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                                  RISK FACTORS

     The Shares of Common Stock offered hereby include a high degree of risk.
The following risk factors should be considered carefully in addition to the
other information included or incorporated by reference in this Prospectus
before purchasing the Shares offered hereby.

UNCERTAINTIES RELATING TO TECHNOLOGICAL APPROACHES OF THE COMPANY

     To date, the Company has not developed or commercialized any products based
on its technological approaches. There can be no assurance that these approaches
will enable the Company to successfully identify and characterize genes that
predispose individuals to the diseases that are the principal focus of its
disease research programs or to use any resulting information to develop
molecular targets of utility for pharmaceutical product development. The
Company's lead programs and development focus are primarily directed to complex
polygenic and multifactorial diseases. There is limited scientific understanding
generally relating to the role of genes in these diseases and relatively few
products based on gene discoveries have been developed and commercialized.
Accordingly, even if the Company is successful in identifying genes associated
with specific diseases, there can be no assurance that its gene discoveries will
lead to the development of therapeutic and diagnostic products. The Company's
success will depend, in part, upon its ability to focus its research efforts on
diseases that are suitable candidates for diagnostic and therapeutic products.

     The development of diagnostic and therapeutic products based on the
Company's gene discoveries also will be subject to the risks of failure inherent
in the development of products based on new technologies. These risks include
the possibilities that any products based on these technologies will be found to
be ineffective or toxic, or otherwise fail to receive necessary regulatory
approvals; the products, if safe and effective, will be difficult to manufacture
on a large scale or will be uneconomical to market; proprietary rights of third
parties will preclude the Company or its strategic partners from marketing
products; or third parties will market superior or equivalent products. As a
result, there can be no assurance that the Company's research and development
activities will result in any commercially viable products.

     Genomics, biotechnology and pharmaceutical technologies have undergone and
are expected to continue to undergo rapid and significant change. The Company's
future success will depend in large part on its ability to maintain a
competitive position with respect to these technologies. Rapid technological
developments by the Company or others may result in compounds, products or
processes becoming obsolete before the Company recovers any expenses it incurs
in connection with the development of such products.

HISTORY OF OPERATING LOSSES; ANTICIPATION OF FUTURE LOSSES

     Substantially all of the Company's resources have been, and will for the
foreseeable future continue to be, dedicated to the development of the Company's
technology and its application to discovering and elucidating the function of
genes associated with major common diseases. To date, all of the Company's
revenues have resulted from payments from strategic partners. The Company has
not yet identified any lead compounds nor generated any products which have
entered preclinical studies or generated any revenue. All of the Company's
potential products and services will require significant research and
development expenditures. It will be a number of years, if ever, before the
Company recognizes revenue from sales or royalties.

     As of March 31, 1997, the Company had an accumulated deficit of
approximately $105,562,000 (including a non-recurring charge of $83,800,000 for
acquired in-process research and development related to the acquisition of
ChemGenics). Even if the Company succeeds in developing a commercial product,
the Company expects to incur losses for at least the next several years and that
such losses will increase as the Company expands its research and development
activities. To achieve


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profitability, the Company, alone or with others, must successfully discover
genes associated with particular diseases and, thereafter, utilize such
discoveries to develop products, conduct clinical trials, obtain required
regulatory approvals and successfully manufacture, introduce and market such
products. The time required to reach commercial revenue and profitability is
highly uncertain and there can be no assurance that the Company will be able to
achieve any such revenue and profitability on a sustained basis, if at all.

