the timing and the amount of revenue to be recognized.

Nonrefundable
upfront licensing fees and certain guaranteed, time-based payments that require continuing
involvement in the form of research and development, manufacturing or other
commercialization efforts by us are recognized as strategic alliance revenue:

| |  |  | ratably over the development period if development risk is significant,                                                                  
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------
| |   |  |                                                                                                                                          
| |  |  | ratably over the manufacturing period or estimated product useful life if development risk has been
         substantially eliminated, or
| |   |  |                                                                                                                                          
| |  |  | based upon the level of research services performed during the period of the research contract.                                          

When
the period of deferral cannot be specifically identified from the contract, management
estimates the period based upon other critical factors contained within the contract. We
continually review these estimates which could result in a change in the deferral period
and might impact the timing and the amount of revenue recognized.

17

---

Milestone
payments are recognized as strategic alliance revenue when the performance obligations, as
defined in the contract, are achieved. Performance obligations typically consist of
significant milestones in the development life cycle of the related technology, such as
initiation of clinical trials, filing for approval with regulatory agencies and approvals
by regulatory agencies.

Royalties
are recognized as revenue when earned.

Reimbursements
of research and development costs are recognized as strategic alliance revenue as the
related costs are incurred.

Inventory

Inventory
consists of currently marketed products and from time to time product candidates awaiting
regulatory approval which were capitalized based upon managements judgment of
probable near term commercialization. Inventory primarily represents raw materials used in
production, work in process and finished goods inventory on hand, valued at cost.
Inventories are reviewed periodically for slow-moving or obsolete status based on sales
activity, both projected and historical. Our current sales projections provide for full
utilization of the inventory balance. If product sales levels differ from projections or a
launch of a new product is delayed, inventory may not be fully utilized and could be
subject to impairment, at which point we would record a reserve to adjust inventory to its
net realizable value.

Intangible Assets

We
have acquired significant intangible assets that we value and record. Those assets which
do not yet have regulatory approval and for which there are no alternative uses are
expensed as acquired in-process research and development, and those that are specifically
identified and have alternative future uses are capitalized. We use a discounted cash flow
model to value intangible assets. The discounted cash flow model requires assumptions
about the timing and amount of future cash inflows and outflows, risk, the cost of
capital, and terminal values. Each of these factors can significantly affect the value of
the intangible asset. We engage independent valuation experts who review our critical
assumptions for significant acquisitions of intangibles. We review intangible assets for
impairment on a periodic basis using an undiscounted net cash flows approach. If the
undiscounted cash flows of an intangible asset are less than the carrying value of an
intangible asset, the intangible asset is written down to the discounted cash flow value.
Where cash flows cannot be identified for an individual asset, the review is applied at
the lowest group level for which cash flows are identifiable.

Goodwill

On
October 1, 2004, we performed our annual goodwill impairment test and determined that
no impairment existed on that date. However, since the date of acquisition of COR
Therapeutics, Inc., or COR, which generated a significant amount of goodwill, we have
experienced a significant decline in market capitalization due to a decline in stock
price. We continually monitor business and market conditions to assess whether an
impairment indicator exists. If we were to determine that an impairment indicator exists,
we would be required to perform an impairment test which could result in a material
impairment charge to our statement of operations.

# Accounting Pronouncements

In
January 2003, the Financial Accounting Standards Board, or FASB, issued
Interpretation No. 46, Consolidation of Variable Interest Entities, an
Interpretation of Accounting Research Bulletin No. 51", or FIN 46, and in
December 2003 issued a revised FIN 46, or FIN 46R, which addressed the period of adoption
of FIN 46 for entities created before January 31, 2003. FIN 46 provides a new
consolidation model which determines control and consolidation based on potential
variability in gains and losses. The provisions of FIN 46 are effective for enterprises
with variable interests in variable interest entities created after January 31, 2003.
We adopted the provisions of FIN 46 in the first quarter of fiscal 2004 and the adoption
did not have a material impact on our financial position or results of operations for our
interests in variable interest entities created before February 1, 2003.

18

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Results of Operations(dollars in thousands, except per
share amounts)

|                                      | Three Months Ended September 30, |  |   |         | Nine Months Ended September 30, |  
|------------------------------------- | -------------------------------- |  | - | ------- | ------------------------------- | -
|
|                                      |                                  |  |   |         |                                 |  
|Net loss                              |                                  |  | $ | (63,094 | )                               | $
|                                      |                                  |  |   |         |                                 |  
|Amounts per common share:             |                                  |  |   |         |                                 |  
|Net loss per share, basic and diluted |                                  |  | $ | (0.21   | )                               | $
|                                      |                                  |  |   |         |                                 |  

Net Loss and Loss Per
Share

Net
loss and loss per share for the three months ended September 30, 2004 (the 2004
Three Month Period) and the nine months ended September 30, 2004 (the 2004
Nine Month Period) decreased from the comparable periods in 2003 primarily due to
lower restructuring charges, decreased research and development expenses as a result of
our restructuring initiative and increased product-related revenues in all periods, offset
by decreased strategic alliance revenue due to the timing of certain milestones and the
conclusion of certain research and technology alliances in the three months ended
September 30, 2003 (the 2003 Three Month Period).

|                                  | Three Months Ended September 30, |  |   |         | Nine Months Ended September 30, |  
|--------------------------------- | -------------------------------- |  | - | ------- | ------------------------------- | -
|
|                                  |                                  |  |   |         |                                 |  
|Revenues:                         |                                  |  |   |         |                                 |  
|Net product sales                 |                                  |  | $ | 37,668  |                                 | $
|Co-promotion revenue              |                                  |  |   | 62,557  |                                 |  
|Revenue under strategic alliances |                                  |  |   | 9,749   |                                 |  
|                                  |                                  |  |   |         |                                 |  
|Total revenues                    |                                  |  | $ | 109,974 |                                 | $
|                                  |                                  |  |   |         |                                 |  

Revenues

Total
revenues decreased 24% in the 2004 Three Month Period with no change in the 2004 Nine
Month Period from the comparable periods in 2003.

In
May 2003 we received FDA approval to market VELCADE® (bortezomib) for Injection and
began shipping to wholesalers. Net product sales of VELCADE were $37.7 million in the 2004
Three Month Period and $102.3 million in the 2004 Nine Month Period, reflecting increased
patient penetration and use of the product in both the three and nine month periods.
Reserves for product returns, chargebacks and discounts represent approximately 5.5% to
6.5% of gross product sales for all periods presented. Product sales from VELCADE
represent approximately 34% of our total revenues in the 2004 Three Month Period and 29%
of total revenue in the 2004 Nine Month Period.

Co-promotion
revenue, based on worldwide sales of INTEGRILIN® (eptifibatide) Injection, increased
31% in the 2004 Three Month Period and 5% in the 2004 Nine Month Period from the
comparable periods in 2003. The increases in co-promotion revenue are primarily
attributable to the increase in product sales in the United States and higher net
reimbursement from SGP to us under our collaboration agreement. Worldwide sales of
INTEGRILIN in the 2004 Three Month Period, as provided to us by SGP, were
$93.8 million, an 18% increase over sales for the 2003 Three Month Period, and
$244.7 million for the 2004 Nine Month Period, a 6% decrease from sales for the 2003 Nine Month Period. Co-promotion revenue represents approximately 57% of our total revenues in the 2004 Three Month Period and 46% of total
revenue in the 2004 Nine Month Period.

19

---

Revenue
under strategic alliances decreased 87% in the 2004 Three Month Period from the comparable
period in 2003. This decrease is primarily due to a $30.0 million milestone earned in 2003
under our Ortho Biotech alliance, decreases in revenue recognized under the research phase
of the Bayer AG, or Bayer, agreement and the April 2003 termination of the Aventis
Pharmaceuticals, Inc., or Aventis, technology transfer agreement.

Revenue
under strategic alliances decreased 48% in the 2004 Nine Month Period from the comparable
period in 2003. This decrease is primarily attributable to a decrease in revenue
recognized under the research phase of the Bayer agreement and the technology transfer
agreement with Aventis, partially offset by increased revenue under our Ortho Biotech
alliance from milestone payments received from Ortho Biotech relating to VELCADE®
(bortezomib) for Injection approval in the European Union and the achievement of
agreed-upon sales levels of VELCADE.

We
expect that our revenue mix will continue to shift to product-based revenue as we develop
our product pipeline, commercialize additional products subject to obtaining required
regulatory approvals, enter into new commercial alliances and conclude our
discovery-focused alliances.

|                                    | Three Months Ended September 30, |  |   |         | Nine Months Ended September 30, |  
|----------------------------------- | -------------------------------- |  | - | ------- | ------------------------------- | -
|
|                                    |                                  |  |   |         |                                 |  
|Costs and expenses:                 |                                  |  |   |         |                                 |  
|Cost of sales                       |                                  |  | $ | 18,630  |                                 | $
|Research and development            |                                  |  |   | 98,961  |                                 |  
|Selling, general and administrative |                                  |  |   | 45,903  |                                 |  
|Restructuring                       |                                  |  |   | (414    | )                               |  
|Amortization of intangibles         |                                  |  |   | 8,378   |                                 |  
|                                    |                                  |  |   |         |                                 |  
|Total costs and expenses            |                                  |  | $ | 171,458 |                                 | $
|                                    |                                  |  |   |         |                                 |  

Cost of Sales

Cost
of sales increased 5% in the 2004 Three Month Period and 7% in the 2004 Nine Month Period
from the comparable periods in 2003. Cost of sales includes manufacturing-related expenses
associated with the sale of VELCADE and INTEGRILIN® (eptifibatide) Injection. The
increases were primarily driven by increased sales of VELCADE.

