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**UNITED STATESSECURITIES 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 June 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 August 2, 2004: 305,099,660

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**MILLENNIUM PHARMACEUTICALS, INC.**

**FORM 10-Q**

**FOR THE QUARTER ENDED JUNE 30, 2004**

**TABLE OF CONTENTS**

|             |                                                                                                     | Page                       |   |
|------------------|----------------------------------------------------------------------------------------------------------|----------------------------|--------|
| **PART I**  | **FINANCIAL INFORMATION**                                                                                |                       |   |
|             |                                                                                                     |                       |   |
| Item 1.          | Condensed Consolidated Financial Statements                                                              |                       |   |
|             |                                                                                                     |                       |   |
|             | Condensed Consolidated Balance Sheets as ofJune 30, 2004 and December 31, 2003                           | 3      |   |
|             |                                                                                                     |                       |   |
|             | Condensed Consolidated Statements of Operations for thethree and six months ended June 30, 2004 and 2003 | 4      |   |
|             |                                                                                                     |                       |   |
|             | Condensed Consolidated Statements of Cash Flows for thesix months ended June 30, 2004 and 2003           | 5      |   |
|             |                                                                                                     |                       |   |
|             | Notes to Condensed Consolidated Financial Statements                                                     | 6      |   |
|             |                                                                                                     |                       |   |
| Item 2.          | Management's Discussion and Analysis of FinancialCondition and Results of Operations                     | 14     |   |
|             |                                                                                                     |                       |   |
|             | Risk Factors That May Affect Results                                                                     | 24     |   |
|             |                                                                                                     |                       |   |
| Item 3.          | Quantitative and Qualitative Disclosures About Market Risk                                               | 36     |   |
|             |                                                                                                     |                       |   |
| Item 4.          | Controls and Procedures                                                                                  | 36     |   |
|             |                                                                                                     |                       |   |
| **PART II** | **OTHER INFORMATION**                                                                                    |                       |   |
|             |                                                                                                     |                       |   |
| Item 4.          | Submission of Matters to a Vote of Security Holders                                                      | 37     |   |
|             |                                                                                                     |                       |   |
| Item 6.          | Exhibits and Reports on Form 8-K                                                                         | 37     |   |
|             |                                                                                                     |                       |   |
|             | Signatures                                                                                               | 38     |   |
|             |                                                                                                     |                       |   |
|             | Exhibit Index                                                                                            | 39     |   |
|             |                                                                                                     |                       |   |

*The following Millenniumtrademarks are used in this Quarterly Report on Form 10-Q:*Millennium®, theMillennium “M” logo and design (registered), Millennium PharmaceuticalsTM,VELCADE® (bortezomib) for Injection, and INTEGRILIN® (eptifibatide) Injection. Allare covered by registrations or pending applications for registration in the U.S. Patentand Trademark Office and many other countries. Campath® is a registered trademark ofILEX 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 atrademark of The Medicines Company. *Other trademarks used in this Quarterly Report onForm 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**

|                                                                                                                                                     | June 30, 2004 |   | December 31, 2003 |       |
|----------------------------------------------------------------------------------------------------------------------------------------------------------|---------------|--------|-------------------|------------|
||
||
||
| Current assets:                                                                                                                                          |          |   |              |       |   |   |   |   |
| Cash and cash equivalents                                                                                                                                |          |   | $                 | 7,525      |   | $ | 55,847 |   |
| Marketable securities                                                                                                                                    |          |   |              | 808,774    |   |   | 859,456 |   |
| Accounts receivable                                                                                                                                      |          |   |              | 104,886    |   |   | 59,025 |   |
| Inventory                                                                                                                                                |          |   |              | 102,040    |   |   | 110,213 |   |
| Prepaid expenses and other current assets                                                                                                                |          |   |              | 17,790     |   |   | 30,207 |   |
|                                                                                                                                                     |          |   |                   |            |   |  |  |   |
|     Total current assets                                                                                                             |          |   |              | 1,041,015  |   |   | 1,114,748 |   |
| Property and equipment, net                                                                                                                              |          |   |              | 224,440    |   |   | 231,469 |   |
| Restricted cash                                                                                                                                          |          |   |              | 14,944     |   |   | 16,297 |   |
| Other assets                                                                                                                                             |          |   |              | 14,215     |   |   | 14,767 |   |
| Goodwill                                                                                                                                                 |          |   |              | 1,202,510  |   |   | 1,201,635 |   |
| Developed technology, net                                                                                                                                |          |   |              | 355,529    |   |   | 372,260 |   |
| Intangible assets, net                                                                                                                                   |          |   |              | 62,562     |   |   | 59,087 |   |
|                                                                                                                                                     |          |   |                   |            |   |  |  |   |
|     Total assets                                                                                                                     |          |   | $                 | 2,915,215  |   | $ | 3,010,263 |   |
|                                                                                                                                                     |          |   |                   |            |   |  |  |   |
|                                                                                                                                                     |          |   |              |       |   |   |   |   |
| **Liabilities and Stockholders' Equity**                                                                                                                 |          |   |              |       |   |   |   |   |
| Current liabilities:                                                                                                                                     |          |   |              |       |   |   |   |   |
| Accounts payable                                                                                                                                         |          |   | $                 | 30,989     |   | $ | 27,341 |   |
| Accrued expenses                                                                                                                                         |          |   |              | 95,604     |   |   | 97,045 |   |
| Current portion of restructuring                                                                                                                         |          |   |              | 36,286     |   |   | 36,572 |   |
| Current portion of deferred revenue                                                                                                                      |          |   |              | 66,510     |   |   | 80,402 |   |
| Current portion of capital lease obligations                                                                                                             |          |   |              | 11,787     |   |   | 14,398 |   |
|                                                                                                                                                     |          |   |                   |            |   |  |  |   |
|     Total current liabilities                                                                                                        |          |   |              | 241,176    |   |   | 255,758 |   |
| Restructuring, net of current portion                                                                                                                    |          |   |              | 54,666     |   |   | 46,614 |   |
| Deferred revenue, net of current portion                                                                                                                 |          |   |              | 12,353     |   |   | 13,015 |   |
| Capital lease obligations, net of current portion                                                                                                        |          |   |              | 82,519     |   |   | 87,889 |   |
| Long term debt                                                                                                                                           |          |   |              | 105,461    |   |   | 105,461 |   |
|                                                                                                                                                     |          |   |              |       |
| Commitments and contingencies                                                                                                                            |          |   |              |       |   |   |   |   |
|                                                                                                                                                     |          |   |              |       |
| Stockholders' equity:                                                                                                                                    |          |   |              |       |   |   |   |   |
| Preferred Stock, $0.001 par value; 5,000 shares authorized,none issued                                                                                   |          |   |              | —     |   |   | — |   |
| Common Stock, $0.001 par value; 500,000 shares  authorized:304,982 shares at June 30, 2004 and 302,291shares at December 31, 2003 issued and outstanding |          |   |              | 305        |   |   | 302 |   |
| Additional paid-in capital                                                                                                                               |          |   |              | 4,535,753  |   |   | 4,513,143 |   |
| Deferred compensation                                                                                                                                    |          |   |              | —     |   |   | (271 | ) |
| Accumulated other comprehensive income (loss)                                                                                                            |          |   |              | (6,030     | ) |   | 4,844 |   |
| Accumulated deficit                                                                                                                                      |          |   |              | (2,110,988 | ) |   | (2,016,492 | ) |
|                                                                                                                                                     |          |   |                   |            |   |  |  |   |
|     Total stockholders' equity                                                                                                       |          |   |              | 2,419,040  |   |   | 2,501,526 |   |
|                                                                                                                                                     |          |   |                   |            |   |  |  |   |
|     Total liabilities and stockholders' equity                                                                                       |          |   | $                 | 2,915,215  |   | $ | 3,010,263 |   |
|                                                                                                                                                     |          |   |                   |            |   |  |  |   |

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 June 30, |   | Six Months Ended June 30, |    |
|--------------------------------------------------------------------------|----------------------------------|--------|--------------------------------|---------|
||
||
|                                                                     |                             |   |                           |    |   |   |   |   |   |   |   |   |   |   |   |   |
| Revenues:                                                                |                             |   |                           |    |   |   |   |   |   |   |   |   |   |   |   |   |
|     Net product sales                                |                             |   | $                              | 34,972  |   | $ | 7,869 |   |   |   | $ | 64,620 |   | $ | 7,869 |   |
|     Co-promotion revenue                             |                             |   |                           | 48,651  |   |   | 53,151 |   |   |   |   | 96,477 |   |   | 104,032 |   |
|     Revenue under strategic alliances                |                             |   |                           | 61,697  |   |   | 60,702 |   |   |   |   | 76,788 |   |   | 91,536 |   |
|                                                                     |                             |   |                                |         |   |  |  |   |   |   |  |  |   |  |  |   |
|         Total revenues           |                             |   |                           | 145,320 |   |   | 121,722 |   |   |   |   | 237,885 |   |   | 203,437 |   |
|                                                                     |                             |   |                                |         |   |  |  |   |   |   |  |  |   |  |  |   |
| Costs and expenses:                                                      |                             |   |                           |    |   |   |   |   |   |   |   |   |   |   |   |   |
|     Cost of sales                                    |                             |   |                           | 18,061  |   |   | 15,612 |   |   |   |   | 33,832 |   |   | 31,261 |   |
|     Research and development                         |                             |   |                           | 104,382 |   |   | 130,575 |   |   |   |   | 200,660 |   |   | 257,385 |   |
|     Selling, general and administrative              |                             |   |                           | 46,768  |   |   | 40,775 |   |   |   |   | 91,597 |   |   | 79,205 |   |
|     Restructuring                                    |                             |   |                           | 25,191  |   |   | 65,310 |   |   |   |   | 36,784 |   |   | 93,505 |   |
|     Amortization of intangibles                      |                             |   |                           | 8,378   |   |   | 9,676 |   |   |   |   | 16,756 |   |   | 19,352 |   |
|                                                                     |                             |   |                                |         |   |  |  |   |   |   |  |  |   |  |  |   |
|         Total costs and expenses |                             |   |                           | 202,780 |   |   | 261,948 |   |   |   |   | 379,629 |   |   | 480,708 |   |
|                                                                     |                             |   |                                |         |   |  |  |   |   |   |  |  |   |  |  |   |
| Loss from operations                                                     |                             |   |                           | (57,460 | ) |   | (140,226 | ) |   |   |   | (141,744 | ) |   | (277,271 | ) |
|                                                                     |                             |   |                           |    |   |   |   |   |   |   |   |   |   |   |   |   |
| Other income (expense):                                                  |                             |   |                           |    |   |   |   |   |   |   |   |   |   |   |   |   |
|     Investment income, net                           |                             |   |                           | 6,147   |   |   | 8,697 |   |   |   |   | 12,535 |   |   | 18,304 |   |
|     Interest expense                                 |                             |   |                           | (2,596  | ) |   | (5,118 | ) |   |   |   | (5,287 | ) |   | (15,535 | ) |
|     Gain on sale of equity interest in joint venture |                             |   |                           | —  |   |   | 40,000 |   |   |   |   | 40,000 |   |   | 40,000 |   |
|     Debt financing charge                            |                             |   |                           | —  |   |   | (10,496 | ) |   |   |   | — |   |   | (10,496 | ) |
|                                                                     |                             |   |                                |         |   |  |  |   |   |   |  |  |   |  |  |   |
| Net loss                                                                 |                             |   | $                              | (53,909 | ) | $ | (107,143 | ) |   |   | $ | (94,496 | ) | $ | (244,998 | ) |
|                                                                     |                             |   |                                |         |   |  |  |   |   |   |  |  |   |  |  |   |
| *Amounts per common share:*                                              |                             |   |                           |    |   |   |   |   |   |   |   |   |   |   |   |   |
| Net loss per share, basic and diluted                                    |                             |   | $                              | (0.18   | ) | $ | (0.36 | ) |   |   | $ | (0.31 | ) | $ | (0.83 | ) |
|                                                                     |                             |   |                                |         |   |  |  |   |   |   |  |  |   |  |  |   |
| Weighted average shares, basic and diluted                               |                             |   |                           | 304,714 |   |   | 297,231 |   |   |   |   | 304,063 |   |   | 295,100 |   |
|                                                                     |                             |   |                                |         |   |  |  |   |   |   |  |  |   |  |  |   |