FUTURE CAPITAL REQUIREMENTS; UNCERTAINTY OF ADDITIONAL FUNDING

     The Company's comprehensive technological approach to developing products
through the application of genomics has required that Millennium establish a
substantial scientific infrastructure. The Company has consumed substantial
amounts of cash to date and expects capital and operating expenditures to
increase over the next several years as it expands its infrastructure and its
research and development activities. The Company believes that existing cash and
investment securities and anticipated cash flow from existing strategic
alliances will be sufficient to support the Company's operations for at least
the next 24 months. The Company's actual future capital requirements, however,
will depend on many factors, including progress of its disease research
programs, the number and breadth of these programs, achievement of milestones
under strategic alliance arrangements, the ability of the Company to establish
and maintain additional strategic alliance and licensing arrangements, and the
progress of the development efforts of the Company's strategic partners. These
factors also include the level of the Company's activities relating to
commercialization rights it has retained in its strategic alliance arrangements,
competing technological and market developments, the costs associated with
collection of patient information and DNA samples, the costs involved in
enforcing patent claims and other intellectual property rights and the costs and
timing of regulatory approvals. The Company expects that it will require
significant additional financing in the future, which it may seek to raise
through public or private equity offerings, debt financings or additional
strategic alliance and licensing arrangements. No assurance can be given that
additional financing will be available when needed, or that, if available, such
financing will be obtained on terms favorable to the Company or its
stockholders. To the extent the Company raises additional capital by issuing
equity securities, ownership dilution to stockholders will result. To the extent
that the Company raises additional funds through strategic alliance and
licensing arrangements, the Company may be required to relinquish rights to
certain of its technologies or product candidates, or to grant licenses on terms
that are not favorable to the Company, either of which could have a material
adverse effect on the Company's business, financial condition and results of
operations. In the event that adequate funds are not available, the Company's
business would be adversely affected.

RELIANCE ON STRATEGIC PARTNERS

     The Company's strategy for development and commercialization of diagnostic
and therapeutic products based upon its gene discoveries depends upon the
formation of various strategic alliances and licensing arrangements. The Company
has entered into strategic alliances with Roche, Lilly, Astra, Pfizer and PBIO.
There can be no assurance that the Company will be able to establish additional
strategic alliance or licensing arrangements necessary to develop and
commercialize products based upon the Company's disease research programs, that
any such arrangements or licenses will be on terms favorable to the Company, or
that the current or any future strategic alliances or licensing arrangements
ultimately will be successful. The Company is dependent on its strategic
partners for the preclinical study, clinical development, regulatory approval,
manufacturing and marketing of products based on the results of these
collaborative research programs. The agreements with these strategic partners
allow them significant discretion in electing whether to pursue any of these
activities. The Company cannot control the amount and timing of resources its
strategic partners devote to the Company's programs or potential products. If
any of the Company's strategic partners were to breach or terminate its
agreement with the Company or otherwise fail to conduct its collaborative
activities successfully in a timely manner, the preclinical or clinical
development or commercialization of product candidates or research programs
would be delayed or terminated. Any 


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such delay or termination could have a material adverse effect on the Company's
business, financial condition and results of operations.

     The Company relies on its strategic partners for significant funding in
support of its research operations. The Company would be required to devote
additional internal resources to product development, or scale back or terminate
certain development programs or seek alternative collaborative partners, if
funding from one or more of its collaborative programs were reduced or
terminated.

     Disputes may arise in the future with respect to the ownership of rights to
any technology developed with strategic partners. These and other possible
disagreements between strategic partners and the Company could lead to delays in
the collaborative research, development or commercialization of certain product
candidates, or could require or result in litigation or arbitration, which could
be time consuming and expensive, in which case it would have a material adverse
effect on the Company's business, financial condition and results of operations.

     Generally, in each of its strategic alliances, the Company agrees not to
conduct certain research, independently or with any commercial third party, that
is in the same field as the research conducted under the alliance agreement.
Consequently, these arrangements may have the effect of limiting the areas of
research the Company may pursue, either alone or with others. The Company's
strategic partners, however, may develop, either alone or with others, products
that are similar to or competitive with the products that are the subject of the
Company's collaborations with such partners. Competing products, either
developed by a strategic partner or to which the strategic partner has rights,
may result in the partner withdrawing financial and related support for the
Company's product candidates, which could have a material adverse effect on the
Company's business, financial condition and results of operations.

     All of the Company's strategic alliance agreements are subject to
termination under various circumstances. Each strategic partner has the right to
terminate the research program it is funding (while maintaining rights and
licenses to certain Company discoveries) should the Company fail to meet certain
performance criteria specified in the relevant strategic alliance agreement.
Certain of the Company's strategic alliance agreements provide that, upon
expiration of a specified period after commencement of the agreement, its
strategic partner has the right to terminate the agreement on short notice
without cause. The termination of any strategic alliance could have a material
adverse effect on the Company's business, financial condition and results of
operations.