Research and development

Research
and development expenses decreased 17% in the 2004 Three Month Period and 21% in the 2004
Nine Month Period from the comparable periods in 2003. The decreases reflect the financial
benefits of our restructuring efforts, including reductions in discovery personnel and
personnel-related costs. We expect that our mix between research and development expense
will continue to shift as we increase our investment in later-stage development programs.

In
addition to our ongoing clinical trials of INTEGRILIN and VELCADE, we have ten drug
candidates in clinical development with five currently identified as high priorities. As
we continually prioritize our portfolio, we allocate resources across our drug candidate
programs accordingly, which may mean a shift in priorities. The following chart summarizes
the clinical trials of these ten drug candidates, the applicable disease indication and
the current trial status of the program. High priority candidates are denoted with an
asterisk.

20

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|Product Description                                                                                                                            |  | Disease Indication                                                                |  | Current Trial Status | 
|---------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------- |  | -------------------- | 
|                                                                                                                                               |  |                                                                                   |  |                      | 
|Cancer                                                                                                                                         |  |                                                                                   |  |                      | 
|*MLN2704 is a targeting monoclonal antibody vehicle conjugated to toxin DM1                                                                    |  | Prostate cancer                                                                   |  | Phase I/Phase II     | 
|                                                                                                                                               |  |                                                                                   |  |                      | 
|*MLN944 is a novel small molecule DNA-targeting agent                                                                                          |  | Solid tumors                                                                      |  | Phase I              | 
|                                                                                                                                               |  |                                                                                   |  |                      | 
|MLN518 is a small molecule that selectively inhibits F1t-3                                                                                     |  | Acute myeloid leukemia                                                            |  | Phase I              | 
|                                                                                                                                               |  |                                                                                   |  |                      | 
|MLN591RL is a de-immunized radio-labeled murine monoclonal antibody that specifically recognizes the PSMA (prostate specific membrane antigen) |  | Prostate cancer                                                                   |  | Phase I              | 
|                                                                                                                                               |  |                                                                                   |  |                      | 
|MLN576 is a small molecule with DNA-targeting activity                                                                                         |  | Solid tumors                                                                      |  | Phase I              | 
|                                                                                                                                               |  |                                                                                   |  |                      | 
|Cardiovascular Diseases                                                                                                                        |  |                                                                                   |  |                      | 
|*MLN2222 is a recombinant protein that is designed to block both the C3 and C5 convertases                                                     |  | Patients undergoing cardiac surgeries                                             |  | Phase I              | 
|                                                                                                                                               |  |                                                                                   |  |                      | 
|MLN519 is a small molecule proteasome inhibitor                                                                                                |  | Stroke                                                                            |  | Phase I              | 
|                                                                                                                                               |  |                                                                                   |  |                      | 
|Inflammatory Diseases                                                                                                                          |  |                                                                                   |  |                      | 
|*MLN1202 is a humanized monoclonal antibody directed against CCR2                                                                              |  | Chronic inflammatory diseases such as rheumatoid arthritis and multiple sclerosis |  | Phase II             | 
|                                                                                                                                               |  |                                                                                   |  |                      | 
|*MLN3897 is a small molecule CCR1 inhibitor                                                                                                    |  | Chronic inflammatory diseases such as rheumatoid arthritis                        |  | Phase I              | 
|                                                                                                                                               |  |                                                                                   |  |                      | 
|MLN02 is a humanized monoclonal antibody directed against the alpha4ß7 receptor                                                                |  | Crohns diseaseUlcerative colitis                                                 |  | Phase IIPhase II     | 
|                                                                                                                                               |  |                                                                                   |  |                      | 

Completion
of clinical trials may take several years or more and the length of time can vary
substantially according to the type, complexity, novelty and intended use of a product
candidate. The types of costs incurred during a clinical trial vary depending upon the
type of product candidate and the nature of the study.

CMR
International, an independent pharmaceutical data collection agency, estimates that
clinical trials in our areas of focus are typically completed over the following
timelines:

| | Clinical Phase |  | Objective                                                                                        |  | Estimated Completion Period | 
| | -------------- |  | ------------------------------------------------------------------------------------------------ |  | --------------------------- | 
| |                |  |                                                                                                  |  |                             | 
| | Phase I        |  | Establish safety in humans, study how the drug works, metabolizes and interacts with other drugs |  | 1-2 years                   | 
| |                |  |                                                                                                  |  |                             | 
| | Phase II       |  | Evaluate efficacy, optimal dosages and expanded evidence of safety                               |  | 2-3 years                   | 
| |                |  |                                                                                                  |  |                             | 
| | Phase III      |  | Confirm efficacy and safety of the product                                                       |  | 2-3 years                   | 
| |                |  |                                                                                                  |  |                             | 

Upon successful
completion of phase III clinical trials of a product candidate, we intend to submit the
results to the FDA to support regulatory approval. However, we cannot be certain that any
of our product candidates will prove to be safe or effective, will receive regulatory
approvals, or will be successfully commercialized. Our clinical trials might prove that
our product candidates may not be effective in treating the disease or may prove to have

21

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undesirable or unintended side effects, toxicities or other characteristics that require
us to cease further development of the product candidate. The cost to take a product
candidate through clinical trials is dependent upon, among other things, the disease
indications, the timing, the size and dosing schedule of each clinical trial, the number
of patients enrolled in each trial and the speed at which patients are enrolled and
treated. We could incur increased product development costs if we experience delays in
clinical trial enrollment, delays in the evaluation of clinical trial results or delays in
regulatory approvals.

Products
that are likely to result from our research and development projects are based on new
technologies and new therapeutic approaches that have not been extensively tested in
humans. The regulatory requirements governing these types of products may be more rigorous
than for conventional products. As a result, it is difficult to estimate the nature and
length of the efforts to complete such products as we may experience a longer regulatory
process in connection with any products that we develop based upon these new technologies
or therapeutic approaches. In addition, ultimate approval for commercial manufacturing and
marketing of our products is dependent on the FDA or the applicable approval body in the
country for which approval is being sought, adding further uncertainty to estimated costs
and completion dates. Significant delays could allow our competitors to bring products to
market before we do and impair our ability to commercialize our product candidates.

Due
to the variability in the length of time necessary to develop a product, the uncertainties
related to the estimated cost of the projects and ultimate ability to obtain governmental
approval for commercialization, accurate and meaningful estimates of the ultimate cost to
bring our product candidates to market are not available.

We
budget and monitor our research and development costs by type or category, rather than by
project on a comprehensive or fully allocated basis. Significant categories of costs
include personnel, clinical, third party research and development services and laboratory
supplies. In addition, a significant portion of our research and development expenses is
not tracked by project as it benefits multiple projects or our technology platform.
Consequently, fully loaded research and development cost summaries by project are not
available.

Given
the uncertainties related to development, we are currently unable to reliably estimate
when, if ever, our product candidates will generate revenue and cash flows. We do not
expect to receive net cash inflows from any of our major research and development projects
until a product candidate becomes a profitable commercial product.

Selling, General and
Administrative

Selling,
general and administrative expenses increased 7% in the 2004 Three Month Period and 12% in
the 2004 Nine Month Period from the comparable periods in 2003. The increases are
primarily due to increased selling and marketing expenses related to VELCADE®
(bortezomib) for Injection and INTEGRILIN® (eptifibatide) Injection in both the 2004
Three and Nine Month Periods and the expansion of the Millennium-SGP sales force for
INTEGRILIN, including increases in salaries and benefits, partially offset by decreased
expenses in corporate general and administrative functions attributable to our
restructuring efforts in the 2004 Nine Month Period.

Restructuring

In
December 2002 and June 2003, we took steps to focus our resources on drug development and
commercialization. Our restructuring plan includes consolidation of research and
development facilities, overall headcount reduction and streamlining of discovery and
development projects. During the 2004 Three Month Period we recognized a credit of $0.4
million from the final settlement of certain termination benefits and adjustments to our
estimated sublease income. We recorded $36.4 million of charges related to the recognition
of the estimated remaining rental obligations, net of estimated sublease income, for
facilities that we vacated during the 2004 Nine Month Period.

We
recorded restructuring charges of $52.7 million in the 2003 Three Month Period and $146.2
million in the nine months ended September 30, 2003 (the 2003 Nine Month
Period). These charges are related to facilities, asset impairment and personnel
costs. Our decisions to vacate certain facilities and abandon the related leasehold
improvements as well as terminate certain research programs were deemed to be impairment
indicators under SFAS No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets, or SFAS No. 144. As a result of performing the impairment
evaluations, we recorded asset impairment charges to adjust the carrying value of the

22

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related long lived assets to fair value. Fair value of the assets was estimated based upon
anticipated future cash flows, discounted at a rate commensurate with the risk involved.

