As filed with the Securities and Exchange Commission on June 29, 2001
===============================================================================

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                   FORM 20-F
                                  ------------

    (Mark One)

    |_|  REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE
         SECURITIES EXCHANGE ACT OF 1934

    |X|  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934

      For the fiscal year ended: December 31, 2000

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

                         Commission file number 0-28526

                                     GENSET

             (Exact name of Registrant as specified in its charter)
<TABLE>
<CAPTION>
<S>                                   <C>                    <C>
          Not applicable                                           France
 (Translation of Registrant's name      24, rue Royale        (Jurisdiction of
           into English)                  75008 Paris         incorporation or
                                            France              organization)
</TABLE>


                    (Address of principal executive offices)

    Securities registered or to be registered pursuant to Section 12(b) of the
Act.
<TABLE>
<CAPTION>
<S>                                               <C>
             Title of each class:                    Name of each exchange on
             --------------------                        which registered:
                                                         -----------------
          American Depositary Shares,                 Nasdaq National Market
  each representing one-third of one Ordinary
                     Share
        nominal value 3 euros per share
  Ordinary Shares, nominal value 3 euros per          Nasdaq National Market
                    share*
</TABLE>

---------------

*   Approved for listing (not for trading), but only in connection with the
    registration of the American Depositary Shares pursuant to the
    requirements of the Nasdaq National Market.

    Securities registered or to be registered pursuant to Section 12(g) of the
    Act. None

    Securities for which there is a reporting obligation pursuant to Section
    15(d) of the Act. None

    Indicate the number of outstanding shares of each of the issuer's classes
    of capital or common stock as of the close of the period covered by the
    annual report:

           Ordinary Shares, nominal value euro 3 per share: 8,104,850

    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 which financial statement item the Registrant has
elected to follow.

                           Item 17 |_|   Item 18 |X|
===============================================================================

<PAGE>
                               TABLE OF CONTENTS


<TABLE>
<CAPTION>
                                                                            Page
                                                                            ----
<S>                                                                       <C>
Introduction..........................................................         1
Cautionary Statement Regarding Forward-Looking Statements.............         1
                                     PART I
Item 1.      Identity of Directors, Senior Management and Advisers....         2
Item 2.      Offer Statistics and Expected Timetable..................         2
Item 3.      Key Information..........................................         3
Item 4.      Information on Genset....................................        11
Item 5.      Operating and Financial Review and Prospects.............        37
Item 6.      Directors, Senior Management and Employees...............        43
Item 7.      Major Shareholders and Related Party Transactions........        52
Item 8.      Financial Information....................................        53
Item 9.      The Offer and Listing....................................        55
Item 10.     Additional Information...................................        59
Item 11.     Quantitative and Qualitative Disclosures About Market
             Risk.....................................................        77
Item 12.     Description of Securities other than Equity Securities...        78
                                     PART II
Item 13.     Defaults, Dividend Arrearages and Delinquencies..........        78
Item 14.     Material Modifications to the Rights of Security Holders
             and Use of Proceeds......................................        78
                                    PART III
Item 15.     [Reserved.]..............................................        79
Item 16.     [Reserved.]..............................................        79
Item 17.     Financial Statements.....................................        79
Item 18.     Financial Statements.....................................        79
Item 19.     Exhibits.................................................        80
</TABLE>



                                      (i)


<PAGE>
                                  Introduction


    Genset's consolidated financial statements that form part of this Annual
Report on Form 20-F are presented in euros and prepared in accordance with
generally accepted accounting principles in the United States ("U.S. GAAP").

    Solely for the convenience of the reader, this Annual Report contains
translations of certain euro amounts into U.S. dollars at specified rates.
These translations should not be construed as representations that euro
amounts represent such U.S. dollar amounts or could be converted into U.S.
dollars at the rates indicated or at any other rate. Unless otherwise stated,
the translations of euros into U.S. dollars have been made at the rate of 1.07
euros to $1.00, or $0.9388 to 1.00 euro, the noon buying rate in New York City
for cable transfers in euros as certified for customs purposes by the Federal
Reserve Bank of New York (the "Noon Buying Rate") on December 29, 2000.

    All references herein to "United States" are to the United States of
America, references to "U.S. dollars," "U.S. $," "$" or "cents" are to the
currency of the United States, references to "France" are to the Republic of
France, references to "French francs," "francs" or "FF" are to the currency of
France, and references to "euro" or "euros" are to the common currency of the
twelve countries of the European Union.



           Cautionary Statement Regarding Forward-Looking Statements

    This Annual Report contains certain forward-looking statements that
involve risks and uncertainties relating to our future financial and
technological performance. Such statements are based on our current
expectations and are subject to a number of factors and uncertainties that
could cause actual results to differ materially from those described in the
forward-looking statements. In evaluating such statements, readers should
specifically consider factors which could affect expected results, including,
but not limited to, those highlighted in the relevant sections hereof and
principally:

   o the uncertainties inherent in scientific research and pharmaceutical
     product development in a field subject to intense competition, and in
     particular the risk that we will be unable to discover and patent
     valuable targets and drug candidates in the fields we have selected
     before our competitors, and that we will be unsuccessful in moving the
     drug candidates we do discover through the development process;

   o the inability to license out the products we do develop to appropriate
     partners on commercially acceptable terms; and

   o delays or difficulties in developing or acquiring at reasonable costs the
     technologies and technical and managerial personnel required to conduct
     our research programs and implement our new strategy to move from gene to
     drug.

    Readers are cautioned not to place undue reliance on such statements,
which speak only as of the date of this Annual Report. We undertake no
obligation to release publicly any revisions to forward-looking statements to
reflect any changes in events, conditions or circumstances on which such
statements are based.


                                       1

<PAGE>
                                     PART I


         Item 1. Identity of Directors, Senior Management and Advisers

                                Not applicable.

                Item 2. Offer Statistics and Expected Timetable

                                Not applicable.


                                       2

<PAGE>
                            Item 3. Key Information

Selected financial data

    The selected consolidated financial data set forth below should be read in
conjunction with our Consolidated Financial Statements and the Notes thereto
appearing elsewhere in this Annual Report and with the section entitled "Item
5. Operating and Financial Review and Prospects." The selected consolidated
financial data for the five years ended December 31, 1996, 1997, 1998, 1999
and 2000 have been extracted or derived from our Consolidated Financial
Statements, which have been prepared in accordance with U.S. GAAP and audited
by Ernst & Young Audit, France, independent auditors.

<TABLE>
<CAPTION>

                                                                                     Year Ended and at December 31,
                                                                      -------------------------------------------------------------
                                                                       1996      1997       1998       1999      2000        2000
                                                                       ----      ----       ----       ----      ----        ----
                                                                                           Euros                          U.S. $(1)
                                                                                  (in thousands, except per share data)
<S>                                                                  <C>        <C>       <C>        <C>        <C>       <C>
Consolidated Statement of Operations
Data:
Research and development revenues ................................     2,460      9,792    21,297     19,406     17,346     16,285
Net sales ........................................................     4,943      5,253     5,614      8,290     12,481     11,717
                                                                     -------    -------   -------    -------    -------    -------
 Total Revenues ..................................................     7,403     15,045    26,911     27,696     29,827     28,002
                                                                     -------    -------   -------    -------    -------    -------
Research and development expenses ................................   (13,416)   (23,225)  (33,732)   (42,423)   (42,301)   (39,712)
Cost of goods sold ...............................................    (3,262)    (3,165)   (2,667)    (3,457)    (7,620)    (7,154)
Selling and marketing expenses ...................................      (727)    (1,112)   (1,229)    (1,462)    (2,452)    (2,302)
General and administrative expenses ..............................    (4,705)    (7,003)   (8,689)   (10,513)   (13,675)   (12,838)
                                                                     -------    -------   -------    -------    -------    -------
 Total operating Expenses ........................................   (22,110)   (34,505)  (46,317)   (57,855)   (66,048)   (62,006)
                                                                     -------    -------   -------    -------    -------    -------
 Loss from operations ............................................   (14,707)   (19,460)  (19,406)   (30,159)   (36,221)   (34,004)
                                                                     -------    -------   -------    -------    -------    -------
Interest income (expense), net ...................................     1,406      1,914     1,709        818        345        324
Foreign exchange gain (loss) .....................................        45        296      (889)     2,984       (296)      (278)
Other income (expense) net .......................................         9         23     1,180       (603)       103         97
 Loss before income
  tax benefit.....................................................   (13,248)   (17,227)  (17,406)   (26,960)   (36,069)   (33,861)
                                                                     -------    -------   -------    -------    -------    -------
Income tax benefit ...............................................     3,326      2,919     2,687      4,945      2,405      2,258
Minority interest ................................................                              2        (95)       (93)       (87)
Cumulative effect before change ..................................                                                 (628)      (589)
 Net loss ........................................................    (9,922)   (14,308)  (14,717)   (22,110)   (34,385)   (32,279)
                                                                     -------    -------   -------    -------    -------    -------
Loss per share ...................................................     (1,78)     (2,06)    (2,02)     (2,97)     (4,35)     (4,08)
Weighted average of shares
Outstanding ......................................................     5,581      6,932     7,293      7,452      7,910      7,910
Loss per ADS (American
 Depositary Share) ...............................................     (0,59)     (0,69)    (0,67)     (0,99)     (1,45)     (1,36)
Weighted average of ADSs
 Outstanding .....................................................    16,743     20,796    21,879     22,356     23,730     23,730
Consolidated Balance Sheet
Data:
Cash and cash equivalents ........................................    79,086     70,346    50,204     21,148     67,752     63,605
Total assets  ....................................................   101,018    102,890   101,594     80,946    131,531    123,483
Long-term liabilities
 (excluding current portion) .....................................     6,425      6,253     7,675      4,927     60,518     56,816
Accumulated Deficit ..............................................   (22,904)   (37,212)  (30,659)   (52,769)   (87,154)   (81,820)
Shareholders' equity .............................................    85,439     84,234    75,243     54,628     50,370     47,287
</TABLE>


    See Notes to Consolidated Financial Statements

    Certain prior year amounts have been reclassified to conform to the
current year presentation.
---------------

(1) The financial information expressed in US $ is presented solely for the
    convenience of the reader and is translated from euros at the Noon Buying
    Rate in New York on December 29, 2000 which was US$ 0.9388 for each euro.


                                       3

<PAGE>
Exchange rate information

    Under the provisions of the Treaty on European Union signed by the then 12
member states of the European Union in early 1992, a European Monetary Union,
known as the EMU, was implemented on January 1, 1999, and a single European
currency, known as the euro, was introduced. The following member states
participate in the EMU and have adopted the euro as their national currency:
Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the
Netherlands, Portugal, Spain and, since January 1, 2001, Greece. The legal
rate of conversion between French francs and euros was established on January
1, 1999 at FF 6.55957 = 1.00 euro.

    Since January 1, 1999, the euro has been the lawful currency of the EMU
states. Euro banknotes and coins are expected to enter circulation starting
January 1, 2002. New public debt will be issued in euros and outstanding
obligations denominated in national currencies have been converted at the
legal rates established on January 1, 1999 (unless specific contracts provide
for an alternative conversion rate). During a limited period of time, which is
planned to begin on January 1, 2002 and end at the latest by July 1, 2002,
national currencies, including banknotes and coins, will subsist as non-
decimal denominations of the newly introduced euro banknotes and coins. By
July 1, 2002 at the latest, national currencies will be completely withdrawn.
There can be no assurance that these events will take place on time or
otherwise as currently expected.

    The following table sets forth, for the periods and dates indicated,
certain information concerning the Noon Buying Rate in New York City for cable
transfers for foreign currencies as certified for customs purposes by the
Federal Reserve Bank of New York expressed in French francs per $ 1.00 or U.S.
dollars per 1.00 euro, as the case may be. These rates are provided solely for
the convenience of the reader. No representation is made that French francs or
euros could have been, or could be, converted into U.S. dollars at these rates
or any other rate. January 15, 1999 was the last day that the Federal Reserve
Bank of New York published Noon Buying Rates for French francs.

<TABLE>
<CAPTION>

                                                      French francs per $ 1.00                      U.S. dollars per euro
                                             ------------------------------------------    ----------------------------------------
                                            Year/period    Average                        Year/period    Average
                                              end rate     rate(1)     High       Low       end rate     rate(1)     High      Low
                                            -----------    -------   -------    -------   -----------    -------    ------   ------
<S>                                         <C>            <C>       <C>        <C>       <C>            <C>        <C>      <C>
Yearly amounts
1996 ....................................     FF 5.19      FF 5.12   FF 5.29    FF 4.90          --           --        --       --
1997 ....................................        6.02         5.84      6.35       5.19          --           --        --       --
1998 ....................................        5.59         5.90      6.21       5.39          --           --        --       --
1999 ....................................     FF 6.51      FF 6.20   FF 6.54    FF 5.55      $ 1.01       $ 1.06    $ 1.18   $ 1.00
2000(2) .................................                                                      0.94         0.92      1.03     0.83
Monthly amounts
December 2000 ...........................          --           --        --         --        0.94         0.90      0.94     0.88
January 2001 ............................          --           --        --         --        0.93         0.94      0.95     0.92
February 2001 ...........................          --           --        --         --        0.92         0.92      0.94     0.91
March 2001 ..............................          --           --        --         --        0.88         0.91      0.93     0.88
April 2001 ..............................          --           --        --         --        0.89         0.89      0.90     0.88
May 2001  ...............................          --           --        --         --        0.85         0.88      0.89     0.85
June 2001 (through
  June 22)...............................          --           --        --         --       $0.86        $0.85     $0.86    $0.84
</TABLE>

---------------

(1) The average of the Noon Buying Rates on the last business day of each
    month during the relevant period.

(2) January 15, 1999 was the last day that the Federal Reserve Bank of New
    York published Noon Buying Rates for the French franc.


                                       4

<PAGE>
    Fluctuations in the exchange rate between the euro and the U.S. dollar
will affect the U.S. dollar equivalent of the euro-denominated prices of the
shares and, as a result, will affect the market price of the ADSs in the
United States. In addition, exchange rate fluctuations will affect the U.S.
dollar equivalent of any cash dividends received by holders of ADSs.

    For a discussion of the impact of exchange rate fluctuations on our
results of operations, see "Item 11. Quantitative and Qualitative Disclosures
about Market Risk -- Currency exchange rate sensitivity."

Risk factors

    In addition to the other information contained in this Annual Report,
prospective investors should consider carefully the risks described below. The
risks described below are not the only ones we are facing. Additional risks
not currently known to us or that we currently deem immaterial may also impair
our business operations. Our business, financial condition or results of
operations could be materially adversely affected by any of these risks.

Risks relating to the genomics industry

The use of genomic information to develop or commercialize products is
unproven.

    Few therapeutic or diagnostic products based on genomic discoveries have
been developed and commercialized and to date no one has developed or
commercialized any therapeutic or diagnostic products based on our
technologies. Ultimately, the success of our business will depend upon our
ability or that of our strategic partners to develop and commercialize
products based on our genomic discoveries.

The genomics industry is highly competitive and we may be unable to compete
successfully.

    An increasing number of research-based organizations are attempting to
rapidly identify and patent genes involved in common diseases. Direct
competitors include several companies based principally in the United States,
that are focused on generating a pipeline of drug candidates based on their
genomic research. Competition in this field is intense and we expect it to
continue to increase over the next 3-4 years.

    Several of our direct competitors were ahead of us in changing their
strategy from generating genomic information under funded research contracts
for the account of pharmaceutical company clients to generating novel drug
targets and candidates for their own account. Many of these direct competitors
have significantly greater research and product development capabilities and
financial, scientific, marketing and human resources than we do. Several
already have drug candidates in clinical trials, whereas our most advanced
product is at the pre-clinical stage.

    We also face competition from other genomics companies, universities and
non-profit research institutions involved in identifying and characterizing
genes, which they either disclose publicly or patent and license to
biotechnology or pharmaceutical companies. In addition, many pharmaceutical
companies are developing genomic research capabilities in-house. More
generally, we also face competition from all other entities involved in
discovering new drugs. These competitors may identify genes or develop drugs
and obtain regulatory approval for these products before we or our strategic
partners do. They may also develop products that are more effective, safer or
less expensive than those developed using our genomic discoveries.


                                       5

<PAGE>
Rapid technological changes in the genomics industry may make our technologies
and discoveries less attractive or obsolete.

    Genomic, biotechnology and pharmaceutical technologies have undergone and
are expected to continue to undergo rapid and significant change. Our future
success will depend in large part on our ability to respond quickly and
successfully to these changes. Rapid technological development may render our
technologies less competitive or obsolete and we may not be able to make the
necessary enhancements to our technology to compete successfully with newly
emerging technologies. Technological developments may also make our genomic
discoveries less attractive or result in alternative or superior products
before we or our strategic partners are able to commercialize products based
on our discoveries and recover the expenses incurred in connection with their
development.

Obtaining effective legal protection for our intellectual property is
difficult, expensive and uncertain.

    Our commercial success depends, in part, on our ability to obtain
effective patent protection for the inventions resulting from our genomic
research programs, as well as for the technologies we develop to support our
research. The patent positions of biotechnology companies, including our
company, are generally uncertain and involve complex legal, scientific and
factual questions. As a result, we may be unable to obtain effective patent
protection to prevent others from using our inventions or proprietary
technologies. The risks and uncertainties that we face with respect to our
patents and other proprietary rights include the following:

   o the pending patent applications we have filed or to which we have
     exclusive rights may not be granted or may take longer than we expect to
     be granted;

   o the scope of patents granted to us may not be broad enough to effectively
     prevent others from using our genomic inventions or technologies;

   o because patent applications in the United States, Europe and elsewhere
     may be maintained in secrecy for 18 months from the filing of the first
     application or priority application, others may have filed patent
     applications covering technologies we use or genomic inventions for which
     we have pending patent applications, without us being aware of such
     applications, thus increasing the risks of future litigation;

   o others may challenge, invalidate, circumvent or infringe patents licensed
     or granted to us or our strategic partners;

   o we may not be able to negotiate the acquisition of licenses on
     commercially reasonable terms to use the inventions or technologies
     covered by patents granted to third parties; and

   o if patent laws or the interpretation of patent laws change, our patent
     strategy may prove inadequate and our patent strategy regarding our
     intellectual property position relative to that of our competitors may be
     weakened.

We may become involved in patent litigation or other proceedings regarding our
intellectual property rights which could be expensive, time consuming and
prevent us from commercializing our discoveries.

    There has been substantial litigation regarding patent and trade secret
rights in the pharmaceutical and biotechnology industries. Situations in which
we may become involved in patent and trade secret litigation or other
proceedings to establish intellectual property rights include the following:

   o we believe that some genes and technologies for which we have filed
     patent applications are also claimed in patent applications filed by
     others. We expect that we will have to participate in negotiations or
     legal proceedings to determine the priority of these inventions;

   o we may initiate litigation or other legal proceedings against third
     parties to enforce our intellectual property rights or our licensed
     intellectual property rights;

   o we may initiate litigation or other proceedings against third parties to
     seek to invalidate the patents they hold or to obtain a judgment that our
     genomic inventions or


                                       6

<PAGE>
        technologies do not infringe their patents; and

   o if third parties initiate litigation or other proceedings claiming that
     our genomic inventions or technologies infringe their patents or result
     from the unauthorized use of their trade secrets, we will need to defend
     ourselves against such claims.

    Patent litigation and other proceedings to establish intellectual property
rights will require significant management time, and their cost to us, even if
resolved in our favor, could be prohibitive. Some of our competitors may be in
a better position to sustain the cost of such litigation or proceedings
because of their substantially greater financial resources. Uncertainties
resulting from the initiation and continuation of patent litigation or other
proceedings could significantly harm our ability to commercialize our
discoveries.

If we are unable to protect our trade secrets, others may be able to use them
and our competitive position will be damaged.

    We rely on trade secret protection methods, notably confidentiality
agreements and physical and computer security measures, to protect our
interests in proprietary know-how that is not patentable or for which patents
are difficult to enforce or too expensive. Any unauthorized or unintended
disclosure of confidential data into the public domain or to third parties
could negatively impact our competitive position and harm our business.
Several elements of our integrated technology platform involve proprietary
technologies or know-how that are not covered by a patent or patent
application, including our sequencing process control, sequence verification
software, certain statistical analysis methods, and other bioinformatic tools.
Our databases of genomic information are protected through both physical and
computer security measures. We also require all employees, academic
collaborators and consultants to enter into confidentiality or non-disclosure
agreements. These agreements may however be breached and we may not have
adequate remedies for any breach. In addition, our competitors may otherwise
gain access to our trade secrets or develop them independently.

The development and marketing of drugs and diagnostic products are subject to
regulations that could delay or prevent their commercialization and thus our
ability to generate revenues from products developed based on our discoveries.

    The development and marketing of drugs and diagnostic products is subject
to strict regulatory controls on the development, clinical testing,
manufacture, labelling, storage, supply, distribution and marketing of these
products. Of particular importance is the requirement, in most countries, to
obtain and maintain regulatory approval to market pharmaceutical products. The
process of obtaining required regulatory approvals is expensive and lengthy,
typically taking a number of years. The approval process for products
developed from genomics research may take even longer because they involve new
technologies. We and the strategic partners with which we work to develop and
market products based on our discoveries may not obtain the required
regulatory approvals in a timely manner, or at all. Any delay in obtaining, or
the failure to obtain, such approvals would adversely affect our ability to
generate revenues from these products. Even if required regulatory approvals
are obtained, the manufacturing and marketing of drugs and diagnostic products
are subject to continuing regulatory review, and later discovery of previously
unknown problems with a product, manufacturer or facility may result in
restrictions on the product or manufacturer, including withdrawal of the
product from the market. Furthermore, each regulatory authority may impose its
own requirements and may refuse to grant, or may require additional data
before granting, an approval even though another authority has approved the
relevant product. France and other European countries and the United States
have very high standards of technical appraisal and consequently, in most
cases, a lengthy approval process for pharmaceutical products. The trend in
recent years has been towards greater regulation and higher standards.


                                       7

<PAGE>
Ethical, legal and social issues related to the use of genetic information and
genetic testing may reduce the demand for products based on our discoveries.

    Genetic testing has raised issues regarding confidentiality and the
appropriate use or lack thereof, of the resulting information. For example,
concerns have been expressed regarding the ability of insurers or employers to
discriminate based on the results of genetic tests. There is also significant
public concern relating to the types of genetic tests that should be allowed
and the ethical issues surrounding the use of the results of these tests.
These concerns may result in decreased public demand for genetic tests or in
government regulation limiting the use of genetic testing or prohibiting
testing for genetic predisposition to certain diseases, particularly those
that have no known cure. Any of these scenarios could reduce the potential
markets for diagnostic products based on our genomic discoveries.

Risks relating to our Company

We engaged in a new strategy which resulted in a considerable decrease in
revenues at the end of 2000 and in 2001, and we are unable to guarantee that
these revenues will significantly increase in 2002.

    Under our new strategy, we will no longer enter into limited gene
discovery, pharmacogenomics or service agreements for the benefit of others.
This change in strategy has and will continue to have a major impact on the
amount and timing of revenues. Our revenues have decreased significantly as
the new strategy was implemented, thus resulting in an increased operating
loss. Future revenues from our research will be tied to the licensing of
rights to targets and products we have discovered, in addition to the final
marketing of the products based on our discoveries. There can be no assurance
that we will be successful in constituting our own commercially viable
pipeline of drug targets and candidates, or in entering into these new types
of revenue generating agreements.

We may not be able to secure adequate funding for our future needs.

    Our comprehensive approach to genomic research has required us to
establish a substantial scientific infrastructure. We have made significant
cash investments to date and expect to continue to do so over the next several
years. Based on our current plans, we believe our existing resources, will be
sufficient to fund our capital requirements until June 2002. However, the
actual amounts of funds we will need during that period will depend on many
factors, some of which are beyond our control, and we may need funds sooner
than we currently anticipate. We may seek between now and June 2002, funding
through public or private equity offerings or debt financings. This additional
financing may not be available when needed, or, if available, may not be
available on favorable terms.

We currently have only one drug candidate, Famoxin, whose pre-clinical and
clinical development, like that of all innovative products, is subject to many
risks.

    The development and marketing of any innovative drug requires the
implementation of a number of research studies involving first animals, then
healthy volunteers and finally patients. The goal of such studies is to
demonstrate a long-term positive effect of the drug and its safety. The
potential difficulties linked to the development of Famoxin are inherent to
all drugs resulting from genetic engineering. The most probable difficulties
will relate to the mass production of the best possible quality of the drug in
terms of purity and stability, the determination of a suitable formulation and
the possibility of antigenic reactions. Furthermore, the biological and
biochemical effects of prolonged oxidation of fatty acids on skeletal muscles
and liver and cardiovascular tissues will need to be studied in depth. The
therapeutic qualities of Famoxin will have to correspond to the standards
defined by the health authorities who consider that weight loss resulting from
treatment against obesity must maintain itself over a long period of time. For
genetic reasons, Famoxin may display such results in a limited number of
responsive subjects, which could significantly reduce the proportion of the
population that may be treated. Finally, the market for obesity drugs will be
very competitive in the coming years; the production cost of Famoxin will need
to be comparable with that of other available treatments and proportional to
its effectiveness.


                                       8

<PAGE>
    Given that the great majority of drug candidates at a similar development
stage as Famoxin, and in particular those that are innovative, do not
successfully pass all the steps necessary for develoment and
commercialization, there is a significant chance we may not be able to
overcome the various risks linked to the development of Famoxin. This would
considerably delay our first potential source of significant revenues until we
discover and develop other drug candidates.

If our technological approach is not successful, we may not be able to
discover and characterize genes before others do.

    Both we and the general scientific and medical communities have a limited
understanding of the role of genes in the complex diseases we are studying.
Our association studies approach and technology platform may not enable us to
successfully identify and characterize medically useful genes better or more
quickly than our competitors. Our competitors' approach or technologies may
enable them to identify genes associated with the diseases we are targeting
before we do or to identify genes that are better suited to quickly developing
effective pharmaceutical products.

We are highly dependent on key employees. If we lose or are unable to attract
and retain qualified personnel, our operations will be seriously disrupted.

    We are highly dependent on the principal members of our management and
scientific staff. The loss of any of these persons' expertise would be
difficult to replace and could seriously disrupt our operations. The departure
of the director of our metabolic research team in February 2001 significantly
affected our share price and our operations. Furthermore, our future success
will also depend on our ability to recruit and retain qualified scientific
personnel. We may not be able to do so given the intense competition among
biotechnology, pharmaceutical and health care companies, universities and non-
profit research institutions for experienced scientists and managers.

We are dependent upon a number of strategic partners.

    We do not have sufficient resources or know-how to develop and market
ourselves drugs based upon our gene discoveries. In addition, it is unlikely
that drugs other than those based upon small molecules will be effectively
treat diseases related to the central nervous system (CNS), and we do not have
the ability to discover and develop such small molecules. Therefore, we must
rely upon suitable strategic partners to develop and market drugs. We may not
succeed in negotiating agreements with suitable strategic partners on
financially acceptable terms. In any case, our success will depend upon that
of our strategic partners, who are subject to intense competition both
externally in relation to other programs targeting the same disease, and
internally in relation to their other programs and priorities.

If our strategic partners are unsuccessful in developing and commercializing
products based on our research results, we will be unable to generate
sufficient revenues and our business will suffer as a result.

    Once we have delivered targets or drug candidates to our partners, they
must conduct many years of further development, including extensive clinical
studies, before they can commercialize any products based on these results. In
addition, the development and commercialization of pharmaceutical products
(drugs or diagnostic products) will be subject to numerous risks including the
possibility that:

   o any drug or diagnostic product will be found to be ineffective or unsafe,
     or otherwise fail to receive necessary regulatory clearances;

   o the drugs or diagnostic products, even if effective and safe, will be
     difficult to manufacture on a large scale or uneconomical to market;

   o proprietary rights of third parties will preclude the marketing of these
     products; and

   o third parties will market similar or superior products.


                                       9

<PAGE>
The commercial viability of a drug may depend on the level of reimbursement by
health care organizations.

    The commercial success of drugs depends in large part on the degree to
which they are reimbursed by governments, private health care coverage
insurers and other organizations. Governments and other third-party payers
continually attempt to contain or reduce health care costs by limiting both
coverage and the level of reimbursement for new drugs. If adequate coverage
and reimbursement levels are not provided by government and third-party payers
for products resulting from our genomic discoveries, the market acceptance of
these products would be adversely affected, thereby limiting our ability to
generate revenues from these sales.

We may not be able to obtain DNA samples required for our genomic research
programs.

    We use large numbers of DNA samples, and other biological samples, for our
research activities. The collections of DNA samples, other biological samples,
and related clinical data necessary to conduct genetic studies are compiled by
academic institutions, research organizations and doctors through time-
consuming clinical research programs. Competition for appropriate collections
of DNA samples and related clinical data is intense, and we may not be able to
obtain or maintain access to such collections on commercially reasonable
terms. In addition, increasing public scrutiny of biotechnology research
generally, and genomic research in particular, is leading to additional
regulation of both the collection and use of DNA samples and clinical data. If
our ability to obtain and use DNA samples and related clinical data is
limited, we may not be able to conduct our programs.

We rely on a limited number of suppliers for the raw materials required for
the production of synthetic DNA

    We are dependent on a limited number of suppliers for the chemical raw
materials or reagents required for the production of synthetic DNA, as well as
for our research activities. These reagents represent a significant cost for
us, and an increase in their cost resulting for example from a decrease in
competition between the suppliers, may adversely affect our results.

Volatility of our stock price.

    The market price of our shares has been and is likely to continue to be
volatile due to the risks and uncertainties described in these risk factors,
as well as other factors, including:

   o developments in, and public opinion regarding, the genomics industry or
     life sciences industries generally;

   o sales of substantial amounts of our shares by existing shareholders;

   o price and volume fluctuations in the stock market at large which do not
     relate to our operating performance; and

   o comments by securities analysts, or our failure to meet analysts'
     expectations.

We could incur liabilities relating to hazardous materials that we use.

    Our research and development activities involve the controlled use of
hazardous materials, chemicals and various radioactive materials. There is a
risk of accidental contamination or injury from these materials. If our
operations result in contamination of the environment or expose individuals to
hazardous substances, we could be liable for damages and government fines. In
addition, future changes to environmental, health and safety laws could cause
us to incur additional expense or restrict our operations.

Our results of operations could be affected by currency exchange and interest
rates fluctuations.

    See "Item 11. Quantitative and Qualitative Disclosures about Market Risk."


                                       10

<PAGE>
                         Item 4. Information on Genset

History and development

    Genset is a societe anonyme, a form of limited liability company,
organized under the laws of the Republic of France. It was incorporated in
August 1989, for a duration of 99 years, except in the event of anticipated
dissolution or extension. Our principal office is located at 24, rue Royale,
75008 Paris, France and its telephone number is +(33-1) 01.55.04.59.00. Our
agent in the United States is: Genset Corporation, 10655 Sorrento Valley Road,
San Diego, CA 92121.

    The table below presents the important events in the development of the
Genset's business.

1989    o      Incorporation of Genset
1992    o      Creation of our U.S. subsidiary Genset Corporation
1994    o      Creation of the high throughput sequencing facility
               Beginning of our first genomics project
1996    o      The mapping team of the Centre d'Etude du Polymorphisme Humain,
               or CEPH, led by Professor Daniel Cohen joins Genset
        o      Signature of our first strategic partnership agreements with
               Synthelabo and Janssen Pharmaceutica, a subsidiary of Johnson &
               Johnson
        o      Initial Public Offering and simultaneous listing on the Paris
               Nouveau Marche and Nasdaq stock exchanges
1997    o      Launch of pharmacogenomics and signature of the first agreement
               in this field with Abbott Laboratories
1998    o      Discovery of the first gene linked to a disease (prostate
               cancer) by association studies
        o      Signature of a second pharmacogenomics agreement with Pharmacia
               & Upjohn
1999    o      First patent awarded in the United States for a disease-
               associated gene discovered through association studies using
               SNPs
        o      First discoveries of genes associated with drug response
        o      Discovery of a candidate gene associated with schizophrenia
2000    o      Signature of a pharmacogenomics agreement with Sanofi
               Synthelabo
        o      Signature of a strategic partnership agreement with Abbott
               Laboratories in the fields of bipolar disease and type 2
               diabetes
        o      Nomination of Andre Pernet as chief executive officer, and
               adoption of the Company's new strategy to move from gene
               towards drug development. See below "-- Our new strategy: from
               gene to drug"

    For a description of the Company's principal past and current capital
expenditures and divestitures, see "Item 5. Operating and Financial Review and
Prospects -- Liquidity and capital resources."

    There has been no indication in the current and preceding years of any
public takeover offer by any third party in respect of the Company's shares or
by the Company of other companies' shares.

Business overview

General

    We are a genomics company focused on generating a pipeline of drug targets
and candidates in the areas of CNS and metabolic disorders. We have
successfully used our integrated technology platform and association studies
approach to identify and characterize drug targets and drug response markers
in the fields of CNS, metabolic and other diseases. Building upon the
expertise accumulated in various alliances with pharmaceutical partners and
our portfolio of genomic patents, we now intend to pursue and validate novel
drug targets and candidates for our own account, starting with a lead protein
candidate in our obesity program.

    In addition, our synthetic DNA division, Genset Oligos, is one of the
world's largest manufacturers of oligonucleotides, a key raw material in
genomic research, with production facilities in France, the United States,
Japan, Singapore and Australia. Genset Oligos also provides us with a


                                       11

<PAGE>
reliable and low cost supply of high quality oligonucleotides for our own
research.

    The table below shows, for each of the years 2000, 1999 and 1998,
consolidated revenues (excluding intercompany revenues) for the Company's two
principal activities.

<TABLE>
<CAPTION>

                                                        Year ended December 31,
                                                       -------------------------
                                                        2000      1999     1998
                                                       ------    ------   ------
                                                        (in thousands of euros)
<S>                                                    <C>       <C>      <C>
Research and Development Division                      17,346    19,406   21,297
Oligonucleotide Division                               12,481     8,290    5,614
</TABLE>


    The table below shows for each of the years 2000, 1999 and 1998, the
approximate percentages of sales of synthetic DNA by geographic area.

<TABLE>
<CAPTION>

                                                             Year ended December
                                                                     31,
                                                             -------------------
                                                             2000    1999   1998
                                                             ----    ----   ----
                                                               (in percentages)
<S>                                                          <C>     <C>    <C>
France                                                       14.0    23.0   31.0
Europe (outside France)                                      16.0    23.0   24.0
U.S.A.                                                       18.0    26.5   32.0
Japan                                                        37.0    16.5    5.5
Asia/Pacific (outside Japan)                                 15.0    11.0    7.5
</TABLE>


Our new strategy: from gene to drug

    Since entering the field of genomics in 1996, our strategy has been to
conduct targeted genomic research programs for the account of pharmaceutical
company partners. These were principally gene discovery and pharmagenomics
programs. We entered into three gene discovery partnerships, with Synthelabo,
Janssen Pharmaceuticals and Abbott Laboratories, to discover genes associated
with prostate cancer, schizophrenia and bipolar disorder and type 2 diabetes,
respectively. In these partnerships, our role was to discover and license to
our partners genes associated with the selected diseases, which could then be
used by the partners as targets for drug discovery. We entered into three
pharmacogenomic partnership agreements, with Abbott Laboratories, Pharmacia &
Upjohn and Sanofi-Synthelabo. In these partnerships, we discovered and
licensed to our partners genes and genetic markers associated with or involved
in drug response, to be used by our partners in the optimization and
development of existing drugs or drug candidates.

    We also entered into various other genomic service and license agreements
with pharmaceutical and biotechnology companies, including: genomic service
and technology license agreements with Ceres, a U.S. plant genomic company; a
license agreement with Wyeth-Lederle Vaccines, to whom we licensed the genomic
sequences of two strains of Chlamydia for applications in vaccine development;
license agreements with Genetics Institute relating to the use of Genset cDNAs
for drug discovery and development; and a sequencing services agreement with
Corixa, for whom we sequenced and analyzed the sequence of the principal
microbe responsible for acne.

    Under our principal agreements, we typically received fixed research
funding payments and milestone payments based on the completion of defined
research objectives. In addition, we may also receive:

   o license fees, when and if our partners exercise options to license our
     results,

   o clinical milestone payments paid when and if our partners achieve defined
     clinical development objectives, and

   o royalties on sales of drugs that are developed or modified based on our
     research results.

    The payments we have received to date under these agreements, however,
have only covered a portion of our overall costs, as we have invested in
developing genomic technologies, infrastructure and intellectual property that
are not specific to any program. The further payments we may receive under
these agreements depend entirely on the extent to which our partners devote
resources to, and are successful in, discovering and developing pharmaceutical
products using the genomic data we have delivered to them. We have little
control over the priorities and success of our partners, and, even if


                                       12

<PAGE>
they are successful, given the time required to develop pharmaceutical
products, we may not receive significant payments for many years.