POTENTIAL CONFLICTS OF INTEREST

     The Company has established relationships with strategic partners, research
collaborators and scientific advisors. Conflicts of interest could arise between
the Company and these third parties which, depending upon the nature of such
conflicts, could have a material adverse effect on the Company's business,
financial condition and results of operations.

     The Company relies on its strategic partners for support in its disease
research programs and intends to rely on its strategic partners for preclinical
evaluation and clinical development of its potential products and manufacturing
and marketing of any products. Each of the Company's strategic partners is
conducting multiple product development efforts within each disease area that is
the subject of its strategic alliance with the Company. Generally, in each of
its strategic alliances, the Company's strategic partners may develop, either
alone or with others, products that are similar to or competitive with the
products that are the subject of the Company's collaborations with such
partners. Competing products, either developed by a strategic partner or to
which the strategic partner has rights, may result in the partner withdrawing
financial and related support for the Company's product candidates, which could
have a material adverse effect on the Company's business, financial condition
and results of operations.
 

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     The Company has relationships with collaborators and scientific advisors at
academic and other institutions, some of whom conduct research at the Company's
request, particularly with respect to the Company's human genetics programs.
These collaborators and scientific advisors are not employees of the Company and
may have commitments to, or consulting or advisory contracts with, other
entities that may limit their availability to the Company. As a result, the
Company has limited control over their activities and, except as otherwise
required by its collaboration and consulting agreements, can expect only limited
amounts of their time to be dedicated to the Company's activities.

INTENSE COMPETITION

     Millennium faces, and will continue to face, intense competition from
organizations such as large pharmaceutical, biotechnology and diagnostic
companies, as well as academic and research institutions and government
agencies. The Company is subject to significant competition from organizations
that are pursuing the same or similar technologies as those which constitute the
Company's technology platform and from organizations that are pursuing
pharmaceutical or diagnostic products that are competitive with the Company's
potential products. Most of the organizations competing with the Company have
greater capital resources, research and development staffs and facilities, and
greater experience in drug discovery and development, obtaining regulatory
approvals and pharmaceutical product manufacturing and greater marketing
capabilities than the Company.

     In addition, research in the field of genomics is highly competitive.
Competitors of the Company in the genomics area include, among others, public
companies such as Genome Therapeutics Corporation, Human Genome Sciences, Inc.,
Incyte Pharmaceuticals, Inc., Myriad Genetics, Inc. and Sequana Therapeutics,
Inc., as well as private companies and major pharmaceutical companies.
Universities and other research institutions, including those receiving funding
from the federally funded Human Genome Project, also compete with Millennium. A
number of entities are attempting to rapidly identify and patent randomly
sequenced genes and gene fragments, typically without specific knowledge of the
function of such genes or gene fragments. In addition, certain other entities
are pursuing a gene identification, characterization and product development
strategy based on positional cloning. The Company's competitors may discover,
characterize or develop important genes in advance of Millennium, which could
have a material adverse effect on any related Millennium disease research
program. The Company also faces competition from these and other entities in
gaining access to DNA samples used in its research and development projects. The
Company expects competition to intensify in genomics research as technical
advances in the field are made and become more widely known.

     The Company relies on its strategic partners for support in its disease
research programs and intends to rely on its strategic partners for preclinical
evaluation and clinical development of its potential products and manufacturing
and marketing of any products. Each of the Company's strategic partners is
conducting multiple product development efforts within each disease area that is
the subject of its strategic alliance with the Company. For example, Roche, with
whom the Company is collaborating in the field of obesity, currently has a
product for the treatment of obesity in late stage clinical trials. Generally,
the Company's strategic alliance agreements do not restrict the strategic
partner from pursuing competing development efforts. Any product candidate of
the Company, therefore, may be subject to competition with a potential product
under development by a strategic partner.