We
anticipate additional restructuring charges in future periods as we continue to execute
our restructuring plan. These charges will primarily include the estimated remaining
rental obligations, net of estimated sublease income, for facilities that we vacated and
any adjustments to those estimates.

Amortization of
Intangibles

Amortization
of intangible assets decreased 13% in both the 2004 Three Month Period and the 2004 Nine
Month Period from the comparable periods in 2003. Amortization expense decreased as the
specifically identified intangible assets from our LeukoSite, Inc., or LeukoSite,
acquisition were fully amortized as of December 2003. We will continue to amortize the
specifically identified intangible assets from our COR acquisition through 2015.

|                                                 | Three Months Ended September 30, |  |   |        | Nine Months Ended September 30, |  
|------------------------------------------------ | -------------------------------- |  | - | ------ | ------------------------------- | -
|
|                                                 |                                  |  |   |        |                                 |  
|Other income (expense):                          |                                  |  |   |        |                                 |  
|Investment income, net                           |                                  |  | $ | 1,115  |                                 | $
|Interest expense                                 |                                  |  |   | (2,725 | )                               |  
|Gain on sale of equity interest in joint venture |                                  |  |   |       |                                 |  
|Debt financing charge                            |                                  |  |   |       |                                 |  
|                                                 |                                  |  |   |        |                                 |  
|Total other income (expense)                     |                                  |  | $ | (1,610 | )                               | $
|                                                 |                                  |  |   |        |                                 |  

Investment Income

Investment
income decreased 87% in the 2004 Three Month Period and 49% in the 2004 Nine Month Period
from the comparable periods in 2003. The decrease in the 2004 Three Month Period is
primarily related to increased realized losses on securities, decreased realized gains, as
well as decreased interest income as a result of lower average balance of invested funds.
The decrease in the 2004 Nine Month Period is primarily related to decreased realized
gains, increased realized losses and a lower average balance of invested funds.

Interest Expense

Interest
expense increased 2% in the 2004 Three Month Period and decreased 56% in the 2004 Nine
Month Period from the comparable periods in 2003. The decrease in the 2004 Nine Month
Period is attributable to the April 2003 repurchase of $577.8 million aggregate principal
amount of our 5.0% convertible subordinated notes due March 1, 2007, that are convertible
into our common stock at any time prior to maturity at a price equal to $34.21 per share
(the 5.0% notes) and our 4.5% convertible senior notes due June 15, 2006, that
are convertible into our common stock at any time prior to maturity at a price equal to
$40.61 per share (the 4.5% notes).

Gain on Sale of Equity
Interest in Joint Venture

Through
our acquisition of LeukoSite, we became a party to a joint venture partnership, Millennium
and ILEX Partners, L.P., or M&I, for the development of Campath® (alemtuzumab)
humanized monoclonal antibody. We sold our equity interest in M&I and in consideration
for the sale, we received an initial payment of $20.0 million in December 2001.
During each of the second quarters of 2003 and 2002, we recorded additional gains of $40.0
million on our sale of this equity interest based upon the achievement of predetermined
sales targets of Campath. During the 2004 Nine Month Period, we recorded the final
$40.0 million gain related to our sale of this equity interest based upon the
achievement of predetermined 2004 sales targets of Campath. In addition, we will be
entitled to additional payments from ILEX if sales of Campath in the United States after
2004 exceed specified annual

23

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thresholds. If these thresholds are not achieved, we will not
receive any future additional payments related to Campath.

Debt Financing Charge

During
the 2003 Nine Month Period, we recorded a non-cash charge of $10.5 million which
represents the write-off of approximately $12.4 million of unamortized original debt
issuance costs associated with the 5.0% notes and 4.5% notes assumed in the COR
acquisition, offset by $1.9 million relating to the expired premium put on the untendered
notes on April 29, 2003.

# Liquidity and Capital
Resources

We
require cash to fund our operating expenses, to make capital expenditures, acquisitions
and investments and to pay debt service, including principal and interest and capital
lease payments. We have also made strategic investments in debt and equity securities of
some of our alliance collaborators in accordance with our Board of Directors
approved policies and our business needs. These investments are generally in smaller
companies. We have lost and may in the future lose money in these types of investments and
our ability to liquidate these investments is in some cases very limited. We may also owe
our partners milestone payments and royalties. We have committed to fund development costs
incurred by some of our collaborators.

We
have funded our cash requirements primarily through the following:

| |  |  | our co-promotion relationship with SGP for the sale of INTEGRILIN® (eptifibatide) Injection;                                            
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------
| |   |  |                                                                                                                                         
| |  |  | sales of VELCADE® (bortezomib) for Injection;                                                                                           
| |   |  |                                                                                                                                         
| |  |  | payments from our strategic collaborators, including equity investments, license fees, milestone
         payments and research funding;
| |   |  |                                                                                                                                         
| |  |  | equity and debt financings in the public markets.                                                                                       

In the
future, we expect to continue to fund our cash requirements from some of these external
sources as well as from sales of VELCADE, INTEGRILIN and other products, subject to
regulatory approval. We are entitled to additional committed research and development
funding under certain of our strategic alliances. We believe the key factors that could
affect our internal and external sources of cash are:

| |  |  | revenues and margins from sales of VELCADE, INTEGRILIN and other products and services for
which we may obtain marketing approval in the future or which are sold by companies that
may owe us royalty, milestone, distribution or other payments on account of such products;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |  |                                                                                                                                                                                                                                                                               
| |  |  | the success of our clinical and preclinical development programs;                                                                                                                                                                                                             
| |   |  |                                                                                                                                                                                                                                                                               
| |  |  | our ability to enter into additional strategic collaborations and to maintain existing and new
         collaborations and the success of such collaborations; and                                                                                                            
| |   |  |                                                                                                                                                                                                                                                                               
| |  |  | the receptivity of the capital markets to financings by biopharmaceutical companies.                                                                                                                                                                                          

As
of September 30, 2004 we had $761.6 million in cash, cash equivalents and marketable
securities. This excludes $16.1 million of interest-bearing marketable securities
classified as restricted cash on our balance sheet as of September 30, 2004 which
primarily serve as collateral for letters of credit securing leased facilities.

|                                                 | September 30, 2004 |  | December 31, 2003 |        
|------------------------------------------------ | ------------------ |  | ----------------- | -------
|
|Cash, cash equivalents and marketable securities |                    |  | $                 | 761,616
|Working capital                                  |                    |  |                   | 754,906
|                                                 |                    |  |                   |        
|                                                 |                    |  |                   |        

24

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|                                                              | Nine Months Ended | 
|------------------------------------------------------------- | ----------------- | 
|
|
|Cash provided by (used in):                                   |                   | 
|Operating activities                                          |                   | 
|Investing activities                                          |                   | 
|Financing activities                                          |                   | 
|Capital expenditures (included in investing activities above) |                   | 

Cash Flows

The
principal use of cash in operating activities in both 2004 and 2003 was to fund our net
loss. Cash flows from operations can vary significantly due to various factors including
changes in accounts receivable, as well as changes in accounts payable and accrued
expenses. The average collection period of our accounts receivable can vary and is
dependent on various factors, including the type of revenue and the payment terms related
to those revenues.

Investing
activities provided $66.1 million in the 2004 Nine Month Period. The principal source of
funds during the 2004 Nine Month Period was from the sale of marketable securities. We
used $461.2 million of cash in investing activities in the 2003 Nine Month Period as we
reinvested our cash into our securities portfolio. The decrease from the 2003 Nine Month
Period of approximately $10.6 million in purchases of property and equipment is a result
of decreased purchases due to the consolidation of our research and development activities
as part of our restructuring initiative and timing of our expenditures.

Financing
activities provided $10.7 million in the 2004 Nine Month Period. The principal source was
from the sales of common stock to our employees. We used $587.2 million of cash in
financing activities in the 2003 Nine Month Period. The primary use of cash in the 2003
Nine Month Period was the repurchase of $577.8 million in principal of convertible notes
and the related put premium of $52.1 million, offset by issuance and sales of common
stock.

We
believe that our existing cash and cash equivalents, internally generated funds and the
anticipated cash payments from our product sales, co-promotion revenue and current
strategic alliances will be sufficient to support our planned operations, fund our debt
service and capital lease obligations and fund our capital commitments for at least the
next several years.

Contractual Obligations

Our
major outstanding contractual obligations relate to our facilities leases, convertible
notes and capital leases from equipment financings.

During
the fourth quarter of 2004, we expect to issue additional contingent consideration of
approximately $8.6 million upon the achievement of certain agreed-upon sales levels of
VELCADE® (bortezomib) for Injection to former shareholders of ProScript, Inc., or
ProScript. These contingent payment obligations arose out of the acquisition of ProScript
by LeukoSite in August 1999. We assumed these obligations when we acquired LeukoSite in
December 1999. A portion of this payment is reimbursable by Ortho Biotech under our
collaboration agreement. The amount, net of reimbursement, will be recorded as an increase
to goodwill when the contingency is settled.