    During the year 2000, we adopted a new strategy to go from gene to drug to
take further advantage of our capabilities. The first important step in this
new strategy was the nomination of Andre Pernet as our new President and
Chairman of the Board beginning in August 2000. This strategy reflects a new
business model aimed at capturing a greater portion of the value that can be
derived from our discoveries. We are now devoting our resources to discovering
drug targets and candidates for our own account. We expect to move forward
with our own discoveries, such as Famoxin, our first potential product in the
field of obesity, to the point where we can enter into partnerships of a much
greater value than the deals of the past, and in which we will have greater
control over the development of products resulting from our research.

    To implement our new strategy, and focus as efficiently as possible on
generating a pipeline of drug targets and candidates for our own account, we
have reorganized our genomics research platform. The sequencing of the human
genome in 2000, and in particular our subscription to the Celera database at the
beginning of 2001, will enable us to considerably accelerate our research,
focusing our time and resources on adding medical and functional information to
genomics data, rather than generating raw sequence and SNP data. We effected a
social plan at our Genomics Research Center in Evry, France, reducing the number
of employees by approximately 80, principally employees involved in sequencing
and mapping activities, which are no longer required given our subscription to
the Celera database. In parallel, we are adding approximately 30 new employees
in Evry, with specific skills that will enable us to add more medical and
functional information to the associated genes we discover. Based on the
experience and the technologies and intellectual property we have generated in
conducting our partnered genomic research programs, we believe that with this
reorganized structure, we are well positioned to exploit the quantity of raw
genomic data that is now available and to efficiently generate valuable
medically relevant genomic discoveries.

    Under our new strategy, we will no longer enter into limited gene
discovery, pharmacogenomics or service agreements for the benefit of others.
We have completed the research required under all our existing agreements,
other than the February 2000 gene discovery agreement with Abbott, which we
renegotiated to make more consistent with our new strategy. This change in
strategy has and will continue to have a major impact on the size and timing
of research and development revenues. These revenues have dropped dramatically
as the new strategy has been implemented. Future revenues from our research
will be tied to the licensing of rights to targets and products we have
discovered. There can be no assurance that we will be successful in
discovering our own commercially valuable pipeline of drug targets and
candidates, or in entering into these new types of revenue generating
agreements.

Overview of science and technology

Genomics

DNA

    DNA is a chemical compound present in all the cells of living organisms.
Each DNA molecule is made up of two strands entwined in a double helix. Each
strand consists of a succession of four basic elements, known as bases or
nucleotides (A for adenine, T for thymine, G for guanine and C for cytosine).
The two strands are complementary, which is to say that A on one strand is
always opposite T on the other strand, and C is always opposite G. These four
bases can be seen as the letters of an alphabet which determine what is called
the genetic code. The order of these bases in DNA, known as their sequence,
determines the program which governs the structure and activity of proteins,
which are the active elements that carry out the biological functions of all
organisms. In humans, for example, each cell contains in its chromosomes a
total length of DNA of over a meter corresponding to a succession of about
three billion bases; this is the human genome.


                                       13

<PAGE>
Genes

    Within each cell, the human genome is divided among 46 chromosomes, or
more precisely two sets of 23 chromosomes, inherited from each parent. Only a
fraction of the genome consists of genes that code for proteins; these
portions of the genome are referred to as "coding".

    The human genome is estimated to contain between 30,000 and 100,000 genes
with specific and independent sequences, which code for distinct proteins.
Each of these proteins has a particular function, and it is the assembly and
combination of all these functions that enable organisms to develop and
survive. Humans, like all other complex organisms, are made up of a great
number of different specialized organs and tissues. Although all the cells of
all the tissues contain the identical DNA, of the same length and sequence,
all tissues are different in that they use or express only a subset of the
genes in the genome; different genes are active in different tissues. There
are, generally speaking, two categories of genes. On the one hand, there are
general-function genes that are expressed in all tissues and code for
functions that are common to all cells, including notably house-keeping
functions and energy functions necessary for the metabolism of the cell. On
the other hand, there are specialized genes that correspond to specific
functions and structures that are different depending on the tissue. The
regulation and expression of genes, both quantitative (the level at which a
gene is expressed) and qualitative (the tissue in which a gene is expressed),
is determined by regions of DNA known as regulatory regions. The sequence of
these regions regulates when, where and at what level a gene will be
expressed.

Proteins and function

    The function of genes is to direct the production of proteins. The order
of the DNA bases that comprise genes determines the order of the building
blocks that make up proteins, which are known as amino acids. Hence, the
structure and function of proteins is determined directly by the sequence of
the corresponding genes. The link between genes and proteins is effected by an
intermediate molecule known as messenger RNA, which is similar to DNA but has
only one strand, and which consists of the exact complementary sequence of the
gene it transcribes. Messenger RNA directs the assembly of amino acids in a
sequence resulting in a protein that corresponds exactly to the order of its
bases. When amino acids are linked together, a protein results and the gene is
said to be expressed. Genes are not necessarily expressed in their entirety.
In many cases, only specific portions of a gene will be transcribed by
messenger RNAs; the different possible combinations of these messenger RNAs
are known as alternate splice forms and result in a set of several possible
proteins encoded by the same gene.

    The protein or proteins expressed by a gene vary between individuals as a
result of variations between the sequence or spelling of a gene or of its
regulatory region in these individuals. These variations may have an effect on
the quantity or structure, and hence the function, of the corresponding
proteins. These variations, known as polymorphisms, are the reason that all
individuals, other than identical twins, are different, and vary in particular
in their physiological mechanisms.

Function and polymorphisms

    All human beings have the same genome but are different. The differences
between humans result from the several million variations spread throughout
the three billion bases that comprise the human genome. For example, the
sequence of a gene in 30% of individuals may read ACCTCA, but in the other 70%
of individuals read ACCGCA. This simple variation of one base, known commonly
as a SNP or Single Nucleotide Polymorphism, may result in a variation in the
function of the corresponding protein. In such a case, the protein will
function in one way in 30% of the population and in another way in 70% of the
population. If, for example, the protein is involved in a detoxification
process, the capacity of 30% of the population to eliminate the toxin in
question will be different from that of the other 70%.

    All polymorphisms do not translate into a difference in function, either
because they are not located in the coding or regulatory regions of the genome
or because the variation in the sequence of a gene does not result in a
significant variation in the function of the corresponding protein.


                                       14

<PAGE>
The Genomics industry

    Genomics can be defined as the science of the analysis of genomes.

    Biology is an extremely complex science, but underlying this great
complexity is a finite entity, the genome, that can be studied and analyzed
directly. The genome contains in coded form all the information necessary to
understand the biological system which it codes for. Genomics, beginning with
sequencing, allows us to identify genes and to analyze their functions to
determine their role in the physiological and pathological processes inherent
in all human beings. In this way, the study of the human genome is a
technological shortcut. See "Item 3. Key Information -- Risk factors -- The
use of genomic information to develop or commercialize products is unproven."

    The genomics industry was born with the first human genome mapping studies
in the early 1990s. Genome maps, which consist of fragments of genome sequence
with a known order, greatly facilitated the study of the genome. Thereafter,
large scale DNA sequencing became possible due to the development of automatic
sequencers which read the order of bases in fragments of DNA. The combination
of mapping and sequencing technologies enabled the emergence and rapid
development of this new science.

    For various technical reasons, the genomics industry first focused on the
analysis of cDNAs (complementary DNAs), which are the portions of genes that
correspond to specific messenger RNAs. Approaches focusing on cDNAs resulted
in the generation of very large quantities of sequences, which, although often
incomplete, served as the foundation for the first commercial genomic
databases and for a first wave of patent applications. In parallel with these
early large scale cDNA sequencing approaches, more focused studies evolved
with a view to discovering genes coding for new therapeutic targets or which
could serve as prognostic markers.

    The year 2000 saw the successful completion of the sequencing of the human
genome, concurrently by the Human Genome Project, an international public
consortium, and by the company Celera Genomics, which used complementary
approaches. With the sequence of the human genome now almost entirely publicly
available, the first phase of the genomics industry is complete. All the
participants in this industry are now turning to the much more complex task of
identifying and analyzing the significance of this sequence data, and in
particular the function of the genes it contains.

Genomics and disease

    Common diseases result from the interaction between an organism and its
environment. For example, the onset of an allergic reaction results from the
combination of the presence of the allergen (environment) and of a hyper-
sensitive reaction to the allergen. The hyper-sensitive reaction is the result
of the expression of one or more proteins in too great a quantity, or of a
protein reacting in too effective a manner to the presence of the allergen.
All individuals will not have an allergic reaction, even when exposed to large
quantities of a given allergen. The reaction is individual, a result of the
genomic make-up of the individual. To take another example, certain persons
will develop excessive cholesterol levels as a result of a diet too rich in
fats, whereas others, even with the same diet, will maintain a low cholesterol
level. Once again, the individual reaction is different in response to the
same environmental factor.

    In most cases, the onset of a disease will depend not on one but on
several environmental factors, as well as on several factors inherent to the
individual, which reflect in practice the individual's genomic make-up. This
is especially true for complex diseases such as for example central nervous
system disorders.

    The sequences of genes control the sequences and thus the function of
proteins. Proteins are fundamental to all of an organism's biological
functions, and in particular how an organism reacts to environmental factors.
The differences in individuals' responses to various environmental factors
depend directly upon differences in their genomic make-up, which is to say
differences between the sequence or spelling of their genomes. These genomic
variations or polymorphisms thus explain variations among individuals in terms
of their susceptibility to developing common diseases.


                                       15

<PAGE>
Evolution of the drug discovery process

    In practice, proteins do not act alone but interact with other proteins in
biochemical or physiological systems, also known as pathways. Diseases result
from imbalances or disturbances in these biochemical pathways caused by a
combination of environmental and genetic factors that affect the normal
functioning of the various proteins in the pathway. Drugs generally exert
their therapeutic effects by interacting with proteins (in this context called
drug targets) in such a way as to restore their normal functioning of the
disease-affected pathways.

    Historically, drug discovery was a lengthy trial and error process,
typically leading to the discovery of compounds that somehow had an effect on
the symptoms of a disease, without a clear understanding of the role of the
drug compound in the relevant pathway, or even of the pathway itself.

    In recent years, the drug discovery process has changed, beginning with
the process for discovering drug targets. The advances of the genomics
industry and of the technologies it has generated have made it possible for
the first time to undertake a systematic search to discover and characterize
the genes and biochemical pathways that underlie human diseases. This progress
now makes it possible to better understand the biochemical pathways related to
diseases at the gene and protein level and therefore the physiological
function of drug targets, allowing a more rational and focused drug discovery
effort.

Genset's approach

    We have focused all our efforts these past years on developing a general
approach capable of elucidating the function of genes, and in particular on
identifying the genes associated with common diseases. This approach based on
association studies, and made possible by the combination of our various
integrated technologies, can be used to identify genes associated with
different clinical characteristics, from the susceptibility to developing
complex diseases to the individual variations in drug response.

    Our approach is based on a simple but profound observation: if one takes
the genomes of individuals living in the same environment and having the same
disease, and compares these genomes with those of other individuals living in
the same environment but who do not have the disease, one should be able to
find genomic differences which indicate which genes are involved in the
disease.

    To carry out these genomic association studies, the DNA sequences of a
great number of individuals must be compared, and the sequence variations
analyzed. The discovery of the genes involved in common diseases depends on
the identification of the DNA sequence variations that are common to different
individuals that have developed the same disease. A variety of technologies,
assets and expertise is necessary to carry out such association studies.

    First of all, it is necessary to have access to collections of DNA samples
from hundreds of individuals affected with the disease and from hundreds of
unaffected individuals who serve as controls. The clinical characteristics or
phenotypes of both the affected and unaffected individuals must be well
defined and reliable. Before working with any collections, we conduct a
systematic analysis of the background genetic variations between the affected
and unaffected populations, as these underlying variations can have a
significant effect on the statistical value of the association studies. We
access collections of DNA samples through collaborations with clinical
research teams around the world. We will typically use at least two separate
collections for each program, in order to confirm any results obtained in one
population.


                                       16

<PAGE>
    The next step in these association studies involves the identification of
candidate genomic regions and genes of interest. We identify candidate genomic
regions likely to contain genes relevant to the disease based on an analysis
of published linkage study results and of proprietary linkage study results
provided by collaborators. The candidate genes of interest we select for our
programs come from various sources, including:

   o genes included in our proprietary library of human cDNAs enriched for
     secreted proteins;

   o genes with specific sequence motifs of particular interest identified
     using proprietary bioinformatics tools applied to internal and external
     databases;

   o genes identified through protein-protein interaction assays as being in
     the same biochemical pathway as genes associated with the disease of
     interest; and

   o genes that might logically be involved in the specific disease,
     identified through a review of relevant publications.

    Once we have identified candidate regions and genes in which to conduct
association studies, we determine the exact sequence and location of these
regions and genes, and generate and validate SNPs within the regions and in
and around the genes. The time and resources required for this step have been
reduced drastically by our subscription to the Celera database. Nevertheless,
we still need to fill the gaps in the Celera sequences covering the regions or
genes of interest and to validate the available Celera SNPs.

    The SNPs or polymorphisms must then be analyzed or genotyped. Genotyping
means determining for any given polymorphism which version of the polymorphism
is present in a given sample. A statistical analysis of the genotyping results
reveals which polymorphisms are statistically more common in the genomes of
individuals sharing the same disease than in those of individuals who do not
have the disease. Once one or more polymorphisms are found to be significantly
more common in the individuals affected with the disease than in the non-
affected individuals, we can deduce an association between this or these
polymorphisms and the disease being studied. If the polymorphism(s) are
contained in the coding or regulatory region of a gene, we can deduce that the
gene itself is associated with the disease. Even if the associated
polymorphism(s) are not themselves in a coding region, the genetic phenomenon
known as linkage disequilibrium allows us to deduce that an associated gene is
in close genomic proximity with the polymorphism(s).

    Our association studies can result in three categories of genes: (1) genes
that code for proteins that are themselves potential therapeutics (this is
most likely to be the case for secreted proteins analyzed by our metabolics
group); (2) genes that code for proteins that are valuable drug targets, such
as receptors for example; and (3) genes that are interesting neither as
potential therapeutics nor as potential targets, but that may be used as entry
points into a biochemical pathway whose other members may be therapeutics or
targets.

    In any case, in order to maximize the utility and value of the associated
genes we identify, we must further characterize their functional or biological
activity. The first step in this process is to identify the different possible
variations of the gene and generate and analyze the various proteins coded for
by these variants. These proteins can then be used in cell or animal model
assays to elucidate their function. We are developing internally specific
assays relevant to the CNS disorders we are studying. Our metabolic group in
San Diego has developed various protein expression and cell and animal model
assays to elucidate the metabolic functions of genes they analyze. In
addition, we are constantly evaluating new technologies in our fields of
interest, and will either develop internally or, if more efficient, enter into
collaborations with academic groups or other companies that have the most
promising approaches to elucidate the biological activity of associated genes
in these fields. We believe our approach combining association studies and
functional assays will allow us to identify and characterize genes in a
targeted and efficient manner.

    Although we have already successfully identified some genes using our
approach, both we and the general scientific and medical communities have a
limited understanding of the role of genes in the complex diseases we are
studying. Our association studies approach and technology platform may not
enable us to successfully identify and characterize medically useful genes
better or more quickly than our competitors. In any case, transforming our
genomic research results into


                                       17

<PAGE>
commercialized products requires many years of further research and
development, including extensive clinical studies. We do not have the
expertise or resources to develop and commercialize such products ourselves,
especially in the CNS field, and may be unsuccessful in finding appropriate
partners with whom to do so. Moreover, our competitors' approach or
technologies may enable them to identify genes associated with the diseases we
are targeting before we do or to identify genes that are better suited to
quickly developing effective pharmaceutical products.

Pharmacogenomics

    As with all other physiological traits, the response of an organism to a
drug varies depending on the individual's genomic make-up. Our association
studies approach applies not only to the discovery of genes involved in common
diseases, but also to the discovery of genes involved in drug response. This
field of research, launched by Genset in 1997 together with our partner Abbott
Laboratories, is known as pharmacogenomics. It encompasses the discipline of
pharmacogenetics, which is the study of genes specifically related to drug
metabolism. Pharmacogenomics is thus a particular field of genomics whose goal
is to define the genetic markers that can be used to tailor pharmaceutical
treatments to each individual, to ensure a greater effectiveness of drugs and/
or to prevent side effects.

    Given our new strategy, we do not intend to conduct further
pharmacogenomic programs to analyze patient responses to drugs of
pharmaceutical company partners. The SNP and association data we generate in
all our association studies, however, provide pharmacogenomic information that
should enable us or our partners to design more targeted and efficient
clinical trials for any drugs resulting from our research. For example, if we
demonstrate that a gene is associated with only one sub-type of a disease or
with patients that have one genetic variation but not another, we will enroll
only these patients in the clinical trial of any drug candidate discovered
using that gene, thus potentially lowering the cost and increasing the chances
of success of the clinical trial. Our pharmacogenomics experience therefore
remains an important asset in our new strategy of generating our own pipeline
of drug targets and candidates.


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                                Genset Approach


Department                           Activity

Bioinformatics.......................Genomic Mining for Candidate Genes/Regions

Functional Genomics..................Proteomics

Medical Affairs,
Genetics and Biostatistics...........Association Studies

Bioinformatics and Experimental
Annotation..........................Complete Gene Structure Analysis

Medical Affairs, Functional Genomics
and External Collaborations..........Protein Differential Expression

Functional Genomics and External
Collaborations.......................Cell and Animal Model Studies

                                     VALIDATED TARGET

Genset's technologies

    Our ability to conduct association studies in a systematic manner relies
on our integrated technology platform, which contains numerous proprietary and
patented technologies and know-how. These technologies are organized by
department, each of which contributes its specialized expertise.

    Our Medical Affairs department manages our DNA sample collections and our
clinical research collaborations around the world. The department is
responsible for coordinating and carefully monitoring the quality of the
recruitment programs of our collaborators, both in terms of the medical or
phenotypic information and of the biological samples collected. The quality of
the phenotypic data and the ability to process it efficiently are crucial to
the success of association studies, and are necessary to generate more
sophisticated results, indicating for example an association with a specific
symptom or sub-type of a disease. The Medical Affairs department also has a
specialized team responsible for processing and storing samples, including
DNA, blood and various cell lines.

    Our Informatics department consists of approximately 50 specialists and
substantial computer resources to analyze, store, and process genomic data.
This department compiles and analyzes in real time Celera, public and
internally generated sequence, polymorphism and genotype data. Using
sophisticated and in many cases proprietary bioinformatics tools, the
department is also responsible for data mining, and in particular for
identifying candidate genes of interest, as well as for analyzing regions and
genes identified by our various programs as being of interest.


                                       19

<PAGE>
    Our Genetics department integrates a series of genomic technologies and
know how that are necessary to perform association studies efficiently. The
department is in particular responsible for map integration, SNP map
generation, and genotyping:

   o Map integration consists of integrating Genset sequences, public
     sequences and Celera sequences for regions and genes of interest, and of
     filling in any gaps or ambiguous sequences using Genset's sequencing
     capacities and proprietary BAC library, an ordered set of over 25,000
     fragments of human DNA covering the genome.

   o Using SNPs available in the Celera database and in Genset's proprietary
     database of validated SNPs, the genetics department systematically
     generates series of validated SNPs, or SNP maps, covering any region or
     gene to be studied. The density and quality of SNPs used are selected to
     optimize the statistical value of the genotyping results.

   o The genotyping group detects and calculates the frequency of any given
     polymorphism in a given population. This group contains both a large
     scale production unit, and a research and development unit capable of
     improving and developing new genotyping technologies to increase
     capacity, while decreasing costs and consumption of DNA and reagents.

    Our Biostatistics department is responsible for developing algorithms and
software capable of performing the combinatorial analysis of genotyping and
clinical data required for association studies. This department has developed
various proprietary algorithms and software programs that are routinely used
in our programs today, and continues to improve these methods to increase the
power of our association studies.

    Our Functional Genomics department characterizes the biological function
of genes involved in the diseases we study, using molecular biology and
biochemistry tools as well as cell and animal models. Functional genomic
activities in the metabolic field are principally conducted by our research
group in San Diego, and in the CNS field by our research group in Evry,
France. Functional genomics includes the following approaches:

   o experimental annotation, to complete the sequence of a gene, identify its
     possible alternate splice forms and variants, and generate its tissue
     expression profile;

   o proteomics activities, including the production and characterization of
     proteins of interest, and the identification of other proteins that may
     interact with these proteins in the same biochemical pathway;

   o differential expression studies of the genes of interest to determine
     whether the proteins encoded by these genes are expressed differently in
     normal and diseased tissues; and

   o animal models, to validate in vivo the involvement of a gene or protein
     in a specific disease state.

    These functional genomics activities are conducted both internally and
with external collaborators with specific expertise either in the therapeutic
area of interest or in the relevant technology.


                                       20

<PAGE>
Our research programs

    We have been conducting association studies to discover genes associated
with common diseases since 1996. We signed our first research collaboration
agreements in 1996 with Synthelabo (now Sanofi-Synthelabo) for the discovery
of genes associated with prostate cancer, and with Janssen Pharmaceutica, a
subsidiary of Johnson & Johnson, for the discovery of genes associated with
schizophrenia. In 2000, we signed a third collaboration agreement with Abbott
Laboratories to discover genes associated with bipolar disorder. We also
entered into three pharmacogenomics collaborations with Abbott Laboratories,
Pharmacia & Upjohn and Sanofi-Synthelabo, all aimed at discovering genes and
genetic markers associated with or involved in patient response to drugs or
drug candidates. The pharmacogenomic agreement with Abbott concerned side
effects of a drug marketed to treat asthma, and the two other agreements
concerned drug candidates to treat CNS disorders.

    Since 1996, we have in these research collaborations identified genes
associated with various clinical characteristics, including prostate cancer,
central nervous system disorders, obesity and variations in patient response
(side effects and efficacy) to drugs. In August 1999, we were granted the
first U.S. patent on a disease gene discovered through polymorphism or SNP-
based association studies, in that case a gene associated with prostate
cancer.

    We decided in 1999 to focus our gene discovery efforts on two therapeutic
areas: central nervous system diseases and metabolic disorders. We believe we
will compete successfully over the next few years in the discovery of genes
and related biochemical pathways in these diseases. The decision to focus on
these specific disease areas was driven by the following scientific and
economic considerations:

   o Both areas involve complex diseases influenced by multiple genetic
     factors. We believe that genomics, and in particular association studies
     conducted in unrelated individuals, is the best approach to understand
     the genetic causes of these diseases and their complications and to
     develop new treatments.

   o These diseases affect large patient populations and existing treatments
     either do not exist or are unsatisfactory. There are therefore
     substantial unmet medical needs in these fields, and effective treatments
     would have enormous economic potential.

    In the context of our new strategy, we are continuing to focus our efforts
on these two therapeutic areas. We have completed all our historic
collaboration agreements, except for the bipolar gene discovery agreement
signed in 2000 with Abbott, which we renegotiated to be released from any
further research obligations for the account of Abbott and to recover the
intellectual property generated in the program. Consequently, we are now free
to develop and commercialize all the genes, proteins and biochemical pathways
discovered and characterized in our ongoing CNS and metabolism programs.

Central nervous system diseases

    Our intention is to identify and characterize genes and related
biochemical pathways involved in central nervous system diseases. We have
implemented gene discovery programs for three diseases in this area:
schizophrenia, bipolar disease (also known as manic-depression) and
depression. Based on the results we have generated in this field, we believe
that groups of genes may be associated with two or all three of these
diseases. In addition, a precise and specific diagnosis of these diseases is
often difficult, because they share many of the same symptoms. Drugs developed
for one of these diseases are often effective for another. We have therefore
decided to work on these diseases and on certain related candidate genes and
regions in parallel, as the results may enable us to elucidate genetic bases
and biochemical pathways relevant to the diseases generally. The ability to
link these diseases biologically could create vast commercial opportunities
and would dramatically change their diagnosis and treatment.

    As we do not have the expertise or resources to develop drugs for central
nervous system diseases, our objective is to generate a portfolio of drug
targets and related disease pathway information, and to use this portfolio to
discover and develop drug candidates with an appropriate partner.


                                       21

<PAGE>
Schizophrenia

    Schizophrenia is a severe, chronic mental disorder characterized by
disturbances of mind and personality, including delusions, hallucinations and
dramatically altered behavior. According to the U.S. National Institute of
Mental Health, schizophrenia is estimated to affect approximately 1% of the
world's population. More than two million patients in the United States suffer
from the illness in a given year, where the annual direct costs of treating
the disease are estimated at $20 billion. Conventional treatment for
schizophrenia involved neuroleptics, a class of drugs whose use was limited as
a result of their inefficacy with certain patients and their side effects. A
new class of anti-psychotic drugs that combine superior efficacy with reduced
side effects is gradually replacing neuroleptics. All current treatments,
however, only offer symptomatic relief allowing the patient to function more
effectively and appropriately; there is no cure for this disease. It is
estimated that less than one in five individuals who have suffered from this
disease recovers completely. There is no known single cause of schizophrenia.
Studies of twins have shown a strong genetic basis for the disorder, but no
structural or biochemical abnormality of the brain has been universally
identified. Understanding the genetic basis for schizophrenia offers the
greatest potential for the development of more specific treatments, which
address the underlying cause of the disease.

    Under our research collaboration with Janssen Pharmaceutica, which was
extended through July 31, 2000, we identified and delivered to Janssen several
gene candidates associated with schizophrenia. These association results were
confirmed in several different study populations. Janssen has an exclusive
license to develop and commercialize pharmaceutical products based on these
genes. In exchange, Janssen is obligated to pay clinical milestone payments,
as well as royalties on net sales of any such future products developed by
Jannsen. In addition, Janssen has an option to obtain a comparable license to
certain other results we may generate using the genes identified during the
research collaboration.

    We have in-house clinical collections from two separate populations of
schizophrenia cases and controls and are currently in negotiations to obtain
access a third such collection. Using these collections, and the expertise
developed in our strategic partnerships, we continue to apply our approach to
discover more information about schizophrenia's genetic basis and biochemical
pathways in the broader context of our targeted CNS disease program.

Bipolar disease

    Bipolar disease, also known as manic-depression, is characterized by
episodes of mood swings that alternate between periods of mania
(hyperactivity, exaggerated euphoria) and depression. Symptoms and severity
vary tremendously among patients and for each patient over time. The U.S.
National Institute of Mental Health estimated that 15 to 20% of patients who
suffer from bipolar disorder and who do not receive medical attention commit
suicide. Similar estimates provide that between 1 and 1.5% of people develop
bipolar disease at some point during their lives. The preferred class of drugs
used for bipolar disorder are mood stabilizers such as lithium, but many other
types of drugs may be required in addition to manage specific conditions,
including depressive episodes and rapid cycling between manic and depressive
episodes. The cause of bipolar disease is unknown but thought to involve
structural abnormalities of the part of the brain known as the hippocampus as
well as brain chemical imbalances involving dopamine. Although not all cases
occur within families containing other affected individuals, genetic factors
appear to play a major role in bipolar disorder. Researchers believe that
understanding the underlying genetic basis for bipolar disease can lead to the
development of more effective treatments with reduced side effects.

    In February 2000, we entered into a collaborative research agreement with
Abbott Laboratories to discover genes associated with bipolar disorder. This
collaboration initially focus on selected candidate genomic regions associated
with the disease. We renegotiated this agreement to make it more consistent
with our new strategy. Under the renegotiated agreement, we were released from
performing any further research for Abbott, recovered the intellectual
property generated in our bipolar program, made a one-time payment to Abbott,
and agreed to license to Abbott at a future date a protein in the area of CNS
for target screening.


                                       22

<PAGE>
    We have in-house clinical collections from two separate populations of
bipolar cases and controls and are currently in negotiations to obtain access
two further collections. Using these collections, we are proceeding with our
program to discover the genetic basis of bipolar disease and biochemical
pathways in the broader context of our targeted CNS disease program.

Depression

    Depression is characterized by a mood disorder which is often accompanied
by more or less severe moral distress. The disorder manifests itself in cycles
sometimes severe, others chronic, during which the patient feels sad and
distressed. Depression is a serious illness and an increasing cause of death.
In France, 4% of the population are depressed and 1 in 10 will suffer at least
one major cycle of depression in their lifetime. According to the CREDES, the
number of people suffering from depression has increased by 50% between the
beginning of the 80s and 90s. In the United States, approximately 10 million
people suffer from major depression. Annual sales of drugs to treat depression
are in excess of $6 billion.

    A single cause of depression has not yet been identified. We believe that
a number of different factors provoke a depression or are capable of
increasing the risk of one developing. A depression arises, naturally, from
psychological factors which are currently obscure. However such psychological
factors are increasingly studied. The discovery, by chance, of
antidepressants, followed by the developed understanding of their mechanics,
has permitted the comprehension of the role of neurotransmitters such as
dopamine, serotonin or noradrenalin. Another, more recent one, has an effect
that changes the perceived effects of neurotransmitters. However, all the
antidepressants that are currently used increase the quantity of these
substances released between the neural connections, also known as synapses, to
prevent their degradation.

    Antidepressants represent, to date, the sole treatment for depression.
There are different forms of antidepressant, le most renown being Prozac. Each
of these forms acts upon a certain patient profile. Finding the right
medication for each patient is a lengthy process. In addition, virtually all
drugs have side effects that are considered undesirable.

    Furthermore, the genetic factors of the disease are increasingly
discussed. Studies have shown that there is a considerable increase in the
chances of developing this form of depression in families where one member
already suffers.

    We believe that it is necessary to pursue research in order to understand
more the physiological or genetic factors of depression, and to subsequently
create new forms of treatment.

    We have in-house a clinical collection from one population of depression
cases and controls and are currently in negotiations to obtain access to a
second collection. Once we have obtained at least a second collection, we will
undertake an internal program targeting depression in parallel with our
schizophrenia and bipolar disease programs.

Other central nervous system diseases

    We are evaluating potential collaborations to access clinical collections
of populations affected with Parkinson's disease and epilepsy. Both these
diseases are characterized by significant market potential, and by possible
shared genetic factors with our core therapeutic fields. We expect to initiate
internal programs for Parkinson's disease and epilepsy in 2002. We have also
decided not to undertake a program in Alzheimer's disease as one of our
priorities.

Metabolic disorders

    Our metabolic disorder research program is led by our Genset Corporation
subsidiary in San Diego. The main objectives of this program are to identify and
define genes and proteins involved in metabolic disorders, and in particular
obesity and diabetes. The program uses differential expression and association
study filters and our cDNA collection to identify genes that may be involved in
metabolic disorders. The biological activity of these genes is then elucidated
using cell lines and animal models and more detailed association studies.


                                       23

<PAGE>
    The possible therapeutic approaches resulting from this research depend on
the nature of the genes identified. Where a protein is insufficiently produced
by the patient and it is possible to administer the protein to correct the
metabolic disorder, the protein may itself be used to reestablish a normal
biological response. If the protein cannot be used directly to treat the
disorder, the study of its biological activity may reveal functional proteins
that could be used to compensate for the patient's genetic disorder. Finally,
either of these approaches may result in the identification of targets that can
be regulated by small molecules produced by chemical synthesis.

    The scientific quality and progress of this program are evaluated regularly
by our metabolic scientific advisory board, comprised of professors Jerry
Olefsky from the University of San Diego and Harvey Lodish from the Whitehead
Institute.

    To date, this program has led to the discovery of several new genes
related to metabolic disorders such as obesity, insulin resistance, type 2
diabetes and hyperlipidemia. Patent applications have been filed covering five
genes that include, to the extent available, their genomic structure, their
polymorphism(s), the sequence of their various messenger RNAs, the functions
of the proteins coded by these messenger RNAs and their potential therapeutic
uses. Two of these genes, LSR and ACRP30, have been the subject of extensive
studies to define their physiological activity and evaluate their potential as
a protein (ACRP30) or therapeutic target (LSR). The other genes are also being
evaluated.

Obesity

    Obesity is defined as disproportionately excessive body fat which results
from an imbalance between the quantity of food consumed and energy expended.
Increased prevalence of obesity is linked to changes in lifestyle, in
particular increased sedentariness, food consumption, and the breakdown in the
structure of meals. The consequences of obesity for health take the form of a
higher risk of premature death from coronary disorders, cardiovascular problems,
diabetes, and certain types of cancer.

    Obesity has become a major public health problem and its prevalence is
growing rapidly. The World Health Organization estimates that obesity is
prevalent in 10 to 25% of people in Western Europe and 40% in certain specific
groups, including in women from Eastern Europe and from certain Mediterranean
countries and in African Americans. In the United States, obesity affects 25
to 33% of the total population, or an estimated 60 to 80 million people.
Obesity is a contributing factor for an estimated 300,000 deaths annually in
the United States.

    The goals of treatment are weight reduction and, more specifically,
reduction of body fat, to improve the patients' quality of life and reduce risks
from related pathologies. Weight reduction diets and exercise programs remain
the two essential forms of treatment in controlling obesity today. The drugs
that are available act either by inhibiting fat absorption, or reducing food
consumption. These treatments make it possible to obtain rather modest weight
loss; but on the other hand, gastrointestinal events and cardiovascular effects
have been reported. These findings underline the need to develop new treatment
strategies. In recent years successive discoveries in obese animals have
intensified the interest in genetic approaches to the study of obesity,
suggesting that the years to come may see a new generation of treatments that
are both more effective and better tolerated. Scientific progress during the
last five years suggests that twenty or so genes or chromosomal regions may be
significantly involved in the mechanics of obesity.

    Genset's most advanced research project concerns Famoxin, a fragment of the
protein Acrp 30 (Adipocyte complement related protein). Acrp30 is produced and
secreted by adipocyte (fat) tissues. It was discovered in 1995 by Professor
Harvey Lodish of the Whitehead Institute. Genset showed an association in an
obese population between free fatty acid levels and variants of the gene
encoding for the human Acrp30 protein. A second study demonstrated that the
blood level of human Acrp30 was lower in a significant number of obese patients.
More recently, results published in the Proceedings of the National Academy of
Science (PNAS 98: 2005-2010, 2001) showed that repeated administration of
Famoxin in mice on a sugar and fat-rich diet induced a significant reduction in
body weight. This effect was accompanied by a reduction in blood levels of fatty
acids and triglycerides. At the same time, the reduction in glucose plasma
levels suggests a possible improvement in metabolic control and an antidiabetic
effect.


                                       24

<PAGE>
    These metabolic effects are observed without reduction in food
consumption. In-vitro studies of cell lines of muscles or directly on isolated
skeletal muscle have shown a clear increase in the oxidation of free fatty
acids after incubation with Famoxin. These studies have also been confirmed in
vivo on mice receiving an intravenous injection of an emulsion rich in lipids
(Intralipid). Pre-treatment with Famoxin significantly reduced free fatty acid
levels in plasma.

    A long term study is presently underway in mice with the same enriched diet.
After 130 days of treatment every other day with Famoxin, doses of 10 and 25
[greek mu]g twice a day made possible a reduction in body weight of over 10%. No
gross toxicity was observed.

    The next step will be to increase our capacity to produce the human protein
and perform the toxicological and pharmacological studies necessary to undertake
the first human clinical trials. An assay to determine the dosage of Famoxin
must also be developed. This should make it possible to diagnose obese patients
who have insufficient Famoxin levels and to determine the circulating levels in
patients undergoing treatment. In parallel, Professor Harvey Lodish and his team
at the Whitehead Institute are pursuing their research collaboration with Genset
with the aim of identifying the receptor for Famoxin and determining the
intracellular mechanisms involved. Genset has an exclusive option to the
commercial rights to any results of this research program. Likewise, Genset has
an exclusive license to the Whitehead Institute's Acrp30 patent, and has filed 9
patent applications on APM1 (human Acrp30) and Famoxin, covering their genomic
sequences, polymorphisms, and therapeutic applications.

    A second project being conducted by Genset involves studying a receptor
called LSR which was initially identified in collaboration with INSERM
(Institut National de la Sante et de la Recherche Medicale, or French National
Institute of Health). This protein is expressed primarily in the liver.
Association studies have demonstrated that certain variations of LSR were
correlated with a significantly increased risk of developing excess weight,
and with a modification of the tolerance to glucose. One polymorphism of the
LSR gene is also correlated with the development of hypertriglyceridemia
associated with obesity. This abnormality in the blood lipids, observed in 30%
of obese subjects, is one of the causes of cardiovascular complications
brought on by excess weight. These results suggest that LSR could be a
receptor of a sub-type of lipoprotein. We are in the process of characterizing
the phenotype of a transgenic mouse, in which the gene coding for this protein
has been rendered inoperative. We have filed 15 patent applications covering LSR
and its potential therapeutic applications, the first of which are co-owned with
INSERM and exclusively licensed to Genset.