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)**

|                                                                              | Six Months Ended June 30, |   |
|-----------------------------------------------------------------------------------|--------------------------------|--------|
||
||
|                                                                              |                           |   |   |   |   |   |   |   |
| **Cash Flows from Operating Activities:**                                         |                           |   |   |   |   |   |   |   |
| Net loss                                                                          |                           |   | $ | (94,496 | ) | $ | (244,998 | ) |
| Adjustments to reconcile net loss to cashused in operating activities:            |                           |   |   |   |   |   |   |   |
|     Depreciation and amortization                             |                           |   |   | 46,109 |   |   | 51,684 |   |
|     Restructuring                                             |                           |   |   | 202 |   |   | 71,804 |   |
|     Amortization of deferred financing costs                  |                           |   |   | 244 |  |   | 11,956 |   |
|     Realized gain on marketable securities, net               |                           |   |   | (920 | ) |   | (959 | ) |
|     Stock compensation expense                                |                           |   |   | 3,533 |   |   | 5,204 |   |
| Changes in operating assets and liabilities:                                      |                           |   |   |   |   |   |   |   |
|     Accounts receivable                                       |                           |   |   | (45,861 | ) |   | (87,796 | ) |
|     Inventory                                                 |                           |   |   | 8,173 |   |   | (5,943 | ) |
|     Prepaid expenses and other current assets                 |                           |   |   | 5,962 |   |   | (1,890 | ) |
|     Restricted cash and other assets                          |                           |   |   | 683 |   |   | 25,000 |   |
|     Accounts payable and accrued expenses                     |                           |   |   | 8,526 |   |   | 9,531 |   |
|     Deferred revenue                                          |                           |   |   | (14,554 | ) |   | 10,036 |   |
|                                                                              |                           |   |  |  |   |  |  |   |
| Net cash used in operating activities                                             |                           |   |   | (82,399 | ) |   | (156,371 | ) |
|                                                                              |                           |   |  |  |   |  |  |   |
|                                                                              |                           |   |   |   |   |   |   |   |
| **Cash Flows from Investing Activities:**                                         |                           |   |   |   |   |   |   |   |
| Investments in marketable securities                                              |                           |   |   | (227,393 | ) |   | (848,319 | ) |
| Proceeds from sales and maturities of marketable securities                       |                           |   |   | 269,800 |   |   | 348,187 |   |
| Purchases of property and equipment                                               |                           |   |   | (23,532 | ) |   | (38,851 | ) |
| Other investing activities                                                        |                           |   |   | 4,186 |   |   | (704 | ) |
|                                                                              |                           |   |  |  |   |  |  |   |
| Net cash provided by (used in) investing activities                               |                           |   |   | 23,061 |   |   | (539,687 | ) |
|                                                                              |                           |   |  |  |   |  |  |   |
|                                                                              |                           |   |   |   |   |   |   |   |
| **Cash Flows from Financing Activities:**                                         |                           |   |   |   |   |   |   |   |
| Net proceeds from issuance of common stock                                        |                           |   |   | — |   |   | 28,571 |   |
| Net proceeds from employee stock purchases                                        |                           |   |   | 19,322 |   |   | 16,190 |   |
| Repayment of principal of long-term obligations, includingpayment of debt premium |                           |   |   | — |   |   | (629,880 | ) |
| Principal payments on capital leases                                              |                           |   |   | (7,980 | ) |   | (8,427 | ) |
|                                                                              |                           |   |  |  |   |  |  |   |
| Net cash provided by (used in) financing activities                               |                           |   |   | 11,342 |   |   | (593,546 | ) |
|                                                                              |                           |   |  |  |   |  |  |   |
| Decrease in cash and cash equivalents                                             |                           |   |   | (47,996 | ) |   | (1,289,604 | ) |
| Equity adjustment from foreign currency translation                               |                           |   |   | (326 | ) |   | 706 |   |
| Cash and cash equivalents, beginning of period                                    |                           |   |   | 55,847 |   |   | 1,332,391 |   |
|                                                                              |                           |   |  |  |   |  |  |   |
| Cash and cash equivalents, end of period                                          |                           |   | $ | 7,525 |   | $ | 43,493 |   |
|                                                                              |                           |   |  |  |   |  |  |   |
|                                                                              |                           |   |   |   |   |   |   |   |
| **Supplemental Cash Flow Information:**                                           |                           |   |   |   |   |   |   |   |
| Cash paid for interest                                                            |                           |   | $ | 4,990 |   | $ | 19,313 |   |
|                                                                              |                           |   |   |   |   |   |   |   |
| **Supplemental Disclosure of Noncash Investing and Financing Activities:**        |                           |   |   |   |   |   |   |   |
| Construction costs for laboratory and office space                                |                           |   | $ | — |   | $ | 3,921 |   |
| Equipment acquired under capital leases                                           |                           |   |   | — |   |   | 1,598 |   |

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

5

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MillenniumPharmaceuticals, Inc.Notes to Condensed Consolidated Financial Statements

1.     Basis of Presentation

        Theaccompanying condensed consolidated financial statements have been prepared in accordancewith accounting principles generally accepted in the United States for interim financialinformation 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 bygenerally accepted accounting principles for complete financial statements. In the opinionof management, all adjustments, consisting of normal recurring accruals and revisions ofestimates, considered necessary for a fair presentation of the accompanying condensedconsolidated financial statements have been included. Interim results for the three andsix months ended June 30, 2004 are not necessarily indicative of the results that may beexpected for the year ended December 31, 2004. For further information, refer to thefinancial statements and accompanying footnotes included in the Company’s AnnualReport on Form 10-K for the fiscal year ended December 31, 2003, which was filed with theSecurities and Exchange Commission (“SEC”) on March 10, 2004. 

2.     Summary ofSignificant Accounting Policies 

Cash Equivalents andMarketable Securities 

        Cashequivalents consist principally of money market funds and corporate bonds with maturitiesof three months or less at the date of purchase. Marketable securities consist primarilyof investment-grade corporate bonds, asset-backed debt securities and U.S. governmentagency debt securities. 

        Managementdetermines the appropriate classification of marketable securities at the time of purchaseand reevaluates such designation at each balance sheet date. Marketable securities at June30, 2004 and December 31, 2003 are classified as “available-for-sale.”Available-for-sale securities are carried at fair value, with the unrealized gains andlosses reported in a separate component of stockholders’ equity. The cost of debtsecurities in this category is adjusted for amortization of premiums and accretion ofdiscounts 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 onavailable-for-sale securities and other investments are included in investment income. Thecost of securities sold is based on the specific identification method. Interest anddividends on securities classified as available-for-sale are included in investmentincome. 

        Duringthe three months ended June 30, 2004 and 2003, the Company recorded realized gains onmarketable securities of $0.6 million and $3.1 million, respectively, andrealized losses on marketable securities and other investments of $0.1 million and$2.1 million, respectively. During the six months ended June 30, 2004 and 2003, theCompany recorded realized gains on marketable securities of $1.3 million and $3.1 million,respectively, and realized losses on marketable securities and other investments of $0.4million and $2.2 million, respectively. 

**   Segment Information**

        Statementof Financial Accounting Standards (“SFAS”) No. 131, “Disclosures aboutSegments of an Enterprise and Related Information” (“SFAS No. 131”), establishesstandards for the way that public business enterprises report information about operatingsegments in their financial statements. SFAS No. 131 also establishes standards forrelated disclosures about products and services, geographic areas, and major customers. 

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

6

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MillenniumPharmaceuticals, Inc.Notes to Condensed Consolidated Financial Statements (continued)

        Revenuesfrom Ortho Biotech Products, L.P. (“Ortho Biotech”) accounted for approximately39% and 28% of total revenues for the three and six months ended June 30, 2004,respectively. The Company did not recognize significant revenues from Ortho Biotech for the three andsix months ended June 30, 2003. Revenues from Bayer, AG (“Bayer”) accounted forapproximately 1% and 14% of total revenues for the three months ended June 30, 2004 and2003, respectively, and 1% and 17% of total revenues for the six months ended June 30,2004 and 2003, respectively. Revenues from Aventis Pharmaceuticals, Inc.(“Aventis”) accounted for approximately 1% and 34% of total revenues for thethree months ended June 30, 2004 and 2003, respectively, and 2% and 25% of total revenuesfor the six months ended June 30, 2004 and 2003, respectively. There were no othersignificant customers under strategic alliances in the three and six months ended June 30,2004 and 2003, respectively. 

Information ConcerningMarket and Source of Supply Concentration 

        INTEGRILIN®(eptifibatide) Injection has received regulatory approvals in the United States, thecountries 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 andlosses. The Company exclusively licensed to SGP rights to market INTEGRILIN outside of theUnited States, and SGP pays the Company royalties based on these sales of INTEGRILIN. InJune 2004, the Company announced an agreement to acquire from SGP the rights to market theproduct in Europe and a new agreement with GlaxoSmithKline plc (“GSK”). SGP willcontinue to co-promote the product in the United States with the Company as well asexclusively market the product in areas outside of the United States and Europe. Under theagreement with GSK, GSK will exclusively market INTEGRILIN in Europe upon the approvedtransfer of marketing authorizations, which is anticipated to be complete by December2004. SGP will continue to promote and sell INTEGRILIN in Europe until the transfer iscomplete. 

        TheCompany has supply arrangements with two suppliers for the bulk product and with anothertwo suppliers for the filling and final packaging of INTEGRILIN. 

Inventory 

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

        Inventoryconsists of the following (in thousands): 

|            |   | **June 30, 2004** |    | **December 31, 2003** |
|-----------------|--------|-------------------|---------|-----------------------|
| Raw materials   |   | $                 | 79,912  |                  | $ | 77,485 |
| Work in process |   |              | 5,749   |                  |   | 3,382 |
| Finished goods  |   |              | 16,379  |                  |   | 29,346 |
|            |   |                   |    |                       |
|            |   | $                 | 102,040 |                  | $ | 110,213 |
|            |   |                   |    |                       |

Goodwill and IntangibleAssets 

        Intangibleassets consist of specifically identified intangible assets. Goodwill is the excess of anypurchase price over the estimated fair market value of net tangible assets acquired notallocated to specific intangible assets. 

7

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MillenniumPharmaceuticals, Inc.Notes to Condensed Consolidated Financial Statements (continued)

        Intangibleassets consist of the following (in thousands): 

|                                                        | June 30, 2004 |   | December 31, 2003 |
|-------------------------------------------------------------|---------------|--------|-------------------|
||
| Developed technology                                        |          | $      | 435,000           |   | $ | (79,471 | ) |   |   |   | $ | 435,000 |   | $ | (62,740 | ) |
|                                                        |          |        |              |  |   |  |   |  |   |  |   |
| Core technology                                             |          | $      | 18,712            |   | $ | (18,712 | ) |   |   |   | $ | 18,712 |   | $ | (18,712 | ) |
| Other                                                       |          |   | 20,060            |   |   | (16,498 | ) |   |   |   |   | 16,560 |   |   | (16,473 | ) |
|                                                        |          |        |              |  |   |   |   |  |   |  |   |
|     Total amortizable intangible assets |          |   | 38,772            |   |   | (35,210 | ) |   |   |   |   | 35,272 |   |   | (35,185 | ) |
| Total indefinite-lived trademark                            |          |   | 59,000            |   |   | — |   |   |   |   |   | 59,000 |   |   | — |   |
|                                                        |          |        |              |  |   |   |   |  |   |  |   |
|                                                        |          | $      | 97,772            |   | $ | (35,210 | ) |   |   |   | $ | 94,272 |   | $ | (35,185 | ) |
|                                                        |          |        |              |  |   |   |   |  |   |  |   |

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

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

        Amortizationexpense for the three months ended June 30, 2004 and 2003 was approximately$8.4 million and $9.7 million, respectively. Amortization expense for the sixmonths ended June 30, 2004 and 2003 was approximately $16.8 million and $19.4 million,respectively. In addition, in connection with its restructuring initiative discussed inNote 3, the Company recognized an impairment charge in the six months ended June 30,2003 of approximately $11.3 million for technology it no longer intends to pursue. 

        Asrequired by SFAS No. 142, “Goodwill and Other Intangible Assets,” goodwilland indefinite lived intangible assets are not amortized but are reviewed annually forimpairment, or more frequently if impairment indicators arise. Separable intangible assetsthat are not deemed to have an indefinite life are amortized over their useful lives andreviewed for impairment when events or changes in circumstances suggest that the assetsmay not be recoverable. The Company tests for goodwill impairment annually, onOctober 1, and whenever events or changes in circumstances suggest that the carryingamount may not be recoverable. 

        OnOctober 1, 2003, the Company performed its annual goodwill impairment test anddetermined that no impairment existed on that date. The Company continually monitorsbusiness and market conditions to assess whether an impairment indicator exists. If theCompany were to determine that an impairment indicator exists, it would be required toperform an impairment test which might result in a material impairment charge to thestatement of operations. 

Revenue Recognition 

        TheCompany recognizes revenue from the sale of its products, co-promotion collaboration andstrategic alliances. The Company’s revenue arrangements with multiple elements aredivided into separate units of accounting if certain criteria are met, including whetherthe delivered element has stand-alone value to the customer and whether there is objectiveand reliable evidence of the fair value of the undelivered items. The considerationreceived is allocated among the separate units based on their respective fair values, andthe applicable revenue recognition criteria

8

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MillenniumPharmaceuticals, Inc.Notes to Condensed Consolidated Financial Statements (continued)

are applied to each of the separate units.Advance payments received in excess of amounts earned are classified as deferred revenueuntil earned. 