During
2005, we expect to repay SGP approximately $49.3 million for advances SGP had made for
inventory purchases in prior years. This amount is recorded in current liabilities at
September 30, 2004.

There
have been no significant changes, other than noted above, to our contractual obligations
and commercial commitments included in our Form 10-K as of December 31, 2003.

As
of September 30, 2004, we did not have any financing arrangements that were not reflected
in our balance sheet.

25

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# RISK FACTORS THAT MAY
AFFECT RESULTS

This
Quarterly Report on Form 10-Q and certain other communications made by us contain
forward-looking statements, including statements about our growth and future operating
results, discovery and development of products, strategic alliances and intellectual property. For this purpose, any statement that is not a
statement of historical fact should be considered a forward-looking statement. We often
use the words believe, anticipate, plan,
expect, intend, will and similar expressions to help
identify forward-looking statements.

We
cannot assure investors that our assumptions and expectations will prove to have been
correct. Important factors could cause our actual results to differ materially from those
indicated or implied by forward-looking statements. Such factors that could cause or
contribute to such differences include those factors discussed below. We undertake no
intention or obligation to update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise.

# Regulatory Risks

Our business may be harmed if we
do not fulfill certain post-approval requirements of the FDA relating to VELCADE®
(bortezomib) for Injection or obtain approval to market VELCADE for additional therapeutic
uses.

The
FDA granted accelerated approval, and the EMEA granted approval under exceptional
circumstances, for VELCADE for specific therapeutic uses. These approvals require the
fulfillment of specific post-approval requirements. Our business would be seriously harmed
if we do not fulfill these requirements and the FDA or the EMEA revoke their marketing
approval for VELCADE. In addition, an important part of our strategy to grow our business
is to market VELCADE for additional indications. To do so, we will need to successfully
conduct clinical trials and then apply for and obtain the appropriate regulatory
approvals. If we are unsuccessful in our clinical trials, or we experience a delay in
obtaining or are unable to obtain authorizations for expanded uses of VELCADE, our
revenues may not grow as expected and our business and operating results will be harmed.

We may not be able to obtain
approval in additional countries to market VELCADE.

VELCADE
is currently approved for marketing in the United States and the countries of the European
Union, Israel, Turkey, South Korea and Argentina. If we are not able to obtain approval to
market VELCADE in additional countries, we will lose the opportunity to sell in those
countries and will not be able to earn potential milestone payments under our agreement
with Ortho Biotech or collect potential distribution fees on sales of VELCADE by Ortho
Biotech in those countries.

We may not be able to obtain
marketing approval for products or services resulting from our development efforts.

The
products that we are developing require research and development, extensive preclinical
studies and clinical trials and regulatory approval prior to any commercial sales. This
process is expensive and lengthy, and can often take a number of years. In some cases, the
length of time that it takes for us to achieve various regulatory approval milestones
affects the payments that we are eligible to receive under our strategic alliance
agreements.

We
may need to successfully address a number of technological challenges in order to complete
development of our products. Moreover, these products may not be effective in treating any
disease or may prove to have undesirable or unintended side effects, toxicities or other
characteristics that may preclude our obtaining regulatory approval or prevent or limit
commercial use.

In
some cases, we may experience challenges to the extension of exclusivity of our marketing
approval in certain jurisdictions. For example, with respect to INTEGRILIN®
(eptifibatide) Injection, regulatory authorities in Luxembourg instituted a claim to
reduce the effective term of supplemental protection certificates for INTEGRILIN in the
European Community from 2014 to 2012. That claim was denied by the court of first instance
in Europe. That

26

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denial has been appealed to the European Court of Justice, which held a
hearing on the appeal in July 2004. If that court decides against us, the term of the
supplemental protection certificates covering INTEGRILIN could be shortened in any
particular European Community Member State in which a subsequent action requesting
enforcement of the appellate decision was filed and decided against us. Shortening of such
term could allow earlier generic competition in any such Member State.

If we fail to comply with
regulatory requirements, or if we experience unanticipated problems with our approved
products, our products could be subject to restrictions or withdrawal from the market.

Any
product for which we obtain marketing approval, along with the manufacturing processes,
post-approval clinical data and promotional activities for such product, is subject to
continual review and periodic inspections by the FDA, and other regulatory bodies. In
particular, the marketing approval that we received from the FDA for VELCADE requires that
we satisfactorily complete specified post-approval clinical trials of this product. Later
discovery of previously unknown problems or safety issues with our products or
manufacturing processes, or failure to comply with regulatory requirements, may result in
restrictions on such products or manufacturing processes, withdrawal of the products from
the market or the imposition of civil or criminal penalties. As with any newly approved
therapeutic product, we expect that our knowledge of the safety profile for VELCADE will
expand after wider usage and the possibility exists of patients receiving VELCADE
treatment experiencing unexpected serious adverse events which could have a material
adverse effect on our business.

We have only limited experience in
regulatory affairs, and some of our products may be based on new technologies; these
factors may affect our ability or the time we require to obtain necessary regulatory
approvals.

We
have only limited experience in filing and prosecuting the applications necessary to gain
regulatory approvals. Moreover, certain of the products that result from our
research and development programs may be based on new technologies and new therapeutic
approaches that have not been extensively tested in humans. The regulatory requirements
governing these types of products may be more rigorous than for conventional products. As
a result, we may experience a longer regulatory process in connection with any products
that we develop based on these new technologies or new therapeutic approaches.

# Risks Relating to Our
Business, Strategy and Industry

Our revenues over the next several
years will be materially dependent on the commercial success of VELCADE® (bortezomib)
for Injection and INTEGRILIN® (eptifibatide) Injection.

Our
revenues over the next several years will be materially dependent on the commercial
success of our two marketed products: VELCADE and INTEGRILIN.

VELCADE
was approved by the FDA in May 2003 and commercially launched in the United States
shortly after that date. Marketing of VELCADE outside the United States commenced in April
2004. Because of the recent introduction of VELCADE, we have limited experience as to the
sales levels of this product. Our business plan contemplates obtaining marketing
authorization to sell VELCADE in many countries for the treatment of patients with
multiple myeloma and both in the United States and abroad for other indications. We will
be adversely affected if VELCADE does not receive such approvals.

INTEGRILIN
has been on the market in the United States since June 1998. Marketing of INTEGRILIN
outside the United States commenced in mid-1999.

We
will not achieve our business plan, and we may be forced to scale back our operations and
research and development programs, if:

| |  |  | we do not obtain regulatory approval to sell VELCADE in additional countries or for additional
         therapeutic uses;
| | - |  | -------------------------------------------------------------------------------------------------------------------------

27

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| |  |  | physicians reduce prescribing GP IIb-IIIa inhibitors, for the current indications of
INTEGRILIN or fail to use GP IIb-IIIa inhibitors earlier in treatment and in the
percutaneous coronary intervention setting;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |  |                                                                                                                                                                                                                  
| |  |  | we are not able to successfully implement distribution logistics for INTEGRILIN; or                                                                                                                              
| |   |  |                                                                                                                                                                                                                  
| |  |  | the sales of VELCADE or INTEGRILIN do not meet our expectations.                                                                                                                                                 

We face substantial competition,
and others may discover, develop or commercialize products and services before or more
successfully than we do.

The
fields of biotechnology and pharmaceuticals are highly competitive. Many of our
competitors are substantially larger than we are, and these competitors have substantially
greater capital resources, research and development staffs and facilities than we have.
Furthermore, many of our competitors are more experienced than we are in drug research,
discovery, development and commercialization, obtaining regulatory approvals and product
manufacturing and marketing. As a result, our competitors may discover, develop and
commercialize pharmaceutical products or services before we do. In addition, our
competitors may discover, develop and commercialize products or services that make the
products or services that we or our collaborators have developed or are seeking to develop
and commercialize non-competitive or obsolete.

Due
to the incidence and severity of cardiovascular diseases, the market for therapeutic
products that address these diseases is large, and we expect the already intense
competition in this field to increase. Our most significant competitors are major
pharmaceutical companies and biotechnology companies. The two products that compete
directly with INTEGRILIN in the GP IIb-IIIa inhibitor market segment are ReoPro®
(abciximab), which is produced by Johnson & Johnson and sold by
Johnson & Johnson and Eli Lilly and Company, and Aggrastat® (tirofiban HCl),
which is produced and sold by Merck & Co., Inc. outside of the United States
and by Guilford Pharmaceuticals, Inc. in the United States.

Other
competitive factors that could negatively affect INTEGRILIN include:

| |  |  | expanded use of heparin replacement therapies, such as Angiomax® (bivalirudin), which is produced and
         sold by The Medicines Company;                                   
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |  |                                                                                                                                                                                 
| |  |  | changing treatment practices for percutaneous coronary intervention and acute coronary syndrome based on
         new technologies, including the use of drug-coated stents; and
| |   |  |                                                                                                                                                                                 
| |  |  | increased use of another class of anti-platelet drugs known as ADP inhibitors in patients
whose symptoms make them potential candidates for treatment with INTEGRILIN.          