                                       25

<PAGE>
Type 2 diabetes

    Type 2 diabetes, also known as non-insulin-dependent diabetes mellitus
(NIDDM), is characterized by two principal metabolic anomalies relating to the
production and action of insulin, the hormone which regulates the metabolism of
glucose and lipids. Hypoglycemia results both from defective insulin secretion
and from a reduction in the action of insulin on various tissues, namely the
liver, skeletal muscle, and adipose tissue. Type 2 diabetes differs from type 1,
or insulin-dependent diabetes mellitus (IDDM), in which levels of endogenous
insulin secretion are almost nonexistent and do not respond to an increase in
glucose levels. Type 2 diabetes case are about ten times more prevalent than
type 1 diabetes cases.

    The prevalence of type 2 diabetes is particularly elevated in cultures
with Western dietary habits. Currently, an estimated 100 million people
worldwide have diabetes and WHO experts predict that, due to worldwide
developments in lifestyle and diet, this number will double by 2010. The
worldwide incidence varies from 0.7% in Africa to 4.7% in Europe and North
America. Type 2 diabetes generally appears after age 40. Obesity is an
important risk factor contributing to the development of type 2 diabetes, and
the majority of type 2 diabetics are overweight.

    Type 2 diabetes is a silent disease, but one which involves serious
complications. In the United States, the complications of diabetes account for
40% of all new cases of end-stage renal failure and result in over 50,000
lower extremity amputations annually. Diabetes is the leading cause of
blindness with about 10,000 new cases of diabetes-related blindness per year
in the United States. Additionally, diabetic patients account for 10% of all
acute care hospital days in the United States.

    The initial treatment of type 2 diabetes consists of a regimen of physical
exercise. Pharmaceutical treatments available today belong to three distinct
categories: hypoglycemic sulfamides which stimulate insulin secretion,
insulinsensitizers which facilitate the action of insulin on target tissues,
and inhibitors of the intestinal absorption of glucose from food. These
agents are able to reduce hypoglycemia and delay the appearance of vascular
complications. However, glycemic levels remain difficult to control over 24
hours, and many undesirable side effects have been noticed: hypoglycemia,
digestive problems, lactic acidosis, weight gain, and water retention.

    Both genetic and environmental factors are involved in the development of
type 2 diabetes. To date, among the many candidate genes studied, no one gene
has been clearly identified as being involved in the development of the
disease. Nevertheless, the scientific community remains convinced that an
understanding of the genetic causes of type 2 diabetes is the key to
developing new therapies targeting the cause of the disease and stopping its
progression.

    Genset's researchers have isolated by differential expression a novel gene
expressed in the liver of several hyperglycemic animal models. Preliminary
results suggest that its recombinant protein has antidiabetic properties. Its
biological activity will be studied in-vivo in the near future in ZDF rats, a
reference model which exhibits the principal characteristics of human type 2
diabetes. The effects of the treatment on sensitivity to insulin of peripheral
tissues will be studied.

    In our research collaboration with Professor Harvey Lodish and his team at
the Whitehead Institute for Biomedical Research, we are studying biochemical
pathways involved in the uptake of glucose in muscle cells and adipose tissue.
The program relies notably on a functional cloning method for genes that
regulate the activity of GLUT4, an insulin regulated glucose transporter.
Initial studies have shown the existence of a protein that limits the
migration of this transporter to the cell membrane and thus reduces the
ability of the target cell to take up and use glucose. The ability to block
this protein could provide a new approach to treat diabetes. We have an
exclusive option to obtain the commercial rights to all results of the
program.

Other research programs

    In addition to the two key fields of CNS and metabolic disorders, we have
conducted other genomic research programs that have allowed us to generate
technological and intellectual property assets, and may give rise to future
payments from our partners.


                                       26

<PAGE>
Therapeutic proteins

    We have compiled a library of thousands of full-length human cDNA clones
and sequences, which is enriched in cDNAs encoding for secreted proteins.
Secreted proteins, such as hormones and growth factors, form the basis of a
class of pharmaceutical products that generated more than 16 billion dollars
in sales in 1999. Our cDNAs are an important tool in our research programs, in
particular for our metabolic group, which studies them systematically using
its filters to determine their possible role in the pathologies of metabolism.

    In July 1997 the Company entered into an agreement with Genetics Institute
(GI), a wholly-owned subsidiary of American Home Products, to provide our
secreted proteins through the DiscoverEase[R] program, which includes 11
pharmaceutical and biotechnological partners. The first proteins coming from
Genset were delivered to the DiscoverEase partners in September 1998. The
proteins already delivered through the DiscoverEase program remain covered by
the terms and conditions of this agreement, but Genset is free to
commercialize the other proteins independently.

    In October 1999 Genset signed a new agreement with GI which replaced the
1997 agreement. Under this new agreement, Genset delivered to GI and Wyeth-
Ayerst, the pharmaceutical division of American Home Products, the sequences
and clones corresponding to approximately 1,000 cDNAs that they selected. GI
has an option to obtain a license to these 1,000 clones. Genset will receive
payments each time GI decides to exercise its license option to one of the
cDNAs, as well as clinical development milestone payments and royalties on any
products discovered using the sequences and clones supplied by Genset.


Vaccine and immunotherapy applications

    We fully sequenced and filed patent applications on the genomes of both
Chlamydia pneumoniae and Chlamydia trachomatis L2 strain. The Chlamydiae are
intracellular bacteria responsible for various infections in humans. Studies
suggest that they play a role in the development of atherosclerosis. In August
1998, we entered into an exclusive license agreement with Wyeth-Lederle
Vaccines ("Wyeth-Lederle"), a business unit of Wyeth-Ayerst Laboratories, a
division of American Home Products. Pursuant to this agreement, we licensed
exclusively to Wyeth-Lederle the genomic sequence data of Chlamydia pneumoniae
and Chlamydia trachomatis L2 strain for applications in vaccine development.
In return for the license, Wyeth-Lederle provided us with up-front licensing
fees, and agreed to pay us clinical milestones and royalties on net sales of
vaccine products developed using our genomic data.

    In February 2000, we entered into an agreement with Corixa Corporation, a
U.S. biotechnology company, to sequence the 2.8 million base pairs of the
genome of propionobacterium acnes, a microbial organism considered to be the
principal factor in the development of acne, in exchange for various payments.
Corixa intends to use these data supplied by Genset, together with other
antigens it has discovered, to accelerate development of new immunotherapeutic
products, including vaccines and antibody-based products, targeting this
infectious organism.


Plant genomics

    In December 1997, we entered into a series of agreements with Ceres, Inc.
("Ceres"), a U.S. company specializing in the field of agricultural
biotechnology. The collaboration consists of three parts:

   o our acquisition of an equity interest in Ceres (as of March 31, 2001
     Genset owned under 10% of Ceres);

   o an exclusive, royalty-free, bilateral license agreement providing each
     company royalty-free access for applications in its field to certain of
     the other company's technologies;

   o a services agreement to provide sequencing and bioinformatics services to
     Ceres in exchange for quarterly payments and further issuances of shares
     by Ceres to Genset. Following several extensions, this agreement expired
     on 31 December 2000.


                                       27

<PAGE>
Competition in genomic research

    See "Item 3. Key Information -- Risk factors -- Rapid technological
changes in the genomics industry may make our technologies and discoveries
less attractive or obsolete."

    An increasing number of research-based organizations are attempting to
rapidly identify and patent genes involved in common diseases. Direct
competitors include several companies based principally in the United States,
that are focused on generating a pipeline of drug candidates based on their
genomic research. Competition in this field is intense and we expect it to
continue to increase over the next 3-4 years. We also face competition from
other genomics companies, universities and non-profit research institutions
involved in identifying and characterizing genes, which they either disclose
publicly or patent and license to biotechnology or pharmaceutical companies.
In addition, many pharmaceutical companies are developing genomic research
capabilities in-house. More generally, we also face competition from all other
entities involved in discovering new drugs.

    Several of our direct competitors were ahead of us in changing their
strategy from generating genomic information under funded research contracts
for the account of pharmaceutical company clients to generating novel drug
targets and candidates for their own account. Many of these direct competitors
have significantly greater financial resources than Genset. Several already
have drug candidates in clinical trials, whereas our most advanced product is
at the pre-clinical stage. In the short term, we and our direct competitors
are judged on our experience and technological assets. In the medium term, we
will be compared based on the number and quality of our drug candidates in
development, and in the long term on the revenue generated by our marketed
products.

    Our principal competitive advantage is our considerable experience in
conducting SNP-based association studies. We were the first company to adopt
this approach, which we believe is particularly well suited to the fields of
CNS diseases and metabolic disorders. A number of other companies have now
adopted this and similar approaches for the discovery of disease-associated
genes, including in the disease areas we are focusing on. We have, however,
during the last five years, generated valuable experience and proprietary
assets in conducting these programs, in particular:

   o our portfolio of genomic patents, covering association study technologies
     and disease-associated markers and genes

   o our collections of clinical samples specific to the disease areas we are
     focusing on

   o our BAC library, an ordered set of over 25,000 fragments of human DNA
     covering the genome

   o our database of validated SNPs and human genomic sequence data

   o our library of full-length human cDNAs, enriched for genes encoding
     secreted proteins

   o our bioinformatics and biostatistics algorithms and software programs

    Recent industry developments have affected the relative value of certain of
these assets. We believe, however, that our experience in conducting association
studies and the unique combination of assets we have accumulated will enable us
to exploit more efficiently the rapidly increasing quantity of genomic
information that is now available.

    Our principal technological competitive disadvantages relate to our lack
of experience in developing and applying certain of the technologies necessary
to go from gene to drug. In particular, one or more of our direct competitors
have significantly greater expertise in functional genomic technologies,
especially in the field of CNS diseases, and in developing therapeutic
proteins. In addition, as we have no small molecule drug discovery
capabilities, our ability to discover drugs is limited to therapeutic protein
drugs, which we believe can be used in practice to treat metabolic disorders
but not CNS diseases. Our ability to generate a pipeline of drug candidates in
the field of CNS diseases therefore depends on our finding an appropriate
strategic partner in this field. At least one direct competitor has
established an alliance with a large pharmaceutical company to develop and
market products based on their genomic discoveries in each of the areas we are
focusing on.


                                       28

<PAGE>
    A number of pharmaceutical and biotech companies are working on various
aspects of obesity, the disease targeted by our lead drug candidate, Famoxin.
To our knowledge, however, no other obesity drug or drug candidate acts using
the same mechanism as Famoxin. The specificity of its action suggests that it
could potentially have less side effects than obesity treatments currently on
the market. Our association study information about Famoxin may also enable us
to target the treatment specifically to the obese population that would most
benefit from it.

    We believe that our capacity to compete in the industry depends on a
number of factors, including notably our abilities to:

   o develop and maintain scientifically advanced technology

   o attract and retain qualified personnel

   o obtain patent protection for our discoveries

   o establish alliances with strategic partners to develop and commercialize
     drugs and diagnostic products based on our discoveries

   o secure sufficient capital resources to fund our discovery and pre-
     clinical /early stage clinical development programs

   o continue to obtain and maintain access to appropriate clinical
     collections

Genset Oligos

    Small fragments of synthetic DNA, commonly known as oligonucleotides, are
a basic raw material for all research in molecular biology. They are
necessary, for example, to amplify, sequence, genotype and hybridize DNA, to
develop DNA chips, and to perform DNA differential expression and quantitative
PCR.

    We began producing synthetic DNA in 1989 for our internal research
programs. In 1997, we created a specialized division, Genset Oligos, to focus
our oligonucleotide production and marketing efforts. Genset Oligos today has
over 180 employees spread among five production and marketing sites, in France
(Paris), the United States (San Diego), Singapore, Japan (Kyoto) and Australia
(Lismore). This last site was established in early 2000 following the
acquisition of a majority equity interest in Pacific Oligos, one of the
largest Australian producers of oligonucleotides.

    In addition to producing and distributing oligonucleotides to clients
around the world, Genset Oligos is responsible for supplying our internal
research requirements for synthetic DNA. With an annual production capacity of
approximately three million oligonucleotides, we are today one of the largest
producers worldwide of synthetic DNA.

Manufacturing

    Our various production lines in Paris (operational since 1989), San Diego
(since 1992), Singapore (since 1998), Kyoto (since 1999) and Lismore (since
2000) together synthesize, label, purify and quality control thousands of
oligonucleotides a day. We believe that we are a highly efficient producer due
to the ultrafast parallel synthesizer we developed, as well as highly
automated production processes that incorporate comprehensive bioinformatics
from order processing through product delivery. Our synthesizer and reactor,
which are assembled in our Evry research center, have significantly reduced
nucleotide coupling time, the key step in production, and consumption of
phosphoramidites, the primary raw material, and have substantially reduced our
manufacturing costs.

    All our oligonucleotides are produced to custom order in a delay of
several hours. A pioneer in electronic commerce, we began in 1991 processing
custom orders communicated via Internet directly to our synthesizers. This has
enabled us to reduce the risk of error and accelerate turnaround time. We have
also introduced a sophisticated Internet-based tracking system allowing our
customers to monitor the status of the processing of their orders.


                                       29

<PAGE>
Marketing

    The global oligonucleotide market is expanding rapidly, due notably to the
ever increasing use of large-scale amplification and sequencing in the fields
of biology, health care and agriculture research, and to the development of
DNA chips and clinical analysis systems based on molecular biology.


    From our five production and marketing centers, we are able to serve our
customers in all our principal markets throughout the world. Genset Oligos has
approximately 4,000 customers in more than 50 countries. In 2000, sales in
France accounted for 14% of total sales, while sales in the rest of Europe,
the United States, Japan and the Asia-Pacific region (other than Japan)
accounted for 16%, 18%, 37% and 15% of total sales, respectively. Our
customers include mainly large laboratories with total orders per year
averaging 50,000 oligonucleotides, other academic, clinical chemistry and
biology laboratories, as well as biotechnology companies. In addition, this
client base constitutes a valuable information and distribution network of
customers in the molecular biology research industry.

Competition

    We are one of the world's largest manufacturers and suppliers of
oligonucleotides. The industry is characterized by a small number of large
producers, and a great many small, local producers. We compete in this
industry on the basis of our technical capabilities, our customer service and
the geographic location of our production and distribution facilities. The
relative importance of various competitive factors depends on the market
segment being served.


    Large-scale genomic research projects require large numbers of different
oligonucleotides. We believe that the highly automated organization of our
production facilities, proprietary ultrafast parallel synthesizer and
automated patented nucleic acid synthesis processes enable us to produce
greater numbers of oligonucleotides more quickly, accurately and economically
than most of our competitors.


    Other market segments, including academic research and some biology and
clinical chemistry laboratories, typically require smaller quantities and
numbers of oligonucleotides that can be provided by a much greater range of
producers. Most of these producers are considerably smaller, have lower fixed
costs and serve a local or regional market. We believe that our strategy of
establishing a local presence at strategic locations around the world enables
us to also address this market segment, by providing as flexible and rapid a
service as smaller, local producers, while at the same time maintaining the
economies of scale and technical expertise required for the few very large
clients in each region. In addition, we believe that our recognized research,
chemical and analytical chemical expertise provide us with a unique
competitive advantage with respect to customers requiring complex and
specially processed oligonucleotides as well as extremely high quality
standards.

Patents and proprietary rights

    We utilize both patents and trade secret methods to protect both the
results of our research programs and the proprietary technologies that enable
these programs. See "Item 3. Key Information -- Risk factors -- Obtaining
effective legal protection for our intellectual property is difficult,
expensive and uncertain; -- We may become involved in patent litigation or
other proceedings regarding our intellectual property rights which could be
expensive, time consuming and prevent us from commercializing our discoveries;
-- If we are unable to protect our trade secrets, others may be able to use
them and our competitive position will be damaged."


                                       30

<PAGE>
Patents

The legal environment

o Patentability of genomic inventions

    There are believed to between 30,000 and 100,000 genes scattered
throughout the human genome and we believe that virtually all such genes will
be identified over the next several years. Numerous groups are attempting to
rapidly identify and patent gene fragments and full-length genes. Patent
applicants seeking protection for gene fragments or full-length genes must
provide sufficient information relating to the DNA sequence and the specific
uses of such sequences to meet the legal requirements to obtain patent
protection. It is generally accepted that a gene sequence together with
specific information about the biological function, or potential commercial or
medical use of the sequence, is patentable. The patent strategies of the
groups seeking protection on gene fragments or full-length genes vary widely
as to the extent of biological characterization and the nature of the specific
uses they provide in their patent applications. There remains substantial
uncertainty regarding the potential to obtain and enforce patents covering
gene fragments or full-length genes without known function, as well as the
amount and type of functional information necessary to obtain granted patents
in this field.

o Duration of patent protection

    The duration of patent protection is particularly important in the
biotechnology and pharmaceutical fields because it takes many years to develop
and obtain the regulatory authorizations necessary to market products in these
fields. Due to the large number of biotechnology patent applications being
filed and the complex and often novel scientific and legal issues involved,
the time from filing to issuance is particularly uncertain in the
biotechnology field. When patents are granted, they are typically valid for 20
years from the earliest filed patent application the inventor(s) filed on a
particular invention. In late 1999 the Patent Term Guarantee Authority Act
became law in the United States. This law was designed to extend patent
exclusivity past the statutory 20 years from filing to compensate patentees
for delays in patent processing on the part of the U.S. Patent and Trademark
Office. The bill was designed to ensure patentees would receive at least 17
years of patent protection, so long as they had been diligent in responding
quickly to the Patent Office during prosecution.

o Number of gene sequences per patent application

    In most commercially important countries, patent offices have established
policies limiting the number of distinct protein or gene sequences they will
review and grant in a single patent. For example, typically the U.S. and
European Patent Offices will examine only one sequence per application. In
cases in which the initial applications include more sequences, the additional
sequences must be separated out and included in distinct applications.
Alternatively, in some patent offices, for example the European Patent Office,
substantial additional fees may be paid in order to have additional sequences
reviewed and granted in a single patent. These requirements significantly
increase the time required and the cost to obtain patent protection for large
numbers of sequences.

o International extension of patent applications

    All patent applications must initially be filed in one jurisdiction.
Thereafter, within 12 months following the filing of the priority application,
the application may be extended internationally, either through the procedure
prescribed by the Patent Cooperation Treaty or "PCT" or, independently from
the PCT procedure, to selected countries. In the case of a PCT extension, the
applicant has 18 months from the general PCT extension to select those
countries among the PCT signatories, which include notably the 19 member
countries of the European Patent Office as well as the United States, Canada,
Australia, and Japan, in which it wishes to pursue its patent application.
Regardless of the procedure chosen to extend a particular patent application,
the priority date of an extension application will generally correspond to the
date of the initial filing so long as the invention covered by the extension
is the same as that covered by the initial filing.


                                       31

<PAGE>
Our patent portfolio and strategy

    As of April 30, 2001, we had filed 529 patent applications, of which 113
have to date been granted. We constantly review our patent portfolio to
determine which applications to maintain. The maintenance of patent
applications and patents requires the payment of periodic taxes. Of the 113
patents granted to Genset, we have maintained 90 in force. Our currently
pending patent applications and patents in force include 25 in France, 95 in
the United States, 36 in Canada, 34 in Japan, 36 in Australia, and 36 before
the European Patent Office.

    To obtain patent protection for the results of our disease gene discovery
and pharmacogenomics research programs, our strategy is to file comprehensive
patent applications that combine full-length gene sequences with as much
information of pharmaceutical relevance as is available at the time of filing.
This information includes the sequence of the corresponding proteins, their
functional characterization, related SNPs, together with disease or drug
response association data. Our first comprehensive patent application of this
kind, filed in 1997 on a gene discovered in our prostate cancer collaboration
program with Sanofi-Synthelabo, was granted in 1999. This was the first patent
application granted in the United States covering a gene discovered through
SNP association with a disease (U.S. Patent No. 5,945,522). For some of our
programs, we have filed patent applications claiming large numbers of SNPs
associated with a series of functionally related genes, as well as methods to
use these SNPs in combination to study the susceptibility to disease, drug
response, or other specific clinical traits. We do not know how regulatory
limitations on the number of genomic sequences that can be granted in any one
patent application will affect these applications, in which numerous SNP
sequences are involved in the same invention.

o Metabolic disorders

    In the context of our metabolic disorder programs, we have filed patent
applications covering a number of genes and corresponding SNPs, including the
gene sequences of ACRP30 (genomic sequence), LSR and their variants, SNPs
associated with phenotypic traits underlying obesity, type 2 diabetes, and
related syndromes, and treatment methods addressing these diseases. We have
also filed both U.S. and International PCT applications covering Famoxin, the
active fragment of ACRP30 which is currently our lead drug candidate, and
other fragments of human and mouse ACRP30 with similar characteristics, as
well as methods of using Famoxin and these other fragments to treat obesity,
insulin resistance, type 2 diabetes and other obesity related disorders.

    Our patent applications relating to Famoxin are solely owned by Genset. In
addition, we have obtained an exclusive license for the commercialization of
the Whitehead Institute's granted U.S. patent covering the full length human
and mouse ACRP30 cDNA[JL1], entitled "DNA Encoding a Novel Serum Protein
Produced Exclusively in Adipocytes." Some of the earlier applications in our
portfolio relating to LSR are co-owned by Genset and INSERM.

o Central nervous system disorders

    In the context of our CNS disorder programs, we have filed patent
applications covering a number of genes and SNPs associated with
schizophrenia, bipolar disorder and depression, methods of treatment of
specific CNS disorders which target the relevant genes or their products, as
well as certain pharmacogenomic traits related to CNS drugs and drug
candidates. The genes covered by these patent applications include novel genes
as well novel roles in CNS disorders for known genes. They were identified
both through SNP association studies conducted in genomic regions of interest,
and through functional studies to find the binding partners of associated
genes. We have also filed patent applications covering SNPs in key candidate
genomic regions implicated in CNS disorders, as well as SNPs found to be
associated with certain CNS disorders.

    All the patent applications filed in the context of our CNS disorder
programs belong to Genset. These patent applications include, notably, those
covering the results of our schizophrenia collaboration with Janssen, to which
Jannsen retains an exclusive license.


                                       32

<PAGE>
o Other programs

    We also seek patent protection for the partial and full-length gene
sequences identified through our 5 prime high-throughput gene identification
program, especially when we have identified specific functional information
indicating that sequences have particular potential value either as
therapeutic agents or as targets for drug screening. We have, for example,
filed several patent applications covering a large number of DNA sequences
corresponding to secreted proteins. The genes resulting from our gene
identification programs are systematically evaluated as candidates in our
metabolic and CNS disorder disease gene discovery programs, and we file
further patent applications covering any additional functional or medically
relevant information that is discovered in relation to these genes. We also
have filed patent applications relating to the complete genome sequences of
two related infectious microorganisms, Chlamydia trachomatis and pneumoniae,
the latter of which has been identified as being potentially associated with
the occurrence of cardiovascular diseases, especially atherosclerosis. The
patent applications relating to both organisms claim therapeutic, diagnostic
and vaccine applications; the applications in vaccine development were
exclusively licensed to Wyeth-Lederle Vaccines.

o Technology platform

    We also seek patent protection for the proprietary technologies that
support our research programs in selected cases where trade secret methods do
not offer optimal protection. For example, we have a granted European patent
relating to the solid phase amplification of nucleic acids, a technique that
is particularly useful for replicating small regions of a DNA sample so that
it can be accurately analyzed in a genotyping or diagnostic assay. We also
have a granted U.S. patent relating to vectors and cloning strategies that
enable the systematic and efficient sequencing of extremely large regions of
DNA, including entire genomes. We have filed several additional patent
applications covering our key functional genomic technologies, including high-
throughput cloning, sequencing, mapping, genotyping and gene localization
techniques, and computerized statistical methods to analyze complex sets of
genotyping data from multiple sets of single nucleotide polymorphisms.

o Oligonucleotides business

    In the field of synthetic DNA production and the uses of oligonucleotides,
including circular oligonucleotides, ribozymes and antisense therapies, we
have filed patent applications covering, for example, our synthesizer and
reactor designs and related processes for the preparation of oligonucleotides,
as well as certain therapeutic uses of oligonucleotides. We have also
developed and continue to develop proprietary processing software, synthesizer
designs and improvements, and purification and quality control techniques,
some of which we have chosen to protect as trade secrets.

Government regulation

    Regulation by governmental authorities in France, the European Union, the
United States and other countries has a major impact our business. Government
regulations are particularly relevant to the following aspect of our
activities:

   o The development and commercialization by us and our strategic partners of
     pharmaceutical products based on our research;

   o The collection and use of the DNA samples necessary for our research;

   o The safety and quality procedures governing our research and
     manufacturing activities.

Pharmaceutical product development and commercialization

    See "Item 3. Key Information -- Risk factors -- The development and
marketing of drugs and diagnostic products are subject to regulations that
could delay or prevent their commercialization and thus our ability to
generate revenues from products developed based on our discoveries."


                                       33

<PAGE>
    The development and marketing of drugs and diagnostic products is subject
to strict regulatory controls on the development, clinical testing,
manufacture, labeling, storage, supply, distribution and marketing of these
products. Of particular importance is the requirement, in most countries, to
obtain and maintain regulatory approval to market pharmaceutical products. The
process of obtaining required regulatory approvals is expensive and lengthy,
typically taking a number of years. The approval process for products
developed from genomics research may take even longer because they involve new
technologies. Furthermore, each regulatory authority may impose its own
requirements and may refuse to grant, or may require additional data before
granting, an approval even though another authority has approved the relevant
product. France and other European countries and the United States have very
high standards of technical appraisal and consequently, in most cases, a
lengthy approval process for pharmaceutical products. The trend in recent
years has been towards greater regulation and higher standards.

    Genset does not have the expertise or resources to develop and
commercialize pharmaceutical products on its own, and we have not in the past
undertaken to develop any products. Consequently, we rely on our partners to
whom we license drug targets and candidates to conduct the many years of
development, including extensive clinical studies, and other regulatory
approval procedures, necessary to commercialize any products based on our
research. As part of our new strategy, however, we expect to bring our own
potential products, such as Famoxin, forward to the point where we can enter
into partnerships of a much greater value than our deals of the past. We
expect this will involve conducting ourselves Phase I clinical trials on our
most promising candidates. Ultimately, our success will depend on our ability
and that of our partners to successfully complete the development and
regulatory process for products resulting from our research. See "Item 3. Key
Information -- Risk factors -- We currently have only one drug candidate,
Famoxin, whose pre-clinical and clinical testing stages, like all innovative
products, are subject to many risks."

    The activities required before a new drug can be marketed in Europe or the
United States begin with preclinical testing. Preclinical tests include
laboratory evaluation of product chemistry, pharmacology, pharmacokinetics and
toxicology. Animal studies are used to assess the potential safety and
efficacy of the product. Toxicology studies are regulated by the health
authorities under the current Good Laboratory Practice, or GLP, regulations.
Once preclinical tests are completed, all the results of these tests are
summarized in an investigator brochure in Europe or an investigational new
drug application (IND) in the United States, and submitted to the competent
regulatory authorities, which decide whether human clinical trials may begin
or may request additional information, clarification or additional time to
review the application.

    Human clinical trials are typically conducted in three sequential phases,
but the phases may overlap. Phase I clinical trials consist of testing the
product in a small number of patients or normal volunteers, primarily for
safety, in one or more dosages, as well as characterization of a drug's
pharmacokinetic and/or pharmacodynamic profile. In Phase II clinical trials,
in addition to safety, the efficacy of the product is evaluated in a patient
population. Phase III clinical trials typically involve additional testing for
safety and clinical efficacy in an expanded population at multiple
geographically dispersed sites. A clinical plan, or "protocol," is submitted
to the regulatory and ethical authorities prior to commencement of each
clinical trial. They may order the temporary or permanent discontinuation of a
clinical trial at any time for a variety of reasons, particularly if safety
concerns exist. All three clinical phases generally take three to six years in
the aggregate, or longer, to complete.

    The competent regulatory authorities receive reports on each phase of
testing, and may require the modification, suspension, or termination of
trials if an unwarranted risk is presented to patients. The investigational
new drug application process can thus result in substantial delay and expense.
Because biological drugs such as therapeutic proteins are a new category of
therapeutics, there can be no assurance as to the length of the trial period
or the number of patients the regulatory authorities will require to be
enrolled in the trials.

    Upon completion of clinical trials, a company seeking approval to market a
new drug must file a new drug application with the regulatory authorities. In
addition to reports of the preclinical and clinical trials, this document must
include information pertaining to the preparation of the drug, analytical
methods, drug product formulation, detail on the manufacture of finished
products and proposed product


                                       34

<PAGE>
packaging and labeling. The manufacturing facility must also pass a current
Good Manufacturing Practices (cGMP) inspection before the marketing
application can be approved.

    In the United States a company seeking approval to market a biological
drug is required to prepare and submit additional information for inclusion in
a single biologics license application, or BLA, which is similar in content to
the NDA. To approve a BLA, the FDA must determine that the product is
effective and that the manufacturing facility and product meet applicable
requirements to ensure the safety, purity, and potency of the product.

    After the application is filed, the substantive review starts. The
application review process generally takes one to two years to complete,
although reviews of biological drugs that meet a medical need for serious or
life-threatening diseases may be accelerated or prioritized for a six month
review.

    In addition, extensive regulation of pharmaceutical products continues
after approval, particularly with respect to compliance with cGMPs, the
reporting of adverse effects, and advertising and marketing activities. The
discovery of previously unknown problems or the failure to comply with
applicable regulatory requirements may result in restrictions on the marketing
of a product or withdrawal of the product from the market as well as possible
civil or criminal sanctions.

    Even if pharmaceutical products are approved for marketing, their
commercial success depends in large part on the degree to which they are
reimbursed by governments, private health care coverage insurers and other
organizations. Governments and other third-party payors continually attempt to
contain or reduce health care costs by limiting both coverage and the level of
reimbursement for new drugs. If adequate coverage and reimbursement levels are
not provided by government and third-party payors for products resulting from
genomic discoveries, the market acceptance of these products would be
adversely affected, thereby limiting our ability to generate royalties from
these sales.

DNA collections

    We obtain the DNA samples we need for our research programs from clinical
research programs conducted by research organizations and clinicians with whom
we have a collaboration agreement relating to a specific disease. Clinical
research programs are subject to the regulations of the country where they are
performed. These regulations generally require, among other things, that an
ethical and scientific committee approves the research protocol pursuant to
which the samples will be collected, that each donor consent to the use that
is to be made of the sample and that the samples and related clinical data be
communicated in an anonymous fashion to protect the identity of their donor.
Our ability to obtain DNA samples and related clinical data depends on the
ability of our collaborators and strategic partners to comply with these
regulations and obtain and maintain required authorizations.

    In addition, we are directly subject to certain regulations, both as the
promoter or sponsor of several clinical research programs in France and in
respect of our genomic research programs themselves. For example, a 1996
French law governing genetic research requires us to declare any research we
perform using DNA samples and authorizes the administration to suspend any
research which does not respect criteria concerning the appropriate use and
safety of the samples and the confidentiality of resulting data. The
government has not yet promulgated a decree specifying the applicable criteria
and the declaration procedure. The increasing public scrutiny of genomic and
other biotechnology research is leading to additional regulation of both the
collection and the use of DNA samples. New regulation could harm our research
efforts by limiting either our ability or the ability of our collaborators or
strategic partners to obtain appropriate DNA samples and related clinical data
or the use which we can make of them.

    See "Item 3. Key Information -- Risk factors -- We may not be able to
obtain DNA samples required for our genomic research programs; -- We could
incur liabilities relating to hazardous materials that we use."


                                       35

<PAGE>
Suppliers

    We use large quantities of chemical raw materials or reagents in all our
research activities, and notably for the production of synthetic DNA. Some of
these reagents are only available from a limited number of suppliers. We have
contracts with these suppliers for the provision of certain quantities of
reagents at fixed price for one-year periods. We occasionally order other
reagents. We continually seek alternative sources of reagents, in particular
through internal production, and we also test potential new reagents. We
cannot be certain that these reagents will remain available in commercial
quantities at costs that are not economically prohibitive. Should we be unable
to obtain an adequate supply of reagents at commercially reasonable rates, our
ability to continue to conduct our genomic research programs using our current
technology platform, or to produce oligonucleotides at a competitive cost,
could be adversely affected.

Organizational structure

    The table below presents a list of our subsidiaries, including name,
country of incorporation or residence, proportion of our direct and indirect
ownership interest and voting interest, if different, at March 31, 2001.

<TABLE>
<CAPTION>
<S>              <C>                    <C>                      <C>            <C>
                                                                                      50%
                                                                                    Surgen
                                               Genset SA                          (Ireland)
-----------------------------------------------------------------------------------------------
     75%                 100%                    52.6%             100%              100%
Genset Pacific   Genset Biotechnology      Genset Singapore      Genset KK        Genset Corp
   Pty Ltd             Ltd (UK)         Biotechnology Pte Ltd     (Japan)       (United States)
 (Australia)                                 (Singapore)
                                                                                     100%
                                                                                Genset Oligos
                                                                                     Corp

</TABLE>

Property, plants and equipment

    Our corporate headquarters are in Paris at 24, rue Royale, 75008 Paris, a
central downtown location. At this location, we lease 1,247 square meters
(approximately 13,400 square feet) of office space used principally for
executive offices, and patent and bioinformatics activities. There are two
leases with terms of nine years; one began on February 3, 1997, and the second
began on October 15, 1998.

    In addition, we lease 1,839 square meters (approximately 19,800 square
feet) of laboratory, production and office space in a complex located at 1,
rue Robert & Sonia Delaunay, 75011 Paris. This location is occupied entirely
by our Genset Oligos division. The term of the lease for this location, which
was initially for nine years from January 31, 1991, has been renewed for a
further nine years through January 31, 2009.

    Our Genomics Research Center is housed in a modern complex located in
Evry, outside of Paris. The Genomics Research Center houses almost of our
genomics research activities, including notably our Medical Affairs, Genetics,
Biostatistics and Functional Genomics departments and the majority of our
Informatics department, as well as industrial office space and engineering
support. It currently occupies approximately 8,500 square meters
(approximately 91,500 square feet), out of the total surface area of
approximately 12,000 square meters (129,000 square feet) covered by the lease,
which expires on March 31, 2005.


                                       36

<PAGE>
    Our U.S. subsidiary leases two facilities in California. The larger
facility, located in San Diego, consists of 27,048 square feet and is occupied
by our functional genomics/metabolic disorders research and development group
and all administrative support. We moved into this modern, single-tenant
building in February 2001, to provide for the growth of our research group and
to locate our research and administrative staff on one site. The lease for
this facility expires on February 28, 2011. Our synthetic DNA production
facility is located in La Jolla. This facility consists of 11,651 square feet;
however, our group occupies only 6,760 square feet of the premises, while a
subtenant occupies part of the remaining space. The lease on this facility
expires on January 31, 2003.

              Item 5. Operating and Financial Review and Prospects

    This Annual Report contains certain forward-looking statements that
involve risks and uncertainties relating to our future financial and
technological performance. See "Cautionary Statement Regarding Forward-Looking
Statements."

Overview

    We are a genomics company focused on generating a pipeline of drug targets
and candidates in the areas of CNS and metabolic disorders. We have
successfully used our integrated technology platform and association studies
approach to identify and characterize drug targets and drug response markers
in the fields of CNS, metabolic and other diseases. Building upon the
expertise accumulated in various alliances with pharmaceutical partners and
our portfolio of genomic patents, we now intend to pursue and validate novel
drug targets and candidates for our own account, starting with a lead protein
candidate in our obesity program.

    Beginning in 2000, we adopted a new business model to take further
advantage of our capabilities and capture a greater portion of the value
derived from our discoveries. In order to do so, we will no longer enter into
limited gene discovery collaborations for the benefit of others and will
complete or restructure all existing alliances. We expect to bring our own
potential products, such as Famoxin, forward to the point where we can enter
into partnerships of a much greater value than the deals of the past. This
change in strategy has and will continue to have a major impact on the size
and timing of research and development, or R&D revenues. These revenues have
dropped dramatically as the new strategy has been implemented. Future R&D
revenues will be tied to the licensing of product rights. There can be no
assurance that we will be successful in entering into these new types of
revenue generating agreements.

    Our principal source of revenue in 2000 was our research and collaboration
agreements with strategic partners, which are pharmaceutical or biotechnology
companies. During 2000, we received research revenues, including both regular
fixed research funding payments and milestone payments based on the completion
of defined research objectives, under six agreements with strategic partners.
These included two agreements in the area of gene discovery, two in the area
of pharmacogenomics, and two in the areas of plant genomics and therapeutic
protein libraries. Under these agreements, we may also receive:

   o license fees, when and if our partners exercise options to license our
     results,

   o clinical milestone payments paid when and if our partners achieve defined
     clinical development objectives, and

   o royalties on sales of drugs that are developed or modified based on our
     research results.

    In addition, our synthetic DNA division, Genset Oligos, is one of the
world's largest manufacturers of oligonucleotides, a key raw material in
genomic research. Genset Oligos also provides us with a reliable and low cost
supply of high quality oligonucleotides for our own research.