*   Netproduct sales*

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

*   Co-promotionrevenue*

        Co-promotion revenueincludes the Company’s share of profits from the sale of INTEGRILIN®(eptifibatide) Injection in co-promotion territories by SGP. Also included in co-promotionrevenue are reimbursements from SGP of the Company’s manufacturing-related costs, development costs,advertising and promotional expenses associated with the sale of INTEGRILIN withinco-promotion territories and royalties from SGP on sales of INTEGRILIN outside of theco-promotion territory. The Company recognizes revenue when SGP ships INTEGRILIN towholesalers and records it net of allowances, if any. The Company defers certainmanufacturing-related expenses until the time SGP ships related product to its customersinside and outside of co-promotion territories. Deferred revenue also includes cashadvances from SGP to the Company for the Company’s prepayments to its manufacturersof INTEGRILIN. 

*   Revenueunder strategic alliances*

        TheCompany recognizes revenue from nonrefundable license payments, milestone payments, royalties andreimbursement of research and development costs. Nonrefundable upfront fees for which nofurther performance obligations exist are recognized as revenue on the earlier of whenpayments are received or collection is assured. 

        Nonrefundableupfront licensing fees and certain guaranteed, time-based payments that require continuinginvolvement in the form of research and development, manufacturing or othercommercialization 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.                                          |

        Milestonepayments are recognized as revenue when the performance obligations, as defined in thecontract, are achieved. Performance obligations typically consist of significantmilestones in the development life cycle of the related technology, such as initiation ofclinical trials, filing for approval with regulatory agencies and approvals by regulatoryagencies. 

        Royalties are recognized as revenue when earned.

        Reimbursementsof research and development costs are recognized as revenue as the related costs areincurred. 

Advertising andPromotional Expenses 

        Advertisingand promotional expenses are expensed as incurred. During the three months ended June 30,2004 and 2003, advertising and promotional expenses were $10.8 million and$7.9 million, respectively. During the six months ended June 30, 2004 and 2003,advertising and promotional expenses were $19.6 million and $14.7 million, respectively. 

9

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MillenniumPharmaceuticals, Inc.Notes to Condensed Consolidated Financial Statements (continued)

Net Loss Per Common Share 

        Basicnet loss per common share is computed using the weighted average number of common sharesoutstanding during the period. Diluted net loss per common share is typically computedusing the weighted average number of common and dilutive common equivalent shares fromstock options, warrants and convertible debt using the treasury stock method. However, forall periods presented, diluted net loss per share is the same as basic net loss per shareas the inclusion of weighted average shares of common stock issuable upon the exercise ofstock options, warrants and convertible debt would be antidilutive. 

Comprehensive Loss 

        Comprehensiveloss was $68.7 million and $101.7 million for the three months ended June 30, 2004 and2003, respectively. Comprehensive loss was $105.4 million and $236.0 million for the sixmonths ended June 30, 2004 and 2003, respectively. Comprehensive loss is composed of net loss,unrealized gains and losses on marketable securities and cumulative foreign currencytranslation adjustments. Accumulated other comprehensive income (loss) as of June 30, 2004 andDecember 31, 2003 included unrealized losses of $5.7 million and unrealized gains of$4.9 million on marketable securities, respectively, and $(0.3) million and $(0.03)million, respectively, of cumulative foreign currency translation adjustments. 

Stock-Based Compensation 

        TheCompany follows the intrinsic value method under Accounting Principles Board OpinionNo. 25, “Accounting for Stock Issued to Employees” (“APB 25”) andrelated interpretations, in accounting for its stock-based compensation plans, rather thanthe alternative fair value accounting method provided for under SFAS No. 123,“Accounting for Stock-Based Compensation” (“SFAS No. 123”). UnderAPB 25, when the exercise price of options granted equals the market price of theunderlying stock on the date of grant, no compensation expense is recognized. Inaccordance with Emerging Issues Task Force (“EITF”) 96-18, the Company recordscompensation expense equal to the fair value of options granted to non-employees over thevesting period, which is generally the period of service. 

        Thefollowing table illustrates the effect on net loss and loss per share if the Company hadapplied the fair value recognition provisions of SFAS No. 123 to stock-based employeecompensation (in thousands, except per share amounts): 

|                                                                                                   | Three Months EndedJune 30, |    | Six Months EndedJune 30, |   |
|--------------------------------------------------------------------------------------------------------|----------------------------|---------|--------------------------|--------|
||
| Net loss                                                                                               | $                          | (53,909 | )                        | $      | (107,143 | ) | $ | (94,496 | ) | $ | (244,998 | ) |
| Add: Stock-based compensation as reported in theStatement of Operations                                |                       | 174     |                     |   | 426 |   |   | 271 |   |   | 869 |   |
| Deduct: Total stock-based compensation expense determined under fair value based method for all awards |                       | (18,070 | )                        |   | (24,927 | ) |   | (34,123 | ) |   | (44,300 | ) |
|                                                                                                   |                            |         |                     |        |  |   |  |  |   |  |  |   |
| Pro forma net loss                                                                                     | $                          | (71,805 | )                        | $      | (131,644 | ) | $ | (128,348 | ) | $ | (288,429 | ) |
|                                                                                                   |                            |         |                     |        |  |    |  |  |   |  |  |    |
| Amounts per common share:                                                                              |                       |    |                     |   |   |   |   |   |   |   |   |   |
| Basic and diluted - as reported                                                                        | $                          | (0.18   | )                        | $      | (0.36 | ) | $ | (0.31 | ) | $ | (0.83 | ) |
| Basic and diluted - pro forma                                                                          | $                          | (0.24   | )                        | $      | (0.44 | ) | $ | (0.42 | ) | $ | (0.98 | ) |

        Theweighted-average per share fair value of options granted during the three months endedJune 30, 2004 and 2003 was $6.17 and $9.38, respectively, and during the six months endedJune 30, 2004 and 2003 was $11.34 and $5.45, respectively. 

10

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MillenniumPharmaceuticals, Inc.Notes to Condensed Consolidated Financial Statements (continued)

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

|                  | Stock Options |                       | Stock Purchase Plan |
|-----------------------|---------------|----------------------------|---------------------|
|                  |          | Three Months EndedJune 30, |                | Six Months EndedJune 30, |   | Three Months EndedJune 30, |   | Six Months EndedJune 30, |
|                  | 2004          |                       | 2003                |   | 2004 |   | 2003 |   | 2004 |   | 2003 |   | 2004 |   | 2003 |
| Expected life (years) |          | 5.5                        |                | 5.4 |   | 5.5 |   | 5.5 |   | 0.5 |   | 0.5 |   | 0.5 |   | 0.5 |
| Interest rate         |          | 3.01%                      |                | 2.28% |   | 2.68% |   | 2.48% |   | 2.13% |   | 1.17% |   | 2.13% |   | 1.17% |
| Volatility            |          | .81                        |                | .85 |   | .82 |   | .86 |   | .82 |   | .86 |   | .82 |   | .86 |

        TheCompany has never declared cash dividends on any of its capital stock and does not expectto do so in the foreseeable future. 

Accounting Pronouncements 

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

3.     Restructuring 

        InDecember 2002 and June 2003, the Company took steps to realign its resources tobecome a commercially-focused biopharmaceutical company. The Company discontinued certaindiscovery research efforts, reduced overall headcount, primarily in its discovery groupand consolidated its research and development facilities. As of December 1, 2002, theCompany adopted SFAS No. 146, “Accounting for Costs Associated with Exit orDisposal Activities” (“SFAS No. 146”). SFAS No. 146 requires that aliability for a cost associated with an exit or disposal activity be recognized andmeasured 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 actionsresulted in the recognition of restructuring charges in the fourth quarter of 2002, theyear ended 2003 and the first six months of 2004. During the remainder of 2004 and 2005,the Company will continue to recognize additional restructuring charges primarily relatedto lease obligations as part of its overall restructuring plan. 

11

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MillenniumPharmaceuticals, Inc.Notes to Condensed Consolidated Financial Statements (continued)

        Thesecosts are included in restructuring charges in the statements of operations and currentand long term restructuring liabilities on the balance sheet at June 30, 2004. Thefollowing table displays the restructuring activity and liability balances (in thousands):

|                          | Balance at December 31, 2003 |   | Charges |   | Payments |   | Stock Compensation |   | Other   |   | Balance atJune 30, 2004 |   |
|-------------------------------|-----------------------------------|--------|---------|--------|----------|--------|--------------------|--------|---------|--------|-------------------------|--------|
| Termination benefits          |                              | $      | 14,139  |   | $        | 1,341  |               | $      | (11,178 | )      | $                       | (22    | ) | $ | — |   | $ | 4,280 |   |
| Facilities                    |                              |   | 58,585  |   |     | 34,473 |               |   | (13,541 | )      |                    | — |   |   | 1,803 |   |   | 81,320 |   |
| Asset impairment              |                              |   | —  |   |     | 165    |               |   | —  |   |                    | — |   |   | (165 | ) |   | — |   |
| Contract termination          |                              |   | 10,352  |   |     | 633    |               |   | (5,333  | )      |                    | — |   |   | (300 | ) |   | 5,352 |   |
| Other associated costs        |                              |   | 110     |   |     | 172    |               |   | (282    | )      |                    | — |   |   | — |   |   | — |   |
|                          |                              |        |    |        |     |        |               |        |    |        |                    |        |   |
|                          |
|     Total |                              | $      | 83,186  |   | $        | 36,784 |               | $      | (30,334 | )      | $                       | (22    | ) | $ | 1,338 |   | $ | 90,952 |   |
|                          |                              |        |    |        |     |        |               |        |    |        |                    |        |   |

        Theprojected payments of the remaining restructuring liabilities at June 30, 2004 areapproximately $36.3 million due through June 30, 2005 and $54.7 million thereafter through2022. 

        Costsof termination benefits relate to severance packages, out-placement services and careercounseling for employees affected by the restructuring. Charges related to facilitiesinclude estimated remaining rental obligations, net of estimated sublease income, forfacilities that the Company no longer occupies. Included in other facilities charges isthe write-off of deferred rent recorded in accordance with SFAS No. 13,“Accounting for Leases.” The Company’s decisions to vacate certainfacilities and abandon the related leasehold improvements as well as terminate certainresearch programs were deemed to be impairment indicators under SFAS No. 144,“Accounting for the Impairment or Disposal of Long-Lived Assets.” As a result ofperforming the impairment evaluations, asset impairment charges were recorded to adjustthe carrying value of the related long-lived assets to their net realizable values. Thefair values of the assets were estimated based upon anticipated future cash flows,discounted at a rate commensurate with the risk involved. 

4.     Revenue and StrategicAlliances 

        TheCompany has entered into research, development, technology transfer and commercializationarrangements with major pharmaceutical and biotechnology companies relating to a broadrange of therapeutic products. These alliances provide the Company with the opportunity toreceive various combinations of equity investments, license fees and research funding, andmay provide certain additional payments contingent upon its achievement of research andregulatory milestones and royalties and/or share profits if the Company’scollaborations are successful in developing and commercializing products. 

        Underthese agreements, the Company’s partners may make up-front payments, additionalpayments upon the achievement of specific research and product development milestones,ongoing research funding and/or pay royalties to or in some cases share profits with theCompany based upon any product sales resulting from the collaboration. In certainalliances, collaborators may make equity investments in the Company’s common stock. 

*Product Alliances*

        InJune 2004, the Company executed an agreement with GSK under which GSK will exclusivelymarket INTEGRILIN® (eptifibatide) Injection in Europe. The commercialization allianceis designed to provide significant sales and marketing support to capitalize on marketopportunities for INTEGRILIN in Europe. Under the terms of the agreement, the Company isentitled to license fees and royalties from GSK on INTEGRILIN sales in Europe upon theachievement of certain objectives. 

        GSKwill actively commercialize INTEGRILIN in Europe upon the approved transfer of marketingauthorizations, which is anticipated to be complete by December 2004. The execution ofthis agreement between the Company and GSK for INTEGRILIN follows the Company’sacquisition of the rights to market the product in

12

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MillenniumPharmaceuticals, Inc.Notes to Condensed Consolidated Financial Statements (continued)

Europe from its partner SGP. SGP willcontinue to promote and sell INTEGRILIN® (eptifibatide) Injection in Europe until thetransfer is complete. 

        SGPwill continue to co-promote INTEGRILIN with the Company in the United States and sell theproduct in all other territories outside Europe, and will continue to pay the Companyroyalties on INTEGRILIN sales outside of the United States and Europe. 