PATENTS AND PROPRIETARY RIGHTS; THIRD PARTY RIGHTS

     The Company's commercial success will depend in part on obtaining patent
protection on gene discoveries and on products, methods and services based on
such discoveries. The Company has more than 100 pending United States and
foreign patent applications and has two issued United States patents. The patent
positions of pharmaceutical, biopharmaceutical and biotechnology companies,


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including Millennium, are generally uncertain and involve complex legal and
factual questions. There can be no assurance that any of the Company's pending
patent applications will result in issued patents, that the Company will develop
additional proprietary technologies that are patentable, that any patents issued
to the Company or its strategic partners will provide a basis for commercially
viable products or will provide the Company with any competitive advantages or
will not be challenged by third parties, or that the patents of others will not
have an adverse effect on the ability of the Company to do business. In
addition, patent law relating to the scope of claims in the technology fields in
which the Company operates is still evolving. The degree of future protection
for the Company's proprietary rights, therefore, is uncertain. Furthermore,
there can be no assurance that others will not independently develop similar or
alternative technologies, duplicate any of the Company's technologies, or, if
patents are issued to the Company, design around the patented technologies
developed by the Company. In addition, the Company could incur substantial costs
in litigation if it is required to defend itself in patent suits brought by
third parties or if it initiates such suits.

     The Company has applied for patent protection for novel genes, partial gene
sequences ("ESTs") of novel genes and novel uses for known genes identified
through its research programs. There is substantial uncertainty regarding the
patentability of ESTs or full-length genes absent data demonstrating functional
relevance. Based on recent technological advances in gene sequencing technology,
a number of groups other than the Company are attempting to rapidly identify
ESTs and full-length genes, the functions of which have not been characterized.
Washington University, for example, is currently identifying ESTs through
partial sequencing pursuant to funding provided by Merck & Co., Inc., and
depositing the ESTs identified in a public database. The public availability of
EST information prior to the time the Company applies for patent protection on a
corresponding full-length gene could adversely affect the Company's ability to
obtain patent protection with respect to such gene. To the extent any patents
issue to other parties on such partial or full-length genes, the risk increases
that the potential products and processes of the Company or its strategic
partners may give rise to claims of patent infringement.

     Others may have filed and in the future are likely to file patent
applications covering genes or gene products that are similar or identical to
those of the Company. No assurance can be given that any such patent application
will not have priority over patent applications filed by the Company. Any legal
action against the Company or its strategic partners claiming damages and
seeking to enjoin commercial activities relating to the affected products and
processes could, in addition to subjecting the Company to potential liability
for damages, require the Company or its strategic partner to obtain a license in
order to continue to manufacture or market the affected products and processes.
There can be no assurance that the Company or its strategic partners would
prevail in any such action or that any license required under any such patent
would be made available on commercially acceptable terms, if at all. The Company
believes that there may be significant litigation in the industry regarding
patent and other intellectual property rights. If the Company becomes involved
in such litigation, it could consume a substantial portion of the Company's
managerial and financial resources.

     There is substantial uncertainty concerning whether human clinical data
will be required for issuance of patents for human therapeutics. If such data is
required, the Company's ability to obtain patent protection could be delayed or
otherwise adversely affected. Although the United States Patent and Trademark
Office ("USPTO") issued new utility guidelines in July 1995 that address the
requirements for demonstrating utility for biotechnology inventions,
particularly for inventions relating to human therapeutics, there can be no
assurance that USPTO examiners will follow such guidelines or that the USPTO's
position will not change with respect to what is required to establish utility
for gene sequences and products and methods based on such sequences.
Furthermore, the enactment of the legislation implementing the General Agreement
on Trade and Tariffs has resulted in certain changes to United States patent
laws that became effective on June 8, 1995. Most notably, the term of patent
protection for patent applications filed on or after June 8, 1995 is no longer a
period of seventeen years from the date of grant. The new term of United States
patents will commence on the 


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date of issuance and terminate twenty years from the earliest effective filing
date of the application. Because the time from filing to issuance of
biotechnology patent applications is often more than three years, a twenty-year
term from the effective date of filing may result in a substantially shortened
term of patent protection, which may adversely impact the Company's patent
position. If this change results in a shorter period of patent coverage, the
Company's business could be adversely affected to the extent that the duration
and level of the royalties it is entitled to receive from its strategic partners
is based on the existence of a valid patent.