    Due to our change in business plan, our results of operations for 2001 and
future periods will not be comparable to the results of operations for
historical periods.


                                       37

<PAGE>
    We have incurred losses since our inception and we anticipate that we will
incur losses for the next years.

    For information regarding the impact of foreign currency fluctuations on
the Company, see "Item 11. Quantitative and Qualitative Disclosures about
Market Risk -- Currency exchange rate sensitivity."

Recent developments

    In February 2001, we announced the launch of the operational phase of our
new strategy, including a social plan which resulted in the elimination of
approximately 80 jobs in our Genomics Research Center outside Paris. At the
same time, our new activities require the strengthening of certain
qualifications, which will result in the creation of approximately 30 new
jobs. Also in the first quarter of 2001, we renegotiated our gene discovery
agreement with Abbott to make it more consistent with our new strategy. Under
the new agreement, we were released from performing any further research for
Abbott, recovered the intellectual property generated in our bipolar program,
agreed to make a one-time payment to Abbott and to license to Abbott at a
future date a protein in the area of CNS for target screening. In addition, we
undertook to evaluate a potential sale of the oligonucleotides division.

    On April 24, 2001, we announced our financial results for the first
quarter of 2001.

    We reported a consolidated net loss excluding non-recurring items for the
quarter ended March 31, 2001 of 10.0 million euros, or 1.23 euros per share
($0.36 per American Depositary Share), as compared to a net loss of 7.7
million euros, or 1.02 euros per share ($0.30 per American Depositary Share),
for the quarter ended March 31, 2000. Our net loss including non-recurring
items for the quarter ended March 31, 2001 was 17.6 million euros, or 2.17
euros per share ($0.64 per American Depositary Share).

    Total revenues for the quarter decreased from 8.2 million euros for the
quarter ended March 31, 2000 to 5.2 million euros for the quarter ended March
31, 2001. The change in total revenues for the first quarter of 2001 reflects
our shift in strategy away from entering into limited gene target discovery
deals on behalf of pharmaceutical companies to a focus on discovering and
developing drug targets and products for our own account. As a result, R&D
revenues decreased from 5.6 million euros to 0.8 million euros, accounting for
16% of total revenues, while oligonucleotide sales increased 62.6% from 2.7
million euros to 4.3 million euros, reaching its highest level ever.

    Cash decreased during the quarter by 10.0 million euros. As of March 31,
2001, we had cash, cash equivalents and short-term investments of 57.8 million
euros, compared to 67.8 million euros as of December 31, 2000 and to 39.2
million euros as of March 31, 2000.

    Our first quarter results include certain non-recurring items related to
our transitory steps. First, we recorded approximately 1.4 million euros in
employee costs related to the recently completed social plan as well as fees
of 0.6 million euros to effect the plan. A non-cash charge of 3.5 million
euros was recorded to write-off certain equipment, primarily for sequencing,
no longer required due to the restructuring. Secondly, we recorded 1.7 million
euros due to Abbott to regain the intellectual property generated in the
bipolar program and release us from further research efforts. This was
strategically important for us since bipolar disorders are a key target in our
internal development plans. Lastly, 0.4 million euros was paid to explore the
potential sale of our oligonucleotide division which is ongoing. We will make
a decision in the near future as to whether it is in our best interest to sell
the division.

    R&D expenses for the quarter were 8.5 million euros, compared to 12.0
million euros for the same quarter in 2000. This decrease in R&D expenses is
the result of our previously announced efforts to control overall spending.
For the quarter, general & administrative expenses increased 6% to 3.4 million
euros from 3.2 million euros in the first quarter 2000. Fourth quarter 2000
general and administrative expenses totalled 4.0 million euros.

    In the area of non-operating expenses, we reported a net foreign exchange
gain for the quarter of 0.6 million euros, as compared to a foreign exchange
loss in the first quarter of 2000 of 0.1 million euros. Net interest expense
for the quarter was 0.5 million euros, compared to a net result equal to zero


                                       38

<PAGE>
during the first quarter of 2000. The decrease primarily results from the
convertible bond issuance in June 2000.

    We did not record any income tax benefit for the quarter as a consequence
of our efforts to decrease our R&D expenses during the quarter. We recorded an
income tax benefit of 1.2 million euros for the first quarter of 2000.

    We anticipate that we will continue to incur losses for the foreseeable
future; the amount and duration of such losses will depend largely on the
level of our continued investment in research and development activities and
the timing of future licensing deals on the results of these activities.

Results of operations

Years ended December 31, 2000 and 1999

    We reported total revenues of 29.8 million euros for 2000, an increase of
8% compared to total revenues of 27.7 million euros for 1999. Research and
development revenues comprised 17.3 million euros, or 58% of total revenues,
while oligonucleotide sales accounted for 12.5 million euros. The slight
increase in revenues was principally due to a 51% increase in DNA sales which
compensated for a decrease in research and development revenues.

    Our total operating expenses increased 14% to 66.0 million euros for 2000,
from 57.9 million euros for 1999. Research and development expenses remained
stable in 2000, and amounted to 42,3 million euros for 2000, compared to 42.4
million euros for 1999. We expect R&D expenses to remain fairly consistent in
2001.

    Costs of goods sold amounted to 7.6 million euros for 2000, compared to
3.5 million euros for 1999. Selling and marketing expenses for 2000 amounted
to 2.5 million euros, compared to 1.5 million euros for 1999. Both items
relate exclusively to sales of oligonucleotides and the increase in 2000
reflects the increase in sales.

    General and administrative expenses increased 30% to 13.7 million euros in
2000 from 10.6 million euros in 1999, primarily as a result of changes in
personnel, costs associated with the exercise of employee stock options and an
increase in patent activities including numerous new patent filings and
extensions. We expect general and administrative expenses to remain fairly
consistent in 2001.

    The amortization of total deferred compensation over the next three years
with respect to stock options outstanding as of December 31, 2000 will amount
to approximately 1.1 million euros.

    In the area of non-operating results, we reported a net foreign exchange
loss of 0.3 million euros in 2000.

    We recorded an income tax benefit (research tax credit) of 2.4 million
euros for 2000 compared to euros 4.9 million for 1999 as the R&D expenses did
not increase in the year 2000 compared to the year 1999. As of December 31,
2000, we had a research-related income tax credit receivable of 13.2 million
euros, of which 2.9 million euros is recoverable in 2001, 2.7 million euros is
recoverable in 2002, 5.0 million euros is recoverable in 2003, and 2.6 million
euros is recoverable in 2004.

    As of December 31, 2000, our accumulated deficit was 87.2 million euros
compared to 52.8 million euros as of December 31, 1999.


                                       39

<PAGE>
Net sales and operating income by principal business activity

o Research and development

    We reported total revenues of 17.3 million euros for 2000, a decrease of
10.8% compared to revenues of 19.4 million euros for 1999. The slight decline
in research and development revenues reflects the change in our strategy, to a
focus on developing products for our own benefit.

    Direct costs were stable at 41.9 million euros for 2000, from 41.8 million
euros for 1999. We reported a net loss for 2000 of 24.6 million euros,
compared to a net loss of 22.3 million euros for 1999.

o Oligonucleotide sales

    We reported total revenues of 15.3 million euros for 2000 including 12.5
million euros for commercial sales and 2.8 million euros for internal sales
produced for our R&D departments. These revenues showed an increase of 32%
compared to revenues of 11.6 million euros for 1999, including 8.3 million
euros for commercial sales and 3.3 million euros for internal sales produced
for our R&D departments. The 51% increase in DNA sales to third parties was
primarily due to increased sales in Asia, particularly in Singapore and Japan,
and to the establishment of our new subsidiary in Australia. The 52% increase
in direct costs, from 9.9 million euros for 1999 to 15 million euros for 2000,
was due to an increase in personnel headcount, to the progression of the
quantities produced and to investments in new subsidiaries. As a result, our
oligonucleotide sales activity reported operating income for 2000 of 0.3
million euros, compared to 1.8 million euros for 1999, a decrease of 83%.

Years ended December 31, 1999 and 1998

    We reported total revenues of 27.7 million euros for 1999, an increase of
3% compared to total revenues of 26.9 million euros for 1998. Research and
development revenues comprised 19.4 million euros, or 70% of total revenues,
while oligonucleotide sales accounted for 8.3 million euros. The slight
increase in revenues was due to a 48% increase in DNA sales which compensated
for a decrease in research and development revenues.

    Our total operating expenses increased 25% to 57.9 million euros for 1999,
from 46.3 million euros for 1998. This increase was due to the increase in
research and development expenses resulting from the continued expansion of
our technology platform. Specifically, research and development expenses for
the year were 42.4 million euros, an increase of 26% as compared to 33.7
million euros in 1998. This increase was due to the addition of new personnel
and the establishment of physiological genomics and epidemiology and
biostatistics departments in San Diego.

    Costs of goods sold amounted to 3.5 million euros for 1999, compared to
2.7 million euros for 1998. Selling and marketing expenses for 1999 amounted
to 1.5 million euros, compared to 1.2 million euros for 1998. Both items
relate exclusively to sales of oligonucleotides and the increase in 1999
reflects the increase in sales.

    General and administrative expenses increased 21% to 10.6 million euros in
1999 from 8.7 million euros in 1998 as a result of an increase in patent and
licensing activities and bringing operations on line in new geographic areas.

    The amortization of total deferred compensation over the next four years
with respect to stock options outstanding as of December 31, 1999 will amount
to approximately 2.2 million euros.


                                       40

<PAGE>
    In the area of non-operating results, we reported a net foreign exchange
gain of 3.0 million euros in 1999, as a result of the strengthening of the
U.S. dollar relative to the euro during the year.

    Effective in the third quarter 1999, we changed our accounting treatment
of Ceres from the equity method to the cost method in recognition of our
decreasing influence in Ceres. We recorded equity in loss of affiliated
companies reflecting our portion of losses generated by the development of
Ceres' research activities for only the first two quarters of 1999. As a
result, equity in loss of affiliated companies decreased from 1998 to 1999.

    We recorded an income tax benefit (research tax credit) of 4.9 million
euros for 1999 compared to 2.7 million euros for 1998. This increase was due
to an increase in research and development expenses in 1999. As of December
31, 1999, we had a research-related income tax credit receivable of 13.9
million euros, of which 3.3 million euros is recoverable in 2000, 2.9 million
euros is recoverable in 2001, 2.7 million euros is recoverable in 2002, and
5.0 million euros is recoverable in 2003.

    At December 31, 1999, our accumulated deficit was 52.8 million euros
compared to 30.7 million euros at December 31, 1998.

Net sales and operating income by principal business activity

o Research and development

    We reported total revenues of 19.4 million euros for 1999, a decrease of
8.9% compared to revenues of 21.3 million euros for 1998. The slight decline
in research and development revenues reflects (a) the payment in 1998 of a
one-time up-front license fee under our agreement with Wyeth-Ayerst
Laboratories, and (2) a decrease in research fee payments under our existing
collaboration agreements during the second half of 1999, as we had fewer
agreements under which we were receiving research funding payments during this
period. Direct costs increased 31% to 41.8 million euros for 1999, from 31.9
million euros for 1998. This increase was due to the addition of new personnel
and the establishment of physiological genomics and epidemiology and
biostatistics departments in San Diego. We reported a net loss for 1999 of
22.3 million euros, compared to a net loss of 10.6 million euros for 1998.

o Oligonucleotide sales

    We reported total revenues of 11.6 million euros for 1999, including 8.3
million euros for commercial sales and 3.3 million euros for internal sales
produced for our R&D departments, showing an increase of 38% compared to
revenues of 8.5 million euros for 1998, including 5.6 million euros for
commercial sales and 2.9 million euros for internal sales produced for our R&D
departments. The 48% increase in DNA sales to third parties was primarily due
to increased sales in Asia, particularly in Singapore and Japan, following the
establishment of our new subsidiaries in these markets. The 27% increase in
direct costs, from 7.8 million euros for 1998 to 9.9 million euros for 1999,
was due to a 28% increase in personnel headcount, and to the progression of
the quantities produced. As a result, our oligonucleotide sales activity
reported operating income for 1999 of 1.8 million euros, compared to 0.7
million euros for 1998, an increase of 156%.

Liquidity and capital resources

    Since the date of our creation until December 31, 2000, the most important
sources of cash for Genset were: (1) the proceeds of our June 1996 initial
public offering (78.6 million euros), (2) our June 2000 convertible bond
offering (55.6 million euros) described below, and (3) the issuance of shares
to Abbott (9.1 million euros in 1997 and 10.3 million euros in 2000). We
received a total of 54.7 million euros from other financing sources, including
the private placement of equity securities, the exercise of stock-options by
our employees, bank loans, conditional interest-free loans received from
ANVAR, a French government agency and French government grants. As of December
31, 2000, our long term debt (including current portion) amounted to 62.2
million euros compared with 7.2 million euros as of December 31, 1999 and 10.4
million euros as of December


                                       41

<PAGE>
31, 1998. As of December 31, 2000, cash and cash equivalents and short-term
investments (less than three months) totaled 67.8 million euros.

    For the year ended December 31, 2000, our principal uses of cash were
funding of research and development expenses, and the renewal of our
laboratory equipment in Genset's Genomics Research Center in Evry and our
subsidiary in San Diego, California.

    For the previous two years, our principal uses of cash were funding of
research and development expenses, purchases of additional equipment for
sequencing, genotyping, and bioinformatics, and expansion of our research
centers in Evry and, starting in 1999, in San Diego, California.

    Our future capital requirements, the timing and amount of expenditures and
the adequacy of available funds will depend upon many factors, including:

   o the magnitude and progress of our research and development programs,

   o our ability to license the results of our research,

   o the progress of the development and commercialization of potential drugs
     resulting from our programs,

   o competing technological and market developments

   o any mergers or acquisitions,

   o the process of preparing, filing, maintaining and enforcing patent claims
     and other intellectual property rights indent and related costs, and

   o the potential sale of the Oligonucleotide Division.

    In June of 2000, we issued convertible bonds exchangeable into new or
existing Genset shares, raising aggregate net proceeds of approximately 56
million euros. The bonds were issued at par, with a principal value of 94
euros per bond. The bond issuance was structured as a zero-coupon convertible
bond, with no interest payments payable during the 3.5-year term of the bond.
The bond accrues interest at a rate of 4.5% annually. Assuming no early
conversion or redemption, the bonds will be redeemed at their maturity date,
January 1, 2004, at a price per bond of 109.72 euros or 116.72% of their
principal value, or 64.4 million euros in the aggregate. Bondholders can
convert their bonds into Genset shares at any time at a conversion rate of one
share per bond. Alternatively, if our share price reaches certain predefined
levels, we can force early redemption or conversion of the bonds into shares.

    Based upon our current plans, we believe that our existing resources and
loans will be adequate to satisfy our capital requirements through June 2002.
Any one or more of the factors listed above could significantly affect our
expected research revenues, costs or other operating expenses and result in
our requiring additional funding before that date. We may seek funding through
additional public or private equity offerings or debt financings. This
additional financing may not be available when needed, or, if available, may
not be available of favorable terms.

The Euro

    We completed the conversion of our accounts and accounting systems into
euros in January 1999. We published our 1998 accounts in both French francs
and euros, and have, beginning with the first quarter of 1999, been
maintaining and publishing our accounts in euros only.

Inflation

    Our revenues in recent years have not been substantially affected by
inflation.


                                       42

<PAGE>
               Item 6. Directors, Senior Management and Employees

    In accordance with French law governing a societe anonyme, the Company's
affairs are managed by its Board of Directors and by its Chairman of the Board
and Chief Executive Officer, who has full authority to manage the affairs of
the Company, subject to the prior authorization of the Board of Directors for
certain decisions. French company law No 2001-420 dated May 15, 2001,
published on May 16, 2001 ("the Law of May 15, 2001"), gives to the Board of
Directors the right to elect one person to assume the position of Chairman and
Chief Executive Officer or to split the function between two different
persons. Our statuts currently do not provide for such a choice. As provided
for in the Law of May 15, 2001, we will hold an extraordinary shareholders'
meeting within 18 months of the publication of the Law of May 15, 2001, to
amend our statuts to comply with the new law.

Board of Directors

    Under French law, the Board of Directors is responsible, among other
things, for presenting accounts to the shareholders and convening
shareholders' meetings. In addition, the Board of Directors reviews and
monitors the Company's economic, financial and technological strategies. Our
statuts currently provide that the Board of Directors consists of between
three and 24 members elected by the Company's shareholders at their general
meetings. Under the Law of May 15, 2001, the Board of Directors must be
composed of no more than 18 members. French companies have three years from
the date of publication of the Law of May 15, 2001 to comply with this
requirement. Each director must own at least one share of Genset. Under French
law a director may be an individual or a corporation.

    Meetings of the Board of Directors, which are held as often as our
interests require, are normally convened and presided over by the Chairman and
the Executive Officer, who is elected by the Board of Directors. According to
French company law, if the Board of Directors has not met for more than two
months, at least one-third of the members of the Board of Directors may
request that the Chairman convene the Board of Directors regarding matters
listed on the agenda for the meeting. A quorum consists of one-half of the
members of the Board of Directors, and decisions are taken by a vote of the
majority of the members present or represented by other members of the Board
of Directors. A director may give a proxy to another director, but a director
cannot represent more than one other member at any particular meeting. Members
of the Board of Directors represented by another member at meetings do not
count for purposes of determining whether a quorum exists. A resolution was
adopted at the Company's annual shareholders meeting held on June 27, 2001, to
amend the statuts to provide for the possibility for any director to attend,
participate and vote at any meeting by videoconference, subject to applicable
regulations.

    Directors are required to comply with applicable law and Genset's statuts
(or charter and by-laws). Under French law, the Chairman of the Board and
Chief Executive Officer may be responsible individually for actions taken by
such person that are contrary to the Company's interests, and the directors
may be responsible for such actions both individually and jointly.

    The French Commercial Code (Code de Commerce) strictly forbids loans by
the Company to a director. Nor may any company provide overdrafts for
directors or guarantee any director's obligations. This prohibition also
applies to specified executive officers (directeurs generaux), permanent
representatives of companies on the Board of Directors, spouses or heirs of
such persons, and other intermediaries.

    The French Commercial Code requires directors who are considering, either
directly or indirectly, personally or through an intermediary, entering into
an agreement with the Company to inform the Company's Board of Directors as
well as its auditors before the transaction is consummated. French law also
requires such an agreement to be authorized by the Board of Directors and the
director in question may not vote on the issue. French law further requires
such an agreement to be submitted to an ordinary general meeting for approval
once entered into, upon presentation of a special report from the Company's
auditors. Any agreement entered into in violation of these requirements may be
voided by the Commercial Court at the request of the Company or of any
shareholder, if such agreement has caused damages to the Company.


                                       43

<PAGE>
    The following table sets forth the names of the directors of the Company,
their current positions with the Company, the dates of their initial
appointment as directors and the expiration dates of their current term.
Genset's statuts provide that each director is elected for a maximum six-year
period. Directors need not be French nationals and there is no limitation on
the number of terms that directors may serve.

<TABLE>
<CAPTION>
                                                                                                       Initially           Term
Name                                  Age       Current Positions                                     Appointed(1)        Expires
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                    <C>                                                                <C>              <C>
Andre G. Pernet                        55       Chairman of the Board and                                 2000             2006
                                                Chief Executive Officer
                                                (President Directeur General)

Daniel Cohen                           50       Director, Chief Scientific Officer and                    1996             2002
                                                Directeur General

Pascal Brandys                         42       Director                                                  1989             2004

Laurent Degos                          55       Director and President of the Scientific                  1989             2004
                                                Advisory Board

GIMD (represented by
Benoit Habert(2))                      35       Director                                                  1994             2006

Martyn Greenacre(2) (3)                59       Director and President of the Compensation                1993             2005
                                                Committee

Edmund Olivier de Vezin(3)             63       Director                                                  1994             2002

Dominique Vernay                       53       Director                                                  2001             2007
</TABLE>

---------------

(1) Dates specified for directors representing corporations relate to the
    entity represented.

(2) Member of the Audit Committee.

(3) Member of the Compensation Committee.

    Andre G. Pernet, Ph.D., spent his entire pharmaceutical career from 1973
through 1999 at Abbott Laboratories. Dr. Pernet served in several research
management positions after joining Abbott's pharmaceutical products division
in Chicago in 1980. Dr. Pernet was elected corporate officer and vice
president, pharmaceutical products research and development in 1994 heading an
organization of 2700 scientists with an annual budget responsibility of $600
million. Among his accomplishments is the worldwide development of the
antibiotic Biaxin (clarithromycin) the sales of which peaked at $1.2 billion.
He also spearheaded the AIDS research at Abbott and developed Norvir, one of
the three breakthrough protease inhibitors which together reduced mortality in
AIDS patients by 74%. In February 1999, Pernet's team was awarded the Prix
Galien International, which is considered the highest distinction for medical
and scientific contribution. Dr. Pernet has degrees in management, chemical
engineering and a doctorate in chemistry.

    Daniel Cohen, M.D., Ph.D., joined the Company in 1996 as Chief Genomics
Officer and Directeur General. Professor Cohen is a Professor of Medical
Genetics at the University of Paris VII. Before joining the Company, Professor
Cohen was a co-founder and Scientific Director of CEPH. Professor Cohen was
also a co-founder and Scientific Director of Genethon and has served as a
scientific advisor for another genomics company. He is Doctor Honoris Causa of
Shanghai, Xi'an and Ben Gourion University, and has received UNESCO's Prize of
New Human Rights, the Daniel Bauperthuy Prize from the French Academy of
Sciences for epidemiology, and the Grand Prize for Medical Literature for the
book, The Genes of Hope, which has been translated into seven languages.
Professor Cohen received the Legion of Honor in 1998 and the American Academy
of Achievement's Golden Plate Award in 1999. He has authored more than 100
scientific publications. Professor Cohen has an M.D. and a Ph.D. in Immunology
and Immunogenetics from the University of Paris VII.


                                       44

<PAGE>
    Pascal Brandys is the President of Biobank, a global investment company in
early stage life sciences. Mr. Brandys was the Chairman of the Board of
Directors and Chief Executive Officer of Genset from 1989 when he co-founded
the Company to July 2000. Mr. Brandys was also the first President of France
Biotech, the professional association of French biotechnology companies. Mr.
Brandys is a Director of Ceres Inc., a private plant genomics company; Ilog
S.A., a public optimization software company; the French National Scientific
Research Center or Centre National de la Recherche Scientifque and several
private biotechnology companies. Prior to founding Genset, from 1988 to 1989,
Mr. Brandys was a Partner at Eurocontinental Ventures in London. At
Eurocontinental Ventures, Mr. Brandys managed technology and biotechnology
investments in Europe. In 1986, he founded and became Chief Executive Officer
of Unihon, a venture capital fund acquired in 1989 by Credit Agricole.
Mr. Brandys is a graduate of the Ecole Polytechnique, has an MS in Civil
Engineering from the Ecole Nationale des Ponts et Chaussees and an MS in
Economic Systems from Stanford University.

    Laurent Degos, M.D., Ph.D., co-founder of the Company and the President of
its Scientific Advisory Board, is a Professor of Hematology at the University
of Paris VII-Denis Diderot. He is also Director of the University's Institute
of Hematology and Head of the Hematology Department (adult leukemia) at
Hopital Saint-Louis in Paris. Former Director of INSERM 93 Unit
(immunogenetics of transplantation), and past president of the National
Council of French Universities Committee of Hematology, Professor Degos is
president of the Scientific Council of the Institute of Health Policy and the
Paris Hospitals Scientific Board. Corresponding member of French Academy of
Sciences, Laurent Degos is chief editor of The Hematology Journal and the
author of over 200 publications, including numerous books. The recipient of a
number of international honors and awards (including from the General Motors
Cancer Foundation in 1994), Laurent Degos has a Ph.D. in Human Biology from
the University of Paris.

    Benoit Habert is President of Dassault Development, the venture capital
company of Groupe Insdustriel Marcel Dassault ("GIMD"). Mr. Habert is also a
member of the Board of Directors of GIMD. Prior to joining Dassault
Development, he was a member of the New Issue Department at Banque Indosuez,
which he joined in 1991. Mr. Habert has two masters degrees in business and
tax law from the University of Paris and holds an M.B.A. from INSEAD.

    Martyn Greenacre joined Delsys Pharmaceutical Corp. as President and Chief
Executive Officer in 1997. Previously he was at Zynaxis Inc. as President and
Chief Executive Officer from 1992 to 1997 and at SmithKline Beecham plc since
1973, where from 1989 he was responsible for the strategic direction and
operational management of pharmaceutical subsidiaries in Europe and for
planning and executing European aspects of the merger between SmithKline
Beckman and Beecham Pharmaceutical. He is also a director of Cephalon Inc.,
Creative BioMolecules and Curis, Inc. Mr. Greenacre received his M.B.A. and
A.B. degrees from Harvard University.

    Edmund Olivier de Vezin has been a partner at Oxford Bioscience Partners
L.P. ("Oxford Bioscience Partners") since 1992. Prior to entering the venture
capital field in 1984, he managed domestic and international operations for
Diamond Shamrock, Corning Glass Works and Conoco Chemicals. He is a Life
Fellow and Member of the National Council of the Salk Institute and a former
Chairman of Biotechnology Venture Investors Group. Mr. Olivier de Vezin has an
M.B.A. from Harvard University and a B.S. in Chemical Engineering from Rice
University.

    Dominique Vernay was elected to the Board of Directors by the June 27,
2001 general assembly of shareholders. Mr. Vernay spent his entire career from
1973 to date at Thomson-CSF (now Thales). In 1977, he led a project on new
telecommunications systems for the air force and navy and from 1981 to 1989
was first Head of the Department then Technical Director of the
Telecommunication Division, developing military communications. From 1991 to
1995, he was the Director of the Simulation Department and in 1996 was
appointed Managing Director of Thomson Training & Simulation, based in the
United Kingdom. Since September 1996, he has been the Technical Director of
Thales. Mr. Vernay is an engineering graduate of the Ecole superieure
d'electricite.


                                       45

<PAGE>
Executive officers

    The Board of Directors has the power to appoint and remove, at any time,
the Chairman of the Board and/or the Chief Executive Officer. The Law of May
15, 2001 gives to the Board of Directors the right to elect one person to
assume the position of Chairman and Chief Executive Officer or to split the
function between two different persons. Our statuts currently do not provide
for such a choice. As provided for in the Law of May 15, 2001, we will hold an
extraordinary shareholders' meeting within 18 months of the publication of the
Law of May 15, 2001, to amend our statuts to comply with the new law. Pursuant
to Genset's statuts, the Chairman of the Board and Chief Executive Officer has
broad powers to act on behalf of the Company and to represent the Company in
dealings with third parties, subject only to those powers expressly reserved
to the Board of Directors or the shareholders. The Chairman of the Board and
Chief Executive Officer determines and is responsible for matters such as the
implementation of the goals, strategies and budget for the Company's different
business activities.

    Pursuant to French law and Genset's statuts, the Board of Directors can
appoint up to five Directeurs Generaux (renamed Directeurs Generaux Delegues
pursuant to the Law of May 15, 2001) proposed by the Chairman and Chief
Executive Officer, whose powers and responsibilities are determined by the
Board, together with the Chief Executive Officer. Each such Directeur General
Delegue generally has broad powers to represent and bind the Company in
dealing with third parties. Pursuant to the Law of May 15, 2001 and when it
will be implemented by the Company, if the function of Chairman and Chief
Executive Officer is split between two different persons, the right to propose
to the Board the appointment of one or several Directeurs Generaux Delegues
will belong to the Chief Executive Officer.

     See "Item 3. Key Information -- Risk factors -- We are highly dependent on
the principal members of our management and scientific staff, and -- We are
highly dependent on key employees. If we lose or are unable to attract and
retain qualified personnel, our operations will be seriously disrupted."

    While most of our personnel have signed employment contracts, which
contain non-compete and confidentiality clauses, we cannot be certain that
these provisions will provide meaningful protection for the Company's know-how
or technology or adequate remedies in case of breach. In addition, our
Chairman and Chief Executive Officer and our Directeur General Delegue have
not signed employment contracts or non-compete or confidentiality agreements
and none of our employees in the United States have signed non-compete
agreements. We do not have key-man life insurance coverage during 2000 for our
Chairman of the Board and Chief Executive Officer and our Directeur General
Delegue.

    The following table sets forth the names of the executive officers and
senior management of the Company, their current positions with the Company and
the first dates as of which they served as executive officers or senior
management of the Company.

Executive Officers

<TABLE>
<CAPTION>
Name                                     Age             Current Position(s)                                                  Since
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                      <C>             <C>
                                                         Chairman of the Board of Directors and Chief
Andre Pernet                             55              Executive Officer (President Directeur General)                       2000
                                                         Director, Chief Scientific Officer and Directeur General
Daniel Cohen                             50              Delegue                                                               1996
Robert Abarbanel                         50              Chief Information Officer and Chief Technical Officer                 2001
Jonathan Burnham                         34              General Counsel                                                       1998
Ilya Chumakov                            51              Vice President, Mapping                                               1996
Jean Elias                               45              Vice President, Human Resources                                       2000
Bruno Poddevin                           36              Vice President, Oligonucleotides Division                             1992
John Varian                              42              Vice President, Chief Financial Officer                               2000
Jeffery Vick                             39              Vice President, Business Worldwide Development & Licensing            2001
</TABLE>



                                       46

<PAGE>
    Andre Pernet, Ph.D. See " -- Board of Directors."

    Daniel Cohen, M.D., Ph.D. See " -- Board of Directors."

    Robert Abarbanel, M.D., Ph.D, Chief Information Officer and Chief
Technology Officer, joined the Company in June 2001. Prior to joining the
Company, Dr. Abarbanel was a Senior Manager in Mathematics and Computer
Technology, Phantom Works, The Boeing Company, in Seattle, Washington. He
obtained his undergraduate degree in physics and biology from the California
Institute of Technology (1971), and his M.D. from the University of Michigan
(1977). He practiced Pediatrics in San Francisco while finishing his doctoral
degree in Medical Information Science at the University of California, San
Francisco. Bob worked for 7 years at IntelliGenetics and IntelliCorp, 2 years
at Apple Computer, and 12 years at The Boeing Company. At Boeing, Bob was
responsible for Boeing's major achievements in digital mockup.

    Jonathan Burnham joined the Company in 1998 as Director of Legal Affairs
and was named General Counsel in 2000. From 1994 to 1997, he was an associate
with the law firm of Shearman & Sterling in their New York, London and Paris
offices, practicing in the fields of corporate finance and mergers and
acquisitions. From 1993 to 1994, he was a trainee at the Legal Service of the
European Commission. A member of the New York State Bar, Mr. Burnham received
a B.A. from Dartmouth University, LL.B. (common law) and B.C.L. (civil law)
degrees from McGill University and a Masters in International Law from the
University of Aix-Marseille.

    Ilya Chumakov, Ph.D., Vice President, Mapping, joined the Company in 1996.
Prior to joining the Company, Dr. Chumakov was employed as a research
scientist at CEPH (1990-1996), most recently as its Scientific Director,
where, together with Professor Cohen, he lead the effort to produce the first
physical map of the human genome. Before joining CEPH, Dr. Chumakov was the
leading staff scientist at the Institute of Molecular Biology in Moscow, where
he worked from 1977 to 1990. He received a Ph.D. from Moscow State University
in 1971 and a D.Sc. in Molecular Biology from the Institute of Molecular
Biology of the Russian Academy of Sciences in Moscow in 1990. He has authored
more than 70 scientific publications.

    Jean Elias, Vice President Human Resources, holds a master degree in
social sciences of employment, and is a specialist in human resources
management. Prior to joining Genset in 2000 and since 1973, Jean worked with
Rhone Poulenc, now Aventis. From 1992 to 1997, he was Human Resources Manager
with Rhone Poulenc Rorer SA, then held the same position from 1997 to 1999
with Rhone Poulenc International. Thereafter Jean became Human Resources
Manager of the new Aventis Pharma International Group (11 000 employees, $1.5
billion turnover), while remaining actively involved in defining the strategy
of Rhone Poulenc International as member of the Management Committee.

    Bruno Poddevin, Ph.D., joined the Company in 1992 and became Director of
Production in 1994 and Vice President, Oligonucleotides Division in 1997.
Prior to joining the Company, he was a post-doctoral fellow at the National
Cancer Institute (Bethesda, MD). Dr. Poddevin has a Ph.D. in Molecular Biology
from the University of Paris-Orsay and an M.S. in Engineering from the Ecole
Centrale de Paris. He has authored more than 15 publications.

    John Varian, Chief Financial Officer, joined the Company in May 2000.
Prior to joining the Company, he was Senior Vice President of Finance and
Administration at Elan Pharmaceuticals, Inc. He moved into that position in
August 1998 after Elan Corporation's acquisition of Neurex Corporation, where
he was Vice President and Chief Financial Officer since May 1997. Prior to
joining Neurex and since August 1991, Mr. Varian was Vice President and Chief
Financial Officer of Anergen Inc. Mr. Varian was a Senior Manager in the Audit
Department of Ernst & Young. He is a Certified Public Accountant and graduated
from Western Michigan University in 1980, with a Bachelors of Business
Administration.

    Jeffery S. Vick, joined the Company in January 2001 as Vice President
Worldwide Business Development and Licensing. Prior to joining the company he
was Vice President of Corporate Development at Cytovia, Inc. where he
negotiated significant collaborations with BioChem Pharma, AXYS
Pharmaceuticals, and Aurora Biosciences. He moved into that position in July
of 1998 from


                                       47

<PAGE>
Sanderling Venture Capital, where he was Director of New Venture Management.
From 1992 through 1996, Mr. Vick was Director of Business Development at
DepoTech Corporation with responsibility for Business Development,
Intellectual Property, and Market Research. Previously he worked with Advanced
Cardiovascular Systems (now known as Guidant) and performed biomedical
research at the University of California, San Diego Cancer Center. He holds an
MBA from Stanford, an MS Chemistry degree from UC San Diego and a BS Chemistry
from University of Virginia.

Compensation of directors and officers

    The aggregate amount of compensation paid by the Company to all of its
directors as a group (seven persons in 2000, including four independent
directors who receive limited compensation for services as directors, and
reimbursement of expenses incidental to their attendance at Board of Directors
meetings) for services in all capacities for 2000 was approximately 1.4
million euros. The aggregate amount of compensation paid by the Company to all
of its executive officers (excluding directors) as a group (17 persons) for
their services in 2000 was approximately 2.6 million euros.

    The Company does not have service contracts with its directors that
provide benefits upon termination of employment, beyond their legal
entitlement in accordance with applicable employment laws. The Company does
not contribute to any pension, retirement or other plans for its executive
officers or senior management.

Shares owned by directors and officers

    As of March 31, 2001, the total number of shares owned by directors of the
Company as a group (seven persons) and by executive officers (excluding
directors) of the Company as a group (nine persons) was 399,417 and 66,550
respectively, or approximately 4.9% and 0.8%, respectively, of Genset's
outstanding shares. If such directors and executive officers exercised all
their outstanding options and warrants to purchase shares described below
(including options that have not yet vested), they would own as a group 12.1%
of Genset's fully diluted share capital, of which 289,783 shares or 3.1% would
be held by the two directors that are executive officers of the Company,
416,634 shares or 4.5% of the share capital would be held by the five other
directors, and 417,250 shares or 4.5% of the share capital would be held by
executive officers (excluding directors) as a group (nine persons).

Options to purchase securities from registrant or subsidiaries

Stock option plans

    Pursuant to resolutions adopted by the shareholders on October 25, 1994,
March 19, 1996, April 15, 1996, May 22, 1997, May 19, 1999 and June 16, 2000,
the Board of Directors has granted options to purchase Ordinary Shares to
certain officers and employees of the Company. The following table sets out
certain information relating to the various option plans in effect, as of
March 31, 2001:

<TABLE>
<CAPTION>

                                                             Options     Options    Ordinary    Option Exercise
                                                  Options     Still       Out-       Shares        Price per          Expiration
Option Plan                                      Issuable    Issuable   Standing    Issuable     Share (euros)        Date(1)(2)
  -----------                                    --------    --------   --------    --------     -------------        ----------

<S>                                              <C>         <C>        <C>         <C>         <C>               <C>
March 19, 1996                                    700,000          0(3)    1,939     193,900(4)    25.29(5)          March 31, 2008

April 15, 1996                                    200,000          0(3)      579      57,900(4)    29.79(6)        January 31, 2008

May 22, 1997                                      400,000          0(3)  109,744     109,744       58.52(7)          March 31, 2008

May 19, 1999                                      500,000     14,825     447,450     462,275       73.32(8)       February 28, 2009

June 16, 2000                                     336,356     50,856     285,500     336,356       63.64(9)       February 28, 2010
</TABLE>

---------------

(1) The options under each plan have various expiration dates. In each case,
    the latest expiration date of options already issued under the plan is
    indicated.