With
respect to VELCADE, we face competition from Celgene Corporations Thalomid®
(thalidomide) and its derivatives, a treatment for complications associated with leprosy
which is increasingly used for multiple myeloma based on data published in peer-reviewed
publications. Celgene Corporation has filed an sNDA for thalidomide for the treatment of
multiple myeloma that was accepted by the FDA for review. We also face competition for
VELCADE from traditional chemotherapy treatments, and there are other potentially
competitive therapies for VELCADE that are in late-stage clinical development for the
treatment of multiple myeloma. In addition, multiple myeloma therapies in development may
reduce the number of patients available for VELCADE treatment through enrollment of these
patients in clinical trials of these potentially competing products.

Sales of INTEGRILIN®
(eptifibatide) Injection and possibly VELCADE® (bortezomib) for Injection in
particular reporting periods may be affected by fluctuations in inventory, allowances and
buying patterns.

A
significant portion of INTEGRILIN domestic pharmaceutical sales is made by SGP to major
drug wholesalers. These sales are affected by fluctuations in the buying patterns of these
wholesalers and the corresponding changes in inventory levels maintained by them. Because
SGP currently manages product distribution, we have limited insight into the forces
driving the changes in inventory levels and the changes reported may not reflect
underlying prescriber demand. If SGP does not appropriately manage this distribution, we
and SGP

28

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may not realize our sales goals for the product and increased returns could reduce
the co-promotion revenue we recognize and adversely affect our business.

We
are considering transitioning the distribution of VELCADE®
(bortezomib) for Injection to a sole-source distribution
model. If we do so, product inventory levels may fluctuate in the short-term as our
current wholesalers familiarize themselves with new distribution logistics.

Additionally,
we and our commercial partners make provisions at the time of sale of both VELCADE and INTEGRILIN® (eptifibatide) Injection for all discounts,
rebates and estimated sales allowances based on historical experience updated for changes
in facts and circumstances, as appropriate. To the extent these allowances are incorrect,
we may need to adjust our estimates which could have a material impact on the timing and
amount of revenue we are able to recognize from these sales.

Because
fewer medical procedures are typically performed in the summer months, demand sales from
INTEGRILIN could generally be lower during these months. These fluctuations in sales of
INTEGRILIN could have a material adverse effect on our results of operations for
particular reporting periods. It is possible that sales of VELCADE could be similarly
affected by fluctuations in buying patterns.

Because our research and
development projects are based on new technologies and new therapeutic approaches that
have not been extensively tested in humans, it is possible that our discovery process will
not result in commercial products or services.

The
process of discovering drugs based upon genomics and other new technologies is new and
evolving rapidly. We focus a portion of our research on diseases that may be linked to
several or many genes working in combination or to unprecedented targets. Both we and the
general scientific and medical communities have only a limited understanding of the role
that genes play in these diseases. To date, we have not commercialized any products
discovered through our genomics research, and we may not be successful in doing so in the
future. In addition, relatively few products based on gene discoveries have been developed
and commercialized by others. Rapid technological development by us or others may result
in compounds, products or processes becoming obsolete before we recover our development
expenses. Further, manufacturing costs or products based on these new technologies may
make products uneconomical to commercialize.

If our clinical trials are
unsuccessful, or if they experience significant delays, our ability to commercialize
products will be impaired.

We
must provide the FDA and foreign regulatory authorities with preclinical and clinical data
demonstrating that our products are safe and effective before they can be approved for
commercial sale. Clinical development, including preclinical testing, is a long, expensive
and uncertain process. It may take us several years to complete our testing, and failure
can occur at any stage of testing. Interim results of preclinical or clinical studies do
not necessarily predict their final results, and acceptable results in early studies might
not be seen in later studies. Any preclinical or clinical test may fail to produce results
satisfactory to the FDA. Preclinical and clinical data can be interpreted in different
ways, which could delay, limit or prevent regulatory approval. Negative or inconclusive
results from a preclinical study or clinical trial, adverse medical events during a
clinical trial or safety issues resulting from products of the same class of drug could
cause a preclinical study or clinical trial to be repeated or a program to be terminated,
even if other studies or trials relating to the program are successful. For example, in
December 2003, we decided to stop further accrual to a phase II trial examining
VELCADE in colorectal cancer because interim findings
produced results that did not meet the pre-specified efficacy criteria for continuation of
study accrual.

We
may not complete our planned preclinical or clinical trials on schedule or at all. We may
not be able to confirm the safety and efficacy of our potential drugs in long-term
clinical trials, which may result in a delay or failure to commercialize our products. In
addition, due to the substantial demand for clinical trial sites in the cardiovascular
area, we may have difficulty obtaining a sufficient number of appropriate patients or
clinician support to conduct our clinical trials as planned. As a result, we may have to
expend substantial additional funds to obtain access to resources or delay or modify our
plans significantly. Our product development costs will increase if

29

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we experience delays
in testing or approvals. Significant clinical trial delays could allow our competitors to
bring products to market before we do and impair our ability to commercialize our products
or potential products.

Because many of the products and
services that we develop will be based on new technologies and therapeutic approaches, the
market may not be receptive to these products and services upon their introduction.

The
commercial success of any of our products and services for which we may obtain marketing
approval from the FDA or other regulatory authorities will depend upon their acceptance by
the medical community and third party payors as clinically useful, cost-effective and
safe. Many of the products and services that we are developing are based upon new
technologies or therapeutic approaches. As a result, it may be more difficult for us to
achieve market acceptance of our products and services, particularly the first products
and services that we introduce to the market based on new technologies and therapeutic
approaches. Our efforts to educate the medical community on these potentially unique
approaches may require greater resources than would be typically required for products and
services based on conventional technologies or therapeutic approaches. The safety,
efficacy, convenience and cost-effectiveness of our products as compared to competitive
products will also affect market acceptance.

# Risks Relating to Our
Financial Results and Need for Financing

We have incurred substantial
losses and expect to continue to incur losses. We will not be successful unless we reverse
this trend.

We
have incurred losses of $63.1 million and $92.3 million for the three months ended
September 30, 2004 and 2003, respectively, losses of $157.6 million and $337.3 million for
the nine months ended September 30, 2004 and 2003, respectively, and losses of
$483.7 million for the year ended December 31, 2003 and $590.2 million for
the year ended December 31, 2002. We expect to continue to incur substantial
operating losses in future periods. Prior to our acquisition of COR, substantially all of
our revenues resulted from payments from collaborators, and not from the sale of products.

We
expect to continue to incur significant expenses in connection with our research and
development programs and commercialization activities. As a result, we will need to
generate significant revenues to pay these costs and achieve profitability. We cannot be
certain whether or when we will become profitable because of the significant uncertainties
with respect to our ability to generate revenues from the sale of products and services
and from existing and potential future strategic alliances.

We may need additional financing,
which may be difficult to obtain. Our failure to obtain necessary financing or doing so on
unattractive terms could adversely affect our business and operations.

We
will require substantial funds to conduct research and development, including preclinical
testing and clinical trials of our potential products. We will also require substantial
funds to meet our obligations to our collaborators and maximize the prospective benefits
to us from our alliances, manufacture and market products and services that are approved
for commercial sale, including INTEGRILIN® (eptifibatide) Injection and VELCADE®
(bortezomib) for Injection, and meet our debt service obligations. Additional financing
may not be available when we need it or may not be available on favorable terms.

If
we are unable to obtain adequate funding on a timely basis, we may have to delay or
curtail our research and development programs or our product commercialization activities.
We could be required to seek funds through arrangements with collaborators or others that
may require us to relinquish rights to certain of our technologies, product candidates or
products which we would otherwise pursue on our own.

Our indebtedness and debt service
obligations may adversely affect our cash flow and otherwise negatively affect our
operations.

At
September 30, 2004, we had approximately $105.5 million of outstanding convertible
debt and $93.9 million of capital lease obligations. During each of the last five
years, our earnings were insufficient to cover our fixed charges. We will be required to
make interest payments on our outstanding convertible notes totaling

30

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approximately $14.0
million over the next three years, assuming our convertible debt remains outstanding until
maturity.

We
may in the future incur additional indebtedness, including long-term debt, credit lines
and property and equipment financings to finance capital expenditures. We intend to
satisfy our current and future debt service obligations from cash generated by our
operations, our existing cash and investments and, in the case of principal payments at
maturity, funds from external sources. We may not have sufficient funds and we may be
unable to arrange for additional financing to satisfy our principal or interest payment
obligations when those obligations become due. Funds from external sources may not be
available on acceptable terms, or at all.