         During the three months ended June 30, 2004, the Company recognized $50.0 million ofmilestone payments under its alliance with Ortho Biotech relating to VELCADE®(bortezomib) for Injection approval in the European Union and the achievement ofagreed-upon sales levels of VELCADE. 

        Throughits merger with LeukoSite, Inc. (“LeukoSite”) in 1999, the Company became aparty to a joint venture agreement with ILEX Products, Inc. (“ILEX”) toform Millennium & ILEX Partners, L.P. (“M&I”) for the purpose ofdeveloping and commercializing the Campath® (alemtuzumab) humanized monoclonalantibody for use in the treatment of chronic lymphocytic leukemia. The Company accountedfor its investment in the joint venture under the equity method of accounting. OnDecember 31, 2001, ILEX Oncology acquired the Company’s equity interest inM&I which owns the Campath product in exchange for $20.0 million plus additionalconsideration contingent upon future sales of Campath through 2004. The Company earned$40.0 million of such consideration in each of 2004, 2003 and 2002. 

5.     Convertible Debt 

        TheCompany had the following convertible notes outstanding at June 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 ata 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, thatare convertible into the Company’s common stock at any time prior to maturity at aprice 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 tomaturity at a price equal to $42.07 per share (the “5.5% notes”). |

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

13

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

        Ourmanagement’s discussion and analysis of our financial condition and results of ouroperations include the identification of certain trends and other statements that maypredict or anticipate future business or financial results that are subject to importantfactors that could cause our actual results to differ materially from those indicated. See“Risk Factors That May Affect Results.” 

Overview 

        Wehave set aggressive goals for 2004 and during the first half of the year we have madesignificant progress towards achieving these goals. Our net loss decreased from $107.1million for the three months ended June 30, 2003 to $53.9 million for the same period in2004, driven by decreased restructuring charges, decreased research and developmentexpenses and increased total revenues. Our financial position remains strong, with $816.3million in cash, cash equivalents and marketable securities. 

        InDecember 2002 and June 2003, we took steps to realign our resources to become acommercially-focused biopharmaceutical company. We discontinued certain discovery researchefforts, reduced overall headcount, primarily in our discovery group, streamlined ourdiscovery and development projects and consolidated our research and developmentfacilities. As a result of this restructuring and other cost containment efforts, ourtotal costs and expenses, excluding restructuring charges, have decreased approximately 10% from the second quarter of 2003 to the second quarter of 2004. 

        Inaddition to our two marketed products, VELCADE and INTEGRILIN® (eptifibatide)Injection, we have ten drug candidates in clinical development. Our strategy is to developmultiple products in our disease areas of focus, including cancer, cardiovascular andinflammation, through clinical trials and regulatory approvals and to be involved in themarketing and sale of many of these products. We plan to advance the clinical developmentof these drug candidates based on our assessment of their market potential, the results ofclinical trials and our available resources. We plan to develop and commercialize many ofour products on our own in the United States, but will seek development and commercialcollaborators outside of the United States when we believe that this will maximize productvalue. 

Our Products 

***VELCADE® (bortezomib)for Injection***

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

        InApril 2004, the European Commission granted Marketing Authorization for VELCADE for thetreatment of patients with multiple myeloma who have received at least two prior therapiesand 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 statesof the European Union, plus Norway and Iceland. On May 1, 2004, VELCADE was also approvedfor marketing in the ten accession member countries when those countries officially joinedthe European Union. 

***Ortho BiotechCollaboration***

        InJune 2003, we entered into an agreement with Ortho Biotech Products, L.P., or OrthoBiotech, a wholly owned subsidiary of Johnson & Johnson, to collaborate on thecommercialization and continued clinical development of VELCADE. Under the terms of theagreement, we retain all commercialization rights to and profits from VELCADE in theUnited States. Ortho Biotech and its affiliate, Janssen-Cilag, have agreed tocommercialize VELCADE outside of the United States. We receive distribution fees fromOrtho Biotech and its affiliates on sales of

14

----

VELCADE ® (bortezomib)for Injection outside of the United States. We alsoretain an option to co-promote VELCADE with Ortho Biotech at a future date in certainEuropean countries. 

        Underthis agreement, we are engaged with Ortho Biotech in an extensive global program forfurther clinical development of VELCADE with the purpose of maximizing the clinical andcommercial potential of VELCADE. This program is investigating the potential of VELCADE totreat multiple forms of solid and hematological tumors, including continued clinicaldevelopment of VELCADE for multiple myeloma. Ortho Biotech is responsible for 40% of thejoint 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***

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

        InJune 2004, we announced an agreement with GlaxoSmithKline plc, or GSK, in whichGSK will exclusively market INTEGRILIN in Europe. This commercialization alliance isdesigned to provide significant sales and marketing support to capitalize on marketopportunities for INTEGRILIN in Europe. Under the terms of the agreement, we are entitledto license fees and royalties from GSK on INTEGRILIN sales in Europe upon the achievementof certain objectives. 

        GSKwill actively commercialize INTEGRILIN in Europe upon the approved transfer of marketingauthorizations, which is anticipated to be complete by December 2004. The execution ofthis agreement between us and GSK for INTEGRILIN follows ouracquisition of the rights to market the product in Europe from SGP. SGP willcontinue to promote and sell INTEGRILIN in Europe until the transfer is complete. 

        SGPwill continue to co-promote INTEGRILIN with us in the United States and sell theproduct in all other territories outside Europe, and will continue to pay usroyalties on INTEGRILIN sales outside of the United States and Europe. 

Critical AccountingPolicies and Significant Judgments and Estimates 

        Ourmanagement’s discussion and analysis of our financial condition and results ofoperations are based on our consolidated financial statements, which have been prepared inaccordance with accounting principles generally accepted in the United States. Thepreparation of these financial statements requires us to make estimates and assumptionsthat affect the reported amounts of assets and liabilities and the disclosure ofcontingent assets and liabilities at the date of the financial statements as well as thereported revenues and expenses during the reporting periods. On an ongoing basis, weevaluate our estimates and judgments, including those related to revenue recognition,inventory, intangible assets and goodwill. We base our estimates on historical experienceand 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 ofassets and liabilities that are not readily apparent from other sources. Actual resultsmay differ from these estimates under different assumptions or conditions. 

        Whileour significant accounting policies are more fully described in Note 2 to ourconsolidated financial statements included in our Form 10-K, filed with the SEC on March10, 2004, we believe the following accounting policies are most critical to aid in fullyunderstanding and evaluating our reported financial results. 

***Revenue***

        Werecognize revenue from the sale of our products, our co-promotion collaboration andstrategic alliances. Our revenue arrangements with multiple elements are divided intoseparate units of accounting if certain criteria are

15

----

met, including whether the deliveredelement has stand-alone value to the customer and whether there is objective and reliableevidence of the fair value of the undelivered items. The consideration we receive isallocated among the separate units based on their respective fair values, and theapplicable revenue recognition criteria are applied to each of the separate units. Advancepayments received in excess of amounts earned are classified as deferred revenue untilearned. 

        We recognize revenue from the sales of VELCADE® (bortezomib) for Injection in the United Stateswhen delivery has occurred and title has transferred to the wholesalers. Allowances arerecorded as a reduction to product sales for product returns and discounts at the time ofsale. The allowances are based primarily on historical trends in the pharmaceuticalindustry for similar products and discounts included in our agreements with wholesalers.As we continue to develop company specific experience, our estimates are continuallyreviewed. If actual future results vary, we may need to adjust our estimates, which couldhave an impact on the timing and amount of revenue to be recognized. 

        We recognize co-promotion revenue based on SGP’s reported shipments ofINTEGRILIN® (eptifibatide) Injection to wholesalers. Co-promotion revenue includes ourshare of the profits from the sales of INTEGRILIN, reimbursements of ourmanufacturing-related costs, development costs, advertising and promotional expenses androyalties from SGP on sales of INTEGRILIN outside of the co-promotion territory. Wecommunicate with SGP to calculate our share of the profits from the sales of INTEGRILIN ona monthly basis. The calculation includes estimates of the amount of advertising andpromotional expenses and other costs incurred on a monthly basis. We also communicate withSGP to estimate royalties earned on sales outside of the co-promotion territory.Adjustments to our estimates are based upon actual information that we receive subsequentto our reporting deadlines. Our estimates are adjusted on a monthly basis and historicallyhave not been significant due to periodic communication with our collaborator. Significantadjustments in future reporting periods could impact the timing and the amount of revenueto be recognized. 

        Nonrefundable upfront licensing fees and certain guaranteed, time-based payments thatrequire continuing involvement in the form of research and development, manufacturing orother 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.                                               |

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

        Royalties are recognized as revenue when earned. 

        Reimbursementsof research and development costs are recognized as strategic alliance revenue as therelated costs are incurred. 

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

***Inventory***

        Inventory consists of currently marketed products and from time to time product candidatesawaiting regulatory approval which were capitalized based upon management’s judgmentof probable near term commercialization. Inventory primarily represents raw materials usedin production, work in process and finished goods inventory on hand, valued at cost.Inventories are reviewed periodically for slow-moving or obsolete status

16

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based on salesactivity, both projected and historical. Our current sales projections provide for fullutilization of the inventory balance. If product sales levels differ from projections or alaunch of a new product is delayed, inventory may not be fully utilized and could besubject to impairment, at which point we would record a reserve to adjust inventory to itsnet realizable value. 

***Intangible Assets***

        We have acquired significant intangible assets that we value and record. Those assetswhich do not yet have regulatory approval and for which there are no alternative uses areexpensed as acquired in-process research and development, and those that are specificallyidentified and have alternative future uses are capitalized. We use a discounted cash flowmodel to value intangible assets acquired. The discounted cash flow model requiresassumptions about the timing and amount of future cash inflows and outflows, risk, thecost of capital, and terminal values. Each of these factors can significantly affect thevalue of the intangible asset. We engage independent valuation experts who review ourcritical assumptions for significant acquisitions of intangibles. We review intangibleassets 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 ofan intangible asset, the intangible asset is written down to the discounted cash flowvalue. Where cash flows cannot be identified for an individual asset, the review isapplied at the lowest group level for which cash flows are identifiable. 

***Goodwill***

        OnOctober 1, 2003, we performed our annual goodwill impairment test and determined thatno impairment existed on that date. However, since the date of acquisition of CORTherapeutics, Inc., or COR, which generated a significant amount of goodwill, we haveexperienced a significant decline in market capitalization due to a decline in stockprice. We continually monitor business and market conditions to assess whether animpairment 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 materialimpairment charge to our statement of operations. 

Accounting Pronouncements

        InJanuary 2003, the Financial Accounting Standards Board, or FASB, issued Interpretation No. 46, “Consolidation ofVariable Interest Entities, an Interpretation of Accounting Research BulletinNo. 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 entitiescreated before January 31, 2003. FIN 46 provides a new consolidation model whichdetermines control and consolidation based on potential variability in gains and losses.The provisions of FIN 46 are effective for enterprises with variable interests in variableinterest entities created after January 31, 2003. We adopted the provisions of FIN 46in the first quarter of fiscal 2004 and the adoption did not have a material impact on ourfinancial position or results of operations for our interests in variable interestentities created before February 1, 2003. 

**Results of Operations**(dollars in thousands, except pershare amounts) 

|                                  | Three Months Ended June 30, |   |   |    | Six Months Ended June 30, |   |
|---------------------------------------|----------------------------------|--------|--------|---------|--------------------------------|--------|
||
|                                  |                             |   |   |    |                           |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net loss                              |                             |   | $      | (53,909 | )                              | $      | (107,143 | ) | (50%) |   |   | $ | (94,496 | ) | $ | (244,998 | ) | (61%) |
|                                  |                             |   |        |         |                           |        |  |   |   |   |   |  |  |   |  |  |   |   |
| Net loss per share, basic and diluted |                             |   | $      | (0.18   | )                              | $      | (0.36 | ) |   |   |   | $ | (0.31 | ) | $ | (0.83 | ) |   |
|                                  |                             |   |        |         |                           |        |  |   |   |   |   |  |  |   |  |  |   |   |

***Net Loss and Loss PerShare***

        Netloss and loss per share for the three months ended June 30, 2004 (the “2004 ThreeMonth Period”) and the six months ended June 30, 2004 (the “2004 Six MonthPeriod”) decreased from the comparable periods in 2003 primarily due to lowerrestructuring charges, decreased research and development expenses as a result of ourrestructuring initiative and increased revenues in all periods, offset by the timing ofthe gain recognized on our sale

17

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of our equity interest in the Campath® (alemtuzumab)humanized monoclonal antibody in the three months ended June 30, 2003 (the “2003Three Month Period”). 

|                                                           | Three Months Ended June 30, |   |   |    | Six Months Ended June 30, |   |
|----------------------------------------------------------------|----------------------------------|--------|--------|---------|--------------------------------|--------|
||
|                                                           |                             |   |   |    |                           |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Revenues:                                                      |                             |   |   |    |                           |   |   |   |   |   |   |   |   |   |   |   |   |   |
|     Net product sales                      |                             |   | $      | 34,972  |                           | $      | 7,869 |   | 344% |   |   | $ | 64,620 |   | $ | 7,869 |   | 721% |
|     Co-promotion revenue                   |                             |   |   | 48,651  |                           |   | 53,151 |   | (8) |   |   |   | 96,477 |   |   | 104,032 |   | (7) |
|     Revenue under strategic alliances      |                             |   |   | 61,697  |                           |   | 60,702 |   | 2 |   |   |   | 76,788 |   |   | 91,536 |   | (16) |
|                                                           |                             |   |        |         |                           |        |  |   |   |   |   |  |  |   |  |  |   |   |
|         Total revenues |                             |   | $      | 145,320 |                           | $      | 121,722 |   | 19% |   |   | $ | 237,885 |   | $ | 203,437 |   | 17% |
|                                                           |                             |   |        |         |                           |        |  |   |   |   |   |  |  |   |  |  |   |   |

***Revenues***

        Totalrevenues increased 19% in the 2004 Three Month Period and 17% in the 2004 Six Month Periodfrom the comparable periods in 2003. These increases were primarily driven by sales ofVELCADE® (bortezomib) for Injection. In May 2003 we received FDA approval to marketVELCADE and began shipping to wholesalers. Net product sales of VELCADE were $35.0 millionin the 2004 Three Month Period and $64.6 million in the 2004 Six Month Period, reflectingincreased patient penetration and use of the product. Product sales from VELCADE representapproximately 24% of our total revenues in the 2004 Three Month Period and 27% of totalrevenue in the 2004 Six Month Period. 