(2) All plans contain restrictions limiting the exercise of options after the
    employee is no longer an employee of the Company.


                                       48

<PAGE>
(3) Pursuant to the June 16, 2000 extraordinary shareholders' meeting, the
    authorization to issue these remaining options was canceled and replaced
    by a new authorization; as a consequence, these options are no longer
    issuable.

(4) Adjusted to reflect the 100-for-1 share split approved by the shareholders
    on April 29, 1996.

(5) The exercise price of the options depends on the date at which they were
    issued. The price indicated is the weighted average exercise price of the
    options outstanding under the plan. The exercise prices of the outstanding
    options range from 24.39 to 62.71 euros.

(6) The exercise price of the options depends on the date at which they were
    issued. The price indicated is the weighted average exercise price of the
    options outstanding under the plan. The exercise prices of the outstanding
    options range from 26.23 to 62.71 euros.

(7) The exercise price of the options depends on the date at which they were
    issued. The price indicated is the weighted average exercise price of the
    options outstanding under the plan. The exercise prices of the outstanding
    options range from 38.72 to 79.43 euros.

(8) The exercise price of the options depends on the date at which they were
    issued. The price indicated is the weighted average exercise price of the
    options outstanding under the plan. The exercise prices of the outstanding
    options range from 34.70 to 125.48 euros.

(9) The exercise price of the options depends on the date at which they were
    issued. The price indicated is the weighted average exercise price of the
    options outstanding under the plan. The exercise prices of the outstanding
    options range from 46.60 to 82.38 euros.

    In addition, at their June 27, 2001 extraordinary general meeting, the
shareholders adopted a new stock option plan, the 2001 Stock Option Plan,
under which the Board of Directors may grant stock options to the officers and
employees of the Company enabling their beneficiaries to subscribe for up to
300,000 new shares.

    As of March 31, 2001, an aggregate of 259,500 shares could be purchased
pursuant to outstanding options held by the Directeurs Generaux of the Company
as a group (two persons) and an aggregate of 350,700 shares could be purchased
pursuant to outstanding options held by the other executive officers of the
Company as a group (nine persons). Other than GIMD, an independent director,
none of the Company's directors or executive officers own more than 1% of the
Company's outstanding shares or have options that would, taking into account
their current shareholding, entitle them to own more than 1% of the Company's
outstanding shares.

    In June 1999, the Company's Board of Directors decided to modify all
outstanding stock options to provide that they would vest and become
immediately exercisable in the event of a change of control of Genset. This
acceleration would come into effect at the moment of the completion of any
transaction which results in a change of control of the Company. However, the
Board has reserved the right, which it may exercise at any moment prior to the
definitive completion of any such transaction, to cancel the acceleration of
the right to exercise stock options, and also to decide upon any other
treatment of the stock options which would be consistent with law and with the
terms and conditions of the stock options approved by the shareholders.

Warrant plans

    Pursuant to resolutions adopted on July 27, 1992, October 25, 1994, March
28, 1995, March 19, 1996, May 22, 1997, May 19, 1998, August 19, 1998, May 19,
1999 and June 16, 2000, the shareholders have authorized the issuance of
warrants to purchase shares to certain directors and consultants of the
Company and certain other non-employees. The following table sets out certain
information relating to the various warrant plans in effect, as of March 31,
2001:

<TABLE>
<CAPTION>

                                                                         Warrants    Ordinary    Warrant Exercise
                                               Warrants      Warrants      Out-       Shares        Price per          Expiration
Warrant Plan                                  Authorized    Subscribed   Standing    Issuable     Share (euros)         Date(1)
  ------------                                ----------    ----------   --------    --------     -------------         -------

<S>                                           <C>           <C>          <C>         <C>         <C>                <C>
May 22, 1997                                     4,000         4,000       1,000         900          38.11            May 21, 2002

May 19, 1998                                    32,000        30,000      16,000      16,000          87.51            May 18, 2003

August 19, 1998                                  2,000         2,000       2,000       2,000          83.31         August 18, 2003

May 19, 1999                                     4,000         4,000       4,000       4,000          32.85            May 18, 2004

June 16, 2000                                   15,000         8,000       8,000       8,000          80.49           June 16, 2005
</TABLE>

---------------


                                       49

<PAGE>
(1) The warrants under each plan may have various expiration dates. In each
    case, the latest expiration date of warrants issued under the plan is
    indicated.

    In addition, at their June 27, 2001 extraordinary general meeting, the
shareholders granted new warrants to Genset's independent directors enabling
them to subscribe for up to an aggregate of 10,000 new shares at a price of
12.90 euros per share. Following this meeting, and assuming all 10,000
warrants will be purchased by the independent directors, an aggregate of
40,900 shares could be purchased pursuant to outstanding warrants held by
directors (other than executive officers) of the Company as a group (five
persons), and no outstanding warrants were held by executive officers of the
Company.

Committees of the Board of Directors

Scientific Advisory Board

    The Company has organized a Scientific Advisory Board ("SAB") composed of
six individuals with expertise in the fields of molecular biology, genetics,
obesity and diabetes and central nervous system diseases. The Company consults
with individual members of the SAB periodically when advice is required in
their particular area of expertise. In addition two specific committees of the
SAB, one in the field of metabolic disorders and one in the field of central
nervous system diseases, meet regularly with company scientists and management
working specifically in each of these fields, to review ongoing programs and
advise on strategy. The members of these two committees receive a yearly
retainer fee and are reimbursed for expenses incidental to their attendance of
these meetings. In addition, certain members of the SAB have been granted
warrants. The members of the SAB are:

    Jean-Francois Bach, M.D., Professor of Immunology at Necker Hospital in
Paris. He is also Director of an INSERM Unit devoted to the genetics and
treatment of autoimmune diseases. More recently he has developed major
interest in the genetic diseases of the adult, notably polygenic diseases.
Professor Bach is member of the French Academy of Sciences and of the French
Academy of Medicine. He has received several major national and international
scientific prizes.

    Laurent Degos, M.D., Ph.D., President of the Scientific Advisory Board.
See " -- Board of Directors."

    Harvey Lodish, Ph.D., Member, Whitehead Institute for Biomedical Research,
and Professor of Biology and Bioengineering, Massachusetts Institute of
Technology, Cambridge, MA. Dr. Lodish is a Member of the National Academy of
Sciences and a Fellow of the American Academy of Arts and Sciences. Author of
over 430 publications, he received a MERIT award from the National Institute
of Diabetes and Digestive and Kidney Diseases, the Stadie Award from the
American Diabetes Association, a Guggenheim Fellowship, and an honorary D.Sc.
from Kenyon College. Dr. Lodish is co-author of the textbook Molecular Cell
Biology and is on the editorial board of Proceedings of the National Academy
of Sciences.

    Jerrold M. Olefsky, M.D., Professor of Medicine, University of California
San Diego, School of Medicine, and Head of the Division of Endocrinology/
Metabolism. Dr. Olefsky is the Medical/Scientific Director of the Whittier/
UCSD Diabetes Institute and is the Director of the Special Diagnostic and
Treatment Unit at the Veterans Administration Medical Center, La Jolla. He is
a member of the Institute of Medicine and the recipient of a MERIT award from
the National Institute of Health. Dr. Olefsky has authored 383 original
articles, 76 chapters/invited articles in textbooks and is the Associate
Editor of the Journal of Biological Chemistry.

    Joseph T. Coyle, M.D., Ph.D., Chairman of the Consolidated Department Of
Psychiatry at Harvard Medical School since 1991. Dr. Coyle is a member of the
Institute of Medicine of the National Academy of Sciences, a fellow of the
American Psychiatric Association, a fellow of the American College of
Psychiatry, served on the National Advisory Mental Health Council for the
National Institute of Mental Health, and is a Past President of the Society
for Neuroscience. Author of over 400 publications, his research contributions
have been recognized by the reception of the John Jacob Abel Award from the
American Society for Pharmacology and Experimental Therapeutics, The Gold
Medal Award from the Society for Biological Psychiatry, the Foundation Fund
Research Award


                                       50

<PAGE>
from the American Psychiatric Association, and the McAlpin Award from the
National Mental Health Association.

    Daniel R. Weinberger, M.D., Chief of the Clinical Brain Disorders Branch
at the National Institute of Mental Health (NIMH) in Bethesda, Maryland. He is
Founder, Director and Consultant of Biognosis U.S. Inc. (Bethesda, Maryland),
a translational biotechnology company engaged in the discovery of genes
related to neuropsychiatric disorders. He is the recipient of many honors and
awards, including the Adolf Meyer Prize of the American Psychiatric
Association, the Research Prize of the World Federation of Societies of
Biological Psychiatry, the Gold Medal Award of the Society of Biological
Psychiatry, the Foundation's Fund Prize from the American Psychiatric
Association, and the Lieber Prize of the National Alliance for Research on
Schizophrenia and Affective Disorders. He is Past President of the Society of
Biological Psychiatry. He sits on the editorial boards of 16 scientific
journals. He has published over 400 scientific publications and has authored
or edited three books.

Compensation Committee

    The Compensation Committee makes recommendations to the Board of Directors
with respect to compensation paid and options granted to executive officers
and held two meetings in 2000. In 2000, members were paid 44,439 euros.
Starting in 2001, members will not be paid any amount in addition to their
directors' fees.

Audit Committee

    The Audit Committee reviews and comments on the Company's statutory and
consolidated financial statements prior to their submission to the Board of
Directors, makes sure of the accounting principles' soundness and permanence,
reviews internal and external audit activities, and performs specific
assignments as requested by the Board of Directors. In 2000, members were paid
12,120 euros. Starting in 2001, members will not be paid any amount in
addition to their directors' fees.

Employees

    As of May 31, 2001, we had 500 full-time employees, including 382 in
France (Paris and Evry), 72 in San Diego, California, 30 in Kyoto, 8 in
Singapore and 8 in Australia. The table below sets forth the total number of
employees at year-end and the percentage of such employees by geographical
market from 1999 through 2000.

<TABLE>
<CAPTION>

                                                                 December 31,
                                                             -------------------

                                                             1998    1999   2000

                                                             ----    ----   ----
<S>                                                          <C>     <C>    <C>
France...................................................     415    434     427

USA......................................................      54     60      66

Japan....................................................       5     11      18

Singapore................................................       5      7       8

Australia................................................      NA     NA      10

                                                             ----    ----   ----
 Total...................................................     479    512     529


</TABLE>


    This total includes 243 dedicated research and development personnel. 208
of these 500 employees were dedicated to the Genset Oligos division and 49 had
general and administrative responsibilities.

    During the first half of 2001 and in the context of our new strategy to go
from gene to drug and focus as efficiently as possible on generating a
pipeline of drug targets and candidates for our own account, we implemented a
social plan at our Genomics Research Center in Evry, France. This social plan,
which is now complete, resulted in a decrease of approximately 80 employees at
the Evry site, principally employees involved in sequencing and mapping
activities, which are no longer required given our subscription to the Celera
database. At the same time, our new activities require the strengthening of
certain qualifications, which will result in the creation of approximately 30
new jobs. We anticipate that, following these new hires, our employee
headcount will remain relatively stable with approximately 350 employees in
France through at least the end of 2001. While we have been successful in
attracting and retaining skilled and experienced scientific personnel, we may
not be able to continue to do so.

                                       51

<PAGE>
    Employment contracts are in place for all personnel other than the two
directeurs generaux, who, under French law, may not have employment contracts.
The employment contracts with all of our French employees are subject to the
provisions of the collective agreement for the chemical industries. Some of
our French employees have been represented by the French union CGT since
November 1998. We believe the establishment of union representation to be
normal in the ordinary course of business for a French company of our size. As
required by French law, our management holds periodic meetings with
representatives of employees. We consider relations with our employees to be
good.

    Pursuant to a French law which took effect on February 1, 2000, all
employers of more than 20 employees in France are required to implement a 35-
hour work week, with retroactive effect to January 1, 2000. On March 23, 2000,
we signed an agreement with our employees' union representatives specifying
the measures to be implemented at Genset to comply with this new legislation
and have implemented these measures.



           Item 7. Major shareholders and related party transactions


Major shareholders

    At December 31, 2000, there were 8,104,850 shares outstanding of which
2,778,638 were represented by 8,335,914 ADSs. At March 31, 2001, there were
8,104,850 shares issued and outstanding of which 2,793,498 were represented by
8,380,494 ADSs. The fully diluted number of shares at such date, assuming the
exercise of all authorized options and warrants (whether or not allocated by
the Board of Directors), was 9,295,925.

    The following table sets forth certain information regarding all owners of
greater than 5% of the Company's shares as of March 31, 2001 (based on the
most recent information available to the Company):

<TABLE>
<CAPTION>

                                                                         Number of Ordinary Shares    Percentage of   Percentage of
Shareholder                                                                        Owned                  Class       Voting Rights
--------------------------------------------------                       -------------------------    -------------   -------------
<S>                                                                      <C>                          <C>             <C>
OppenheimerFunds, Inc.(1)                                                        1,329,500                16.4%           16.4%
</TABLE>

---------------

(1) Held by registered investment companies advised or subadvised by
    Oppenheimer Funds, Inc. at March 31, 2001.

Significant changes

    On May 31, 2000, JP Morgan, through its investment management subsidiaries
JP Morgan Investment Management and JP Morgan Securities, held 6.4% of the
total number of outstanding shares of the Company on that date, based on the
most recent information then available to the Company. On March 31, 2001, its
percentage ownership of the Company's shares has been reduced to below 5%. As
of May 31, 2000, the reported percentage of the Company's shares held by
OppenheimerFunds, Inc., was 14.7%, compared to 7.25% as of May 31, 1999. As of
May 31, 2000, the percentage ownership of three other shareholders of the
Company, including two investment funds and one director, had decreased to
below 5% from the levels reported as of May 31, 1999.

Shares held in the United States

    For information on shares held in the United States, see "Item 9. The
Offer and Listing-- Trading history of Genset's shares."


                                       52

<PAGE>
Related party transactions

    The Company has, from time to time and in the normal course of its
business, entered into intra-group arrangements with its subsidiaries,
regarding, generally, sales and purchases of products and the provision of
corporate services, including research and development, patent and business
development activities. These arrangements are entered into on an arm's length
basis in accordance with the Company's business practices.

    In 2000, following the acquisition of a 75% interest in Genset Pacific Pty
Ltd., Genset's subsidiary in Australia, the Company extended an interest-free
loan of 197,394 euros to Genset Pacific for general corporate purposes.

    At December 31, 2000, the Company had no outstanding loans to directors or
executive officers.

                         Item 8. Financial Information

Consolidated statements and other financial information

    See "Item 18. Financial Statements," for a list of the financial
statements filed with this Annual Report.

Dividend policy

    The declaration and amount of dividends to be paid on the shares in
respect of any period are subject to the decision by the Company's
shareholders at an ordinary general meeting. Pursuant to French law, payment
of dividends must be made within nine months following the end of the fiscal
year to which they relate.

    Under French law and the Company's statuts, the Company's unconsolidated
statutory net income in each fiscal year, as increased or reduced, as the case
may be, by any profit or loss of the Company carried forward from prior years,
less any contributions to legal reserves, is available for distribution to the
shareholders of the Company as dividends, subject to other applicable
requirements of French law and the Company's statuts.

    We currently intend to retain all earnings for use in the operation and
expansion of our business and correspondingly do not anticipate paying any
cash or share dividends on our shares in the foreseeable future. We have never
declared or paid cash or share dividends on our shares. Dividends if and when
declared by the Company will be declared in euros but paid to holders of ADSs
in dollars.

    Dividends paid to ADR holders will be net of fees and charges of the
depository, net of French withholding tax and may be affected by exchange rate
fluctuations. See " Item 3. Key Information -- Exchange rate information" and
"Item 10. Additional Information -- Taxation."

    Dividends paid to holders of shares or ADSs who are not residents of
France generally will be subject to French withholding tax at a rate of 25%.
Under the Treaty between France and the United States for Avoidance of Double
Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income
and Capital signed on August 31, 1994, and subject to certain procedures and
exceptions, such withholding tax may be reduced to 15% for holders who are
resident of the United States. French residents are entitled to a tax credit
known as the avoir fiscal, the amount of which depends of the recipient of the
dividends. Under certain tax treaties entered into between France and other
countries, including the United States, such avoir fiscal may, in certain
circumstances, be paid, net of withholding tax, to non-French residents. See
"Item 10. Additional Information--Taxation--French taxation--Taxation of
dividends" and "--Taxation of U.S. investors--Taxation of dividends."


                                       53

<PAGE>
Legal proceedings

    We are currently involved in a legal proceeding with the Centre d'Etude du
Polymorphisme Humain, or CEPH, relating to a 1996 collaboration agreement.
Under the agreement, we provided research funding for three years for CEPH's
research on aging. In exchange, CEPH gave us a right of first refusal, valid
until April 30, 1999 (subject to the dispute described below), covering the
use of any research of CEPH on aging diseases, other than research being
performed in connection with certain pre-existing agreements. CEPH brought a
claim against us before the Paris court of first instance (Tribunal de Grande
Instance) for the payment of all the installments for research funding
associated with the aging program that are due under the agreement. We
consider that the research reports provided by CEPH do not provide
satisfactory assurance that CEPH has performed the contracted research on
aging or has maintained an appropriate level of research for the aging
program. On March 30, 1998, an expertise ordered by the court determined that
the first research reports provided by CEPH were not consistent with its
obligations under the agreement. Based on this determination, we filed a
counter-claim to recover the research funding amounts already paid to CEPH. A
subsequent court decision dated March 31, 1999 has provided for a further
expertise to be conducted in respect of the more recent research reports
provided by CEPH. This later expertise concluded that the reports taken as a
whole indicated a level of research that was consistent with the CEPH's
obligations under the agreement. We have contested the conclusions of the
second expertise, noting that the report of the expertise itself highlighted
numerous shortcomings in the organization and research of the CEPH's aging
program. A further hearing is scheduled for September 2001. As in any judicial
proceeding, we may not be successful in our claim and defense against CEPH's
claim. Consequently, we have made provisions in our accounts for the aggregate
amounts that we could be required to pay. Accordingly, the outcome of this
case could not have a material adverse impact on our results of operations. A
negative outcome could however have an adverse impact on our cash position.
The total amount we could be obliged to pay in the event of a negative outcome
is approximately 3.9 million euros.

    We are not aware of any other legal proceeding or threatened legal
proceeding which could materially harm our business, financial condition or
results of operations, either individually or in the aggregate.

Significant changes

    For information on the Company's unaudited financial results for the three
month period ended March 31, 2001, see "Item 5. Operating and Financial Review
and Prospects -- Recent developments."


                                       54

<PAGE>
                         Item 9. The Offer and Listing

    Prior to the June 1996 initial public offering, there was no public market
for the shares or the American Depositary Shares ("ADSs"). In the United
States, the shares trade in the form of ADSs, each ADS representing one-third
of one share. The ADSs are listed on the NASDAQ National Market (the
"NASDAQ"), the principal trading market for the shares, under the symbol
"GENXY." American Depositary Receipts evidencing the ADSs are issuable by The
Bank of New York, as Depositary. The shares are also listed on the Nouveau
Marche of Euronext Paris SA (the "Nouveau Marche").

Euronext Paris

    On September 22, 2000, upon successful completion of an exchange offer,
the ParisBourseSBF SA, or the "SBF", the Amsterdam Stock Exchanges and the
Brussels Stock Exchanges merged to create Euronext, the first pan-European
exchange. Through the exchange offer, all the shareholders of the SBF, the
Amsterdam Stock Exchange and the Brussels Stock Exchanges contributed their
shares to Euronext N.V., a Dutch holding company. Securities quoted on
exchanges participating in Euronext will be traded over a common Euronext
platform, with central clearinghouse, settlement and custody structures.
However, these securities will remain listed on their local exchanges. As part
of Euronext, Euronext Paris retains responsibility for the admission of shares
to its markets as well as the regulation of those markets.


                                       55

<PAGE>
    Securities approved for listing by Euronext Paris are traded in one of
four regulated markets. The securities of most large public companies are
listed on the Premier Marche, with the Second Marche available for small and
medium-sized companies. Trading on the Nouveau Marche was introduced in March
1996 to allow companies seeking development capital to access the stock
market. A new regulated market was created in May 1998, the Marche des EDR
(European Depositary Receipts or EDR market) which has been in operation with
effect from the beginning of 1999, with the introduction of the euro.
Securities of certain other companies have also been traded on a non-regulated
over-the-counter market, the Marche Libre OTC.

The Nouveau Marche

    The Nouveau Marche is a regulated market, managed and operated by Euronext
Paris. The Nouveau Marche, however, is neither a new section of an existing
market, nor a stepping stone to Euronext Paris's Second Marche.

    The Nouveau Marche is an electronic market, which combines a central
orderbook with market making to ensure greater liquidity. Member firms of the
Nouveau Marche may act in one or more capacities: Listing Advisers/Market-
Makers (Introducteurs/Teneurs de Marche, or ITMs) or broker-dealers
(Negociateurs-Courtiers). ITMs operate in a dual capacity as listing advisors
and as market makers for the shares assigned to them.

    Admission to the Nouveau Marche is subject to certain capital adequacy and
liquidity requirements determined by Euronext Paris. In addition, companies
applying for listing on the Nouveau Marche are required to publish
comprehensive information regularly and to keep the public informed of all
events likely to affect the market price of their securities.

    Shares listed on the Nouveau Marche are placed in one of two categories
depending on the volume of transactions, Continu or Fixing. Our shares are
listed in the category known as Continu, which includes the most actively
traded securities.

    Securities are traded continuously on each business day from 9:00 a.m.
through 5:25 p.m. (Paris time), with a pre-opening session from 7:15 a.m.
through 9:00 a.m. (Paris time) and a pre-closing session from 5:25 p.m.
through 5:30 p.m. with a closing auction at 5:30 p.m. during which
transactions are recorded but not executed. For shares which are not traded
continuously, retail orders on the Nouveau Marche are matched by the central
system at two daily fixings, at 10:30 a.m. and 4:00 p.m. Between such fixings,
ITMs display bid/ask spreads for a minimum number of each of the securities
for which they act as market-makers, and trades with the ITM are executed from
time to time throughout the day. Any trade of a security that occurs after a
stock exchange session closes is recorded on the next business day at the
previous session's closing price for that security.

    Trading in securities listed on the Nouveau Marche may be suspended by
Euronext Paris SA, if quoted prices exceed certain price limits defined by the
regulations of Euronext Paris SA. In particular, if the quoted price of a
Continu security varies by more than 10% from the previous day's closing
price, trading may be suspended for 4 minutes. Once trading has commenced,
further suspensions for up to 4 minutes are also possible if the price again
varies by more than 10% from the threshold at which the suspension was
initiated. During the continuous trading session, Euronext Paris SA also
suspends trading for a 4-minute period if the price varies by more than 2%
from the last traded price. Euronext Paris SA may also suspend trading of a
security listed on the Nouveau Marche in certain other limited circumstances,
including, for example, the occurrence of unusual trading activity in such
security. In addition, in exceptional cases, the Conseil des marches
financiers ("CMF") may also suspend trading.

    Trades of securities listed on the Nouveau Marche are settled on a cash
basis on the third trading day following the trade. However, market
intermediaries are also permitted to offer investors a deferred settlement
service (Ordre stipule a reglement-livraison differe or `'OSRD") for a fee.
The OSRD is only available for trades in securities which either (i) are a
component of the index SBF 120 or (ii) have both a total market capitalization
of at least 1 billion euros and a daily average volume of trades of at least 1
million euros. Investors in shares eligible to the OSRD can elect on the
determination date (date de liquidation), which is the fifth trading day
before the end of the month,


                                       56

<PAGE>
either to settle the trade by the last trading day of the month or to pay an
additional fee and postpone the settlement decision to the determination date
of the following month. Our shares are eligible for the OSRD.

    Equities traded on a deferred settlement basis are considered to have been
transferred only after they have been registered in the purchaser's account.
Under French securities regulations, any sale of a security traded on a
deferred settlement basis during the month of a dividend is deemed to occur
after the dividend has been paid. If the sale takes place before, but during
the month of a dividend payment date, the purchaser's account will be credited
with an amount equal to the dividend paid and the seller's account will be
debited by the same amount.

    Prior to any transfer of securities held in registered form on the Nouveau
Marche, such securities must be converted into bearer form and accordingly
inscribed in an account maintained by an accredited intermediary with
Euroclear France SA an organization that maintains securities accounts of
French listed companies and acts as a clearing house for trades in such
securities. Dealings in securities are initiated by the owner giving
instructions (through an agent, if appropriate) to the relevant accredited
intermediary. Trades of securities listed on the Nouveau Marche are cleared
and settled through Euroclear France SA, using a continuous net settlement
system. A fee or commission is payable to the ITM or broker-dealer or other
agent involved in the transaction.

Trading history of Genset's shares

    The table below sets forth, for the periods indicated, the reported high
and low sales prices in U.S. dollars for the ADSs on the NASDAQ and the
reported high and low sales prices in euro for the shares on the Nouveau
Marche and the average daily volume of shares traded on each exchange.

    On December 31, 1998, France and ten other countries of the fifteen
countries of the European Union established fixed conversion rates between
their existing sovereign currencies and the euro. Following the introduction
of the euro, on January 1, 1999, all capital markets of these eleven countries
converted to euros and all companies listed on these markets have been
officially quoted in euros since January 4, 1999. Solely for the convenience
of the reader, 1997 and 1998 prices on the Nouveau Marche have been restated
from French francs into euros using the official exchange rate fixed on
December 31, 1999 (1 euro = FF 6.55957 or FF 1 = 0.152449 euro).

<TABLE>
<CAPTION>

                                                                             NASDAQ                             Nouveau Marche
                                                                                                        Price per
                                                                  Price per ADS(1)                       Share(2)
                                                                 ------------------                  -----------------
Calendar Period                                                                       Avg. Daily      High       Low     Avg. Daily
---------------                                                 High ($)    Low ($)    Volume(3)    (euros)    (euros)    Volume(4)
<S>                                                             <C>         <C>       <C>           <C>        <C>       <C>
1996(5) .....................................................    $21.50     $15.25       50,888       48.17     35.83       1,795
1997 ........................................................     25.38      13.25       28,804       72.09     33.69       8,865
1998 ........................................................     38.00      17.63       29,406      103.67     50.61       9,317
1999
 First quarter  .............................................     29.00      14.25       53,024       74.45     36.90      11,576
 Second quarter .............................................     19.00      14.18       22,351       55.95     42.00      11,048
 Third quarter ..............................................     15.88      10.00       22,538       47.00     27.55      13,917
 Fourth quarter .............................................     20.38       7.88       47,783       55.90     22.00      32,703
2000
First quarter ...............................................     78.94      18.81      269,069      249.90     54.30      49,759
Second quarter ..............................................     34.50      17.75      107,131      108.50     60.00      26,817
Third quarter ...............................................     29.63      19.37       45,937       98.90     63.10      20,792
Fourth quarter ..............................................     29.12      11.90       48,967       99.70     41.10      27,317
2001
First quarter  ..............................................     20.00       2.38       50,998       60.70      8.43      62,231
Second quarter (to June 22) .................................    $ 4.65     $ 3.00       21,376       17.30     10.10      38,140
</TABLE>

---------------

(1) Source: Nasdaq

(2) Source: Nouveau Marche

(3) Average of the daily number of ADSs traded on the NASDAQ, each ADS
    representing one-third of one share. The numbers obtained from the NASDAQ
    have been adjusted so that the purchase and sale of the same ADS is
    counted as one transaction.

(4) Average of the daily number of shares traded on the Nouveau Marche.

(5) Reporting as of June 6, 1996.


                                       57

<PAGE>
    On June 22, 2001, the closing price per share on the Nouveau Marche was
11.50 euros and the last reported price on the NASDAQ was $3.38.

    At December 31, 2000, there were 8,104,850 shares outstanding of which
2,778,638 were represented by 8,335,914 ADSs. At March 31, 2001, there were
8,104,850 shares issued and outstanding of which 2,793,498 were represented by
8,380,494 ADSs. At March 31, 2001, there were 21 holders of record of ADSs and
3 holders of record of shares in the United States.

    The market price of our shares has been and is likely to continue to be
volatile due to the risks and uncertainties described in these risk factors,
as well as other factors, including:

   o developments in, and public opinion regarding, the genomics industry or
     life sciences industries generally;

   o sales of substantial amounts of our shares by existing shareholders;

   o price and volume fluctuations in the stock market at large which do not
     relate to our operating performance; and

   o comments by securities analysts, or our failure to meet analysts'
     expectations.

Trading by the Company in its securities

    Under French law, a company may not subscribe for newly-issued shares in
its own capital, but it may, either directly or through an intermediary acting
on its behalf, acquire its own shares (a) to reduce its share capital by
canceling such acquired shares, with approval of the shareholders at an
extraordinary meeting, (b) to provide shares for distribution to employees
under a profit-sharing plan or stock option plan, and (c) if the company
shares are listed on a regulated market (i.e. on the Premier Marche, the
Second Marche or the Nouveau Marche), subject to the filing of a note
d'information that has received a visa of the COB and after obtaining approval
from the shareholders at an ordinary meeting, acquire up to 10 % of its share
capital. In the latter case, the Company may decide (i) to keep these shares,
(ii) to sell or transfer them (including to employees under a non-profit or
stock option plan) or (iii) with the approval of the shareholders at an
extraordinary shareholders' meeting, to cancel them up to a limit of 10% of
the outstanding capital over a 24 month-period. French law also requires the
Company to notify such purchases to the COB, prior to engaging in such
transactions as well as to report on any purchase and sale thereafter. In
addition, pursuant to Regulation no 90-04 (as modified) of the COB, all
purchases by the Company of its own shares are subject to certain limitations,
including as to timing, price and quantity, so as not to disrupt the normal
trading of the shares. Furthermore, the Company has to inform the Conseil des
Marches Financiers (the "CMF") the self-regulatory organization that has
general authority over French stock exchange, on a monthly basis of any
purchase, sale, transfer or cancellation of its own shares. The CMF will then
make this information public.

    In addition, under French law an issuer may not directly or through a
person acting on its own behalf, own more than 10% of its outstanding share
capital except in certain limited circumstances. If a company acquires its own
shares, they must be held in registered form and fully paid up at the time of
their acquisition by the company. Such shares are deemed outstanding under
French law but, as long as held by the company, they are not entitled to
dividends, voting rights or preferential rights.

    On June 27, 2001, we received shareholder approval to purchase up to a
maximum of 10% of the company's outstanding shares. This approval is subject
to the conditions that the share purchase price must not exceed 80 euros, that
the share selling price must not be lower than 8 euros, and that the total
funds spent on purchasing our own shares must not exceed 10,000,000 euros.
This authorization will expire on the date of the annual ordinary meeting of
shareholders that approved the accounts for the year ended December 31, 2001.

Plan of distribution

    Not applicable.


                                       58

<PAGE>
Selling shareholders

    Not applicable.

Dilution

    Not applicable.

Expenses of the issue

    Not applicable.



                        Item 10. Additional Information


Share capital

    Not applicable.

Memorandum and articles of association

    For the Company's registry and number, please see "Item 4. Information on
Genset--History and development". The Company's corporate purpose, in France
and abroad, is stated in Article 2 of its statuts as follows:

   o the research, development, production and marketing of research,
     diagnostics and therapeutic products by direct genetic targeting;

   o the acquisition or taking of interests and shareholdings of any kind in
     any company having activities in the areas of business defined above;

   o and generally any and all transactions such as commercial, financial,
     industrial, and relating to real or personal property, that directly or
     indirectly relate to the corporate purpose, or with any similar or
     closely related corporate purpose.

    An unofficial English translation of the statuts is included as an exhibit
to this Annual Report.

    The section below is a summary of the material information concerning the
Company's share capital, together with material provisions of applicable
French law and the Company's statuts. Such description of the Company's share
capital and information does not purport to be complete and is qualified in
its entirety by reference to the Company's statuts. You may obtain copies of
the Company's statuts in French from the Greffe du Registre du Commerce et des
Societes de Paris, France. Please refer to those full additional details.

Board of Directors

    For a description of directors' powers under French law and Genset's
statuts, see "Item 6. Directors, Senior Management and Employees--Board of
Directors."


                                       59

<PAGE>
Shareholders' meetings and voting rights

General

    In accordance with French law, there are two types of shareholders'
general meetings, ordinary and extraordinary.

    Ordinary general meetings are required for matters such as:

   o electing, replacing and removing directors,

   o allocating fees to the Board of Directors,

   o appointing statutory auditors,

   o approving the annual financial statements,

   o declaring dividends and authorizing dividends to be paid in shares, and

   o issuing debt securities.

    Extraordinary general meetings are required for the approval of matters
such as:

   o changing the Company's statuts,

   o approving mergers in which the Company is not the surviving entity or in
     which the Company is the surviving entity but in connection with which
     the Company is issuing a portion of its share capital to the acquired
     entity,

   o increasing or decreasing the company's share capital,

   o creating a new class of equity securities,

   o authorizing the issuance of investment certificates or convertible or
     exchangeable securities,

   o the voluntary liquidation of the Company prior to the end of its
     statutory term, and

   o the change of the corporate purpose and/or the name of the Company.

    Special meetings of shareholders of a certain category of shares are
required for any modification of the rights derived from such category of
shares. The resolutions of the shareholders' general meeting affecting these
rights are effective only after the approval by the relevant special meeting.

Annual ordinary meetings

    The French law requires the Board of Directors to convene an annual
ordinary general meeting of shareholders to approve the annual financial
statements. This meeting must be held within six months of the end of the
Company's fiscal year. This period may be extended by an order of the
President of the Tribunal de Commerce. The Board of Directors may also convene
an ordinary or extraordinary general meeting of shareholders upon proper
notice at any time during the year. If the Board of Directors fails to call
such a meeting, the Company's statutory auditors may call the meeting. In case
of a bankruptcy, the liquidator or the court-appointed agent may also call a
shareholders' meeting in some instances. Any of the following may request the
court to appoint an agent:

   o one or several shareholders holding at least 5% of the Company's share
     capital,

   o any interested party in cases of urgency, and

   o certain duly qualified associations of shareholders who hold their shares
     for at least two years and who together hold a specified percentage of
     the voting rights of the Company.


                                       60

<PAGE>
Notice of shareholders' meetings

    The Company must announce general meetings at least 30 days in advance by
means of a preliminary notice which is published in France in the Bulletin des
annonces legales obligatoires, or BALO. This preliminary notice must be sent
to the Commission des Operations de Bourse, or COB. It must contain, among
other things, the time, date and place of the meeting, the agenda of the
meeting and a draft of the resolutions to be submitted to the shareholders, a
description of the procedures which holders of bearer shares must follow to
attend the meeting and the procedure for voting by mail.

    At least 15 days prior to the date set for a general meeting on first
call, and at least six days before any second call, the Company must send a
final notice (avis de convocation) containing the final agenda and other
information for the meeting. This notice must be sent by mail to all holders
of registered shares who have held such shares for more than one month prior
to the issuance of the notice and published in a newspaper authorized to
publish legal announcements in the local administrative department in which
the Company is registered, as well as in the BALO, with prior notice having
been given to the COB.

    In general, shareholders can only take action at shareholders' meeting. In
exception to this rule, shareholders may take action with respect to the
dismissal of directors.

    Additional resolutions to be submitted for approval by the shareholders at
such meeting may be proposed to the Board of Directors within 10 days of the
publication of the preliminary notice in the BALO by:

   o one or several shareholders holding a specified percentage of shares
     (determined on the basis of a formula relating to capitalization), or

   o a duly qualified association of shareholders holding a specified
     percentage of voting rights.

    The Board of Directors must submit these resolutions to a vote of the
shareholders.

    During the 15 days preceding a shareholders' meeting, any shareholder may
submit to the Board of Directors written questions relating to the agenda for
the meeting. The Board of Directors must respond to these questions.

Attendance and voting at shareholders' meetings

    Attendance and exercise of voting rights at ordinary general meetings and
extraordinary general meetings of shareholders are subject to certain
conditions specified in French law and in the Company's statuts. There is no
requirement that a shareholder have a minimum number of shares in order to
attend or to be represented at an ordinary or extraordinary general meeting.

    In order to participate in any general meeting, a holder of shares held in
the registered form, must have its shares registered in its name in a
shareholder account maintained by or on behalf of the Company by an agent
appointed by the Company at least five days prior to the date set for the
meeting.

    A holder of shares in bearer form must obtain a certificate from the
accredited financial intermediary (intermediaire financier habilite) with whom
such holder has deposited its shares. This certificate must indicate the
number of bearer shares owned by such holder and must state that such shares
are not transferable until the time fixed for the meeting. The holder must
deposit this certificate at the place specified in the notice of the meeting
at least five days before the meeting.

Proxies and votes by mail

    In general, all shareholders who have properly registered their shares or
duly presented a certificate from their accredited financial intermediary have
the right to participate in general meetings. Shareholders may participate
either in person or by proxy. Shareholders may vote either by proxy or by
mail.