     The Company relies upon trade secret protection for its confidential and
proprietary information. The Company believes that it has developed proprietary
technology for use in gene discovery, including proprietary genetic marker sets,
proprietary software (including proprietary software for DNA sequence analysis
and laboratory automation) and an integrated bioinformatics system. The Company
has not sought patent protection for these technologies. In addition, the
Company has developed a database of proprietary gene sequences which it updates
on an ongoing basis. The Company has taken security measures to protect its data
and continues to explore ways to further enhance the security for its data.
There can be no assurance, however, that such measures will provide adequate
protection for the Company's trade secrets or other proprietary information.
While the Company requires employees, academic collaborators and consultants to
enter into confidentiality agreements, there can be no assurance that
proprietary information will not be disclosed, that others will not
independently develop substantially equivalent proprietary information and
techniques or otherwise gain access to the Company's trade secrets or disclose
such technology, or that the Company can meaningfully protect its trade secrets.

     The Company's academic collaborators have certain rights to publish data
and information in which the Company has rights. While the Company believes that
the limitations on publication of data developed by its collaborators pursuant
to its collaboration agreements will be sufficient to permit the Company to
apply for patent protection on genes in which it is interested in pursuing
further research, there is considerable pressure on academic institutions to
publish discoveries in the genetics and genomics fields. There can be no
assurance that such publication would not affect the Company's ability to obtain
patent protection for some genes in which it may have an interest.

     The Company is party to various license agreements which give it rights to
use certain technologies in its research and development processes. There can be
no assurance that the Company will be able to continue to license such
technology on commercially reasonable terms, if at all. Failure by the Company
to maintain rights to such technology could have a material adverse effect on
the Company's business, financial condition and results of operations.


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UNCERTAINTIES RELATING TO RETAINED COMMERCIALIZATION RIGHTS

     In each of its strategic alliances, Millennium has retained
commercialization rights for the development and marketing of certain
pharmaceutical and diagnostic products and services. The Company may seek to
exploit these retained rights directly or may seek to develop certain retained
rights through collaborations with others. To date, the Company has not
initiated significant activities with respect to the exploitation of these
retained commercialization rights. The value of these rights, if any, will be
largely derived from the Company's gene identification and target validation
efforts, the success of which is also uncertain. Even if the Company identifies
and characterizes relevant disease genes, the exploitation of retained
commercialization rights requires, in addition to capital resources,
technological, product development, manufacturing, regulatory, marketing and
sales resources that the Company does not currently possess. There can be no
assurance that the Company will be able to develop or obtain such resources. To
the extent that the Company is required to rely on third parties for these
resources, such as Lilly for access to combinational chemistry libraries and
high-throughput screening technology, failure to establish and maintain such
relationships could have a material adverse effect on the Company's ability to
realize value from its retained commercialization rights. If the Company seeks
to exploit retained commercialization rights through joint ventures or strategic
alliances, it may be required to relinquish material rights on terms that may
not be favorable to the Company. No agreements concerning any such arrangements
currently exist, and there can be no assurance that the Company will be able to
enter into any such agreements on acceptable terms, if at all, or that the
Company will be able to realize any value from its retained commercialization
rights.