        Co-promotionrevenue, based on worldwide sales of INTEGRILIN® (eptifibatide) Injection, decreased8% in the 2004 Three Month Period and 7% in the 2004 Six Month Period from the comparableperiods in 2003. The decreases in co-promotion revenue are primarily attributable to thedecrease in product sales in the United States, offset in part by higher net reimbursementfrom SGP to us under our collaboration agreement. Worldwide sales of INTEGRILIN in the2004 Three Month Period, as provided to us by SGP, were $77.9 million, a15% decrease over sales for the 2003 Three Month Period. Co-promotion revenuerepresents approximately 33% of our total revenues in the 2004 Three Month Period and 41%of total revenue in the 2004 Six Month Period. 

        Revenueunder strategic alliances increased 2% in the 2004 Three Month Period from the comparableperiod in 2003. This increase is primarily attributable to $50.0 million of milestonepayments received from Ortho Biotech relating to VELCADE approval in the European Unionand the achievement of agreed-upon sales levels of VELCADE, partially offset by decreasesin revenue recognized under the research phase of the Bayer AG, or Bayer,agreement and the April 2003 termination payment of the Aventis Pharmaceuticals, Inc., or Aventis, technology transfer agreement. 

        Revenueunder strategic alliances decreased 16% in the 2004 Six Month Period from the comparableperiod in 2003. This decrease is primarily attributable to a decrease in revenuerecognized under the research phase of the Bayer agreement and the technology transferagreement with Aventis, including $30.7 million of revenue recognized from the Aventistermination payment in April 2003, partially offset by increased revenue under our OrthoBiotech alliance. 

        Weexpect that our revenue mix will continue to shift to product-based revenue as we developour product pipeline, commercialize additional products subject to obtaining requiredregulatory approvals, enter into new commercial alliances and conclude ourdiscovery-focused alliances. 

18

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|                                                                     | Three Months Ended June 30, |   |   |    | Six Months Ended June 30, |   |
|--------------------------------------------------------------------------|----------------------------------|--------|--------|---------|--------------------------------|--------|
||
|                                                                     |                             |   |   |    |                           |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Costs and expenses:                                                      |                             |   |   |    |                           |   |   |   |   |   |   |   |   |   |   |   |   |   |
|     Cost of sales                                    |                             |   | $      | 18,061  |                           | $      | 15,612 |   | 16% |   |   | $ | 33,832 |   | $ | 31,261 |   | 8% |
|     Research and development                         |                             |   |   | 104,382 |                           |   | 130,575 |   | (20) |   |   |   | 200,660 |   |   | 257,385 |   | (22) |
|     Selling, general and administrative              |                             |   |   | 46,768  |                           |   | 40,775 |   | 15 |   |   |   | 91,597 |   |   | 79,205 |   | 16 |
|     Restructuring                                    |                             |   |   | 25,191  |                           |   | 65,310 |   | (61) |   |   |   | 36,784 |   |   | 93,505 |   | (61) |
|     Amortization of intangibles                      |                             |   |   | 8,378   |                           |   | 9,676 |   | (13) |   |   |   | 16,756 |   |   | 19,352 |   | (13) |
|                                                                     |                             |   |        |         |                           |        |  |   |   |   |   |  |  |   |  |  |   |   |
|         Total costs and expenses |                             |   | $      | 202,780 |                           | $      | 261,948 |   | (23%) |   |   | $ | 379,629 |   | $ | 480,708 |   | (21%) |
|                                                                     |                             |   |        |         |                           |        |  |   |   |   |   |  |  |   |  |  |   |   |

***Cost of Sales***

        Costof sales increased 16% in the 2004 Three Month Period and 8% in the 2004 Six Month Periodfrom the comparable periods in 2003. Cost of sales includes manufacturing-related expensesassociated with the sale of VELCADE® (bortezomib) for Injection and INTEGRILIN®(eptifibatide) Injection. The increases were primarily driven by sales of VELCADE. 

***Research and development***

        Researchand development expenses decreased 20% in the 2004 Three Month Period and 22% in the 2004Six Month Period from the comparable periods in 2003. The decrease reflects the financialbenefits of our 2003 restructuring efforts, including reductions in discovery personneland personnel-related costs. We expect that our research and development expense mix willcontinue to shift as we increase our investment in later-stage development programs. 

        Inaddition to our ongoing clinical trials of INTEGRILIN and VELCADE, we have ten drugcandidates in clinical development with five currently identified as high priorities. Aswe continually prioritize our portfolio, we allocate resources across our drug candidateprograms accordingly, which may mean a shift in priorities. The following chart summarizesthe clinical trials of these ten drug candidates, the applicable disease indication andthe current trial status of the program. High priority candidates are denoted with anasterisk. 

| Product Description                                                                                                                          |   | Disease Indication     |   | Current Trial Status |   |
|----------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------|--------|----------------------|--------|
|                                                                                                                                         |   |                   |   |                 |   |
| ***Cancer***                                                                                                                                 |   |                   |   |                 |   |
| *MLN2704 is a targeting monoclonal antibody vehicle                                                                                          |   | Prostate cancer        |   | Phase I/Phase II     |   |
|                                                                                                                                         |   |                   |   |                 |   |
| *MLN944 is a novel 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 monoclonalantibody that specifically recognizes the PSMA (prostate specificmembrane antigen) |   | Prostate cancer        |   | Phase I              |   |
|                                                                                                                                         |   |                   |   |                 |   |
| MLN576 is a small molecule with DNA-targeting activity                                                                                       |   | Solid tumors           |   | Phase I              |   |
|                                                                                                                                         |   |                   |   |                 |   |

19

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|                                                                                       |   |                                                                              |   |             |   |
|--------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------------------|--------|------------------|--------|
||
|                                                                                       |   |                                                                              |   |             |   |
| ***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 directed against CCR1                                         |   | 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 |   |
|                                                                                       |   |                                                                              |   |             |   |

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

        CMRInternational, an independent pharmaceutical data collection agency, estimates thatclinical trials in our areas of focus are typically completed over the followingtimelines: 

|   | **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                       |   |
|   |                                                                                                                                                      |   |                                                                                             |   |                            |   |

        Uponsuccessful completion of phase III clinical trials of a product candidate, we intend tosubmit the results to the FDA to support regulatory approval. However, we cannot becertain that any of our product candidates will prove to be safe or effective, willreceive regulatory approvals, or will be successfully commercialized. Our clinical trialsmight prove that our product candidates may not be effective in treating the disease ormay prove to have undesirable or unintended side effects, toxicities or othercharacteristics that require us to cease further development of the product candidate. Thecost to take a product candidate through clinical trials is dependent upon, among otherthings, the disease indications, the timing, the size and dosing schedule of each clinicaltrial, the number of patients enrolled in each trial and the speed at which patients areenrolled and treated. We could incur increased product development costs if we experiencedelays in clinical trial enrollment, delays in the evaluation of clinical trial results ordelays in regulatory approvals. 

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

        Dueto the variability in the length of time necessary to develop a product, the uncertaintiesrelated to the estimated cost of the projects and ultimate ability to obtain governmentalapproval for commercialization, accurate and meaningful estimates of the ultimate cost tobring our product candidates to market are not available. 

        Webudget and monitor our research and development costs by type or category, rather than byproject on a comprehensive or fully allocated basis. Significant categories of costsinclude personnel, clinical, third party research and development services and laboratorysupplies. In addition, a significant portion of our research and development expenses isnot tracked by project as it benefits multiple projects or our technology platform.Consequently, fully loaded research and development cost summaries by project are notavailable. 

        Giventhe uncertainties related to development, we are currently unable to reliably estimatewhen, if ever, our product candidates will generate revenue and cash flows. We do notexpect to receive net cash inflows from any of our major research and development projectsuntil a product candidate becomes a profitable commercial product. 

***Selling, General andAdministrative***

        Selling,general and administrative expenses increased 15% in the 2004 Three Month Period and 16%in the 2004 Six Month Period from the comparable periods in 2003. The increase isprimarily due to increased selling and marketing expenses related to VELCADE®(bortezomib) for Injection and the expansion of the Millennium-SGP sales force forINTEGRILIN® (eptifibatide) Injection, including increases in salaries and benefits,partially offset by decreased expenses in corporate general and administrative functionsattributable to our restructuring efforts. 

***Restructuring***

        InDecember 2002 and June 2003, we took steps to focus our resources on drug development andcommercialization. Our restructuring plan includes consolidation of research anddevelopment facilities, overall headcount reduction and streamlining of discovery anddevelopment projects. As a result, we have recorded restructuring charges of $25.2 millionin the 2004 Three Month Period and $36.8 million in the 2004 Six Month Period. Thesecharges consist primarily of the estimated remaining rental obligations, net of estimatedsublease income, for facilities that we vacated during the periods. 

        Werecorded restructuring charges of $65.3 million in the 2003 Three Month Period and $93.5million in the six months ended June 30, 2003 (the “2003 Six Month Period”).These charges are related to facilities, asset impairment and personnel costs. Ourdecisions to vacate certain facilities and abandon the related leasehold improvements aswell as terminate certain research programs were deemed to be impairment indicators underSFAS 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 assetimpairment charges to adjust the carrying value of the related long lived assets to fairvalue. Fair value of the assets was estimated based upon anticipated future cash flows,discounted at a rate commensurate with the risk involved. 

        Weanticipate additional restructuring charges in future periods as we continue to executeour restructuring plan. These charges will primarily include the estimated remainingrental obligations, net of estimated sublease income, for facilities that we vacated andany adjustments to those estimates. 

21

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***Amortization ofIntangibles***

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

|                                                                     | Three Months Ended June 30, |   |   |   | Six Months Ended June 30, |   |
|--------------------------------------------------------------------------|----------------------------------|--------|--------|--------|--------------------------------|--------|
||
|                                                                     |                             |   |   |   |                           |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other income (expense):                                                  |                             |   |   |   |                           |   |   |   |   |   |   |   |   |   |   |   |   |   |
|     Investment income, net                           |                             |   | $      | 6,147  |                           | $      | 8,697 |   | (29%) |   |   | $ | 12,535 |   | $ | 18,304 |   | (32%) |
|     Interest expense                                 |                             |   |   | (2,596 | )                              |   | (5,118 | ) | (49) |   |   |   | (5,287 | ) |   | (15,535 | ) | (66) |
|     Gain on sale of equity interest in joint venture |                             |   |   | — |                           |   | 40,000 |   | (100) |   |   |   | 40,000 |   |   | 40,000 |   | — |
|     Debt financing charge                            |                             |   |   | — |                           |   | (10,496 | ) | (100) |   |   |   | — |   |   | (10,496 | ) | (100) |
|                                                                     |                             |   |        |        |                           |        |  |   |   |   |   |  |  |   |  |  |   |   |
|         Total other income       |                             |   | $      | 3,551  |                           | $      | 33,083 |   | (89%) |   |   | $ | 47,248 |   | $ | 32,273 |   | 46% |
|                                                                     |                             |   |        |        |                           |        |  |   |   |   |   |  |  |   |  |  |   |   |

***Investment Income***

        Investmentincome decreased 29% in the 2004 Three Month Period and 32% in the 2004 Six Month Periodfrom the comparable periods in 2003. The decreases are primarily attributable to a loweraverage balance of invested funds. 