                                       61

<PAGE>
    Proxies will be sent to any shareholder on request. In order to be
counted, such proxies must be received at the Company's registered office or
at such other address indicated on the notice convening the meeting prior to
the date of the meeting. A shareholder may grant proxies to his or her spouse
or to another shareholder. A shareholder that is a corporation may grant
proxies to a legal representative. Alternatively, the shareholder may send us
a blank proxy without nominating any representative. In this case, the
Chairman of the meeting will vote the blank proxies in favor of all
resolutions proposed by the Board of Directors and against all others.

    With respect to votes by mail, the Company must send shareholders a voting
form. Votes by mail must be received at such address at least three days prior
to the date of the meeting.

    Subject to the limitations described below, each share confers on the
shareholder the right to one vote. Under French law, shares of a company held
by entities controlled directly or indirectly by that company are not entitled
to voting rights and are not counted for quorum or majority purposes.

    A resolution was approved at the Company's annual meeting held on June 27,
2001, to amend the statuts. This amendment provides that no one shareholder or
group of shareholders shall be able to exercise, directly or indirectly, at any
meeting of shareholders, votes representing more than 20% of the total number of
voting rights then outstanding.

Quorum

    French company law requires that shareholders having at least 25% of the
shares entitled to voting rights must be present in person or voting by mail
or by proxy and, if provided for by the by-laws, by videoconference or by any
means of telecommunication allowing them to be identified, (an amendment to
the statuts to this effect was approved at the Company's annual shareholders'
meeting held on June 27, 2001), to fulfill the quorum requirement for:

   o an ordinary general meeting, and

   o an extraordinary general meeting where an increase in the Company's share
     capital is proposed through incorporation of reserves, profits or share
     premium.

    The quorum requirement is 33 1/3% of the shares entitled to voting rights,
on the same basis, for any other extraordinary general meeting.

    If a quorum is not present at a meeting, the meeting is adjourned. When an
adjourned ordinary meeting is resumed, there is no quorum requirement. No
quorum is required when an adjourned extraordinary general meeting is resumed
only to approve an increase in share capital through incorporation of
reserves, profits or share premium. In the case of any other resumed
extraordinary general meeting, shareholders having at least 25% of outstanding
voting rights must be present in person or voting by mail or by proxy and, if
provided for by the by-laws, by videoconference or by any means of
telecommunication allowing them to be identified (an amendment to the statuts
to this effect was approved at the Company's annual shareholders' meeting held
on June 27, 2001), for a quorum. If a quorum is not present, the reconvened
meeting may be adjourned for a maximum of two months. No deliberation by the
shareholders may take place without a quorum. However, only questions which
were on the agenda of the adjourned meeting may be discussed and voted upon.

Majority

    At an ordinary general meeting or an extraordinary general meeting
deciding upon any capital increase by incorporation of reserves, a simple
majority of the votes cast is required to pass a resolution. At any other
extraordinary general meeting, a two-thirds majority of the votes cast is
required.

    However, a unanimous shareholders vote is required to increase liabilities
of shareholders.

    Abstention from voting by those present either in person, or, if provided
for by the by-laws, by videoconference or by any means of telecommunication
allowing them to be identified (an amendment to the statuts to this effect was
approved at the Company's annual shareholders' meeting held on June 27, 2001),
or represented by proxy but not voting is viewed as a vote against the
resolution


                                       62

<PAGE>
submitted to a shareholder vote.

Financial statements and other communications with shareholders

    In connection with any shareholders' meeting, the Company is required to
provide to any shareholder who so requests a set of documents, including the
Company's annual report and a summary of the results of the five previous
fiscal years. French company law requires that a special report be provided to
the ordinary shareholders' meeting regarding stock options authorized and/or
granted by the Company.

Procedure for ADS holders to vote

    Effective as of April 10, 1998, the Company and The Bank of New York, as
Depositary, amended the deposit agreement governing the ADSs of the Company.
This amendment was intended to simplify the procedures enabling ADS holders to
effectively vote the shares underlying their ADSs. Pursuant to these amended
procedures, all beneficial owners of ADSs as of the record date fixed for a
given shareholders' meeting shall receive, among other materials, a summary in
English or an English version of the notice of such meeting and a copy of the
materials provided by the Company to enable the beneficial owners to give
voting instructions regarding the resolutions being considered by the meeting.

    In order to instruct the Depositary to vote the shares underlying their
respective ADSs, beneficial owners must complete, sign and return the voting
instruction card or form provided to the person indicated thereon. In signing
and returning the card or form, the beneficial owner (a) certifies that it was
the beneficial owner on the record date of the ADSs being voted and is
entitled to exercise the right to vote with respect thereto, (b) undertakes to
be the beneficial owner of such ADSs during the five calendar days immediately
prior to and on the meeting date, and (c) certifies or undertakes such other
matters as may from time to time be necessary to permit the exercise of voting
rights by beneficial owners of ADSs in accordance with French law or Genset's
statuts. The beneficial owners may, by completing, signing and returning
voting instruction cards or forms without providing specific voting
instructions on the resolutions, instruct the Depositary to vote the
corresponding shares in favor of all the resolutions proposed by the Board of
Directors of Genset.

Dividends

    The Company's unconsolidated statutory net income in each fiscal year, as
increased or reduced, as the case may be, by any profit or loss of the Company
carried forward from prior years, and as reduced by the legal reserve fund
allocation described below, is available for distribution to the shareholders
of the Company as dividends, subject to the requirements of French law and the
Company's statuts.

Legal reserve

    French law provides that French societes anonymes are each required to
allocate 5% of their unconsolidated statutory net profits in each fiscal year
to a legal reserve fund before dividends may be paid with respect to that
year. Funds must be allocated until the amount in such reserve fund is equal
to 10% of the aggregate nominal amount of the issued and outstanding share
capital. The legal reserve is distributable only upon liquidation of the
relevant entity.

Approval of dividends

    According to French law, the Board of Directors may propose a dividend for
approval by the shareholders at the annual general meeting of shareholders. If
the Company has earned distributable profits since the end of the preceding
fiscal year as reflected in an interim income statement certified by the
Company's auditors, the Board of Directors may distribute interim dividends to
the extent of the distributable profits for the period covered by the interim
income statement. The Board of Directors may declare such dividends, subject
to French law, and may do so, for interim dividends paid in cash, without


                                       63

<PAGE>
obtaining shareholder approval. For interim dividends paid in shares, prior
authorization by a shareholders' meeting is required.

Distribution of dividends

    Dividends are distributed to shareholders pro rata according to their
respective holdings of shares. Dividends are payable to holders of shares
outstanding on the date of the shareholders' meeting approving the
distribution of dividends. In the case of interim dividends, distributions are
made to shareholders on the date of the Board of Directors' meeting approving
the distribution of interim dividends. The actual dividend payment date is
decided by the shareholders in an ordinary general meeting or by the Board of
Directors in the absence of such a decision by the shareholders. The statuts
provide that the shareholders' meeting may decide to give each shareholder the
option of receiving its dividend in the form of cash or of shares.

Timing of payment

    According to French law, the Company must pay any dividends within nine
months of the end of the Company's fiscal year, unless otherwise authorized by
a court order. Dividends not claimed within five years of the date of payment
revert to the French State.

Changes in share capital

Increases in share capital

    Pursuant to French law, the share capital of the Company may be increased
only with the approval of the shareholders at an extraordinary general
meeting. Increases in the Company's share capital may be effected by:

   o issuing additional shares,

   o issuing a new class of equity securities, or

   o increasing the nominal value of the existing shares.

    Increases in share capital by issuing additional securities may be
effected by issuing such securities:

   o for cash,

   o for assets contributed in kind,

   o by conversion of debt securities previously issued,

   o by capitalization of profits, reserves or shares premiums,

   o subject to various conditions, in satisfaction of debt incurred by the
     company, or

   o any combination of the above.

    Decisions to increase the share capital through the capitalization of
reserves, profits and/or share premiums require the approval of an
extraordinary general meeting, acting under the quorum and majority
requirements applicable to shareholders' meetings. Increases effected by an
increase in the nominal value of shares require unanimous approval of the
shareholders, unless effected by capitalization of reserves, profits or share
premiums. All other capital increases require the approval of an extraordinary
general meeting. See "--Shareholders' meeting and voting rights."

    The shareholders may delegate the right to carry out any increase in share
capital to the Board of Directors, provided that the increase has been
previously authorized by the shareholders. The Board of Directors may further
delegate this right to the Chairman and Chief Executive Officer.

    Each time the shareholders decide a capital increase or decide to delegate
to the Board of Directors the right to carry out a capital increase, they must
decide on whether or not to proceed with


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<PAGE>
a capital increase reserved to employees of our Company and its subsidiaries
or on whether or not to delegate to the Board of Directors the right to carry
out such reserved capital increase.

Decreases in share capital

    According to French law, the share capital of the Company may be decreased
only with the approval of the shareholders at an extraordinary general
meeting. In the case of a capital reduction, other than a reduction to absorb
losses or a reduction as part of a program to purchase the Company's shares,
all holders of shares must be offered the possibility to participate in such a
reduction. The Company's share capital may be reduced either by decreasing the
nominal value of the shares or by reducing the number of outstanding shares.
The number of outstanding shares may be reduced either by an exchange of
shares or by the repurchase and cancellation of shares. Holders of each class
of shares must be treated equally unless affected shareholders agree
otherwise.

Preemptive subscription rights

    According to French company law, if the Company issues for cash new
securities giving rights, either immediately or at a later date, to subscribe
to Company's new shares, current shareholders will have preemptive
subscription rights to these securities on a pro rata basis. These preemptive
rights require the Company to give priority treatment to those shareholders.
Preemptive subscription rights are transferable during the subscription period
relating to a particular offering. These rights may also be listed on the
Euronext Paris.

    A two-thirds majority of the shares entitled to vote at an extraordinary
general meeting may vote to waive preemptive subscription rights with respect
to any particular offering. French law requires that the Board of Directors
and the Company's independent auditors present reports that specifically
address any proposal to waive preemptive subscription rights. In the event of
a waiver, the issue of securities must be completed within the period
prescribed by law. The shareholders may also decide at an extraordinary
general meeting to give the existing shareholders a non transferable priority
right to subscribe to the new securities, during a limited period of time.
Shareholders also may notify the Company that they wish to waive their own
preemptive subscription rights with respect to any particular offering if they
so choose.

Form, holding and transfer of shares

    Genset's statuts provide that its shares may be held in registered or
bearer form.

    In accordance with French law concerning "dematerialisation" of
securities, the ownership rights of holders of the shares are not represented
by share certificates but by book entries. BNP-Paribas, on behalf of the
Company, and acting as its agent, maintains a share account with Euroclear
France in respect of all shares held in registered form (the "Company Share
Account"). Shares are inscribed in the name of each shareholder (either
directly, or, at the shareholder's request, through such shareholder's
accredited intermediary) in separate accounts (the "Shareholder Accounts")
maintained by BNP-Paribas. Each Shareholder Account shows the name of the
holder and such shareholder's shareholdings and, in the case of shares
inscribed through an accredited intermediary, shows that they are so held.
Genset, as a matter of course, issues confirmations as to holdings of shares
inscribed in the Shareholder Accounts to the persons in whose names the
shareholdings are inscribed, but these confirmations do not constitute
documents of title.

    In the case of shares held in bearer form, the shares are held on the
shareholder's behalf by an accredited intermediary and are inscribed in an
account maintained by the accredited intermediary with Euroclear France
separate from the Company Share Account. Shares held in this manner are
referred to as being in bearer form. Each accredited intermediary maintains a
record of shares held through it and will issue certificates of inscription in
respect thereof. Transfers of shares held in bearer form may only be effected
through accredited intermediaries and Euroclear France. The Company's statuts
permit it to request Euroclear France at any time to provide the Company with
the identity of the holders of bearer shares and with the number of shares so
held.

    An owner of shares resident outside France may trade shares on Euronext
Paris. Should such


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<PAGE>
owner, or the broker or other agent through whom a sale is effected, require
assistance in this connection, an accredited intermediary should be contacted.
A fee or commission is payable to the societe de bourse (the French broker,
accredited intermediary or other agent) involved in the transaction.

    In addition, according to French company law, shares held by any non-
French resident may be held on the shareholder's behalf in a collective
account or in several individual accounts by an intermediary.

    The Company's statuts do not contain any restrictions relating to the
transfer of the shares.

    Registered shares must be converted into bearer form before being
transferred on Euronext Paris and accordingly, must be registered in an
account maintained by an accredited intermediary. A shareholder may initiate a
transfer by giving instructions to the relevant accredited intermediary.

    Dealings in shares are initiated by the owner giving instructions (through
his agent, if appropriate) to the relevant accredited intermediary. For
dealings on Euronext Paris, an impot sur les operations de bourse, tax
assessed on the price at which the securities were traded, is payable at the
rate of 0.3% on transactions up to FF 1,000,000 and at a rate of 0.15%
thereafter. The tax is subject to a rebate of FF 150 per transaction and a
maximum assessment of FF 4,000 per transaction. However, persons who are non-
residents of France are not subject to the payment of such impot sur les
operations de bourse.

    A fee or commission is payable to the broker involved in the transaction,
regardless of whether the transaction occurs within or outside France. No
registration duty is normally payable in France, unless a transfer instrument
has been executed in France.

Liquidation rights

    In the event that the Company is liquidated, the assets of the Company
remaining after payment of its debts, liquidation expenses and all of its
remaining obligations, if any, will be distributed first to repay in full the
nominal value of the shares. Any surplus will be distributed pro rata among
the holders of shares in proportion to the nominal value of their
shareholdings.

Requirements for holdings exceeding certain percentages

    French law provides that any individual or entity (including a holder of
ADSs), acting alone or in concert with others, that acquires, directly or
indirectly, more than 5%, 10%, 20%, 331/3%, 50% or 662/3% of the outstanding
voting shares or the rights thereof of a listed company, or that increases or
decreases its shareholding or voting rights thereof by any such percentage,
must notify such company within 15 calendar days of the date such threshold
has been crossed, of the number of shares it holds and the voting rights
attached thereto. Such individual or entity must also notify the CMF, within
five trading days of the date such threshold has been crossed. In addition,
any shareholder who fails to comply with the above requirements may have all
or part of its voting rights suspended for up to five years by the commercial
court at the request of the company's chairman, any shareholder or the COB.

    In addition, the Company's statuts provide that every shareholder
(including a holder of ADSs) who, directly or indirectly, acting alone or in
concert with others, acquires ownership or control of shares representing 2%,
or any multiple of 2%, of the Company's share capital or voting rights, or
whose holdings fall below any such limit, shall be required to notify the
Company of such fact within 15 calendar days of such acquisition or
disposition. Failure to comply with such notification provisions will result
in the suspension of the voting rights attached to the shares exceeding such
2% threshold held by such shareholder if requested by one or more shareholders
holding shares representing at least 2% of the Company's share capital or
voting rights.

    In order to permit shareholders to give the notice required by French law,
the Company is obligated to publish information with respect to the total
number of votes available as of the date of the Company's annual general
meeting in the Bulletin des Annonces Legales Obligatoires, or BALO, not later
than 15 calendar days after such meeting. In addition, if the number of
available votes changes by at least 5% between two ordinary general meetings,
the Company is required to publish in the BALO, within 15 calendar days of
such change, the number of votes then available and provide the CMF with a


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<PAGE>
written notice. In order to facilitate compliance with the notification
requirements provided for in French law, a holder of ADSs may deliver any such
notification to the Depositary with respect to shares represented by ADSs and
the Depositary shall immediately forward such notification to the Company and
the CMF.

    Under COB regulations, any person or persons, acting alone or in concert
with others, who acquires more than 10% or 20% of the voting rights of a
listed company, must file with the CMF, the COB and such company a report
disclosing its future intentions with respect to the company. Such report must
be filed with the CMF, the COB and the company within 15 calendar days of the
date such threshold has been crossed. The CMF makes the notice public and the
person or persons who have acquired such voting rights are required to publish
a press release in a financial newspaper having national circulation in
France, stating whether or not such person or persons intend, within the 12-
month period following the acquisition, to increase its shareholdings and
request a seat on such company's Board of Directors and whether such person or
persons are acting in concert with others.

Purchase by the Company of its shares

    In accordance with French law, the Company may not subscribe for its
shares but it may, either directly or through a financial intermediary acting
on its behalf, purchase its own shares for one of three purposes:

   o to reduce its capital stock under certain circumstances with the approval
     of the shareholders at an extraordinary general meeting,

   o to provide shares for distribution to employees under a profit- sharing
     or stock option plan, or

   o to acquire up to 10% of its share capital if the Company's shares are
     listed on a regulated market (i.e., on the Premier Marche, the Second
     Marche or the Nouveau Marche), subject to the filing of a note
     d'information that has received the approval (visa) of the COB and after
     obtaining approval from the shareholders at an ordinary general meeting.

    In the last case, the Company may decide to (1) keep the shares acquired,
(2) sell or transfer them (including to employees under a profit-sharing plan
or stock option plan) or (3) with the approval of the shareholders at an
extraordinary meeting, cancel them, subject to a maximum of 10% of the
outstanding share capital over any 24-month period.

    Repurchased shares held by the Company must be held in registered form.
These shares must be fully paid. Such shares are deemed to be outstanding
under French law but are not entitled to dividends (these are carried forward
to the next fiscal year as distributable profits) or voting rights and the
Company may not exercise preferential subscription rights.

    The shareholders, at an extraordinary general meeting, may decide not to
take such shares into account in determining the preferential subscription
rights attached to the other shares. However, if the shareholders decide to
take them into account, the Company must either sell the rights on the market
before the end of the subscription period or distribute them to the other
shareholders on a pro rata basis.

    See "Item 9. The Offer and Listing --Trading by the Company in its
securities."

Trading by the Company in its shares

    Under Reglement no. 90-04 of the COB, as amended, the Company may not
trade in its own shares for the purpose of manipulating the market. There are
three requirements for trades by a company in its own shares to be considered
valid. Specifically, in order to be valid:

   o trades must be executed on behalf of the company by only one intermediary
     or, if the issuer uses its share repurchase program in part by way of
     derivatives, by two intermediaries provided that the issuer is able to
     ensure an appropriate coordination between the intermediaries, in each
     trading session,


                                       67

<PAGE>
   o any block trades may not be made at a price above the current market
     price, and

   o each trade must be made at a price that falls between the lowest and the
     highest trading price of the trading session during which it is executed.

    If a company's shares are continuously quoted (cotation en continu), then
a trade must meet the following further requirements to be considered valid:

   o the trade must not influence the determination of the quoted price before
     the opening of trading, at the opening of the trading or session, at the
     first trade of the shares, at the reopening of trading following
     suspension, or, as applicable, in the last half-hour of any trading
     session or at the fixing of the closing price,

   o the trade must not be carried out in order to influence the price of a
     derivative instrument relating to the company's shares, and

   o the trade must not account for more than 25% of the average total daily
     trading volume on the Nouveau Marche in the shares during the 3 trading
     days immediately preceding the trade. This last requirement applies only
     to trades in shares that, like ours, are eligible for the deferred
     settlement service.

    However, there are two periods during which the Company is not permitted
to trade in its own securities: the 15-day period before the date on which the
Company makes its consolidated or annual accounts public, and the period
beginning on the date at which the Company becomes aware of information that,
if disclosed, would have a significant impact on the market price of its
securities and ending on the date this information is made public.

    After making an initial purchase of its own shares, the Company must file
reports with the COB and the CMF that contain specified information about
subsequent transactions. The CMF makes this information publicly available.

Material Contracts

    In April 2000, the Company signed an agreement with Sanofi-Synthelabo to
pursue a pharmacogenomics collaboration aimed at lead selection and
optimization for an undisclosed CNS disease. Genset has completed its research
obligations under the agreement. The agreement provided that Sanofi-Synthelabo
pay research funding and research milestone fees to Genset, as well as
clinical milestones and royalties on any drugs developed through an active use
of the data and clones provided by Genset. Such active uses will notably
include the chemical modification or the replacement of a given lead, or the
use of data to design novel clinical studies. Genset granted to Sanofi-
Synthelabo an exclusive worldwide license to use the data and clones generated
through the collaboration to develop and commercialize drugs for the treatment
of the undisclosed selected disease.

    In March 2000, the Company signed a new collaborative research agreement
with Abbott Laboratories to discover genes associated with bipolar disorder
and Type 2 diabetes. The collaboration was focused on certain candidate
regions associated with the selected diseases with initial efforts centered on
bipolar disorder. Abbott was to receive a license to develop and commercialize
therapeutic and diagnostic products based on the genes identified through the
collaboration. Under the agreement, Genset received an up-front payment and
research funding. In March 2001, we renegotiated this agreement to make it
more consistent with our new strategy. Under the renegotiated agreement, we
were released from performing any further research for Abbott, recovered the
intellectual property generated in our bipolar program, made a one-time
payment to Abbott, and agreed to license to Abbott at a future date a protein
in the area of CNS for target screening.

    In September 1999, the Company signed a new agreement in the field of gene
libraries with the Genetics Institute unit of Wyeth-Ayerst Laboratories, the
pharmaceutical division of American Home Products. Under this new agreement,
which replaced the previous agreement signed in July 1997, Genset will provide
Genetics Institute and Wyeth-Ayerst with a larger variety of potential
products and targets which they will have the right to use in their internal
drug discovery programs. Pursuant to the agreement,


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<PAGE>
Genetics Institute obtained a licensing-in option on up to 1000 selected
sequences and corresponding clones selected from Genset's cDNA library. In
addition to initial revenues, Genset will receive product development
milestone fees and royalties on any drugs discovered using the sequences and
the clones supplied by Genset.

    Under the earlier 1997 agreement with Genetics Institute, the Company
provided to Genetics Institute full-length genes encoding novel human secreted
proteins for inclusion in Genetics Institute's DiscoverEase[R] program. That
agreement provided that Genset would receive product development milestone
fees and royalties on any drugs discovered using the sequences and clones
supplied by Genset. Since September 1999, the Company no longer has any
obligation to deliver secreted proteins to the DiscoverEase[R] program, but the
secreted proteins already commercialized in the program remain covered by the
terms of the agreement.

    In October 1998, the Company entered into a two-year pharmacogenomics
collaboration with Pharmacia & Upjohn. Under the terms of the agreement,
Genset used its pharmacogenomics technologies to discover markers and genes
involved in response to a Pharmacia & Upjohn compound, and received research
fees and research milestones and will receive clinical milestone and royalty
payments on future sales of any Pharmacia & Upjohn compound that makes use of
the results of the pharmacogenomics program. The collaboration was also
intended to identify potential targets for the development of new compounds.
Royalties would be awarded on the sale of new compounds discovered, developed
and commercialized by Phamacia & Upjohn based on genes identified through the
research collaboration.

    In August 1998, the Company entered into an exclusive license agreement
with Wyeth-Lederle Vaccines, a business unit of Wyeth-Ayerst Laboratories, a
division of American Home Products Corporation. Under the terms of the license
agreement, Genset granted Wyeth-Lederle Vaccines an exclusive worldwide
royalty-bearing licence under its know-how and patent applications covering
the entire Chlamydia pneumoniae and Chlamydia trachomatis L2 genomic sequences
for the development and commercialization of vaccines. In consideration of the
rights granted to Wyeth-Lederle Vaccines, the Company received an initial
license fee and will receive payments upon the achievement of certain clinical
development milestones. In addition, the Company will receive royalty payments
on all future sales of vaccines that are discovered and developed using the
licensed technologies.

    In December 1997, the Company entered into a series of agreements with
Ceres, Inc. ("Ceres"), a company specializing in the field of agricultural
biotechnology. The partnership consisted of three parts: (1) the granting to
the Company of an approximately 20% equity interest in Ceres; (2) an agreement
for sequencing and bioinformatics services to be provided by the Company for
which Ceres made quarterly payments and issued additional equity to the
Company; and (3) an exclusive license agreement under which the Company and
Ceres providing access to each other, on a royalty-free basis, to certain of
their technologies for applications in the other party's field. After being
extended several times, the research services agreement expired at the end of
2000. Ceres completed further rounds of financing in 1998, 2000 and. The
Company did not participate in these financings and its percentage equity
interest in Ceres has consequently fallen to below 10%.

    In July 1997, the Company entered into a strategic alliance with Abbott
Laboratories in the field of pharmacogenomics for the development of genetic
markers and diagnostic tests for the analysis of drug response. The strategic
alliance is comprised of three parts: (1) a subscription agreement; (2) an
exclusive 18 month research and license agreement for the development of
genetic markers and discovery of genes associated with drug response to and
side effects of an Abbott drug for the treatment of asthma, Zyflo[TM]
(zileuton); and (3) an exclusive collaboration for the marketing and
development of pharmacogenomics research programs and of diagnostic systems
based on the results of pharmacogenomics research. The Company received
research funding under the research and license agreement, and may receive
clinical milestone payments and royalties if Abbott uses the results of the
pharmacogenomics research to develop and market diagnostic products in
conjunction with Zyflo[TM]. Pursuant to the subscription agreement and
subsequent amendments thereto, Abbott made an equity investment in the Company
in September 1997 of 9.103 million euros. Pursuant to the exercise by the
Company of its put option, Abbott purchased an additional $ 10 million of the
Company's equity in March 2000, buying 54,763 shares at a price per share of
188.33 euros.


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<PAGE>
    In September 1996, the Company entered into a strategic alliance with
Janssen Pharmaceutica N.V, an affiliate of Johnson & Johnson, for the
discovery of genes associated with schizophrenia. The term of the agreement
was originally for a period of two years, commencing on September 26, 1996.
The parties amended their agreement to continue research through July 31,
2000. Pursuant to the agreement, as amended, Janssen has an exclusive license
to develop and commercialize pharmaceutical products based on any genes
identified as being associated with schizophrenia. In exchange, Janssen funded
the Company's research and is obligated to pay clinical milestones and
royalties on any products developed by Jannsen using the results delivered by
the Company. In addition, Janssen has an option to obtain a comparable license
to certain other results the Company may generate using the genes identified
during the research collaboration. In anticipation of the agreement, on May
10, 1996, Johnson & Johnson Development Corporation purchased 119,900 shares
of the Company for 3.050 million euros.

Exchange controls and other limitations affecting security holders

    Under current French exchange control regulations, there are no
limitations on the amount of payments that may be remitted by a French company
to non-French residents. Laws and regulations concerning foreign exchange
controls do require, however, that all payments on transfers of funds made by
a French resident to a non-resident be handled by an accredited intermediary.
In France, all registered banks and substantially all credit establishments
are accredited intermediaries.

Ownership of ADSs or shares by non-French residents

    Under French law, there is no limitation on the right of non-French
residents or non-French security holders to own or, when applicable, to vote
securities of a French company.

    A French law dated February 14, 1996 abolished the requirement that a
person who is not a resident of the European Union obtain an autorisation
prealable, or prior authorization, prior to acquiring a controlling interest
in a French company. However, both E.U. and non-E.U. residents must file a
declaration administrative, or administrative notice, with French authorities
in connection with the acquisition of a controlling interest or an increase of
controlling interest in any French company. Under existing administrative
rulings, ownership of 20% or more of a listed company's share capital or
voting rights is regarded as a controlling interest, but a lower percentage
may be held to be a controlling interest in certain circumstances (depending
upon such factors as the acquiring party's intentions, its ability to elect
directors or financial reliance by the French company on the acquiring party).

Other

    For other limitations affecting shareholders, see "-- Form, holding and
transfer of shares" and "-- Requirements for holdings exceeding certain
percentages".

Taxation

French taxation

    The following is a general summary of the material French tax consequences
of owning and disposing of shares for a holder who is not a French tax
resident and does not hold the shares in connection with a business conducted
in France. The statements relating to French tax laws set out below are based
on the laws in force as of the date hereof, and are subject to any changes in
applicable French tax laws or in any applicable double taxation conventions or
treaties with France occurring after such date.

    This discussion is intended only as a descriptive summary and does not
purport to be a complete analysis or list of all potential tax effects of the
purchase or ownership of the shares.

    Potential purchasers of shares are urged to consult their own tax advisers
concerning the consequences of ownership and disposal of shares.


                                       70

<PAGE>
Taxation on sale or disposal of shares

    Subject to the provisions of any relevant double tax treaty, persons who
are not French residents for the purpose of French taxation (as well as, under
certain conditions, foreign states, international organizations and certain
foreign public bodies) and who have held not more than 25%, directly or
indirectly, alone or with relatives, of the dividend rights ("benefices
sociaux") of the Company at any time during the preceding five years, are not
generally subject to any French income tax or capital gains tax on any sale or
disposal of shares.

    If a transfer of shares is evidenced by a written agreement, such share
transfer agreement is, in principle, subject to registration formalities and
therefore to a 1% registration duty assessed on the higher of the purchase
price and the market value of the shares (subject to a maximum assessment of
FF 20,000 per transfer), provided that, under certain circumstances, no duty
is due if such written share transfer agreement is executed outside France.

Taxation of dividends

    In France, dividends are paid out of after-tax income. French residents
are entitled to a tax credit, known as the avoir fiscal.

    The amount of the avoir fiscal is generally equal to:

        -      50% of the dividend paid for (i) individuals and (ii) companies
               which own at least 5% of the capital of the French distributing
               company and meet the conditions to qualify under the French
               parent-subsidiary regime; or

        -      25% of the dividend paid for the other shareholders who use the
               avoir fiscal in 2001, and 15% of the dividend paid for such
               other shareholders who will use the avoir fiscal as of January
               1, 2002.

    In addition, if the distribution of dividends by us gives rise to the
precompte, shareholders entitled to the avoir fiscal at the rate of 25%, and
then 15%, will generally be entitled to an additional amount of avoir fiscal
equal to:

        -      50% of the precompte paid in cash by the company for
               shareholders entitled to use the avoir fiscal at the rate of
               25%; and

        -      70% of the precompte paid in cash by the company for
               shareholders entitled to use the avoir fiscal at the rate of
               15%.

    As indicated below, the precompte is a tax which is paid by French
companies when they distribute dividends out of certain profits (see paragraph
below relating to the precompte).

    Under French domestic law, dividends paid to non-residents are normally
subject to a 25% French withholding tax and non-residents are not eligible for
the benefit of the avoir fiscal. Under most tax treaties entered into between
France and other countries, such withholding tax may, subject to certain
conditions, be reduced and give rise in such other country to a tax credit of
the amount of the tax withheld or, in the case of certain tax treaties, be
eliminated.

    Furthermore, the following countries and Territoires d'Outre-Mer and other
territories have entered into treaties with France whereby tax residents of
such countries and territories may, under certain circumstances, obtain from
the French tax authorities a reduction (generally to a rate of 15%) of all or
part of such withholding tax and a refund of the avoir fiscal (net of
applicable withholding tax), or in the case of German tax residents, a tax
credit in an amount equal to the aggregate of the amount of the applicable
avoir fiscal and the amount of the applicable withholding tax.


                                       71

<PAGE>

<TABLE>
<CAPTION>
<S>               <C>              <C>                   <C>                  <C>                  <C>
Australia         Canada           Israel                Malta                Norway               Switzerland
Austria           Finland          Italy                 Mauritius            Pakistan             Togo
Belgium           Gabon            Ivory Coast           Mexico               Senegal              Turkey
Bolivia           Germany          Japan                 Namibia              Singapore            Ukraine
Brazil            Ghana            Luxembourg            Netherlands          South Korea          United Kingdom
Burkina Faso      Iceland          Malaysia              New-Zealand          Spain                United States of America
Cameroon          India            Mali                  Niger                Sweden               Venezuela
</TABLE>


Territoires d'Outre-Mer and Other Territories

    Mayotte
    New Caledonia
    Saint-Pierre et Miquelon

    Treaties with some of the countries and territories listed above contain
specific limitations applicable to corporate entities entitled to benefit from
the avoir fiscal, or limit the rights to the avoir fiscal strictly to
individual residents (as opposed to corporate entities).

    Dividends paid to non-residents of France benefiting from the avoir fiscal
in accordance with a tax treaty (other than German residents) will be subject,
on the date of payment, to the withholding tax at the reduced rate provided
for by such treaty (subject to certain filing formalities) rather than to the
French withholding tax at the rate of 25% to be later reduced to the treaty
rate; provided, however, that they establish their entitlement to such reduced
rate before the date of payment.

Precompte

    Amounts distributed as dividends by French companies out of profits which
have not been taxed at the ordinary corporate income tax rate or which have
been earned and taxed more than five years before the distribution are subject
to a tax known as the precompte. The precompte is paid by the distributing
company to the French tax authorities and is equal to one-half of the nominal
dividend distributed. When a tax treaty in force does not provide for a refund
of the avoir fiscal or when the non-resident investor is not entitled to such
refund but is otherwise entitled to the benefits of a tax treaty, such
investor may obtain from the French tax authorities a refund of such precompte
(net of applicable withholding tax) to the extent such precompte was actually
paid in cash by the Company.

Estate and gift tax

    Generally, France imposes estate and gift tax where an individual or an
entity acquires shares of a French company by inheritance or gift from a non-
resident of France. France has entered into estate and gift tax treaties with
a number of countries pursuant to which, assuming certain conditions are met,
residents of the treaty countries may be exempted from such tax or obtain a
tax credit. Prospective investors in shares should consult their own advisors
concerning the applicability of French estate and gift tax to their
shareholding in the Company and the availability of, and the conditions for
claiming exemption or tax credit under such a treaty.

Wealth tax

    In the absence of a more favorable tax treaty, the French wealth tax
(impot de solidarite sur la fortune) does not generally apply to non-French
resident individual investors owning directly or indirectly less than 10% of
the Company's share capital.

Taxation of US investors

    The following is a general summary of the material United States federal
income tax and French tax consequences to a beneficial owner of one or more
ADSs or shares (a) who owns, directly, indirectly or through attribution, less
than 10% of the share capital of the Company, (b) who is (i) a citizen or
individual resident of the United States for United States federal income tax
purposes, (ii) a corporation created or organized in or under the laws of the
United States or any state thereof (including the District of Columbia), (iii)
an estate whose income is subject to United States federal income taxation
regardless of its source, or (iv) a trust if a court within the United States
is able to exercise primary supervision


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<PAGE>
over its administration and one or more United States persons have the
authority to control all of the substantial decisions of such trust, (c) who
is entitled to Treaty (as defined below) benefits under the "Limitation on
Benefits" provisions contained in the Treaty, as discussed below (a "U.S.
Holder"), (d) who hold the ADSs or shares as capital assets and (e) whose
functional currency is the U.S. dollar. Certain holders (including, but not
limited to, United States expatriates, insurance companies, tax-exempt
organizations, financial institutions, persons subject to the alternative
minimum tax, securities broker-dealers and persons holding the ADSs or shares
as part of a straddle, hedging conversion transaction) may be subject to
special rules not discussed below. Because this is a general summary, U.S.
Holders are advised to consult their own tax advisors with respect to the
ownership and disposition of ADSs and shares.

    The statements of United States and French tax laws set forth below assume
that each obligation in the Deposit Agreement and any related agreement will
be performed in accordance with its terms and are based on United States and
French laws and the double taxation conventions between the United States and
France in force, and on the practice of the French tax authorities, as of the
date hereof, and as a consequence are subject to any changes in such laws,
conventions or practice occurring after such date. In this regard, we refer to
the income tax treaty currently in force between the United States and France,
the Convention between the United States of America and the French Republic
for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with
Respect to Taxes on Income and Capital of August 31, 1994 (the "Treaty"),
entered into force on December 30, 1995 and the French tax authorities issued
tax regulations regarding the Treaty application (the "Regulations").

    For purposes of the Treaty and the United States Internal Revenue Code of
1986, as amended (the "Code"), U.S. Holders of ADRs will be treated as owners
of the ADSs evidenced thereby and the shares represented by such ADSs and the
discussion of United States federal income tax consequences to holders of ADSs
applies equally to holders of shares, and the discussion applicable to shares
is equally applicable to ADSs.

Taxation of dividends

    In France, dividends are paid out of after-tax income. French residents
are entitled to a tax credit, known as the avoir fiscal.

    The amount of the avoir fiscal is generally equal to:

        -      50% of the dividend paid for (i) individuals and (ii) companies
               which own at least 5% of the capital of the French distributing
               company and meet the conditions to qualify under the French
               parent-subsidiary regime; or

        -      25% of the dividend paid for the other shareholders who use the
               avoir fiscal in 2001, and 15% of the dividend paid for such
               other shareholders who will use the avoir fiscal as of January
               1, 2002.

    In addition, if the distribution of dividends by us gives rise to the
precompte, shareholders entitled to the avoir fiscal at the rate of 25%, and
then 15%, will generally be entitled to an additional amount of avoir fiscal
equal to:

        -      50% of the precompte paid in cash by the company for
               shareholders entitled to use the avoir fiscal at the rate of
               25%; and

        -      70% of the precompte paid in cash by the company for
               shareholders entitled to use the avoir fiscal at the rate of
               15%.