Our
indebtedness could have significant additional negative consequences, including:

| |  |  | increasing our vulnerability to general adverse economic and industry conditions;                                                                                                                                                                               
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |  |                                                                                                                                                                                                                                                                 
| |  |  | limiting our ability to obtain additional financing;                                                                                                                                                                                                            
| |   |  |                                                                                                                                                                                                                                                                 
| |  |  | requiring the dedication of a substantial portion of our cash flow from operations to
service our indebtedness, thereby reducing the amount of our expected cash flow available
for other purposes, including capital expenditures and research and development;
| |   |  |                                                                                                                                                                                                                                                                 
| |  |  | limiting our flexibility in planning for, or reacting to, changes in our business and the industry in
         which we compete; and                                                                                                                            
| |   |  |                                                                                                                                                                                                                                                                 
| |  |  | placing us at a possible competitive disadvantage to less leveraged competitors and
competitors that have better access to capital resources.                                                                                                                   

If we do not achieve the
anticipated benefits of our restructuring, or if the costs of this restructuring exceed
anticipated levels, our business could be harmed.

In
December 2002 and June 2003, we announced a restructuring designed to focus our resources
on development and commercialization of product opportunities and achieving our goal of
becoming profitable in the future. We may not achieve the cost savings anticipated from
the restructuring because such savings are difficult to predict and speculative in nature.
In 2003, we recorded approximately $191.0 million related to this restructuring and
expect to record additional restructuring charges during 2004 and 2005 in the aggregate of
approximately $60.0 million. While we believe this estimate to be reasonable, it is
possible that the actual charges will exceed this range. For example, we may not be able
to lease facilities that we have closed or plan to close in connection with the
restructuring as quickly or on as favorable terms as we anticipate.

# Risks Relating to
Collaborators

We depend significantly on our
collaborators to work with us to develop and commercialize products and services.

We
market and sell INTEGRILIN® (eptifibatide) Injection through an alliance with SGP and
pending the approved transfer of marketing authorizations, GSK will exclusively market
INTEGRILIN in Europe. We develop and, outside of the United States, commercialize
VELCADE® (bortezomib) for Injection through an alliance with Ortho Biotech. We conduct substantial
discovery and development activities through strategic alliances, including with Ortho
Biotech for the ongoing development of VELCADE, and with SGP for the ongoing development
of INTEGRILIN. We expect to enter into additional alliances in the future, especially in
connection with product commercialization. The success of our alliances depends heavily on
the efforts and activities of our collaborators.

Each
of our collaborators has significant discretion in determining the efforts and resources
that it will apply to the alliance. Our existing and any future alliances may not be
scientifically or commercially successful.

31

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The
risks that we face in connection with these existing and any future alliances include the
following:

| |  |  | All of our strategic alliance agreements are for fixed terms and are subject to
termination under various circumstances, including, in many cases such as in our
collaboration with Ortho Biotech, without cause. For example, we agreed to end our joint
development and commercialization agreement with Abbott Laboratories in August 2003,
our technology transfer alliance with Aventis Pharmaceuticals, Inc. ended in
July 2003 and the research phase of our five-year alliance with Bayer AG ended in
October 2003.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |  |  | Our collaborators may change the focus of their development and commercialization efforts.
Pharmaceutical and biotechnology companies historically have re-evaluated their priorities
following mergers and consolidations, which have been common in recent years in these
industries. The ability of certain of our products to reach their potential could be
limited if our collaborators decrease or fail to increase marketing or spending efforts
related to such products.                                         
| |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |  |  | We expect to rely on our
collaborators to manufacture many products covered by our alliances.                                                                                                                                                                                                                                                                                                                                                                                                                              
| |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |  |  | In our strategic alliance agreements, we generally agree not to conduct specified types of
research and development in the field that is the subject of the alliance. These
agreements may have the effect of limiting the areas of research and development that we
may pursue, either alone or in collaboration with third parties.                                                                                                                                                                                      
| |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |  |  | Our collaborators may develop and commercialize, either alone or with others, products and
services that are similar to or competitive with the products and services that are the
subject of the alliance with us.                                                                                                                                                                                                                                                                                                        

We may not be successful in
establishing additional strategic alliances, which could adversely affect our ability to
develop and commercialize products and services.

An
important element of our business strategy is entering into strategic alliances for the
development and commercialization of selected products and services. In some instances, if
we are unsuccessful in reaching an agreement with a suitable collaborator, we may fail to
meet certain of our business objectives for the applicable product or program. We face
significant competition in seeking appropriate collaborators. Moreover, these alliance
arrangements are complex to negotiate and time-consuming to document. We may not be
successful in our efforts to establish additional strategic alliances or other alternative
arrangements. The terms of any additional strategic alliances or other arrangements that
we establish may not be favorable to us. Moreover, such strategic alliances or other
arrangements may not be successful.

# Risks Relating to
Intellectual Property

If we are unable to obtain patent
protection for our discoveries, the value of our technology and products will be adversely
affected. If we infringe patent or other intellectual property rights of third parties, we
may not be able to develop and commercialize our products and services or the cost of
doing so may increase.

Our
patent positions, and those of other pharmaceutical and biotechnology companies, are
generally uncertain and involve complex legal, scientific and factual questions.

Our
ability to develop and commercialize products and services depends in significant part on
our ability to:

| |  |  | obtain patents;                                                                      
| | - |  | -------------------------------------------------------------------------------------
| |   |  |                                                                                      
| |  |  | obtain licenses to the proprietary rights of others on commercially reasonable terms;
| |   |  |                                                                                      
| |  |  | operate without infringing upon the proprietary rights of others;                    
| |   |  |                                                                                      
| |  |  | prevent others from infringing on our proprietary rights; and                        

32

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| |  |  | protect trade secrets.
| | - |  | ----------------------

There is significant uncertainty
about the validity and permissible scope of patents in our industry, which may make it
difficult for us to obtain patent protection for our discoveries.

The
validity and permissible scope of patent claims in the pharmaceutical and biotechnology
fields, including the genomics field, involve important unresolved legal principles and
are the subject of public policy debate in the United States and abroad. For example,
there is significant uncertainty both in the United States and abroad regarding the
patentability of gene sequences in the absence of functional data and the scope of patent
protection available for full-length genes and partial gene sequences. Moreover, some
groups have made particular gene sequences available in publicly accessible databases.
These and other disclosures may adversely affect our ability to obtain patent protection
for gene sequences claimed by us in patent applications that we file subsequent to such
disclosures. There is also some uncertainty as to whether human clinical data will be
required for issuance of patents for human therapeutics. If such data are required, our
ability to obtain patent protection could be delayed or otherwise adversely affected.

Third parties may own or control
patents or patent applications and require us to seek licenses, which could increase our
development and commercialization costs, or prevent us from developing or marketing our
products or services.

We
may not have rights under some patents or patent applications related to some of our
existing and proposed products, processes or services. Third parties may own or control
these patents and patent applications in the United States and abroad. Therefore, in some
cases, such as those described below, in order to develop, manufacture, sell or import
some of our existing and proposed products, processes or services, we or our collaborators
may choose to seek, or be required to seek, licenses under third-party patents issued in
the United States and abroad, or those that might issue from United States and foreign
patent applications. In such event, we would be required to pay license fees or royalties
or both to the licensor. If licenses are not available to us on acceptable terms, we or
our collaborators may not be able to develop, manufacture, sell or import these products,
processes or services.

Our
MLN02 and MLN1202 product candidates are humanized monoclonal antibodies. Our product
candidate MLN2704 also includes a recombinant antibody. We are aware of third-party
patents and patent applications that relate to humanized or modified antibodies, products
useful for making humanized or modified antibodies and processes for making and using
recombinant antibodies. With respect to MLN2704 and MLN1202, we are also aware of
third-party patent applications relating to anti-PSMA antibodies, in the case of MLN2704,
and anti-CCR-2 antibodies, in the case of MLN1202.

With
respect to VELCADE® (bortezomib) for Injection and other proteasome inhibitors in the
treatment of myocardial infarctions, we are aware of the existence of a potentially
interfering patent application filed by a third party. In addition, on June 26, 2002,
Ariad Pharmaceuticals, Inc. sent to us and approximately 50 other parties a letter
offering a sublicense for the use of United States Patent No. 6,410,516, which is
exclusively licensed to Ariad. If this patent is valid and Ariad successfully sues us for
infringement, we would require a license from Ariad in order to manufacture and market
VELCADE.

We may become involved in
expensive patent litigation or other proceedings, which could result in our incurring
substantial costs and expenses or substantial liability for damages or require us to stop
our development and commercialization efforts.

There
has been substantial litigation and other proceedings regarding the patent and other
intellectual property rights in the pharmaceutical and biotechnology industries. We may
become a party to patent litigation or other proceedings regarding intellectual property
rights. For example, we believe that we hold patent applications that cover genes that are
also claimed in patent applications filed by others. Interference proceedings before the
United States Patent and Trademark Office may be necessary to establish which party was
the first to invent these genes.

The
cost to us of any patent litigation or other proceeding, even if resolved in our favor,
could be substantial. Some of our competitors may be able to sustain the cost of such
litigation or proceedings more effectively than we

33

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can because of their substantially
greater financial resources. If a patent litigation or other proceeding is resolved
against us, we or our collaborators may be enjoined from developing, manufacturing,
selling or importing our products, processes or services without a license from the other
party and we may be held liable for significant damages. We may not be able to obtain any
required license on commercially acceptable terms or at all.