***Interest Expense***

        Interestexpense decreased 49% in the 2004 Three Month Period and 66% in the 2004 Six Month Periodfrom the comparable periods in 2003. The decreases are attributable to the April 2003repurchase of $577.8 million aggregate principal amount of our 5.0% convertiblesubordinated notes due March 1, 2007, that are convertible into our common stock at anytime 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 ourcommon stock at any time prior to maturity at a price equal to $40.61 per share (the“4.5% notes”). 

***Gain on Sale of EquityInterest in Joint Venture***

        Throughour acquisition of LeukoSite, we became a party to a joint venture partnership, Millenniumand ILEX Partners, L.P., or M&I, for development of Campath® (alemtuzumab)humanized monoclonal antibody. We sold our equity interest in M&I and in considerationfor 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 $40.0million on our sale of this equity interest based upon the achievement of predeterminedsales targets of Campath. During the 2004 Six Month Period, we recorded the final$40.0 million gain related to our sale of this equity interest based upon theachievement of predetermined 2004 sales targets of Campath. 

***Debt Financing Charge***

        Duringthe 2003 Three Month Period, we recorded a non-cash charge of $10.5 million whichrepresents the write-off of approximately $12.4 million of unamortized original debtissuance 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 onApril 29, 2003. 

22

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Liquidity and CapitalResources 

        Werequire cash to fund our operating expenses, to make capital expenditures, acquisitionsand investments and to pay debt service, including principal and interest and capitallease payments. We have also made strategic commitments to purchase debt and equitysecurities from some of our alliance collaborators in accordance with our Board ofDirectors’ approved policies and our business needs. These investment commitments aregenerally in smaller companies. We may lose money in these investments and our ability toliquidate these investments is in some cases very limited. We may also owe our partnersmilestone payments and royalties. We have committed to fund development costs incurred bysome of our partners. 

        Wehave 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 thefuture, we expect to continue to fund our cash requirements from some of these externalsources as well as from sales of VELCADE, INTEGRILIN and other products, subject toregulatory approval. We are entitled to additional committed research and developmentfunding under certain of our strategic alliances. We believe the key factors that couldaffect our internal and external sources of cash are: 

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

        Asof June 30, 2004 we had $816.3 million in cash, cash equivalents and marketablesecurities. This excludes $14.9 million of interest-bearing marketable securitiesclassified as restricted cash on our balance sheet as of June 30, 2004 which primarilyserve as collateral for letters of credit securing leased facilities. 

|                                             | June 30, 2004 |   | December 31, 2003 |    |
|--------------------------------------------------|---------------|--------|-------------------|---------|
||
| Cash, cash equivalents and marketable securities |          |   | $                 | 816,299 |   | $ | 915,303 |   |
| Working capital                                  |          |   |              | 799,839 |   |   | 858,990 |   |
|                                             |          |   |              |    |   |   |   |   |
|                                             |          |   |              |    |   |   |   |   |

|                                                          | Six Months Ended |   |
|---------------------------------------------------------------|------------------|--------|
||
||
| Cash provided by (used in):                                   |             |   |   |   |   |   |   |   |
|     Operating activities                  |             |   | $ | (82,399 | ) | $ | (156,371 | ) |
|     Investing activities                  |             |   |   | 23,061 |   |   | (539,687 | ) |
|     Financing activities                  |             |   |   | 11,342 |   |   | (593,546 | ) |
| Capital expenditures (included in investing activities above) |             |   |   | (23,532 | ) |   | (38,851 | ) |

23

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***Cash Flows***

        Theprincipal use of cash in operating activities in both 2004 and 2003 was to fund our netloss. Cash flows from operations can vary significantly due to various factors includingchanges in accounts receivable, as well as changes in accounts payable and accruedexpenses. The average collection period of our accounts receivable can vary and isdependent on various factors, including the type of revenue and the payment terms relatedto those revenues. 

        Investingactivities provided $23.1 million in the 2004 Six Month Period. The principal source offunds during the 2004 Six Month Period was from the sale of marketable securities. We used$539.7 million of cash in investing activities in the 2003 Six Month Period as wereinvested our cash into our securities portfolio. The decrease from the 2003 Six MonthPeriod of approximately $15.3 million in purchases of property and equipment is a resultof decreased purchases due to the consolidation of our research and development activitiesas part of our restructuring initiative and timing of our expenditures. 

        Financingactivities provided $11.3 million in the 2004 Six Month Period. The principal source wasfrom the sales of common stock to our employees. We used $593.5 million of cash infinancing activities in the 2003 Six Month Period. The primary use of cash was therepurchase of $577.8 million in principal of convertible notes and the related put premiumof $52.1 million. 

        Webelieve that our existing cash and cash equivalents, internally generated funds and theanticipated cash payments from our product sales, co-promotion revenue and currentstrategic alliances will be sufficient to support our expected operations, fund our debtservice and capital lease obligations and fund our capital commitments for at least thenext several years. 

***Contractual Obligations***

        Ourmajor outstanding contractual obligations relate to our facilities leases, convertiblenotes, capital leases from equipment financings and commitments to purchase debt andequity securities from certain collaborators. 

        Therehave been no significant changes to our contractual obligations and commercial commitmentsincluded in our Form 10-K as of December 31, 2003. 

        Asof June 30, 2004, we did not have any financing arrangements that were not reflected inour balance sheet. 

RISK FACTORS THAT MAYAFFECT RESULTS

        ThisQuarterly Report on Form 10-Q and certain other communications made by us containforward-looking statements, including statements about our growth and future operatingresults, discovery and development of products, potential acquisitions, strategicalliances and intellectual property. For this purpose, any statement that is not astatement of historical fact should be considered a forward-looking statement. We oftenuse the words “believe,” “anticipate,” “plan,”“expect,” “intend,” “will” and similar expressions to helpidentify forward-looking statements. 

        We cannot assure investors that our assumptions and expectations will prove to have beencorrect. Important factors could cause our actual results to differ materially from thoseindicated or implied by forward-looking statements. Such factors that could cause orcontribute to such differences include those factors discussed below. We undertake nointention or obligation to update or revise any forward-looking statements, whether as aresult of new information, future events or otherwise. 

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Regulatory Risks 

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

         The FDA granted accelerated approval for VELCADE for specific therapeutic uses thatrequires the fulfillment of specific post-approval requirements. Our business would beseriously harmed if we do not fulfill these requirements and the FDA revokes its marketingapproval for VELCADE. In addition, an important part of our strategy to grow our businessis to market VELCADE for additional indications. To do so, we will need to successfullyconduct clinical trials and then apply for and obtain the appropriate regulatoryapprovals. If we are unsuccessful in our clinical trials, or we experience a delay inobtaining or are unable to obtain authorizations for expanded uses of VELCADE, ourrevenues may not grow as expected and our business and operating results will be harmed. 

**We may not be able to obtainapproval in additional countries to market VELCADE.**

        VELCADEis currently approved for marketing in the United States and the countries of the EuropeanUnion. If we are not able to obtain approval to market VELCADE in additional countries, wewill lose the opportunity to sell in those countries and will not be able to earnpotential milestone payments under our agreement with Ortho Biotech or collect potentialdistribution fees on sales of VELCADE by Ortho Biotech in those countries. 

**Wemay not be able to obtain marketing approval for products or services resulting from ourdevelopment efforts.
        The products that we are developing require research anddevelopment, extensive preclinical studies and clinical trials and regulatory approval prior to anycommercial sales. This process is expensive and lengthy, and can often take a number ofyears. In some cases, the length of time that it takes for us to achieve variousregulatory approval milestones affects the payments that we are eligible to receive underour strategic alliance agreements. 

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

        In some cases, we may experience challenges to the extension of exclusivity of ourmarketing approval in certain jurisdictions. With respect to INTEGRILIN®(eptifibatide) Injection, regulatory authorities in Luxembourg instituted a claim toreduce the effective term of supplemental protection certificates for INTEGRILIN in theEuropean Community from 2014 to 2012. That claim was denied by the court of first instancein Europe. That denial has been appealed to the European Court of Justice, which held ahearing on the appeal in July 2004. If that court decides against us, the term of thesupplemental protection certificates covering INTEGRILIN could be shortened in anyparticular European Community Member State in which a subsequent action requestingenforcement of the appellate decision was filed and decided against us. Shortening of suchterm could allow earlier generic competition in any such Member State. 

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

        Any product for which we obtain marketing approval, along with the manufacturingprocesses, post-approval clinical data and promotional activities for such product, issubject to continual review and periodic inspections by the FDA, and other regulatorybodies. In particular, the marketing approval that we received from the FDA for VELCADErequires that we satisfactorily complete specified post-approval clinical trials of thisproduct. Later discovery of previously unknown problems or safety issues with our productsor manufacturing processes, or failure to comply with regulatory requirements, may resultin restrictions on such products or manufacturing processes, withdrawal of the productsfrom the market or the imposition of civil or criminal penalties. As with any newlyapproved therapeutic product, we expect that our knowledge of the safety profile forVELCADE will expand

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after wider usage and the possibility exists of patients receivingVELCADE treatment experiencing unexpected serious adverse events which could have amaterial adverse effect on our business. 

**We have only limited experience inregulatory affairs, and some of our products may be based on new technologies; thesefactors may affect our ability or the time we require to obtain necessary regulatoryapprovals.**

        We have only limited experience in filing and prosecuting the applications necessary togain regulatory approvals. Moreover, certain of the products that are likely to resultfrom our research and development programs may be based on new technologies and newtherapeutic approaches that have not been extensively tested in humans. The regulatoryrequirements governing these types of products may be more rigorous than for conventionalproducts. As a result, we may experience a longer regulatory process in connection withany products that we develop based on these new technologies or new therapeuticapproaches. 
Risks Relating to OurBusiness, Strategy and Industry 
**Our revenues over the next severalyears 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 commercialsuccess of our two marketed products: VELCADE and INTEGRILIN. 

        VELCADEwas approved by the FDA in May 2003 and commercially launched in the United Statesshortly after that date. Marketing of VELCADE outside the United States commenced in April2004. Because of the recent introduction of VELCADE, we have very limited experience as tothe sales levels of this product. Our business plan contemplates obtaining marketingauthorization to sell VELCADE for the treatment of patients with multiple myeloma outsidethe United States and the European Union, and both in the United States and abroad forother indications. We will be adversely affected if VELCADE does not receive suchapprovals. 

        INTEGRILINhas been on the market in the United States since June 1998. Marketing of INTEGRILINoutside the United States commenced in mid-1999. Demand for GP IIb-IIIa inhibitors, suchas INTEGRILIN, has been flattening since the beginning of 2003, although we have seen anincrease in demand for INTEGRILIN since the third quarter of 2003. 

        Wewill not achieve our business plan, and we may be forced to scale back our operations andresearch and development programs, if: 
 • we do not obtain regulatory approval to sell VELCADE in additional countries or for additional therapeutic       uses;     • physicians reduce prescribing GP IIb-IIIa inhibitors, for the current indications ofINTEGRILIN or fail to use GP IIb-IIIa inhibitors earlier in treatment and in thepercutaneous coronary intervention setting; 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 moresuccessfully than we do.**

        The fields of biotechnology and pharmaceuticals are highly competitive. Many of ourcompetitors are substantially larger than we are, and these competitors have substantiallygreater 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 productmanufacturing and marketing. As a result, our competitors may discover, develop andcommercialize pharmaceutical products or services before we do. In addition, ourcompetitors may discover, develop and commercialize products or services that make theproducts or services that we or our collaborators have developed or are seeking to developand commercialize non-competitive or obsolete. 

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

        Othercompetitive 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, in patients undergoing percutaneouscoronary intervention;     • changing treatment practices for percutaneous coronary intervention and acutecoronary 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 inpatients 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 leprosywhich is increasingly used for multiple myeloma based on data published in peer-reviewedpublications. Celgene Corporation recently filed an sNDA for thalidomide for the treatmentof multiple myeloma that was accepted by the FDA for review. We also face competition forVELCADE from traditional chemotherapy treatments, and there are other potentiallycompetitive therapies for VELCADE that are in late-stage clinical development for thetreatment of multiple myeloma. In addition, multiple myeloma therapies in development mayreduce the number of patients available for VELCADE treatment through enrollment of thesepatients in clinical trials of these potentially competing products. 

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

        A significant portion of INTEGRILIN domestic pharmaceutical sales is made by SGP to majordrug wholesalers. These sales are affected by fluctuations in the buying patterns of thesewholesalers and the corresponding changes in inventory levels maintained by them. BecauseSGP manages product distribution, we have limited insight into the forces driving thechanges in inventory levels and the changes reported may not reflect underlying prescriberdemand. If SGP does not appropriately manage this distribution, we and SGP may not realizeour sales goals for the product and increased returns could reduce the co-promotionrevenue we recognize and adversely affect our business. 