    As indicated below, the precompte is a tax which is paid by French
companies when they distribute dividends out of certain profits (see paragraph
below relating to the precompte).

    Under French domestic law, dividends paid to non-residents are normally
subject to a 25% French withholding tax and non-residents are not eligible for
the benefit of the avoir fiscal.


                                       73

<PAGE>
    Under the Treaty, the rate of French withholding tax on dividends paid to
a U.S. Holder whose ownership of the ADSs or shares is not effectively
connected with a permanent establishment or a fixed base in France is reduced
to 15%. Dividends paid to an Eligible U.S. Holder as defined below will be
immediately subject to the reduced rate of 15%, provided that such holder
establishes before the date of payment that such holder is a resident of the
United States under the Treaty in accordance with the procedures described
below. An Eligible U.S. Holder would also be entitled to a payment equal to
the avoir fiscal, less a 15% withholding tax. As noted below, such payment
will not be made to an Eligible U.S. Holder until after the close of the
calendar year in which the dividend was paid and only upon receipt by the
French tax authorities of a claim made by the Eligible U.S. Holder for such
payment in accordance with the procedures set forth below.

    An Eligible U.S. Holder is a U.S. Holder whose ownership of ADSs or shares
is not effectively connected with a permanent establishment or fixed base in
France, and who is (i) an individual or other non-corporate holder that is a
resident of the United States as defined pursuant to the provisions of the
Treaty, (ii) a United States corporation, other than a regulated investment
company, (iii) a United States corporation which is a regulated investment
company only if less than 20% of its shares are beneficially owned by persons
who are neither citizens nor residents of the United States or (iv) a
partnership or trust that is treated as a resident of the United States as
defined pursuant to the provisions of the Treaty, but only to the extent that
its partners, beneficiaries or grantors would qualify under clause (i) or (ii)
above.

    In general, under the Treaty, an Eligible U.S. Holder may receive a
payment of the avoir fiscal only if such holder (or its partners,
beneficiaries or grantors, if the holder is a partnership or trust) attests
that it is subject to United States federal income taxes on the payment of the
avoir fiscal and the related dividend. Certain entities are not entitled to
the full avoir fiscal. Tax-exempt "U.S. Pension Funds", as discussed below,
and certain other tax-exempt entities (including certain State-owned
institutions, not-for-profit organizations and individuals with respect to
dividends beneficially owned by such individuals and derived from an
investment in a tax-favored retirement account) ("Other Tax-Exempt Entities")
that own, directly and indirectly, less than 10% of the capital of the
Company, and that satisfy certain filing formalities specified in the
Regulations (i) are entitled to a payment, subject to French withholding tax,
equal to 30/85 of the gross avoir fiscal (the "partial avoir fiscal") and (ii)
are eligible for the reduced withholding tax rate of 15% on dividends. A "U.S.
Pension Fund" includes the exempt pension funds established and managed in
order to pay retirement benefits subject to the provisions of Section 401(a)
(qualified retirement plans), Section 403(b) (tax deferred annuity contract)
or Section 457 (deferred compensation plans) of the Code.

    Dividends paid to an Eligible U.S. Holder will be subject to the reduced
withholding tax rate of 15% at the time the dividend is paid if (i) such
holder duly completes and provides the French tax authorities with Treasury
Form RF 1 A EU-NO. 5052 (the "Form") before the date of payment of the
relevant dividend together with, if such Eligible U.S. Holder is not an
individual, an affidavit attesting that it is the beneficial owner of all the
rights attached to the full ownership of the ADSs or shares, including, but
not limited to dividend rights, or (ii) if completion of the Form is not
possible prior to the payment of dividends, such holder duly completes and
provides the French tax authorities with a simplified certificate (the
"Certificate") stating that (a) such holder is a U.S. resident as defined
pursuant to the provisions of the Treaty, (b) such holder's ownership of the
ADSs or shares is not effectively connected with a permanent establishment or
fixed base in France, (c) such holder owns all the rights attached to the full
ownership of the ADSs or shares, including but not limited to dividend rights,
(d) such holder meets all the requirements of the Treaty for obtaining the
benefit of the reduced rate of withholding tax and the right to payment of the
French avoir fiscal, and (e) such holder claims the reduced rate of
withholding tax and payment of the French avoir fiscal. Dividends paid to a
U.S. Holder that is not entitled to the avoir fiscal (i.e., not an Eligible
U.S. Holder) or to an Eligible U.S. Holder that has not filed a completed Form
or Certificate before the dividend payment date will be subject to French
withholding tax at the rate of 25%. Such holder may claim a refund of the
excess withholding tax and an Eligible U.S. Holder may claim the avoir fiscal
by completing and providing the French tax authorities with the Form before
December 31st of the year following the end of the calendar year during which
the dividend is paid. U.S. Pension Funds and Other Tax-Exempt Entities are
subject to the same general filing requirements as Eligible U.S. Holders
except that they may have to supply additional documentation evidencing their
entitlement to these benefits.


                                       74

<PAGE>
    Eligible U.S. Holders, U.S. Pension Funds and Other Tax-Exempt Entities
must file the Form and, when applicable, the affidavit in order to receive
payment of the avoir fiscal or partial avoir fiscal (whichever is applicable).
The avoir fiscal or partial avoir fiscal is generally expected to be paid to
Eligible U.S. Holders, U.S. Pension Funds and Other Tax-Exempt Entities within
12 months of filing the Form, but not before January 15th following the end of
the calendar year in which the related dividend is paid. Similarly, any French
withholding tax refund is generally expected to be paid to U.S. Holders within
12 months of filing the Form, but not before January 15th following the end of
the calendar year in which the related dividend is paid.

    The Form or the Certificate, together with their respective instructions,
will be provided by the Depositary to all U.S. Holders of ADRs registered with
the Depositary and are also available from the United States Internal Revenue
Service. The Depositary will arrange for the filing with the French tax
authorities of all Forms or Certificates completed by U.S. Holders of ADRs
that are returned to the Depositary within the time period specified by the
Depositary in its distribution to registered U.S. Holders of ADRs.

    For United States federal income tax purposes, the gross amount of a
dividend and the amount of the avoir fiscal paid to a U.S. Holder, including
any French withholding tax thereon, will be included in gross income as
ordinary dividend income in the year each such payment is received (which, in
the case of a U.S. Holder of ADRs, will be the date of receipt by the
Depositary) to the extent paid or deemed paid out of the Company's current or
accumulated earnings and profits as calculated for United States federal
income tax purposes. No dividends received deduction will be allowed with
respect to dividends paid by the Company. Such dividends will generally
constitute foreign source "passive" or (in the case of certain holders)
"financial services" income for foreign tax credit purposes. The amount of any
dividend paid in French francs or euros, including the amount of any French
taxes withheld therefrom, will be equal to the dollar value of the French
francs or euros on the date such dividend is included in income (which, for a
U.S. Holder of ADRs, will be the date of receipt by the Depositary),
regardless of whether the payment is in fact converted into U.S. dollars. A
U.S. Holder will generally be required to recognize a United States source
ordinary income or loss upon the sale or disposition of French francs or
euros, unless such U.S. Holder converts the foreign currency on the date of
receipt. Moreover, a U.S. Holder may be required to recognize foreign currency
gain or loss, upon the receipt of a refund of amounts, if any, withheld from a
dividend in excess of the Treaty rate of 15%. Such foreign currency gain or
loss generally will be United States source ordinary income or loss.

    French withholding tax imposed at the Treaty rate of 15% on dividends paid
by the Company and on any related payment of the avoir fiscal is treated as
payment of a foreign income tax and, subject to certain conditions and
limitations, may be taken as a credit against such U.S. Holder's United States
federal income tax liability.

Precompte

    Amounts distributed as dividends by French companies out of profits which
have not been taxed at the ordinary corporate income tax rate or which have
been earned and taxed more than five years before the distribution and which
give rise to the avoir fiscal are subject to a tax known as the precompte. The
precompte is paid by the distributing company to the French tax authorities
and is generally equal to one-half of the nominal dividend distributed.

    A U.S. Holder not entitled to the full avoir fiscal may generally obtain a
refund from the French tax authorities of any precompte paid by the Company
with respect to the dividends distributed. Pursuant to the Treaty, the amount
of the precompte refunded to United States residents is reduced by the 15%
withholding tax applicable to dividends and by the partial avoir fiscal paid
to U.S. Pension Funds and other Tax-Exempt Entities. A holder is only entitled
to a refund of precompte actually paid in cash by the Company (net of
applicable withholding tax) and is not entitled to a refund of the precompte
paid by the Company by off-setting French and/or foreign tax credits.

    A U.S. Holder entitled to the refund of the precompte must apply for such
refund by filing a French Treasury form RF 1 B EU-NO. 5053 before the end of
the year following the year in which the dividend was paid. The form and its
instructions are available from the United States Internal Revenue


                                       75

<PAGE>
Service or at the Centre des Impots des Non Residents (9 rue d'Uzes, 75094
Paris Cedex 2).

    For United States federal income tax purposes, the amount of the precompte
paid to a U.S. Holder will generally be included in gross income as ordinary
dividend income in the year such payment is received. Such amounts will
generally constitute foreign source "passive" or (in the case of certain
holders) "financial services" income for foreign tax credit purposes. The
amount of any precompte paid in French francs or euros, including the amount
of any French taxes withheld therefrom, will be equal to the U.S. dollar value
of the French francs or euros on the date such precompte is included in income
(which, for a U.S. Holder of ADRs, will be the date of receipt by the
Depositary), regardless of whether the payment is in fact converted into U.S.
dollars. A U.S. Holder will generally be required to recognize a United States
source ordinary income or loss upon the sale or disposition of French francs
or euros.

Taxation of capital gains

    A U.S. Holder who is a resident of the United States as defined pursuant
to the provisions of the Treaty will not be subject to French tax on any
capital gain from the sale or exchange of ADSs or shares unless these ADSs or
shares form part of the business property of a permanent establishment or
fixed base that the U.S. Holder has in France. Special rules apply to
individuals who are residents of more than one country.

    The deposit or withdrawal of shares by U.S. Holders under the Deposit
Agreement will not be subject to United States federal income tax. In general,
for United States federal income tax purposes, a U.S. Holder will recognize a
capital gain or loss on the sale or exchange of ADSs or shares in the same
manner as on the sale or exchange of any other shares held as capital assets.
Such gain or loss, if any, generally will be United States source gain or loss
and will be treated as long-term capital gain or loss if the ADSs or shares
have been held for more than one year. In the case of a U.S. Holder who is an
individual, any capital gain generally will be subject to U.S. federal income
tax at preferential rates if specified minimum holding periods are met. The
deductibility of capital losses is subject to significant limitations.

French estate and gift taxes

    Pursuant to "The Convention Between the United States of America and the
French Republic for the Avoidance of Double Taxation and the Prevention of
Fiscal Evasion with Respect to Taxes on Estates, Inheritance and Gifts of
November 24, 1978," a transfer of shares or ADSs by gift or by reason of the
death of a U.S. Holder that would otherwise be subject to French gift or
inheritance tax, respectively, will not be subject to French tax unless (i)
the donor or the transferor is domiciled in France at the time of making the
gift, or at the time of his or her death, or (ii) the shares or ADSs were used
in, or held for use in, the conduct of a business through a permanent
establishment or fixed base in France.

French wealth tax

    The French wealth tax does not generally apply to a U.S. Holder who is a
resident of the United States as defined pursuant to the provisions of the
Treaty.

Information reporting and backup withholding

    In general, information reporting requirements will apply to dividends
paid in respect of ADSs or shares and the proceeds received in the sale,
exchange or redemption of the ADSs or shares by a non-corporate U.S. Holder,
and a backup withholding tax of 30.5% for 2001 (gradually reducing to 28% by
the year 2006) may apply to such amounts if the U.S. Holder fails to provide
an accurate tax identification number or certificate of foreign status and
makes any other required certification, or who is otherwise exempt from backup
withholding. U.S. persons who are required to establish their exempt status
generally must file Internal Revenue Service Form W-9 ("Request for Taxpayer
Identification Number and Certification"). Non-U.S. holders generally will not
be subject to U.S. information reporting or backup withholding. However, such
holders may be required to provide certification of non-U.S. status in
connection with payments received in the United States or through certain U.S.


                                       76

<PAGE>
related financial intermediaries. Finalized Treasury regulations have
generally expanded the circumstances under which U.S. information reporting
and backup withholding may apply. Backup withholding is not an additional tax.
Amounts withheld as backup withholding may be credited against your U.S.
federal income tax liability. A Holder may obtain a refund of any excess
amounts withheld under the backup withholding rules by filing the appropriate
claim for refund with the Internal Revenue Service and furnishing any required
information. Holders of ADSs or shares should consult their tax advisors
regarding the application of the U.S. information reporting and backup
withholding rules.

Dividends and paying agents

    Not applicable.

Statements by experts

    Not applicable.

Documents on display

    The documents referred to in this Annual Report can be read at the U.S.
Securities and Exchange Commission's public reference facilities at Room 1024,
450 Fifth Street, N.W., Washington, D.C. 20549, and at their regional offices
located at 7 World Trade Center, 13th Floor, New York, New York 10048 and at
the Northwest Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511.

Subsidiary information.

    Not applicable.

      Item 11. Quantitative and Qualitative Disclosures About Market Risk

Currency exchange rate sensitivity

    We publish our consolidated financial statements in euros and the majority
of our expenses are and will for the foreseeable future continue to be
denominated in euros or euro-based currencies. The majority of our revenues,
however, have until recently and may continue to be denominated in U.S.
dollars. A strengthening or weakening of the euro against the U.S. dollar
could therefore significantly affect our results of operations. We have
significant U.S. dollar denominated expenses that partially limit our exposure
to fluctuations between the euro and the U.S. dollar. These include the
expenses of our U.S. subsidiary Genset Corporation, as well as U.S. dollar
denominated payment obligations of Genset S.A. pursuant to numerous contracts
entered into with non-French entities.

    In addition to the euro and the U.S. dollar, the other primary functional
currencies for our operations are the Japanese yen, the Singapore dollar, the
British pound and the Australian dollar. The differences between expenses and
revenues in each of these currencies remain relatively small; we therefore do
not expect that a strengthening or weakening of the euro against these other
currencies would have a material impact on our financial results.

    Our balance sheet may also be affected by exchange rate fluctuations as a
result of variations in the euro value of assets denominated in other
currencies. As at December 31, 2000, approximately 20.5% of our consolidated
total assets were denominated in currencies other than euros, principally U.S.
dollars.

Interest rate sensitivity

    Excluding our convertible bond issuance of June 2000, which accrues
interest at a fixed rate of 4.5% annually through January 1, 2004, our cash
and cash equivalent balances are significantly greater than our debt.
Consequently, the principal risk currently associated with interest rate
fluctuations is that interest income could decrease as a result of a decrease
in interest rates. As our net cash and cash equivalent balance decreases, the
net effect of such a decrease in interest rates also diminishes.


                                       77

<PAGE>
    Our long-term debt bears interest at fixed rates between 4.25% and 8.25%.

              Item 12. Description of Securities to be Registered

                                Not applicable.

                                    PART II

            Item 13. Defaults, Dividend Arrearages and Delinquencies

    To Genset's knowledge, there has been no material default in the payment
of principal or interest or any other material default not cured within 30
days relating to indebtedness of Genset or any of its subsidiaries.

Item 14. Material Modifications to the Rights of Security Holders and Use of
                                    Proceeds

                                Not applicable.


                                       78

<PAGE>
                                    PART III


                              Item 15. [Reserved.]



                              Item 16. [Reserved.]



                         Item 17. Financial Statements

                                Not applicable.

                         Item 18. Financial Statements

<TABLE>
<CAPTION>
<S>                                                                          <C>
Report of Independent Auditors ...........................................   F-1
Consolidated Statements of Operations for the Years Ended December 31,
  1998, 1999 and 2000.....................................................   F-2
Consolidated Balance Sheets as of December 31, 1999 and 2000 .............   F-3
Consolidated Statement of Cash Flows for the Years Ended December 31,
  1998, 1999 and 2000.....................................................   F-5
Consolidated Statement of Changes in Shareholders' Equity for the Years
  Ended December 31, 1998, 1999 and 2000..................................   F-6
Notes to the Consolidated Financial Statements ...........................   F-7
</TABLE>



                                       79

<PAGE>
                               Item 19. Exhibits

<TABLE>
<CAPTION>
<S>          <C>
1.1 P        Statuts of Genset S.A., as amended through March 31, 2001

2.1*         Definitive Transaction Notice dated June 7, 2000 Made Available to the French Public upon the Issue and Listing on the
             Nouveau Marche of a Loan of 49,103,062 Euros, which may be Increased to 55,588,404 Euros, represented by Bonds
             Convertible into and/or Exchangeable for New or Existing Shares with a Principal Value per Bond of 94 Euros

2.2**        Amended and Restated Deposit Agreement, dated as of April 10, 1998, among Genset, the Bank of New York as Depositary,
             and Owners and Beneficial Owners of American Depositary Receipts issued thereunder

4.1 P        Amendment No. 1 to the Amended and Restated Investors' Rights Agreement, dated as of April 18, 2001, among Ceres,
             Inc., Genset and the other investors in Ceres, Inc.

4.2+ P       Third Amended and Restated Right of First Refusal and Co-Sale Agreement dated as of March 14, 2001, among Ceres, Inc.,
             certain founders of Ceres, Inc., Genset and the other investors in Ceres, Inc.

4.3 P        Amended and Restated Investors' Rights Agreement dated as of March 14, 2001, among Ceres, Inc., Genset and the other
             investors in Ceres, Inc.

4.4+ P       Settlement Agreement dated as of March 29, 2001 between Genset S.A. and Abbott Laboratories

4.5+ P       Amended and Restated Technology License Agreement dated as of October 19, 2000 between Genset S.A. and Ceres, Inc.

4.6*         First Supplement effective as of May 31, 2000 to the Research and License Agreement dated as of October 2, 1998
             between Genset S.A. and Pharmacia and Upjohn Company

4.7*         Research Collaboration Agreement effective as of April 3, 2000 between Genset S.A. and Sanofi-Synthelabo S.A.

4.8*         Research and License Agreement dated February 15, 2000 between Genset S.A. and Abbott Laboratories

4.9*         Genomics License Agreement dated September 30, 1999 between Genset S.A. and Genetics Institute, Inc.

4.10+ P      Amended & Restated Agreement effective as of August 1, 1999 between Genset S.A. and Janssen Pharmaceutica

4.11***      Amendment dated April 8, 1997 to the Commercial Lease between the Company and S.N.E.C.M.A.

4.12***      Commercial Lease, dated March 26, 1996, between the Company and S.N.E.C.M.A.

8.1          Subsidiaries of Genset (see "Item 4. Information on Genset - Organizational Structure)
</TABLE>

---------------


                                       80

<PAGE>
+   Confidential treatment has been requested with respect to certain portions
    of this exhibit. Omitted portions have been filed separately with the
    Securities and Exchange Commission
P   Filed concurrently with the Securities and Exchange Commission in paper
    format under cover of Form SE

*   Incorporated by reference from the 1999 Annual Report on Form 20-F filed
    with the SEC on June 30, 2000

**  Incorporated by reference from the Registration Statement on Form F-6
    filed with the SEC on March 8, 2001

*** Incorporated by reference from the 1998 Annual Report on Form 20-F filed
    with the SEC on June 30, 1999


                                       81

<PAGE>
                                   SIGNATURES

    The registrant certifies that it meets all of the requirements for filing
on Form 20-F and that it has duly caused and authorized the undersigned to
sign this Annual Report on its behalf.
Date: June 26, 2001

                             GENSET
                             By: /S/ Andre Pernet
                                _______________________

                                Name: Andre Pernet
                                Title: Chairman and Chief Executive Officer


                                       82


<PAGE>
Report of Independent Auditors

To the directors and shareholders of Genset, S.A. :

We have audited the accompanying consolidated balance sheets of Genset, S.A.
and subsidiaries as of December 31, 2000 and 1999 and the related consolidated
statements of operations, comprehensive loss, shareholders' equity and cash
flows for each of the three years in the period ended December 31, 2000. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of the Company and
its subsidiaries as of December 31, 2000 and 1999 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2000, in conformity with accounting principles generally accepted
in the United States.



/s/ Jean-Yves Jegourel
_______________________

Ernst & Young Audit

Paris, France
February 24, 2001


                                      F-1

<PAGE>
Consolidated Statements of Operations
(audited)
(Amounts in thousands, except per share data)

<TABLE>
<CAPTION>

                                                                                                    Year ended December 31,
                                                                                             --------------------------------------
                                                                                              2000       2000      1999       1998
                                                                                            -------    -------    -------   -------
                                                                                              US$        Euro      Euro       Euro
<S>                                                                                         <C>        <C>        <C>       <C>
Research and development revenues .......................................................    16,285     17,346     19,406    21,297
Oliogonucleotide sales ..................................................................    11,717     12,481      8,290     5,614
                                                                                            -------    -------    -------   -------
 Total revenues .........................................................................    28,002     29,827     27,696    26,911
                                                                                            -------    -------    -------   -------
Research and development expenses .......................................................   (39,712)   (42,301)   (42,423)  (33,732)
Cost of goods sold ......................................................................    (7,154)    (7,620)    (3,457)   (2,667)
Selling and marketing expenses ..........................................................    (2,302)    (2,452)    (1,462)   (1,229)
General and administrative expenses .....................................................   (12,838)   (13,675)   (10,513)   (8,689)
                                                                                            -------    -------    -------   -------
 Total operating expenses ...............................................................   (62,006)   (66,048)   (57,855)  (46,317)
                                                                                            -------    -------    -------   -------
 Loss from operations ...................................................................   (34,004)   (36,221)   (30,159)  (19,406)
                                                                                            -------    -------    -------   -------
Interest income .........................................................................     2,351      2,504      1,347     2,268
Interest expense ........................................................................    (2,027)    (2,159)      (529)     (559)
Foreign exchange gain (loss) ............................................................      (278)      (296)     2,984      (889)
Other income ............................................................................        89         94        153     2,478
Equity in income (loss) of affiliated companies .........................................         8          9       (756)   (1,298)
                                                                                            -------    -------    -------   -------
 Loss before income tax, minority interests and cumulative effect of change in
 accounting principle ...................................................................   (33,861)   (36,069)   (26,960)  (17,406)
                                                                                            -------    -------    -------   -------
Income tax benefit ......................................................................     2,258      2,405      4,945     2,687
Minority interest .......................................................................       (87)       (93)       (95)        2
Cumulative effect of change in accounting principle .....................................      (589)      (628)
                                                                                            -------    -------    -------   -------
 Net loss ...............................................................................   (32,279)   (34,385)   (22,110)  (14,717)
                                                                                            =======    =======    =======   =======
Loss per ordinary share .................................................................     (4.08)     (4.35)     (2.97)    (2.02)
Loss per ordinary share - basic and diluted before cumulative effect of change in
  accounting principle...................................................................     (4.01)     (4.27)     (2.97)    (2.02)
Weighted average number of ordinary shares outstanding ..................................     7,910      7,910      7,452     7,293
Loss per ADS (American Depositary Share) ................................................     (1.36)     (1.45)     (0.99)    (0.67)
Weighted average number of equivalent ADSs outstanding ..................................    23,730     23,730     22,356    21,879
</TABLE>


              Consolidated Statements of Comprehensive Loss

<TABLE>
<CAPTION>

                                                                                                   Period ended December 31,
                                                                                             --------------------------------------
                                                                                              2000       2000      1999       1998
                                                                                            -------    -------    -------   -------
                                                                                              US$        Euro      Euro       Euro
<S>                                                                                         <C>        <C>        <C>       <C>
 Net loss ...............................................................................   (32,279)   (34,385)   (22,110)  (14,717)
Foreign currency translation adjustment .................................................     1,156      1,232       (530)       42
Net unrealized losses on available for sale securities ..................................      (335)      (357)
                                                                                            -------    -------    -------   -------
 Comprehensive Net loss .................................................................   (31,458)   (33,510)   (22,640)  (14,675)
                                                                                            =======    =======    =======   =======
</TABLE>


See notes to consolidated financial statements.

Certain prior year amounts have been reclassified to conform to the current
year presentation.

The financial information expressed in US $ and euros is presented solely for
the convenience of the reader and is translated from euros at the noon buying
rate in New York on December 29, 2000 which was US$ 0.9388 for each euro.


                                      F-2

<PAGE>
Consolidated Balance Sheets
(audited)
(Amounts in thousands)
<TABLE>
<CAPTION>

                                                                                                                     December 31,
                                                                                                           2000       2000     1999
                                                                                                        -------    -------   ------
                                                                                                            US$       Euro     Euro
<S>                                                                                                     <C>        <C>       <C>
Current Assets:
 Cash and cash equivalents..........................................................................     63,605     67,752   21,148
 Accounts receivable, net...........................................................................      5,958      6,346    8,472
 Receivable from affiliates.........................................................................        578        615      595
 Receivable from State .............................................................................      7,927      8,443    7,521
 Inventory..........................................................................................      1,391      1,482    1,267
 Prepaid expenses and other current assets..........................................................      4,104      4,371    1,778
   Total current assets.............................................................................     83,563     89,009   40,781
Property and equipment, net.........................................................................     22,265     23,716   24,904
                                                                                                        -------    -------   ------
Other assets:
 Research and development tax credit receivable, less current portion...............................      9,641     10,269   10,643
 Intangibles Net (less accumulated amortization of 1,879 euros in 2000 and 1,066 euros in 1999).....      1,998      2,128    1,152
 Other long term assets.............................................................................      6,016      6,409    3,466
                                                                                                        -------    -------   ------
   Total assets.....................................................................................    123,483    131,531   80,946
                                                                                                        =======    =======   ======
</TABLE>



See notes to consolidated financial statements.

Certain prior year amounts have been reclassified to conform to the current
year presentation.

The financial information expressed in U.S.$ and euros is presented solely for
the convenience of the reader and is translated from euros at the noon buying
rate in New York on December 29, 2000 which was USD 0.9388 for each euro.


                                      F-3

<PAGE>
Consolidated Balance Sheets
(Continued)

(audited)
(Amounts in thousands)

<TABLE>
<CAPTION>

                                                                                                                    December 31,
                                                                                                         2000      2000       1999
                                                                                                       -------    -------   -------
                                                                                                         US$       Euro       Euro
<S>                                                                                                    <C>        <C>       <C>
Current liabilities:
 Current portion of long term debt.................................................................      1,983      2,113     2,851
 Current portion of capital lease obligation ......................................................        319        340       299
 Accounts payable..................................................................................     13,259     14,123    13,562
 Accrued expenses .................................................................................      2,622      2,793     2,221
 Deferred revenues ................................................................................        639        680     1,998
                                                                                                       -------    -------   -------
   Total current liabilities.......................................................................     18,822     20,049    20,931
                                                                                                       -------    -------   -------
Long-term debt, less current portion...............................................................      2,991      3,185     4,315
Convertible Bonds..................................................................................     53,381     56,860
Capital lease obligation, less current portion.....................................................        444        473       612
                                                                                                       -------    -------   -------
   Total long term liabilities.....................................................................     56,816     60,518     4,927
                                                                                                       -------    -------   -------
Minority interest..................................................................................        558        594       460
Shareholders' equity:
 Common stock, euros 3 nominal value; 8,104,850 and 7,479,606 shares issued and outstanding -
   December 31, 2000 and December 31, 1999, respectively...........................................     22,826     24,315    22,439
 Additional paid-in capital........................................................................    107,201    114,189    87,957
 Accumulated deficit...............................................................................    (81,820)   (87,154)  (52,769)
 Less advances by the Company to fund employees' exercise of options...............................       (284)      (303)     (321)
 Deferred compensation ............................................................................     (1,010)    (1,076)   (2,202)
 Other comprehensive income .......................................................................        374        399      (476)
                                                                                                       =======    =======   =======
   Total shareholders' equity .....................................................................     47,287     50,370    54,628
                                                                                                       -------    -------   -------
   Total liabilities and shareholders' equity......................................................    123,483    131,531    80,946
                                                                                                       =======    =======   =======
</TABLE>


See notes to consolidated financial statements.

Certain prior year amounts have been reclassified to conform to the current
year presentation.

The financial information expressed in U.S.$ and euros is presented solely for
the convenience of the reader and is translated from euros at the noon buying
rate in New York on December 29, 2000 which was USD 0.9388 for each euro.


                                      F-4

<PAGE>
Consolidated Statements of Cash Flows
(Audited)
(Amounts in thousands)

<TABLE>
<CAPTION>

                                                                                                    Year ended December 31,
                                                                                              2000       2000      1999       1998
                                                                                            -------    -------    -------   -------
                                                                                              US$        Euro      Euro       Euro
<S>                                                                                         <C>        <C>        <C>       <C>
Cash flows from operating activities :
Net loss ................................................................................   (32,279)   (34,385)   (22,110)  (14,717)
Adjustments to reconcile net loss to net cash used in operating activities :
 Depreciation and amortization of property and equipment and intangibles ................     5,708      6,080      6,222     3,890
 Stock compensation expense .............................................................       919        979      1,302     1,122
 Non cash R&D ...........................................................................    (2,948)    (3,139)      (716)   (1,564)
 Equity in loss of affiliated companies .................................................        (8)        (9)               1,298
 Gain on sale of stocks by equity investee ..............................................                                    (2,312)
 Goodwill amortization ..................................................................        71         75                  646
 Provisions .............................................................................        10         11         26
 Minority interests .....................................................................       126        134        116       344
 Increase (decrease) in cash from :
   Accounts receivable - trade...........................................................     1,877      1,999     (2,784)   (3,356)
   Accounts receivable - affiliates......................................................       (19)       (20)     1,330    (1,947)
   State receivable......................................................................      (516)      (549)    (5,909)   (2,080)
   Inventory.............................................................................      (205)      (219)      (197)     (443)
   Prepaid expenses and other current assets.............................................      (495)      (527)      (125)      (61)
   Accounts payable......................................................................      (442)      (471)     3,239     4,826
   Accounts affiliates...................................................................
   Accrued expenses......................................................................     1,730      1,843        463       411
   Deferred revenue......................................................................    (1,236)    (1,317)       249       133
   Other.................................................................................       166        177        (45)     (172)
                                                                                            -------    -------    -------   -------
    Net cash used in operating activities ...............................................   (27,541)   (29,338)   (18,939)  (13,982)
                                                                                            -------    -------    -------   -------
Cash flows from investing activities:
 Proceeds from sales of short term investments ..........................................       340        363                   43
 Purchase of investments ................................................................
 Purchases of property and equipment ....................................................    (3,252)    (3,464)    (5,377)  (11,651)
 Payment of patent development costs and acquisition of other intangibles ...............                                      (520)
 Others .................................................................................    (1,583)    (1,686)      (880)      (13)
                                                                                            -------    -------    -------   -------
   Net cash used in investing activities.................................................    (4,495)    (4,787)    (6,257)  (12,141)
                                                                                            -------    -------    -------   -------
Cash flows from financing activities :
 Proceeds from loans ....................................................................       949      1,011                4,573
 Proceeds from convertible bonds ........................................................    52,186     55,588
 Convertible bonds issuance costs .......................................................    (1,936)    (2,062)
 Repayment of loans .....................................................................    (2,677)    (2,851)    (3,260)   (3,010)
 Principal payments on capital lease obligations ........................................      (158)      (168)      (230)     (222)
 Cash proceeds from sale of common stock ................................................    26,525     28,254        721     4,528
                                                                                            -------    -------    -------   -------
   Net cash provided by financing activities.............................................    74,889     79,772     (2,769)    5,869
                                                                                            -------    -------    -------   -------
Effect of exchange rate changes on cash and cash equivalents ............................       898        957     (1,091)      110
Net increase (decrease) in cash and cash equivalents ....................................    43,751     46,604    (29,056)  (20,142)
Cash and cash equivalents, beginning of period ..........................................    19,854     21,148     50,204    70,346
                                                                                            -------    -------    -------   -------
Cash and cash equivalents, end of period ................................................    63,605     67,752     21,148    50,204
                                                                                            =======    =======    =======   =======
</TABLE>


See notes to consolidated financial statements.

The financial information expressed in U.S.$ and euros is presented solely for
the convenience of the reader and is translated from euros at the noon buying
rate in New York on December 29, 2000 which was USD 0.9388 for each euro.


                                      F-5

<PAGE>
Consolidated Statements of Shareholders' Equity
(Audited)
(amounts in thousands of euros, except share data)

<TABLE>
<CAPTION>

                           Ordinary Shares     Additional                                                      Other        Share-
                          ------------------     Paid-in     Accumulated    Advances to      Deferred      Comprehensive   Holders'
                          Shares*     Amount     Capital       Deficit     Shareholders    Compensation       Income        Equity
                         ---------    ------   ----------    -----------   ------------    ------------    -------------   --------
<S>                      <C>          <C>      <C>           <C>           <C>             <C>             <C>             <C>
                         ---------    ------     -------       -------         ----           ------           -----        -------
At January 1, 1998 ...   7,189,087    18,631     104,652       (37,212)         (91)          (1,759)             12         84,233
                         =========    ======     =======       =======         ====           ======           =====        =======
Exercise of stock
  options from E4.39
  to E59.46 per share      130,719       339       2,824                                                                      3,163
Exercise of warrants
  from E4.39 to
  E38.11 per share....      99,900       259       1,064                                                                      1,323
Exercice of options
  and warrants funded
  by advances to
  shareholders........                                                           56                                              56
Accumulated deficit
  moved to APIC                                  (21,269)       21,269
Deferred compensation
  arising from stock
  option grants.......                             2,776                                      (2,776)
Subscription of
  warrants............                                20                                                                         20
Amortization of
  deferred
  compensation........                                                                         1,122                          1,122
Translation
  adjustment..........                                                                                            42             42
Net loss .............                                         (14,716)                                                     (14,716)
                         ---------    ------     -------       -------         ----           ------           -----        -------
At December 31, 1998 .   7,419,706    19,229      90,067       (30,659)         (35)          (3,413)             54         75,243
                         =========    ======     =======       =======         ====           ======           =====        =======
Exercise of stock
  options from E4.39
  to E34.30 per share       59,900       175         828                                                                      1,003
Exercise of warrants
  from E4.39 to
  E38.11 per share...
Exercice of options
  and warrants funded
  by advances to
  shareholders........                                                         (286)                                           (286)
Deferred compensation
  arising from stock
  option grants.......                                93                                         (93)
Subscription of
  warrants............                                 4                                                                          4
Conversion of nominal
  value from FF17 to
  E3..................                 3,035      (3,035)
Amortization of
  deferred
  compensation........                                                                         1,304                          1,304
Translation
  adjustment..........                                                                                          (530)          (530)
Net loss .............                                         (22,110)                                                     (22,110)
                         ---------    ------     -------       -------         ----           ------           -----        -------
At December 31, 1999 .   7,479,606    22,439      87,957       (52,769)        (321)          (2,202)           (476)        54,628
                         =========    ======     =======       =======         ====           ======           =====        =======
Exercise of stock
  options from E4.39
  to E68.45 per share      553,731     1,662      15,010                                                                     16,672
Exercise of warrants
  from E4.39 to
  E87.51 per share....      16,750        50       1,213                                                                      1,263
Capital increase .....      54,763       164      10,149                                                                     10,313
Exercice of options
  and warrants funded
  by advances to
  shareholders........                                                           18                                              18
Deferred compensation
  arising from stock
  option grants.......                              (148)                                        148
Subscription of
  warrants............                                 8                                                                          8
Amortization of
  deferred
  compensation........                                                                           978                            978
Translation
  adjustment..........                                                                                         1,232          1,232
Change in value of
  available for sale
  securities..........                                                                                          (357)          (357)
Net loss .............                                         (34,385)                                                     (34,385)
                         ---------    ------     -------       -------         ----           ------           -----        -------
At December 31, 2000 .   8,104,850    24,315     114,189       (87,154)        (303)          (1,076)            399         50,370
                         =========    ======     =======       =======         ====           ======           =====        =======
At December 31, 2000
  (in thousands of $).                22,826     107,201       (81,820)        (284)          (1,010)            374         47,287
                                      ======     =======       =======         ====           ======           =====        =======
</TABLE>


See notes to consolated financial statements.

The financial information expressed in U.S.$ and euros is presented solely for
the convenience of the reader and is translated from euros at the noon buying
rate in New York on December 29, 2000 which was USD 0.9388 for each euro.





                                      F-6

<PAGE>
                                   Genset SA

                   Notes to Consolidated Financial Statements

1.  Nature of business and summary of significant accounting policies

Nature of business

    Genset, S.A. (the "Company") is incorporated as a societe anonyme or
limited liability corporation under the laws of the Republic of France. The
Company was organized in 1989 to discover, develop and market products derived
from DNA and genetics research.