Uncertainties
resulting from the initiation and continuation of patent litigation or other proceedings
could have a material adverse effect on our ability to compete in the marketplace. Patent
litigation and other proceedings may also absorb significant management time.

# Risks Relating to
Product Manufacturing, Marketing and Sales

Because we have limited sales,
marketing and distribution experience and capabilities, we are dependent on third parties
to successfully perform these functions on our behalf, or we may be required to incur
significant costs and devote significant efforts to augment our existing capabilities.

We have limited sales, marketing and distribution experience and capabilities.

We
are marketing and selling VELCADE® (bortezomib) for Injection in the United States
solely through our cancer-specific sales force and without a collaborator. Our success in
selling VELCADE will depend heavily on the performance of this sales force. In areas
outside the United States where VELCADE has received approval, Ortho Biotech or its
affiliates market VELCADE and as a result our ability to earn revenue related to VELCADE
outside of the United States will depend heavily on Ortho Biotech.

We
have a specialty cardiovascular sales force that markets INTEGRILIN® (eptifibatide)
Injection with SGP in the United States. SGP also markets INTEGRILIN outside of the United
States and pending the approved transfer of marketing authorizations, GSK will exclusively
market INTEGRILIN in Europe. Our success in receiving co-promotion revenue and royalties
from sales of INTEGRILIN will depend heavily on the marketing efforts of these sales
forces.

During
September 2004, we initiated the process, contemplated by the original agreement with SGP,
to transition United States distribution responsibilities for INTEGRILIN from SGP to us.
If we are not able to successfully distribute the product after this transition,
INTEGRILIN sales could decline and our business could be substantially harmed.

Depending
on the nature of the products and services for which we obtain marketing approval, we may
need to rely significantly on sales, marketing and distribution arrangements with our
collaborators and other third parties. For example, some types of pharmaceutical products
require a large sales force and extensive marketing capabilities for effective
commercialization. If in the future we elect to perform sales, marketing and distribution
functions for these types of products ourselves, we would face a number of additional
risks, including the need to recruit a large number of additional experienced marketing
and sales personnel.

Because we have no commercial
manufacturing capabilities, we will continue to be dependent on third-party manufacturers
to manufacture products for us, or we will be required to incur significant costs and
devote significant efforts to establish our own manufacturing facilities and capabilities.

We
have no commercial-scale manufacturing capabilities. In order to continue to develop
products and services, apply for regulatory approvals and commercialize products and
services, we will need to develop, contract for or otherwise arrange for the necessary
manufacturing capabilities.

We
currently rely upon third parties to produce material for preclinical testing purposes and
expect to continue to do so in the future. We also expect to rely upon other third
parties, including our collaborators, to produce materials required for clinical trials
and for the commercial production of certain of our products.

There
are a limited number of contract manufacturers that operate under the FDAs good
manufacturing practices regulations capable of manufacturing our products. As a result, we
have experienced some difficulty finding manufacturers for our products with adequate
capacity for our anticipated future needs. If we are unable to

34

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arrange for third-party
manufacturing of our products, or to do so on commercially reasonable terms, we may not be
able to complete development of our products or market them.

Reliance
on third-party manufacturers entails risks to which we would not be subject if we
manufactured products ourselves, including reliance on the third party for regulatory
compliance and quality assurance, the possibility of breach of the manufacturing agreement
by the third party because of factors beyond our control and the possibility of
termination or non-renewal of the agreement by the third party, based on its own business
priorities, at a time that is costly or inconvenient for us.

We
may in the future elect to manufacture certain of our products in our own manufacturing
facilities. We would need to invest substantial additional funds and recruit qualified
personnel in order to build or lease and operate any manufacturing facilities.

We have no commercial
manufacturing capability for VELCADE® (bortezomib) for Injection and we are dependent
on third parties to produce product sufficient to meet market demand.

We
currently rely on third-party contract manufacturers to complete the manufacturing,
fill/finish and packaging of VELCADE for both commercial purposes and for ongoing clinical
trials. We work with one manufacturer, with whom we have a long-term supply agreement, to
complete fill/finish for VELCADE. We are currently establishing a secondary source for the
production of commercial supply of VELCADE. If our current third party manufacturer
performing fill/finish for VELCADE is unable or unwilling to continue performing these
services for us and we are unable to find a replacement manufacturer, we could run out of
VELCADE for commercial sale and our business could be substantially harmed.

Outside
of the United States, an affiliate of Ortho Biotech performs importation, secondary
packaging, qualified person release and quality control assurance testing for sales of
VELCADE and as a result we are substantially dependent on Ortho Biotechs ability to
perform these services for sales outside of the United States.

We face challenges in
connection with the manufacture of INTEGRILIN® (eptifibatide) Injection; if we do not
meet these challenges, our revenues and income will be adversely affected.

We
have no manufacturing facilities for INTEGRILIN and, accordingly, rely on third-party
contract manufacturers for the clinical and commercial production of INTEGRILIN. We have
two manufacturers that provide us with eptifibatide, the raw material necessary to make
INTEGRILIN. In January 2003, we entered into a new supply agreement with Solvay, one
of those manufacturers. Solvay owns the process technology used by it and the other
manufacturer for the production of bulk product. As a result, until we develop alternative
process technologies, we will continue to rely on these manufacturers.

We
have one manufacturer that currently performs fill/finish services for INTEGRILIN. We are
qualifying an alternative fill/finish supplier and we have identified an alternative
packaging supplier to serve as future sources of supply for the United States and
international markets. Although we believe that the fill/finish and packaging performed by
our primary manufacturer is sufficient to meet our supply requirements for INTEGRILIN for
the foreseeable future, the inability of this manufacturer to continue its fill/finish
services or our inability to secure alternative manufacturers could adversely affect the
supply of INTEGRILIN and, thereby, harm our results of operations.

We
expect to improve or modify our existing process technologies and manufacturing
capabilities for INTEGRILIN. We cannot quantify the time or expense that may ultimately be
required to improve or modify our existing process technologies, but it is possible that
such time or expense could be substantial. Moreover, we may not be able to implement any
of these improvements or modifications successfully.

Our
manufacturing plans and commercialization strategy for INTEGRILIN include the addition of
extra capacity for the manufacture of INTEGRILIN as described above. We are currently
engaged in finalizing third-party manufacturing arrangements on commercially reasonable
terms. We may not be able to do so, and, even if such arrangements are established, if
demand for INTEGRILIN does not meet our forecasts, the manufacturing cost could become
more expensive on a per unit basis.

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We
frequently carry significant amounts of INTEGRILIN®
(eptifibatide) Injection in inventory. If for some reason we
were unable to sell INTEGRILIN, our inventory could expire and we would be required to
write-off the value of the expired inventory.

If we fail to obtain an adequate
level of reimbursement for our products or services by third-party payors, there may be no
commercially viable markets for our products or services.

The
availability and levels of reimbursement by governmental and other third-party payors
affect the market for any pharmaceutical product or health care service. These third-party
payors continually attempt to contain or reduce the costs of health care by challenging
the prices charged for medical products and services. In certain foreign countries,
particularly the countries of the European Union, the pricing of prescription
pharmaceuticals is subject to governmental control. We may not be able to sell our
products and services as profitably as we expect if we are required to sell our products
at lower than anticipated prices or reimbursement is unavailable or limited in scope or
amount.

In
particular, third-party payors could lower the amount that they will reimburse hospitals
or doctors to treat the conditions for which the FDA has approved INTEGRILIN or VELCADE® (bortezomib) for Injection. If they do, pricing
levels or sales volumes of INTEGRILIN or VELCADE may decrease. In addition, if we fail to
comply with the rules applicable to the Medicaid and Medicare programs, we could be
subject to the imposition of civil or criminal penalties or exclusion from these programs.

In
foreign markets, a number of different governmental and private entities determine the
level at which hospitals will be reimbursed for administering INTEGRILIN and VELCADE to
insured patients. If these levels are set, or reset, too low, it may not be possible to
sell INTEGRILIN or VELCADE at a profit in these markets.

In
both the United States and certain foreign jurisdictions, there have been a number of
legislative and regulatory proposals to change the health care system. For example, the
passage of the Medicare Prescription Drug and Modernization Act of 2003 and its
implementing regulations imposes new requirements for the distribution and pricing of
prescription drugs which may affect the marketing of our products. These new requirements
have created uncertainty among oncologists and could impact sales levels of VELCADE as
oncologists adapt to the new reimbursement model. Further proposals are also likely. The
current uncertainty and the potential for adoption of these proposals could affect the
timing of product revenue, our ability to raise capital, obtain additional collaborators
and market our products.

In
addition, we believe that the increasing emphasis on managed care in the United States has
and will continue to put pressure on the price and usage of our present and future
products, which may adversely affect product sales. Further, when a new therapeutic
product is approved, the availability of governmental or private reimbursement for that
product is uncertain, as is the amount for which that product will be reimbursed. We
cannot predict the availability or amount of reimbursement for our product candidates, and
current reimbursement policies for INTEGRILIN or VELCADE could change at any time.

We face a risk of product
liability claims and may not be able to obtain insurance.