GOVERNMENT REGULATION; NO ASSURANCE OF REGULATORY APPROVAL

     Prior to marketing, any new drug developed by the Company and its strategic
partners must undergo an extensive regulatory approval process in the United
States and other countries. This regulatory process, which includes preclinical
studies and clinical trials, and may include post-marketing surveillance, of
each compound to establish its safety and efficacy, can take many years and
require the expenditure of substantial resources. Data obtained from preclinical
studies and clinical trials are susceptible to varying interpretations that
could delay, limit or prevent regulatory approval. The rate of completion of
clinical trials is dependent upon, among other factors, the enrollment of
patients. Patient accrual is a function of many factors, including the size of
the patient population, the proximity of patients to clinical sites, the
eligibility criteria for the study and the existence of competitive clinical
trials. Delays in planned patient enrollment in clinical trials may result in
increased costs, program delays or both, which could have a material adverse
effect on the Company. Delays or rejections may also be encountered based upon
changes in United States Food and Drug Administration ("FDA") policies for drug
approval during the period of product development and FDA regulatory review of
each submitted new drug application ("NDA") in the case of new pharmaceutical
agents, or product license application ("PLA") in the case of biologics. Similar
delays also may be encountered in the regulatory approval of any diagnostic
product and in obtaining regulatory approvals in foreign countries. Under
current guidelines, proposals to conduct clinical research involving gene
therapy at institutions supported by the National Institutes of Health ("NIH")
must be approved by the Recombinant DNA Advisory Committee ("RAC") and the NIH.
There can be no assurance that regulatory approval will be obtained for any
drugs or diagnostic products developed by the Company or its strategic partners.
Furthermore, regulatory approval may entail limitations on the indicated use of
a drug. Because certain of the products likely to result from the Company's
disease research programs involve the application of new technologies and may be
based upon a new therapeutic approach, such products may be subject to
substantial additional review by various government regulatory authorities and,
as a result, regulatory approvals may be obtained more slowly than for products
using more conventional technologies.

     Even if regulatory approval is obtained, a marketed product and its
manufacturer are subject to continuing review. Discovery of previously unknown
problems with a product may have adverse effects on the Company's business,
financial condition and results of operations, including withdrawal


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of the product from the market. Violations of regulatory requirements at any
stage, including preclinical studies and clinical trials, the approval process
or post-approval, may result in various adverse consequences to the Company,
including the FDA's delay in approval or refusal to approve a product,
withdrawal of an approved product from the market or the imposition of criminal
penalties against the manufacturer and NDA or PLA holder. The Company has not
submitted an investigational new drug application ("IND") for any product
candidate, and no product candidate has been approved for commercialization in
the United States or elsewhere. The Company intends to rely primarily on its
strategic partners to file INDs and generally direct the regulatory approval
process. No assurance can be given that the Company or any of its strategic
partners will be able to conduct clinical testing or obtain the necessary
approvals from the FDA or other regulatory authorities for any products. Failure
to obtain required governmental approvals will delay or preclude the Company's
strategic partners from marketing drugs or diagnostic products developed by the
Company or limit the commercial use of such products and could have a material
adverse effect on the Company's business, financial condition and results of
operations.

     The Company's research and development activities involve the controlled
use of hazardous materials, chemicals and various radioactive materials. The
Company is subject to federal, state and local laws and regulations governing
the use, storage, handling and disposal of such materials and certain waste
products. Although the Company believes that its safety procedures for handling
and disposing of such materials comply with the standards prescribed by federal,
state and local laws and regulations, the risk of accidental contamination or
injury from these materials cannot be completely eliminated. In the event of
such an accident, the Company could be held liable for any damages that result
and any liability could exceed the resources of the Company.

ETHICAL, LEGAL AND SOCIAL IMPLICATIONS OF GENETIC DIAGNOSTIC TESTING

     The prospect of broadly available diagnostic tests which evaluate genetic
predisposition to disease has raised issues regarding the appropriate
utilization and the confidentiality of information provided by such testing. It
is possible that discrimination by third party payors could occur through the
raising of premiums by such payors to prohibitive levels, outright cancellation
of insurance or unwillingness to provide coverage to patients shown to have a
genetic predisposition to a particular disease. If insurance discrimination were
to become a significant barrier to the acceptance of such diagnostic tests, the
Company could experience a delay in diagnostic market penetration or a reduction
in the size of the potential serviceable market. Similarly, employers could
discriminate against employees with a genetic predisposition due to the
increased risk of developing disease resulting in possible cost increases for
health insurance and the potential for lost employment time. Finally,
governmental authorities could, for social or other purposes, limit the use of
genetic testing or prohibit testing for genetic predispositions to certain
conditions. If efforts by the Company and others to mitigate potential
discrimination are not successful, the Company could experience a delay or
reduction in test acceptance, which could have a material adverse effect on the
Company's or its strategic partners' ability to commercialize certain potential
diagnostic products.