        Additionally,we and our commercial partners make provisions at the time of sale of both VELCADE andINTEGRILIN for all discounts, rebates and estimated sales allowances based on historicalexperience updated for changes in facts and circumstances, as appropriate. To the extentthese allowances are incorrect, we may need to adjust our estimates which could have amaterial impact on the timing and amount of revenue we are able to recognize from thesesales. 

        We expect that sales from INTEGRILIN will generally be lower in the summer months becausefewer medical procedures are typically performed during these months. These fluctuationsin sales of INTEGRILIN may have a material adverse effect on our results of operations forparticular reporting periods. It is possible that sales of VELCADE will be similarlyaffected by fluctuations in buying patterns. 

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

        The process of discovering drugs based upon genomics and other new technologies is new andevolving rapidly. We focus a portion of our research on diseases that may be linked toseveral or many genes working in combination or to unprecedented targets. Both we and thegeneral scientific and medical communities have only a limited understanding of the rolethat genes play in these diseases. To date, we have not commercialized any

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productsdiscovered through our genomics research, and we may not be successful in doing so in thefuture. In addition, relatively few products based on gene discoveries have been developedand commercialized by others. Rapid technological development by us or others may resultin compounds, products or processes becoming obsolete before we recover our developmentexpenses. 

**If our clinical trials areunsuccessful, or if they experience significant delays, our ability to commercializeproducts will be impaired.**

        We must provide the FDA and foreign regulatory authorities with preclinical and clinicaldata demonstrating that our products are safe and effective before they can be approvedfor commercial sale. Clinical development, including preclinical testing, is a long,expensive and uncertain process. It may take us several years to complete our testing, andfailure can occur at any stage of testing. Interim results of preclinical or clinicalstudies do not necessarily predict their final results, and acceptable results in earlystudies might not be seen in later studies. Any preclinical or clinical test may fail toproduce results satisfactory to the FDA. Preclinical and clinical data can be interpretedin different ways, which could delay, limit or prevent regulatory approval. Negative orinconclusive results from a preclinical study or clinical trial, adverse medical eventsduring a clinical trial or safety issues resulting from products of the same class of drugcould cause a preclinical study or clinical trial to be repeated or a program to beterminated, even if other studies or trials relating to the program are successful. Forexample, in December 2003, we decided to stop further accrual to a phase II trialexamining VELCADE® (bortezomib) for Injection in colorectal cancer because interimfindings produced results that did not meet the pre-specified efficacy criteria forcontinuation of study accrual. 

        We may not complete our planned preclinical or clinical trials on schedule or at all. Wemay not be able to confirm the safety and efficacy of our potential drugs in long-termclinical trials, which may result in a delay or failure to commercialize our products. Inaddition, due to the substantial demand for clinical trial sites in the cardiovasculararea, we may have difficulty obtaining a sufficient number of appropriate patients orclinician support to conduct our clinical trials as planned. As a result, we may have toexpend substantial additional funds to obtain access to resources or delay or modify ourplans significantly. Our product development costs will increase if we experience delaysin testing or approvals. Significant clinical trial delays could allow our competitors tobring products to market before we do and impair our ability to commercialize our productsor potential products.

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

        The commercial success of any of our products and services for which we may obtainmarketing approval from the FDA or other regulatory authorities will depend upon theiracceptance 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 arebased upon new technologies or therapeutic approaches. As a result, it may be moredifficult for us to achieve market acceptance of our products and services, particularlythe first products and services that we introduce to the market based on new technologiesand therapeutic approaches. Our efforts to educate the medical community on thesepotentially unique approaches may require greater resources than would be typicallyrequired for products and services based on conventional technologies or therapeuticapproaches. The safety, efficacy, convenience and cost-effectiveness of our products ascompared to competitive products will also affect market acceptance. 
Risks Relating to OurFinancial Results and Need for Financing 
**We have incurred substantial losses and expect to continue to incur losses. We will not besuccessful unless we reverse this trend.**

         We have incurred losses of $53.9 million and$107.1 million for the three months ended June 30, 2004 and 2003, respectively, losses of $94.5 million and $245.0million for the six months ended June 30, 2004 and 2003, respectively, and losses of$483.7 million for the year ended December 31, 2003 and $590.2 million forthe year ended December 31, 2002. We expect to continue to incur substantialoperating losses in future periods. Prior to our acquisition of COR, substantially all ofour 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 anddevelopment programs and commercialization activities. As a result, we will need togenerate significant revenues to pay these costs and achieve profitability. We cannot becertain whether or when we will become profitable because of the 

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significant uncertaintieswith respect to our ability to generate revenues from the sale of products and servicesand 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 onunattractive terms could adversely affect our business and operations.**

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

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

**Our indebtedness and debt service obligations may adversely affect our cash flow and otherwisenegatively affect our operations.**

        At June 30, 2004, we had approximately$105.5 million of outstanding convertible debt and $94.3 million of capitallease  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 approximately $16.9 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 linesand property and equipment financings to finance capital expenditures. We intend tosatisfy our current and future debt service obligations from cash generated by ouroperations, our existing cash and investments and, in the case of principal payments atmaturity, funds from external sources. We may not have sufficient funds and we may beunable to arrange for additional financing to satisfy our principal or interest paymentobligations when those obligations become due. Funds from external sources may not beavailable on acceptable terms, or at all. 

        Our indebtedness could have significant additional negative consequences, including:
 • increasing our vulnerability to general adverse economic and industryconditions;     • limiting our ability to obtain additional financing;     • requiring the dedication of a substantial portion of our cash flow from operationsto service our indebtedness, thereby reducing the amount of our expected cash flowavailable 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 andcompetitors that have better access to capital resources.
**If we do not achieve theanticipated benefits of our restructuring, or if the costs of this restructuring exceedanticipated levels, our business could be harmed.**

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

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Risks Relating toCollaborators 
**We depend significantly on our collaborators to work with us to develop and commercializeproducts and services.**
        We market andsell INTEGRILIN® (eptifibatide) Injection through an alliance with SGP and pending theapproved transfer of marketing authorizations, GSK willexclusively market INTEGRILIN in Europe. We develop and, outside of the United States,commercialize VELCADE® (bortezomib) for Injection through an alliance with OrthoBiotech Products, L.P., a wholly owned subsidiary of Johnson & Johnson. Weconduct substantial discovery and development activities through strategic alliances,including with Ortho Biotech for the ongoing development of VELCADE, and with SGP for theongoing development of INTEGRILIN. We expect to enter into additional alliances in thefuture, especially in connection with product commercialization. The success of ouralliances depends heavily on the efforts and activities of our collaborators. 

        Each of our collaborators has significant discretion in determining the efforts andresources that it will apply to the alliance. Our existing and any future alliances maynot be scientifically or commercially successful. 

        The risks that we face in connection with these existing and any future alliances includethe following:
 • All of our strategic alliance agreements are for fixedterms 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 withAbbott Laboratories in August 2003, our technology transfer alliance with AventisPharmaceuticals, Inc. ended in July 2003 and the research phase of our five-yearalliance with Bayer AG ended in October 2003.     • Our collaborators may change the focus of their development and commercializationefforts. Pharmaceutical and biotechnology companies historically have re-evaluated theirpriorities following mergers and consolidations, which have been common in recent years inthese industries. The ability of certain of our products to reach their potential could belimited if our collaborators decrease or fail to increase marketing or spending effortsrelated to such products.     • We expect to rely on our collaborators to manufacture many products covered by ouralliances.     • In our strategic alliance agreements, we generally agree not to conduct specifiedtypes of research and development in the field that is the subject of the alliance. Theseagreements may have the effect of limiting the areas of research and development that wemay 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 servicesthat are the subject of the alliance with us.
**We may not be successful inestablishing additional strategic alliances, which could adversely affect our ability todevelop and commercialize products and services.**

        An important element of our business strategy is entering into strategic alliances for thedevelopment and commercialization of products and services when we believe that doing sowill maximize product value. In some instances, if we are unsuccessful in reaching anagreement with a suitable collaborator, we may fail to meet certain of our businessobjectives for the applicable product or program. We face significant competition inseeking appropriate collaborators. Moreover, these alliance arrangements are complex tonegotiate and time-consuming to document. We may not be successful in our efforts toestablish additional strategic alliances or other alternative arrangements. The terms ofany additional strategic alliances or other arrangements that we establish may not befavorable to us. Moreover, such strategic alliances or other arrangements may not besuccessful. 

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Risks Relating toIntellectual Property 
**If we are unable to obtain patentprotection for our discoveries, the value of our technology and products will be adverselyaffected. If we infringe patent or other intellectual property rights of third parties, wemay not be able to develop and commercialize our products and services or the cost ofdoing so may increase.**

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

        Our ability to develop andcommercialize 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     • protect trade secrets.
**There is significant uncertaintyabout the validity and permissible scope of patents in our industry, which may make itdifficult for us to obtain patent protection for our discoveries.**

        The validity and permissible scope of patent claims in the pharmaceutical andbiotechnology fields, including the genomics field, involve important unresolved legalprinciples 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 abroadregarding the patentability of gene sequences in the absence of functional data and thescope of patent protection available for full-length genes and partial gene sequences.Moreover, some groups have made particular gene sequences available in publicly accessibledatabases. These and other disclosures may adversely affect our ability to obtain patentprotection for gene sequences claimed by us in patent applications that we file subsequentto such disclosures. There is also some uncertainty as to whether human clinical data willbe required for issuance of patents for human therapeutics. If such data are required, ourability 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 seeklicenses, which could increase our development and commercialization costs, or prevent usfrom developing or marketing our products or services.
        We may not have rights under some patents or patent applications related to some of ourexisting and proposed products, processes or services. Third parties may own or controlthese patents and patent applications in the United States and abroad. Therefore, in somecases, such as those described below, in order to develop, manufacture, sell or importsome of our existing and proposed products, processes or services, we or our collaboratorsmay choose to seek, or be required to seek, licenses under third-party patents issued inthe United States and abroad, or those that might issue from United States and foreignpatent applications. In such event, we would be required to pay license fees or royaltiesor both to the licensor. If licenses are not available to us on acceptable terms, we orour collaborators may not be able to develop, manufacture, sell or import these products,processes or services. 

        Our MLN02 product candidate is a humanized monoclonal antibody. We are aware ofthird-party patents and patent applications that relate to humanized or modifiedantibodies, products useful for making humanized or modified antibodies and processes formaking and using humanized or modified antibodies. We are also aware of third-partypatents and patent applications relating to manufacturing processes for humanized ormodified antibodies, products thereof and materials useful in such processes. With respectto MLN2704 and MLN1202, also humanized monoclonal antibodies, we are also aware ofthird-party patent applications relating to anti-PSMA antibodies, in the case of MLN2704,and anti-CCR-2 antibodies, in the case of MLN1202. 

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        With respect to VELCADE® (bortezomib) for Injection and other proteasome inhibitors inthe treatment of myocardial infarctions, we are aware of the existence of a potentiallyinterfering 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 letteroffering a sublicense for the use of United States Patent No. 6,410,516, which isexclusively licensed to Ariad. If this patent is valid and Ariad successfully sues us forinfringement, we would require a license from Ariad in order to manufacture and marketVELCADE. 

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

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

        The cost to us of any patent litigation or other proceeding, even if resolved in ourfavor, could be substantial. Some of our competitors may be able to sustain the cost ofsuch litigation or proceedings more effectively than we can because of their substantiallygreater financial resources. If a patent litigation or other proceeding is resolvedagainst us, we or our collaborators may be enjoined from developing, manufacturing,selling or importing our products, processes or services without a license from the otherparty and we may be held liable for significant damages. We may not be able to obtain anyrequired license on commercially acceptable terms or at all. 

        Uncertainties resulting from the initiation and continuation of patent litigation or otherproceedings could have a material adverse effect on our ability to compete in themarketplace. Patent litigation and other proceedings may also absorb significantmanagement time. 
Risks Relating toProduct Manufacturing, Marketing and Sales 
**Because we have limited sales,marketing and distribution experience and capabilities, we are dependent on third partiesto successfully perform these functions on our behalf, or we may be required to incursignificant costs and devote significant efforts to augment our existing capabilities.**

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

        Weare marketing and selling VELCADE in the United States solely through our recently hiredcancer-specific sales force and without a collaborator. Our success in selling VELCADEwill depend heavily on the performance of this sales force. In the European Union andsubject to approval in other areas outside the United States, Ortho Biotech or itsaffiliates will market VELCADE in those areas and as a result our ability to earn revenuerelated 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 UnitedStates and pending the approved transfer of marketing authorizations, GSK will exclusivelymarket INTEGRILIN in Europe. Our success in receivingco-promotion revenue and royalties from sales of INTEGRILIN will depend heavily on themarketing efforts of these sales forces. 