Our
business exposes us to the risk of product liability claims that is inherent in the
manufacturing, testing and marketing of human therapeutic products. In particular,
INTEGRILIN and VELCADE are administered to patients with serious diseases who have a high
incidence of mortality. Although we have product liability insurance that we believe is
appropriate, this insurance is subject to deductibles, co-insurance requirements and
coverage limitations and the market for such insurance is becoming more restrictive. We
may not be able to obtain or maintain adequate protection against potential liabilities.
If we are unable to obtain insurance at acceptable cost or otherwise protect against
potential product liability claims, we will be exposed to significant liabilities, which
may materially and adversely affect our business and financial position. These liabilities
could prevent or interfere with our product commercialization efforts.

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# Guidelines and
recommendations can affect the use of our products.

Government
agencies promulgate regulations and guidelines directly applicable to us and to our
products. In addition, professional societies, practice management groups, private health
and science foundations and organizations involved in various diseases from time to time
may also publish guidelines or recommendations to the health care and patient communities.
Recommendations of government agencies or these other groups or organizations may relate
to such matters as usage, dosage, route of administration and use of concomitant
therapies. Recommendations or guidelines suggesting the reduced use of our products or the
use of competitive or alternative products that are followed by patients and health care
providers could result in decreased use of our products.

# Risks Relating to an
Investment in Our Common Stock

The trading price of our
securities could be subject to significant fluctuations.

The
trading price of our common stock has been volatile, and may be volatile in the future.
During 2003 and 2004, our common stock traded as high as $19.87 per share and as low as
$6.24 per share. Factors such as announcements of our or our competitors operating
results, changes in our prospects and market conditions for biotechnology stocks in
general could have a significant impact on the future trading prices of our common stock.

In
particular, the trading price of the common stock of many biotechnology companies,
including ours, has experienced extreme price and volume fluctuations, which have at times
been unrelated to the operating performance of such companies whose stocks were affected.
Some of the factors that may cause volatility in the price of our securities include:

| |  |  | product revenues and the rate of revenue growth;       
| | - |  | -------------------------------------------------------
| |   |  |                                                        
| |  |  | introduction or success of competitive products;       
| |   |  |                                                        
| |  |  | clinical trial results and regulatory developments;    
| |   |  |                                                        
| |  |  | quarterly variations in financial results;             
| |   |  |                                                        
| |  |  | business and product market cycles;                    
| |   |  |                                                        
| |  |  | fluctuations in customer requirements;                 
| |   |  |                                                        
| |  |  | availability and utilization of manufacturing capacity;
| |   |  |                                                        
| |  |  | timing of new product introductions; and               
| |   |  |                                                        
| |  |  | our ability to develop and implement new technologies. 

The
price of our securities may also be affected by the estimates and projections of the
investment community and our ability to meet or exceed the financial projections we
provide to the public. The price may also be affected by general economic and market
conditions, and the cost of operations in our product markets. While we cannot predict the
individual effect that these factors may have on the price of our securities, these
factors, either individually or in the aggregate, could result in significant variations
in price during any given period of time. There can be no assurance that these factors
will not have an adverse effect on the trading price of our common stock.

We have anti-takeover defenses
that could delay or prevent an acquisition and could adversely affect the price of our
common stock.

Provisions
of our certificate of incorporation and bylaws and of Delaware law could have the effect
of delaying, deferring or preventing an acquisition of our company. For example, we have
divided our board of

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directors into three classes that serve staggered three-year terms,
we may issue shares of our authorized blank check preferred stock and our
stockholders are limited in their ability to call special stockholder meetings. In
addition, we have issued preferred stock purchase rights that would adversely affect the
economic and voting interests of a person or group that seeks to acquire us or a 15% or
more interest in our common stock without negotiations with our board of directors.

# Item 3.        Quantitative
and Qualitative Disclosures About Market Risk

We
manage our fixed income investment portfolio in accordance with our Policy for Securities
Investments, or Investment Policy, that has been approved by our Board of Directors. The
primary objectives of our Investment Policy are to preserve principal, maintain a high
degree of liquidity to meet operating needs, and obtain competitive returns subject to
prevailing market conditions. Investments are made primarily in high-grade corporate bonds
with effective maturities of three years or less, asset-backed debt securities and U.S.
government agency debt securities. These investments are subject to risk of default,
changes in credit rating and changes in market value. These investments are also subject
to interest rate risk and will decrease in value if market interest rates increase. A
hypothetical 100 basis point increase in interest rates would result in an approximate
$13.4 million decrease in the fair value of our investments as of September 30, 2004.
However, due to the conservative nature of our investments and relatively short effective
maturities of debt instruments, interest rate risk is mitigated. Our Investment Policy
specifies credit quality standards for our investments and limits the amount of exposure
from any single issue, issuer or type of investment. We do not own derivative financial
instruments in our investment portfolio.

As
of September 30, 2004, the fair value of our 4.5% notes, 5.0% notes and 5.5% notes
approximates their carrying value. The interest rates on our convertible notes and capital
lease obligations are fixed and therefore not subject to interest rate risk.

We
have no derivative instruments outstanding as of September 30, 2004.

As of
September 30, 2004 we did not have any financing arrangements that were not reflected in
our balance sheet.

# Item 4.        Controls and
Procedures

Our
management, with the participation of our chief executive officer and chief financial
officer, evaluated the effectiveness of our disclosure controls and procedures (as defined
in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of September 30, 2004. In
designing and evaluating our disclosure controls and procedures, management recognized
that any controls and procedures, no matter how well designed and operated, can provide
only reasonable assurance of achieving their objectives and our management necessarily
applied its judgment in evaluating the cost-benefit relationship of possible controls and
procedures. Based on this evaluation, our chief executive officer and chief financial
officer concluded that as of September 30, 2004, our disclosure controls and procedures
were (1) designed to ensure that material information relating to us is made known to our
chief executive officer and chief financial officer by others, particularly during the
period in which this report was prepared and (2) effective, in that they provide
reasonable assurance that information required to be disclosed by us in the reports we
file or submit under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in the SECs rules and forms.

No
change in our internal control over financial reporting (as defined in Rules 13a-15(f) and
15d-15(f) under the Exchange Act) occurred during the fiscal quarter ended September 30,
2004 that has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.

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PART II    OTHER INFORMATION



Item 6.    Exhibits and Reports on Form 8-K

|(a) | Exhibits                                                             
|--- | ---------------------------------------------------------------------
|    |                                                                      
|    | The exhibits listed in the Exhibit Index are included in this report.
|    |                                                                      
|(b) | Reports on Forms 8-K                                                 

The
following Current Reports on Form 8-K were filed or furnished by us during the three months ended
September 30, 2004.

| | 1. |  | We furnished a Current Report on Form 8-K to the Securities and Exchange
               Commission on July 22, 2004, pursuant to Item 12, containing a press
               release we issued on July 22, 2004 to report our financial results for the
               quarter ended June 30, 2004.
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |  |                                                                                                                                                                                                                                                                                                   
| | 2. |  | We filed a Current Report on Form 8-K with the Securities and Exchange
               Commission on September 7, 2004 to report, pursuant to Item 1.01, the grant of
               stock options to certain executives.                                                                          
| |    |  |                                                                                                                                                                                                                                                                                                   

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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.

|                        |  | MILLENNIUM PHARMACEUTICALS, INC.(Registrant)
|----------------------- |  | --------------------------------------------
|Dated: November 9, 2004 |  | By                                          
|                        |  |                                             
|                        |  |                                             
|                        |  |                                             
|                        |  |                                             
|                        |  |                                             

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EXHIBIT INDEX

|Exhibit No. |      | Description |                                                                                                                                                                     
|----------- | ---- | ----------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------
|            |      |             |                                                                                                                                                                     
|            | 10.1 |             | Agreement dated August 6, 2004 between the Company and Marsha H. Fanucci                                                                                            
|            |      |             |                                                                                                                                                                     
|            | 10.2 |             | Agreement dated August 6, 2004 between the Company and Kenneth M. Bate                                                                                              
|            |      |             |                                                                                                                                                                     
|            | 10.3 |             | Offer letter agreement dated September 28, 2004 between the Company and Laurie B. Keating                                                                           
|            |      |             |                                                                                                                                                                     
|            | 10.4 |             | Form of Director Stock Option Granted under 2000 Stock Incentive Plan                                                                                               
|            |      |             |                                                                                                                                                                     
|            | 31.1 |             | Certification of principal executive officer pursuant to Rule 13a-14(a)/15d-14(a) of
the Securities Exchange Act of 1934, as amended                                
|            |      |             |                                                                                                                                                                     
|            | 31.2 |             | Certification of principal financial officer pursuant to Rule 13a-14(a)/15d-14(a) of
the                                 Securities Exchange Act of 1934, as amended
|            |      |             |                                                                                                                                                                     
|            | 32.1 |             | Statement Pursuant to 18 U.S.C. §1350                                                                                                                               
|            |      |             |                                                                                                                                                                     
|            | 32.2 |             | Statement Pursuant to 18 U.S.C. §1350                                                                                                                               

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