ATTRACTION AND RETENTION OF KEY EMPLOYEES

     The Company is highly dependent on the principal members of its management
and scientific staff. The loss of services of any of these personnel could
impede significantly the achievement of the Company's development objectives.
Furthermore, recruiting and retaining qualified scientific personnel to perform
research and development work in the future will also be critical to the
Company's success. There is intense competition among pharmaceutical and health
care companies, universities and nonprofit research institutions for experienced
scientists, and there can be no assurance that the Company will be able to
attract and retain personnel on acceptable terms. Pursuant to the Lilly
strategic alliance agreements in the atherosclerosis and oncology fields, Lilly
has the right to suspend funded research programs under these agreements upon
the termination of the employment of two or more specified employees of the
Company without replacement reasonably 


<PAGE>   9

acceptable to Lilly.

EXPANSION OF OPERATIONS; MANAGEMENT OF GROWTH

     The Company recently has significantly increased the scale of its
operations to support the expansion of its disease research programs and its
strategic alliances, including expansion due to the acquisition of ChemGenics in
February 1997. The increase has included the hiring of a significant number of
additional personnel. The Company currently employs 400 persons and plans to
hire approximately 100 additional employees by the end of 1997. The resulting
growth in personnel and facilities could place significant strains on the
Company's management, operations and systems.

DEPENDENCE ON RESEARCH COLLABORATORS AND SCIENTIFIC ADVISORS

     The Company has relationships with collaborators at academic and other
institutions who conduct research at the Company's request, particularly with
respect to the Company's human genetics programs. Such collaborators are not
employees of the Company. All of Millennium's consultants are employed by
employers other than the Company and may have commitments to, or consulting or
advisory contracts with, other entities that may limit their availability to the
Company. As a result, the Company has limited control over their activities and,
except as otherwise required by its collaboration and consulting agreements, can
expect only limited amounts of their time to be dedicated to the Company's
activities. The Company's ability to discover genes involved in human disease
and commercialize products based on those discoveries may depend in part on
continued collaborations with researchers at academic and other institutions.
There can be no assurance that the Company will be able to negotiate additional
acceptable collaborations with collaborators at academic and other institutions
or that its existing collaborations will be successful.

     The Company's research collaborators and scientific advisors sign
agreements which provide for confidentiality of the Company's proprietary
information and results of studies. There can be no assurance, however, that the
Company will be able to maintain the confidentiality of its technology and other
confidential information in connection with every collaboration, and any
unauthorized dissemination of the Company's confidential information could have
an adverse effect on the Company's business.

UNCERTAINTY OF PHARMACEUTICAL PRICING, REIMBURSEMENT AND RELATED MATTERS

     The Company's business, financial condition and results of operations may
be materially adversely affected by the continuing efforts of government and
third party payors to contain or reduce the costs of health care through various
means. For example, in certain foreign markets pricing and profitability of
prescription pharmaceuticals are subject to government control. In the United
States, the Company expects that there will continue to be a number of federal
and state proposals to implement similar government control. In addition,
increasing emphasis on managed care in the United States will continue to put
pressure on the pricing of pharmaceutical products and diagnostic tests. Cost
control initiatives could decrease the price that the Company or any of its
strategic partners receives for any products in the future and have a material
adverse effect on the Company's business, financial condition and results of
operations. Further, to the extent that cost control initiatives have a material
adverse effect on the Company's strategic partners, the Company's ability to
commercialize its products and to realize royalties may be adversely affected.

     The ability of the Company and any strategic partner to commercialize
pharmaceutical or diagnostic products may depend in part on the extent to which
reimbursement for the products will be available from government and health
administration authorities, private health insurers and other third party
payors. Significant uncertainty exists as to the reimbursement status of newly
approved health care products. Third party payors, including Medicare,
increasingly are challenging the prices charged for medical products and
services. Government and other third party payors are increasingly 



<PAGE>   10

attempting to contain health care costs by limiting both coverage and the level
of reimbursement for new therapeutic products and by refusing in some cases to
provide coverage for uses of approved products for disease indications for which
the FDA has not granted labeling approval. There can be no assurance that any
third party insurance coverage will be available to patients for any products
discovered and developed by the Company or its strategic partners. If adequate
coverage and reimbursement levels are not provided by government and other third
party payors for the Company's products, the market acceptance of these products
may be reduced, which may have a material adverse effect on the Company's
business, financial condition and results of operations.