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

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**Because we have very limitedmanufacturing capabilities, we will continue to be dependent on third-party manufacturersto manufacture products for us, or we will be required to incur significant costs anddevote significant efforts to establish our own manufacturing facilities and capabilities.**

        We have limited manufacturing experience and no commercial-scale manufacturingcapabilities. In order to continue to develop products and services, apply for regulatoryapprovals and commercialize products and services, we will need to develop, contract foror otherwise arrange for the necessary manufacturing capabilities. 

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

        There are a limited number of manufacturers that operate under the FDA’s goodmanufacturing practices regulations capable of manufacturing our products. As a result, wehave experienced some difficulty finding manufacturers for our products with adequatecapacity for our anticipated future needs. If we are unable to arrange for third-partymanufacturing of our products, or to do so on commercially reasonable terms, we may not beable to complete development of our products or market them. 

        Reliance on third-party manufacturers entails risks to which we would not be subject if wemanufactured products ourselves, including reliance on the third party for regulatorycompliance and quality assurance, the possibility of breach of the manufacturing agreementby the third party because of factors beyond our control and the possibility oftermination or non-renewal of the agreement by the third party, based on its own businesspriorities, 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 manufacturingfacilities. We would need to invest substantial additional funds and recruit qualifiedpersonnel in order to build or lease and operate any manufacturing facilities. 

**Our manufacturing experience withVELCADE® (bortezomib) for Injection is very limited and we are dependent on third partiesto 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 clinicaltrials. We are currently seeking to establish long-term supply relationships for theproduction of commercial supplies of VELCADE. We work with one manufacturer to completefill/finish for VELCADE. If our current third party manufacturer performing fill/finishfor VELCADE is unable or unwilling to continue performing these services for us and we areunable to find a replacement manufacturer, we could run out of VELCADE for commercial saleand our business could be substantially harmed. 

        In the European Union, an affiliate of Ortho Biotech performs packaging for European salesof VELCADE and as a result we are substantially dependent on Ortho Biotech’s abilityto manufacture for sales in the European Union. 

**We face particular challenges inconnection with the manufacture of INTEGRILIN® (eptifibatide) Injection; if we do notmeet these challenges, our revenues and income will be adversely affected.**

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

        We have one manufacturer that currently performs fill/finish services for INTEGRILIN. Wehave identified alternative fill/finish and packaging suppliers to serve as future sourcesof supply for the United States and international markets. Although we believe that thefill/finish and packaging performed by our primary manufacturer is sufficient to meet oursupply requirements for INTEGRILIN for the foreseeable future, the inability of this

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manufacturer to continue its fill/finish services or our inability to secure alternativemanufacturers could adversely affect the supply of INTEGRILIN® (eptifibatide) Injection and, thereby, harm ourresults of operations. 

        We expect to improve or modify our existing process technologies and manufacturingcapabilities for INTEGRILIN. We cannot quantify the time or expense that may ultimately berequired to improve or modify our existing process technologies, but it is possible thatsuch time or expense could be substantial. Moreover, we may not be able to implement anyof these improvements or modifications successfully.

        Our manufacturing plans and commercialization strategy for INTEGRILIN include the additionof extra capacity for the manufacture of INTEGRILIN as described above. We are currentlyengaged in finalizing multiple third-party manufacturing arrangements on commerciallyreasonable terms. We may not be able to do so, and, even if such arrangements areestablished, if demand for INTEGRILIN does not meet our forecasts, the manufacturing costcould become more expensive on a per unit basis. If we are unable to obtain contractmanufacturing on commercially acceptable terms, we may not be able to produce INTEGRILINin sufficient quantities to meet future market demand. 

        We frequently carry significant amounts of INTEGRILIN in inventory. If for some reason wewere unable to sell INTEGRILIN, our inventory could expire and we would be required towrite-off the value of the expired inventory.

**If we fail to obtain an adequate level ofreimbursement for our products or services by third-party payors, there may be nocommercially viable markets for our products or services.**

        The availability and levels of reimbursement by governmental and other third-party payorsaffect the market for any pharmaceutical product or health care service. These third-partypayors continually attempt to contain or reduce the costs of health care by challengingthe prices charged for medical products and services. In certain foreign countries,particularly the countries of the European Union, the pricing of prescriptionpharmaceuticals is subject to governmental control. We may not be able to sell ourproducts and services profitably if reimbursement is unavailable or limited in scope oramount. 

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

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

        In both the United States and certain foreign jurisdictions, there have been a number oflegislative and regulatory proposals to change the health care system. For example, thepassage of the Medicare Prescription Drug and Modernization Act of 2003 imposes newrequirements for the distribution and pricing of prescription drugs which may affect themarketing of our products. Further proposals are likely. The potential for adoption ofthese proposals affects or will affect our ability to raise capital, obtain additionalcollaborators and market our products. 

        In addition, we believe that the increasing emphasis on managed care in the United Stateshas and will continue to put pressure on the price and usage of our present and futureproducts, which may adversely affect product sales. Further, when a new therapeuticproduct is approved, the availability of governmental or private reimbursement for thatproduct is uncertain, as is the amount for which that product will be reimbursed. Wecannot predict the availability or amount of reimbursement for our product candidates, andcurrent reimbursement policies for INTEGRILIN or VELCADE could change at any time. 

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**We face a risk of productliability claims and may not be able to obtain insurance.**

        Our business exposes us to the risk of product liability claims that is inherent in themanufacturing, testing and marketing of human therapeutic products. In particular,INTEGRILIN® (eptifibatide) Injection and VELCADE® (bortezomib) for Injection are administered to patients with serious diseases who have a highincidence of mortality. Although we have product liability insurance that we believe isappropriate, this insurance is subject to deductibles, co-insurance requirements andcoverage limitations and the market for such insurance is becoming more restrictive. Wemay 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 againstpotential product liability claims, we will be exposed to significant liabilities, whichmay materially and adversely affect our business and financial position. These liabilitiescould prevent or interfere with our product commercialization efforts. 
Guidelines andrecommendations can affect the use of our products. 
        Government agencies promulgate regulations and guidelines directly applicable to us and toour products. In addition, professional societies, practice management groups, privatehealth and science foundations and organizations involved in various diseases from time totime may also publish guidelines or recommendations to the health care and patientcommunities. Recommendations of government agencies or these other groups or organizationsmay relate to such matters as usage, dosage, route of administration and use ofconcomitant therapies. Recommendations or guidelines suggesting the reduced use of ourproducts or the use of competitive or alternative products that are followed by patientsand health care providers could result in decreased use of our products. 
Risks Relating to anInvestment in Our Common Stock 
**The trading price of oursecurities could be subject to significant fluctuations.**

        The trading price of our common stock has been volatile, and may be volatile in thefuture. During 2003 and 2004, our common stock traded as high as $19.87 per share and aslow 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 stocksin general could have a significant impact on the future trading prices of our commonstock. 

        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 timesbeen 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;     • 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 theinvestment community, general economic and market conditions, and the cost of operationsin our product markets. While we cannot predict the individual effect that these factorsmay have on the price of our securities, these factors, either

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individually or in theaggregate, could result in significant variations in price during any given period oftime. There can be no assurance that these factors will not have an adverse effect on thetrading price of our common stock.

**We have anti-takeover defenses that could delay or prevent an acquisition and could adverselyaffect the price of our common stock.**
        Provisions of our certificate of incorporation and bylaws and of Delaware law could havethe effect of delaying, deferring or preventing an acquisition of ourcompany. For example, we have divided our board of directors into three classes that servestaggered three-year terms, we may issue shares of our authorized “blank check”preferred stock and our stockholders are limited in their ability to call specialstockholder meetings. In addition, we have issued preferred stock purchase rights thatwould adversely affect the economic and voting interests of a person or group that seeksto acquire us or a 15% or more interest in our common stock without negotiations with ourboard of directors. 
Item 3.        Quantitativeand Qualitative Disclosures About Market Risk
        Wemanage our fixed income investment portfolio in accordance with our Policy for SecuritiesInvestments, or Investment Policy, that has been approved by our Board of Directors. Theprimary objectives of our Investment Policy are to preserve principal, maintain a highdegree of liquidity to meet operating needs, and obtain competitive returns subject toprevailing market conditions. Investments are made primarily in high-grade corporate bondswith 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 subjectto interest rate risk and will decrease in value if market interest rates increase. Ahypothetical 100 basis point increase in interest rates would result in an approximate$14.6 million decrease in the fair value of our investments as of June 30, 2004.However, due to the conservative nature of our investments and relatively short effectivematurities of debt instruments, interest rate risk is mitigated. Our Investment Policyspecifies credit quality standards for our investments and limits the amount of exposurefrom any single issue, issuer or type of investment. We do not own derivative financialinstruments in our investment portfolio. 

        Asof June 30, 2004, the fair value of our 4.5% notes, 5.0% notes and 5.5% notes approximatestheir carrying value. The interest rates on our convertible notes and capital leaseobligations are fixed and therefore not subject to interest rate risk. 

        Wehave no derivative instruments outstanding as of June 30, 2004. 

        As ofJune 30, 2004 we did not have any financing arrangements that were not reflected in ourbalance sheet. 
Item 4.        Controls andProcedures
        Ourmanagement, with the participation of our chief executive officer and chief financialofficer, evaluated the effectiveness of our disclosure controls and procedures (as definedin Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of June 30, 2004. In designingand evaluating our disclosure controls and procedures, management recognized that anycontrols and procedures, no matter how well designed and operated, can provide onlyreasonable assurance of achieving their objectives and our management necessarily appliedits judgment in evaluating the cost-benefit relationship of possible controls andprocedures. Based on this evaluation, our chief executive officer and chief financialofficer concluded that as of June 30, 2004, our disclosure controls and procedures were(1) designed to ensure that material information relating to us is made known to our chiefexecutive officer and chief financial officer by others, particularly during the period inwhich this report was prepared and (2) effective, in that they provide reasonableassurance that information required to be disclosed by us in the reports we file or submitunder the Exchange Act is recorded, processed, summarized and reported within the timeperiods specified in the SEC’s rules and forms. 

        Nochange in our internal control over financial reporting (as defined in Rules 13a-15(f) and15d-15(f) under the Exchange Act) occurred during the fiscal quarter ended June 30, 2004that has materially affected, or is reasonably likely to materially affect, our internalcontrol over financial reporting. 

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**PART II    OTHER INFORMATION**

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

        Atour Annual Meeting of Stockholders held on May 7, 2004, our stockholders voted on twomatters, as follows: 
 1. The stockholders elected Charles J. Homcy,Raju S. Kucherlapati and Eric S. Lander to serve as Class II directors for a term of three years          by the following votes:      **Number of Shares****Name** **For** **Withheld**Charles J. Homcy 249,325,598 6,735,464Raju S. Kucherlapati 248,068,906 7,992,156Eric S. Lander 241,385,003 14,676,059       Theother directors whose terms of office as a director continue after the meeting are asfollows: Shaun R. Coughlin, Ginger L. Graham, A. Grant Heidrich, III, Vaughn M. Kailian, Mark J. Levin, Edward D. Miller, Norman Selby and Kenneth E. Weg.
 2. The stockholders ratified the appointmentof Ernst & Young LLP as our independent auditors for the fiscal year ending December 31, 2004 by the following votes:    **For:**249,796,951**Against:**6,034,832**Abstain:**227,736**Broker Non-vote:**1,543
**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
        Thefollowing Current Report on Form 8-K was furnished by us during the three months endedJune 30, 2004.
 1. We furnished a Current Report on Form 8-K to the Securities and Exchange               Commission on April 29, 2004, pursuant to Item 12, containing a press               release we issued on April 28, 2004 to report our financial results for the               quarter ended March 31, 2004.    
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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 itsbehalf by the undersigned, thereunto duly authorized.  MILLENNIUM PHARMACEUTICALS, INC.(Registrant)        Dated: August 4, 2004  By /s/  MARSHA H. FANUCCI      Marsha H. Fanucci   *Senior Vice President and Chief Financial Officer*   *(principal financial and chief accounting officer)*    
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**EXHIBIT INDEX**
Exhibit No. Description       10.1† Letter Agreement dated May 27, 2004 relating to the Collaboration and License Agreement by and              between Aventis Pharmaceuticals, Inc. and the Company.       10.2† Agreement about European Commercialization of Integrilin by and among the Company, Schering              Corporation and Schering-Plough, Ltd. dated June 21, 2004       10.3† License, Development and Commercialization Agreement by and between              GlaxoSmithKline plc and the Company dated June 22, 2004.       31.1 Certification of principal executive officer pursuant to Rule 13a-14(a)/15d-14(a) ofthe Securities Exchange Act of 1934, as amended       31.2 Certification of principal financial officer pursuant to Rule 13a-14(a)/15d-14(a) ofthe                                 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 
† Confidential treatmentrequested as to certain portions, which portions have been separately filed with theSecurities and Exchange Commission.

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