PRODUCT LIABILITY EXPOSURE

     Clinical trials, manufacturing, marketing and sale of any of the Company's
or its strategic partners' potential pharmaceutical products may expose the
Company to liability claims from the use of such pharmaceutical products. The
Company currently does not carry product liability insurance. There can be no
assurance that the Company or its strategic partners will be able to obtain such
insurance or, if obtained, that sufficient coverage can be acquired at a
reasonable cost. An inability to obtain sufficient insurance coverage at an
acceptable cost or otherwise to protect against potential product liability
claims could prevent or inhibit the commercialization of pharmaceutical products
developed by the Company or its strategic partners. A product liability claim or
recall could have a material adverse effect on the business or financial
condition of the Company. While under certain circumstances the Company is
entitled to be indemnified against losses by its strategic partners, there can
be no assurance that this indemnification would be available or adequate should
any such claim arise.

POTENTIAL ADVERSE EFFECT OF ANTI-TAKEOVER PROVISIONS

     Provisions of the Company's Restated Certificate of Incorporation (the
"Restated Certificate") require that any action required or permitted to be
taken by stockholders of the Company must be effected at a duly called annual or
special meeting of stockholders and may not be effected by any consent in
writing. Special meetings of stockholders may be called only by the Chief
Executive Officer or, if none, the President of the Company or by the Board of
Directors. The Restated Certificate provides for a classified Board of
Directors, and members of the Board of Directors may be removed only for cause
upon the affirmative vote of holders of at least two-thirds of the shares of
capital stock of the Company entitled to vote. The Company's Board of Directors
is authorized to issue up to 5,000,000 shares of Preferred Stock and to
determine the price, rights, preferences and privileges of those shares without
further vote or action by the Company's stockholders. The rights of the holders
of Common Stock will be subject to, and may be adversely affected by, the rights
of the holders of any shares of Preferred Stock that may be issued in the
future. While the Company has no current intention to issue shares of Preferred
Stock, any such issuance could have the effect of making it more difficult for a
third party to acquire a majority of the outstanding voting stock of the
Company. In addition, any such Preferred Stock may have other rights, including
economic rights senior to the Common Stock, and, as a result, the issuance
thereof could have a material adverse effect on the market value of the Common
Stock. Furthermore, the Company is subject to anti-takeover provisions of
Section 203 of the Delaware General Corporation Law, which prohibits the Company
from engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
first becomes an `interested stockholder," unless the business combination is
approved in a prescribed manner. The application of Section 203 also could have
the effect of delaying or preventing changes of control or management of the
Company, which could adversely affect the market price of the Company's Common
Stock. These provisions, and other provisions of the Restated Certificate, may
have the effect of deterring hostile takeovers or delaying or preventing changes
in control or management of the Company, including transactions in which
stockholders might otherwise receive a premium for their shares over then
current market prices. In addition, these provisions may limit the ability of
stockholders to approve transactions that they may deem to be in their best
interests.

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POSSIBLE VOLATILITY OF STOCK PRICE

     The trading price of the Company's Common Stock could be subject to
significant fluctuations in response to announcements of results of research
activities, technological innovations or new commercial products by the Company
or its competitors, changes in government regulations, regulatory actions,
changes in patent laws, developments concerning proprietary rights, quarterly
variations in operating results, litigation or other events. The stock market
has from time to time experienced extreme price and volume fluctuations that
have affected particularly the market prices for biotechnology companies and
that often have been unrelated to the operating performance of such companies.
These broad market fluctuations may adversely affect the market price of the
Company's Common Stock.

ABSENCE OF DIVIDENDS

     The Company has never paid dividends and does not intend to pay any
dividends for the foreseeable future.