Principles of consolidation

    The accompanying consolidated financial statements were prepared in
accordance with accounting principles generally accepted in the United States.
The preparation of financial statements requires management to make estimates
and assumptions that affect the amounts reported in the financial statements
and accompanying footnotes. Actual results could differ from those estimates.

    The consolidated financial statements include the financial statements of
Genset and all significant subsidiaries which are effectively controlled,
either directly or indirectly, by Genset.

    Companies over which Genset exercises significant influence are accounted
for using the equity method.

<TABLE>
<CAPTION>
                                                                                                 Percentage of        Consolidation
Name of Investee                           Headquarters                                              Ownership               method
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                        <C>                                               <C>                  <C>
Subsidiaries
Genset Corp                                10665 Sorrento Valley Road
                                           San Diego, CA 92121, USA                                       100%        consolidation
                                           SCB #3 - Kyoto Research Park
                                           1 Awata-cho Chudoji
Genset KK                                  Shimogyo-Ku, Kyoto 600-8815, Japan                             100%        consolidation
Genset Singapore                           The Alpha bldg #04-28                                        52.60%        consolidation
                                           Singapore Science Park II
Biotechnology Pte Ltd                      10 Science Park Road, Singapore 117684
                                           300 Queen Street, Brisbane, Queensland,
Genset Pacific(1)                          4000 Australia                                                  75%        consolidation
                                           27, New Bond Street,
Genset Biotechnology Limited(2)            London W1Y 9, England                                          100%        consolidation

Affiliates                                 c/o Royal College of Surgeons in Ireland
                                           123 St Stephen's Green
Surgen Ltd                                 Dublin 2, Ireland                                            50.00%        equity method
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>


(1) The Company acquired 75% of Genset Pacific's equity on January 18, 2000.
    The Company purchased 562,500 shares for an amount of 562,500 Australian
    dollars. The goodwill of 300,581 Australian dollars is amortized over a
    four year period.
(2) Genset Biotechnology Limited was created in 2000.


                                      F-7

<PAGE>
Genset SA - Notes to Consolidated Financial Statements (continued)

    All intercompany accounts and transactions of consolidated companies have
been eliminated. The fiscal year-end is December 31, 2000 for all subsidiaries
and affiliates.

    Effective July 1, 1999, Genset changed the method of accounting for its
investment in Ceres from equity method to cost, because the Company no longer
has a significant influence on Ceres. The carrying value of the investment in
Ceres as of June 30, 1999 was 2.844 million euros. The Company's percentage
equity interest in Ceres is approximately 10% as of December 31, 2000.

    The financial information expressed in U.S. dollars is presented solely
for the convenience of the reader and is translated from euros at the noon
buying rate in New York on December 29, 2000 which was US$ 0.9388 for each
euro. Certain prior year amounts have been reclassified to conform to the
current year presentation.

Translation of financial statements of foreign subsidiaries

    Each foreign entity's results are measured in the currency in which that
entity primarily conducts its business (the functional currency). The local
currency is the functional currency for the Group's foreign subsidiaries. The
reporting currency of the Company is the euro. For consolidation purposes, the
financial statements of entities whose functional currency is other than the
euro are translated into euro equivalents at exchange rates as follows: (1)
balance sheet accounts at year-end rates; and (2) income statement accounts at
weighted average exchange rates for the year. Translation gains or losses are
recorded in shareholders' equity, and transaction gains and losses are
reflected in net income.

    A translation loss on the subsidiaries' current accounts of 1.5 million
euros has been recorded as a Cumulative Translation Adjustment.

Revenue recognition

    Revenues from sales of synthetic DNA and related products are recognized
upon shipment. Revenues from research collaborations with strategic alliance
partners are recognized on a basis consistent with the performance
requirements of the contract. Certain fees payable to the Company under these
contracts are milestone-related and are due in accordance with the terms of
each contract when the milestone is achieved. The Company recognizes this
milestone-related revenue only when each milestone has been fully performed.
Costs incurred under these contracts are considered costs in the period
incurred, regardless of when the related revenue is recognized. Payments
received in advance of performance are recorded as deferred revenue.

    The Company recognizes revenue from unconditional, non-refundable grants
received from governmental agencies in the period granted. Revenue from
conditional grants received is recognized when all conditions stated in the
grant have been met. Revenue from grants funding long-term research programs
is recognized on the percentage-of-completion method when there are no set
milestones or other technical requirements. Once stated conditions, milestones
or other requirements have been met, such grants are non-refundable.

    In December 1999, the Securities and Exchange Commission (the "SEC")
issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements" ("SAB 101"). The effective date of SAB 101 was October 1, 2000.
Among other things, SAB 101 discusses the SEC staff's view on accounting for
non-refundable up-front fees received in connection with collaboration
agreements. The Company has evaluated the impact of SAB 101 on the accounting
for up-front fees received prior to October 1, 2000. The cumulative effect of
the change in accounting principle resulted in a loss corresponding to the
deferral of the 628,000 euros revenue booked in 1999. The following table
presents sales, net income and per share


                                      F-8

<PAGE>
Genset SA - Notes to Consolidated Financial Statements (continued)

information for the year ended December 31, 1999 as if the new principle had
been applied (no pro forma impact on 1998 accounts) :

<TABLE>
<CAPTION>

                                                                           1999
                                                                         -------
<S>                                                                       <C>
    Sales                                                                 27,068
    Net income (loss)                                                    (22,738)
    Per basic share                                                        (3.05)
</TABLE>


    597,000 euros of the deferred 628,000 euros were recognized in 2000. The
residual amount will be recognized in Q1 2001.

Research and development expenses and related tax credit

    Research and development costs are expensed as incurred. Such expenses
form the basis for a tax credit in France, which is recorded as a current tax
benefit in the period in which the qualifying expenses are incurred and the
credit claimed. The credit is recoverable in cash, if not used to offset taxes
payable, in the fourth year following its generation.

Concentration of credit risk and significant customers

    The Company's customers consist principally of pharmaceutical companies,
research centers, hospitals and other state- and privately-owned entities
throughout Europe, the United States, Asia and Australia. The Company performs
ongoing credit evaluations of its customers' financial condition, and
generally no collateral is required. The Company maintains provisions for
potential credit losses, and such losses have been within management's
expectations. The activity in the allowance for doubtful accounts may be
summarized as follows:

<TABLE>
<CAPTION>

                                                             2000    1999   1998
    In thousands of euros,                                   ----    ----   ----
<S>                                                           <C>    <C>    <C>
    Allowance balance as of January 1                          80     64     63
    Amounts charged to expense                                 31     16      3
    Amounts written off                                        (6)    --     (2)
                                                              ---    ---     ---
    Allowance balance as of December 31                       105     80     64
</TABLE>


    In 2000, six strategic alliance partners accounted for 15.2 million euros,
or 51% of consolidated revenues. Amounts receivable from these six partners as
of December 31, 2000, totaled 1.8 million euros.

    In 1999, seven strategic alliance partners accounted for 18.1 million
euros, or 65% of consolidated revenues. Amounts receivable from these seven
partners as of December 31, 1999, totaled 5.8 million euros.

    In 1998, seven strategic alliance partners accounted for 21.3 million
euros, or 79% of consolidated revenues. Amounts receivable from these seven
partners as of December 31, 1998, totaled 5.1 million euros.

Deferred compensation

    During the years ended December 31, 2000, 1999 and 1998, the Company
recorded compensation expense related to options of 978,000 euros, 1.3 million
euros and 1.1 million euros, respectively. The Company will record an
aggregate compensation expense of approximately 1.1 million euros over the
related vesting period of the granted options in future years.

    In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No.44, "Accounting for Certain Transactions Involving Stock
Compensation", an interpretation of APB Opinion No.25. The Interpretation
requires that stock options that have been modified to reduce the exercise
price be


                                      F-9

<PAGE>
Genset SA - Notes to Consolidated Financial Statements (continued)

accounted for as variable. The Company has repriced stock options between
December 15, 1998 and March 31, 2000, (in June 1999) and in accordance with
generally accepted accounting principles at that time, accounted for the
repriced stocks option as fixed. As a result of adopting the Interpretation,
the Company is required to apply variable accounting to these options since
July 1, 2000. Consequently, if the market price of the Company's stock
increases it will recognize additional compensation expenses that it otherwise
would not have incurred. There was no compensation expense related to the
repriced stock option in 2000.

Net loss per share

    The Company conforms to Statement of Financial Accounting Standards No.
128 "Earning Per Share" ("SFAS 128"). As net losses have been reported in all
periods presented, the dilutive effects of warrants and stock options were
excluded from the calculation of net loss per share as including them would
have the effect of reducing the loss per share.

Cash and Cash equivalents

    The Company considers all highly liquid investments with insignificant
interest rate risk and purchased with an original maturity of three months or
less to be cash equivalents. Such cash equivalents totaled 67.1 million euros
and 20.2 million euros as of December 31, 2000 and 1999, respectively.

    Cash equivalents include marketable securities which are principally money
market funds and short-term certificates of deposit. The cost associated with
such securities approximates fair value.

    In 2000, the Company booked a net exchange gain of 1.3 million euros, in
1999, a net exchange gain of 1.2 million euros and, in 1998, a net exchange
loss of 494.000 euros on operations realized on foreign currency investments.

Inventories

    Inventories are stated at the lower of weighted average cost or market and
consist primarily of materials and supplies. The Company's inventories as of
December 31 comprised raw materials and supplies for 1.5 million euros and 1.3
million euros in 2000 and 1999, respectively. Provision is made for obsolete
and slow-moving inventories. No provisions were recorded in 2000 or 1999.

Property and equipment

    Property and equipment is stated at cost. Depreciation and amortization
are charged to expense over the expected useful lives of the assets as
follows:

<TABLE>
<CAPTION>

                                                      Method           Period
                                                      ------           ------
<S>                                                <C>             <C>
    Leasehold improvements                         straight-line   5 to 10 years
    Laboratory equipment                             accelerated    3 to 5 years
    Office and computer equipment                  straight-line         5 years
    Office furniture                               straight-line    5 to 7 years
</TABLE>


    The depreciation expenses were 5.5 million euros and 6.0 million euros in
2000 and 1999, respectively.

    Assets under capital leases are amortized over the asset life, when there
is a bargain purchase option, or over the remaining lease term. Amortization
of capital leases is included in depreciation expense.

    Long-lived assets are written-down in the year-end accounts when, as a
result of events and changes in circumstances during the year, their
recoverable value based on undiscounted future cash flow appear to be
permanently less than their carrying value.


                                      F-10

<PAGE>
Genset SA - Notes to Consolidated Financial Statements (continued)

    In March 1998, the American Institute of Certified Public Accountant
issued SOP 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use". The Company adopted the SOP on January 1, 1999.
The SOP requires the capitalization of certain costs incurred after the date
of adoption in connection with developing or obtaining software for internal
use.

Intangible assets

    Intangible assets include principally patent development costs. Such
costs, principally legal fees, related to the obtaining of patents, are
capitalized and amortized on a straight-line basis over five years.

    The Company's policy is to evaluate, at each balance sheet date, the
appropriateness of the carrying values of the unamortized balances of
intangible assets on the basis of estimated undiscounted future cash flows and
other factors. If such evaluations were to indicate a material impairment of
these intangible assets, such impairment would be recognized by a write-down
of the applicable asset.

Other long term assets

    Investments are stated at cost. They are written down when the recoverable
value is permanently impaired.

    Debt and equity securities not classified as either held-to-maturity
securities or trading securities are classified as available-for-sale
securities and reported at fair value, with unrealized gains and losses
excluded from earnings and reported in other income.

Income taxes

    The liability method is used in accounting for income taxes. Under this
method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse. A valuation allowance
is recorded if it is more likely than not that some portion or all of the
deferred tax asset will not be realized.

Employee stock option plans

    The Company adopted the disclosure provisions of Statement of Financial
Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock Based
Compensation." As permitted by SFAS 123, the Company has elected to continue
to account for its employee stock option plans in accordance with the
provisions of the Accounting Principles Board opinion No. 25 ("APB 25"),
"Accounting for Stock Issued to Employees," which requires that compensation
expense be recorded when the option exercise price is less than the market
value of the underlying share on the grant date.

Foreign currency

    Forward foreign exchange contracts are utilized to manage the risk
associated with currency fluctuations on certain firm sales denominated in
foreign currencies. The Company does not engage in currency speculation. The
Company's forward foreign exchange contracts are primarily denominated in US$
and are for periods consistent with the terms of the underlying transactions,
generally one to three months. The forward foreign exchange contracts relate
to firm, foreign currency sales and are designated and effective as hedges of
firm, identifiable foreign currency commitments; accordingly, the gains and
losses resulting from the impact of currency exchange rate movements on these
contracts are not recognized in operations until the underlying hedged
transactions are recognized. Upon recognition, such gains and losses are
recorded in operations as an adjustment to the carrying amount of the
underlying transactions in the period in which these transactions are
recorded.


                                      F-11

<PAGE>
Genset SA - Notes to Consolidated Financial Statements (continued)

    As of December 31, 2000 there was no foreign currency contract obligation.
The aggregate amount of all foreign currency contract obligations outstanding
as of December 31, 1999 was 2.4 million euros.

    The only significant foreign currency dominated asset corresponds to cash
equivalents denominated in US$, amounting to 9.5 million euros as of December
31, 2000.

Segment information

    Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standard No. 131, "Disclosures about Segments of an Enterprise and
Related Information" ("SFAS 131"). SFAS 131 superseded Statement No. 14,
"Financial Reporting for Segments of a Business Enterprise." SFAS 131
establishes standards for the way that public business enterprises report
information about operating segments in annual financial statements and
requires those enterprises to report selected information about operating
segments in interim financial reports. SFAS 131 also establishes standards for
related disclosures about products and services, geographic areas, and major
customers. With the continued development of its oligonucleotide division, the
Company considers since 1999 that its activities consist of two segments:
genomics research and oligonucleotide production and sale.

Recent pronouncements

    In June 1998, the Financial Accounting Standard Board issued Statement No.
133, "Accounting for Derivative Instruments and Hedging Activities". The
Statement will require the Company to recognize all derivatives on the balance
sheet at fair value. This statement is effective for fiscal years beginning
after June 15, 2000, and will be adopted by the Company for the year ending
December 31, 2001. Because of the Company's minimal use of derivatives,
management does not anticipate that the adoption of the new Statement will
have a significant effect on earnings or on the financial position of the
Company.

2.  Research and collaboration agreements

2000: In April 2000, the Company signed an agreement with Sanofi-Synthelabo to
pursue a pharmacogenomics collaboration aimed at lead selection and
optimization for an undisclosed CNS disease. Under the agreement, Sanofi-
Synthelabo is paying research funding and research milestone fees to Genset
and will pay clinical milestones and royalties on any drugs developed through
an active use of the data and clones provided by Genset. Such active uses will
notably include the chemical modification or the replacement of a given lead,
or the use of data to design novel clinical studies. Genset will grant to
Sanofi-Synthelabo an exclusive worldwide license to use the data and clones
generated through the collaboration to develop and commercialize drugs for the
treatment of the undisclosed selected disease.

    In March 2000, the Company signed a new collaborative research agreement
with Abbott Laboratories to discover genes associated with bipolar disorder
and Type II diabetes. The collaboration is focusing on certain candidate
regions associated with the selected diseases with initial efforts centered on
bipolar disorder. Abbott will receive a license to develop and commercialize
therapeutic and diagnostic products based on the genes identified through the
collaboration. Under the agreement, Genset received an up-front payment, is
receiving research funding, and will receive research milestone payments for
the discovery of disease genes and their validation as drug targets,
commercial milestone payments, and royalties (See Note 13. Subsequent Events).

    In February 2000, the Company entered into an agreement with Corixa
Corporation pursuant to which Genset sequenced the genome of the principal
microbe responsible for acne in exchange for cash and equity payments.

1999: In September 1999, the Company signed a new agreement in the field of
gene libraries with the Genetics Institute unit of Wyeth-Ayerst Laboratories,
the pharmaceutical division of American Home


                                      F-12

<PAGE>
Genset SA - Notes to Consolidated Financial Statements (continued)

Products. Under this new agreement, which replaced the previous agreement
signed in July 1997, Genset will provide Genetics Institute and Wyeth-Ayerst
with a larger variety of potential products and targets which they will have
the right to use in their internal drug discovery programs. Pursuant to the
agreement, Genetics Institute will obtain a licensing-in option on up to 1000
selected sequences and corresponding clones from Genset's gene library. In
addition to initial revenues, Genset will receive product development
milestone fees and royalties on any drugs discovered using the sequences and
the clones supplied by Genset.

    Under the earlier 1997 agreement with Genetics Institute, the Company
provided to Genetics Institute full-length genes encoding novel human secreted
proteins for inclusion in Genetics Institute's DiscoverEase[R] program. That
agreement provided that Genset would receive product development milestone
fees and royalties on any drugs discovered using the sequences and clones
supplied by Genset. Since September 1999, the Company no longer has any
obligation to deliver secreted proteins to the DiscoverEase[R] program, but the
secreted proteins already commercialized in the program remain covered by the
terms of the agreement.

1998: In October 1998, the Company entered into a two-year pharmacogenomics
collaboration with Pharmacia & Upjohn. Under the terms of the agreement,
Genset is using its pharmacogenomics technologies to discover markers and
genes involved in response to a Pharmacia & Upjohn compound, and is receiving
research fees, research milestone and clinical milestone payments, as well as
royalty payments on future sales of any Pharmacia & Upjohn compound that makes
use of the results of the pharmacogenomics program. The collaboration is also
intended to identify potential targets for the development of new compounds.
Royalties would be awarded on the sale of new compounds discovered, developed
and commercialized by Phamacia & Upjohn based on genes identified through the
research collaboration.

    In August 1998, the Company entered into an exclusive license agreement
with Wyeth-Lederle Vaccines, a business unit of Wyeth-Ayerst Laboratories, a
division of American Home Products Corporation. Under the terms of the license
agreement, Genset granted Wyeth-Lederle Vaccines an exclusive worldwide
royalty-bearing licence under its know-how and patent applications covering
the entire Chlamydia pneumoniae and Chlamydia trachomatis L2 genomic sequences
for the development and commercialization of vaccines. In consideration of the
rights granted to Wyeth-Lederle Vaccines, the Company received an initial
license fee and will receive payments upon the achievement of certain clinical
development milestones. In addition, the Company will receive royalty payments
on all future sales of vaccines that are discovered and developed using the
licensed technologies.

1997: In December 1997, the Company entered into a series of agreements with
Ceres, Inc. ("Ceres"), a company specializing in the field of agricultural
biotechnology. The collaboration consists of three parts: (i) the acquisition
of an approximately 20% equity interest in Ceres by the Company; (ii) an
agreement for sequencing and bioinformatics services to be provided by the
Company for which Ceres made quarterly payments and issued additional equity
to the Company; and (iii) an exclusive license agreement providing Ceres
access, on a royalty-free basis, to certain of the Company's technologies for
applications in agricultural genetics. The research services agreement was
completed at the end of 2000. Ceres completed further rounds of financing in
1998. The Company did not participate in these financings and its percentage
equity interest in Ceres was diluted to 8.41% as of December 31, 1998. During
1999 and 2000, the Company received certain payments under the research
services agreement in the form of equity, bringing its percentage equity
interest to about 10% as of December 31, 2000.

    In July 1997, the Company entered into a strategic alliance with Abbott
Laboratories in the field of pharmacogenomics for the development of genetic
markers and diagnostic tests for the analysis of drug response. The strategic
alliance is comprised of three parts: (i) a subscription agreement; (ii) an
exclusive 18 month research and license agreement for the development of
genetic markers and discovery of genes associated with drug response to and
side effects of an Abbott drug for the treatment of asthma, Zyflo[TM]
(zileuton); and (iii) an exclusive collaboration for the marketing and
development of pharmacogenomics research programs and of diagnostic systems
based on the results of pharmacogenomics research. The


                                      F-13

<PAGE>
Genset SA - Notes to Consolidated Financial Statements (continued)

Company received research funding under the research and license agreement,
and may receive clinical milestone payments and royalties if Abbott uses the
results of the pharmacogenomics research to develop and market diagnostic
products in conjunction with Zyflo[TM]. Pursuant to the subscription agreement
and subsequent amendments thereto, Abbott made an equity investment in the
Company in September 1997 of 9.1 million euros. Pursuant to the exercise by
the Company of its put option, Abbott purchased an additional $ 10 million of
the Company's equity on March 2000, buying 54,763 ordinary shares at a price
per share of 188.33 euros.

1996: In September 1996, the Company entered into a strategic alliance with
Janssen Pharmaceutica N.V, an affiliate of Johnson & Johnson, for the
discovery of genes associated with schizophrenia. The term of the agreement
was originally for a period of two years, commencing on September 26, 1996.
The parties agreed to continue research under the agreement through July 31,
2000. Pursuant to the agreement, the Company received research funding and
will receive clinical milestone and royalty payments on the development and
sale of pharmaceutical products developed using the results of the research.
In anticipation of the agreement, on May 10, 1996, Johnson & Johnson
Development Corporation purchased 119,900 ordinary shares of the Company for
3.1 million euros.

    In May 1996, the Company entered into a research and development
collaboration agreement with the French pharmaceutical company Synthelabo to
discover and sequence genes involved in or associated with prostate cancer.
Pursuant to the agreement, Synthelabo made an equity investment of
approximately 7.6 million euros and agreed to provide research and development
funding and milestone payments of up to an aggregate of 54.1 million euros, as
and when certain research objectives are met. In addition, the Company will
receive royalty payments on any future drug sales which may result from the
use of the Company's research result. The agreement is comprised of two parts:
(i) a collaborative research program and (ii) a license granted to Synthelabo
for therapeutic products that treat prostate cancer and potentially other
prostate diseases and that are derived from genes discovered pursuant to the
collaboration. The term of the initial research program was two years.
Subsequently, the Company and Synthelabo extended the research program for a
third year ending in May 1999. The Company completed the research milestones
defined in the contract and delivered a third gene associated to prostate
cancer in April 1999.

    Aggregate revenues of 15.1 million euros, 18.1 million euros and 21.3
million euros were recorded from these research, license and collaboration
agreements during 2000, 1999 and 1998, respectively.

3.  Agreements with clinical and research institutions

1999: In October 1999, the Company entered into a collaboration agreement with
the Commissariat a l'Energie Atomique ("CEA" or France Atomic Energy
Commission) for the development of a large capacity genotyping microprocessor.
The initial objective of this collaboration is to develop in two years an
integrated microprocessor capable of genotyping on a very large scale, at low
cost and consuming minimal quantities of DNA and reagents. Given its highly
innovative character and important potential for the French biotechnology
industry, the project is partly supported by a grant from the French Ministry
of Economics, Finance and Industry.

1997: In October 1997, the company formed a strategic research collaboration
with the Royal College of Surgeons in Ireland (RCSI) to perform large scale
cardiovascular genomic research programs based on association studies. As part
of the collaborative arrangement, the Company and RCSI formed Surgen, a 50:50
owned dedicated joint venture located in Dublin, Ireland. Surgen conducts
sample collection and storage, DNA extraction, cell immortalization, and, more
generally, all operations connected with the DNA banking part of this project.

1996: In April 1996, the Company entered into an agreement with the Centre
d'Etude du Polymorphisme Humain ("CEPH") setting out the terms of the transfer
to the Company of CEPH's mapping team and of


                                      F-14

<PAGE>
Genset SA - Notes to Consolidated Financial Statements (continued)

certain proprietary materials and data and the terms of collaboration between
the Company and CEPH relating to research on aging. The Company granted
warrants to CEPH for the purchase of 209,800 ordinary shares of the Company at
an exercise price of 15.24 euros (FF 100) per share. These warrants were
valued at a total of 2.8 million euros and have been recorded as a prepaid
research and development expense, which was amortized over the period that
services were to be provided to the Company under the agreement. Amortization
expense of 102,000 euros and 1.6 million was recorded in the years ended
December 31, 1998 and 1997, respectively. The expense was completely amortized
at the end of 1998.

    Effective as of July 1994, the Company entered into an agreement with the
Association Francaise contre les Myopathies (the "AFM"), a private non-profit
association founded to combat neuromuscular diseases, and Genethon, a private
non-profit association. Pursuant to this agreement, the AFM made an equity
investment of approximately 1.7 million euros in the Company and agreed to
loan the Company 2.4 million euros over a two-year period commencing on
January 1, 1995. The loan is repayable with interest calculated at the French
daily money market rates, which was 3.0635% as of December 31, 1999, in four
annual installments due December 31, 1997 through 2000. It was fully repaid as
of December 31, 2000.

4.  Fixed assets

    The Company's fixed assets as of December 31 are broken down as follows:

<TABLE>
<CAPTION>

    In thousands of euros,                                      2000       1999
                                                               -------   -------
<S>                                                            <C>       <C>
    Leasehold improvements                                      16,940    16,387
    Laboratory equipment                                        19,983    18,017
    Furnishings - office and computers equipment                10,111     8,152
    Fixed assets under construction                              1,659     1,833
                                                               -------   -------
    Total cost                                                  48,693    44,389
    Less: accumulated depreciation                             (24,977)  (19,485)
                                                               -------   -------
    Net fixed assets                                            23,716    24,904
                                                               =======   =======
</TABLE>


5.  Other long-term assets

    The Company's other long-term assets as of December 31 are broken down as
follows:

<TABLE>
<CAPTION>

    In thousands of euros,                                         1999     2000
                                                                   -----   -----
<S>                                                                <C>     <C>
    Ceres shares                                                   4,913   2,835
    Corixa shares                                                    714     3/4
    Other                                                            782     631
                                                                   -----   -----
    Total long-term assets                                         6,409   3,466
                                                                   =====   =====
</TABLE>


6.  Long-term debt

    The Company's long-term debt, which is all fixed rate, as of December 31
comprised:


                                      F-15

<PAGE>
Genset SA - Notes to Consolidated Financial Statements (continued)


<TABLE>
<CAPTION>

    In thousands of euros,                                       2000      1999
                                                                -------   ------
<S>                                                             <C>       <C>
    Bank loans bearing interest at rates of 4.25% to 8.25%       4,612     6,556
    Amounts due to the AFM                                          --       610
    Convertible Bonds bearing interest at rate of 4.5%          56,860        --
    Conditional interest-free loan                                 686        --
    Total                                                       62,158     7,166
    Less current portion                                        (2,113)   (2,851)
                                                                ------    ------
    Total long term debt less current portion                    60,045    4,315
                                                                ======    ======
</TABLE>


    The loans are to be repaid in monthly or quarterly installments through
the year 2003. The average interest rate on these loans was 6.12% in 2000, and
6.53% in 1999.

    On June 27, 2000, the Company issued convertible bonds exchangeable into
new or existing Genset ordinary shares, raising aggregate net proceeds of 55.6
million euros. The bonds were issued at par, with a principal value of 94
euros per bond. The bond issuance was structured as a zero-coupon convertible
bond, with no interest payments payable during the 3.5 year term of the bond.
The bond accrues interest at a rate of 4.5% annually. Assuming no early
conversion or redemption, the bonds will be redeemed at their maturity date,
January 1, 2004, at a price per bond of 109.72 euros or 116.72% of their
principal value. In such a case, at that date, the Company would be obligated
to reimburse a total of 64.4 million euros to the bondholders.

    The bondholders can convert their bonds into Genset common shares at any
time at a conversion rate of one share per bond. Alternatively, the Company
can force early redemption or conversion of the bonds into ordinary shares at
this same conversion rate if, prior to June 27, 2002, the Company ordinary
shares trade at a price in excess of 250% of the principal value per bond plus
accrued interest during a consecutive 20 day period within a 40 day period
chosen by the Company. Between June 27, 2002 and December 31, 2003, the
Company can force early redemption or conversion of the bonds into ordinary
shares if the Company ordinary shares trade at a price in excess of 120% of
the principal value per bond plus accrued interest. If the bondholders decide
to convert or exchange their bonds, the Company has the option either to issue
them new shares or to exchange existing Genset shares the Company had
previously bought. The issue consisted of a total of 591,366 bonds;
consequently, at the conversion rate of one share per bond, if all the bonds
were converted into newly issued ordinary shares, the bondholders would hold
591,366 shares, or approximately 6.9% of the share capital after conversion,
based on the number of shares outstanding as at May 31, 2000.

    In connection with the issuance of the bonds, the Company incurred 2.1
million euros of issuance costs. Those costs were capitalized and are amortized
on a straight-line basis over the life of the bonds.

    Scheduled repayments of long-term debt are as follows:

<TABLE>
<CAPTION>

    In thousands of euros,
<S>                                                                       <C>
    2001                                                                   2,113
    2002                                                                   1,754
    2003                                                                   1,134
    2004                                                                  57,157
    Thereafter                                                                 0
                                                                          ------
    Total                                                                 62,158
                                                                          ======
</TABLE>


    Interest paid in the years ended December 31, 2000, 1999 and 1998 was
approximately 387,000 euros, 532,000 euros and 548,000 euros respectively.


                                      F-16

<PAGE>
Genset SA - Notes to Consolidated Financial Statements (continued)

7.  Shareholders' equity

General

    As of December 31, 2000, the issued and outstanding share capital of the
Company consists of 8,104,850 ordinary shares, nominal value 3 euros per
share.

    In March 2000, the Company exercised its put option to issue the
equivalent of US$ 10 million of Genset equity to Abbott Laboratories. The
exercise resulted in the issuance and sale to Abbott Laboratories of 54,763
Genset ordinary shares at a price of 188.33 euros per share, generating net
proceeds of 10.3 million euros, equivalent to US$ 60.87 per ADS at an exchange
rate of US$ 0.9696 per euro.

    In January 1999, the nominal value per share was converted from FF 17 to 3
euros. The rounding up of the nominal value per share was affected through a
capital increase, whose aggregate amount was offset against the available
capital reserves of the Company.

Preemptive subscription rights

    Existing shareholders have preemptive rights to subscribe for cash on a
pro rata basis for any new shares issued by the Company. Shareholders, subject
to certain conditions, may waive such preemptive subscription rights at an
extraordinary general meeting of shareholders. Preemptive subscription rights,
if not previously waived, are transferable during the subscription period
relating to a particular issuance of shares.

Warrants

    Under the authorized plans approved by shareholders in 2000, 1999, 1998,
1997, 1996, 1995, 1994, 1992 and 1990, the Company issued a certain number of
warrants to purchase ordinary shares (including the warrants issued to CEPH).

<TABLE>
<CAPTION>

                                                               Shares underlying
                                                                  the warrants
                                                               -----------------
<S>                                                            <C>
    Balance as of December 31, 1997                                 124,800
                                                                    -------
      Subscriptions                                                  32,000
      Exercised                                                     (99,900)
      Expired or Canceled                                              --
                                                                    -------
    Balance as of December 31, 1998                                  56,900
                                                                    -------
      Subscriptions                                                   4,000
      Exercised                                                          --
      Expired or Canceled                                                --
                                                                    -------
    Balance as of December 31, 1999                                  60,900
                                                                    -------
      Subscriptions                                                  15,000
      Exercised                                                     (16,750)
      Expired or Canceled                                            (7,000)
                                                                    -------
    Balance as of December 31, 2000                                  52,150
                                                                    =======
</TABLE>



                                      F-17

<PAGE>
Genset SA - Notes to Consolidated Financial Statements (continued)

    Issued warrants outstanding as of December 31, 2000:

<TABLE>
<CAPTION>

    Shares                             Exercise price in euros   Expiration date
     -------                           -----------------------   ---------------
<S>                                    <C>                       <C>
    21,900                                      24.39             March 18, 2001
       250                                      38.11               May 21, 2002
    14,000                                      87.51               May 18, 2003
     2,000                                      87.51               May 18, 2003
     2,000                                      83.31            August 18, 2003
     4,000                                      32.85               May 18, 2004
     8,000                                      80.49              June 15, 2005
    ------
    52,150
</TABLE>


Stock options

    Under the authorized plans approved by shareholders in 2000, 1999, 1997,
1996, 1994, 1992 and 1990, the Company issued stock options entitling the
holder the right to subscribe for one ordinary share per option under the
2000, 1999 and 1997 plans and 100 ordinary shares per option under the earlier
plans. Options generally vest ratably over a four-year period from the date of
grant and expire five years from date of vesting.

    A summary of activity under the plans is as follows:

<TABLE>
<CAPTION>

                                                                Weighted Average
    Options Outstanding                              Shares      Price per Share
     --------------------                           ---------   ----------------
                                                                   (in euros)
<S>                                                 <C>         <C>
    Balance as of December 31, 1997                   986,168         25.31
                                                    ---------
      Granted                                         275,900         59.96
      Exercised                                      (130,719)        24.20
      Canceled or expired                             (30,481)        48.33
                                                    ---------
    Balance as of December 31, 1998                 1,100,868         33.49
                                                    ---------
      Granted                                         377,600         49.10
      Exercised                                      (59,900)         16.74
      Canceled or expired                           (176,801)         55.96
                                                    ---------
    Balance as of December 31, 1999                 1,241,767         35.85
                                                    ---------
      Granted                                         610,390         88.94
      Exercised                                      (553,731)        30.11
      Canceled or expired                            (250,707)        54.33
                                                    ---------
    Balance as of December 31, 2000                 1,047,719         65.39
                                                    =========
</TABLE>


    As of December 31, 2000 and 1999, options to purchase 289,144 and 610,225
shares, respectively, were exercisable at weighted-average exercise prices of
29.36 euros and 27.08 euros, respectively.

    As of December 31, 2000, 1,522,733 shares were reserved for issuance to
option holders (1,047,719 under outstanding options at an exercise price
ranging from 24.39 euros to 125.48 euros plus 475,014 under options authorized
but not yet granted).

    In June 1999, the Company authorized the synthetic repricing of options to
purchase 64,500 shares of common stock at 79,43 euros (FF 521) per share. As
discussed in Note 1, these options are subject to variable plan accounting, as
defined in the FASB Interpretation No.44.


                                      F-18

<PAGE>
Genset SA - Notes to Consolidated Financial Statements (continued)

    The weighted average remaining contractual life of all options outstanding
is 5.9 years as of December 31, 2000.

    The exercise of options by certain employees in 1996 was financed by a
loan from the Company. The outstanding balance of this loan as of December 31,
2000 and 1999 has been shown as a reduction of shareholders' equity.

    Pro forma information regarding net loss and loss per share is required by
SFAS 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method of SFAS 123. The fair value
for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following average assumptions for 2000, 1999 and
1998, respectively : risk-free interest rate of 6.10% in 2000, 5.75% in 1999
and 3.65% in 1998 ; dividend yields of 0% in all three years; volatility
factors of the expected market price of the Company's ordinary shares of 0.8%
in 2000, 0.6% in 1999 and 0.5% in 1998, respectively; and a weighted-average
expected life of the option of five to eight years.

    For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The
Company's pro forma information follows (in thousands of euros except for loss
per share information):

<TABLE>
<CAPTION>

                                                      2000      1999       1998
                                                    -------    -------   -------
<S>                                                 <C>        <C>       <C>
    Pro forma net loss                              (34,407)   (28,072)  (18,044)
    Pro forma loss per share                          (4.35)     (3.77)    (2.47)
</TABLE>


    The weighted-average fair values of options granted during 2000, 1999, and
1998 were as follows:

<TABLE>
<CAPTION>

                                                          2000     1999     1998
                                                         ------    -----   -----
<S>                                                      <C>       <C>     <C>
    Options whose price was greater than market price
    of the underlying shares on the grant date            58.79    33.39     NA
    Options whose price was less than the market
    price of the underlying shares on the grant date     103.19    26.95   44.29
</TABLE>


8.  Income taxes

    For financial reporting purposes, loss before income tax benefit includes
the following components:

<TABLE>
<CAPTION>

                                                         As of December 31,
                                                    ----------------------------
                                                      2000      1999       1998
                                                    -------    -------   -------
                                                       In thousands of euros,
<S>                                                 <C>        <C>       <C>
    Europe                                          (36,296)   (27,987)  (15,030)
    United States                                    (1,523)       636    (1,971)
    Asia and Oceania                                  1,029        296      (402)
                                                    -------    -------   -------
    Total                                           (36,790)   (27,055)  (17,403)
                                                    =======    =======   =======
</TABLE>


    The income tax benefit in 2000, 1999 and 1998 is due to research and
development tax credits earned by the Company and recorded as current tax
benefit. There was no current tax expense or benefit in the Company's
subsidiaries, nor any deferred tax in any country, due to the accumulated
losses of all companies in the consolidated group.

    A reconciliation of income taxes computed at the French statutory rate
(36.67% in 2000, 40% in 1999, 41.66% in 1998) to the income tax benefit is as
follows:


                                      F-19

<PAGE>
Genset SA - Notes to Consolidated Financial Statements (continued)


<TABLE>
<CAPTION>

                                                          As of December 31,
                                                     ---------------------------
                                                       2000      1999      1998
In thousands of euros,                                 ----      ----      ----
<S>                                                  <C>        <C>       <C>
Income tax benefit computed at the French
  statutory rate                                      13,488     10,822    7,250
Operating losses not utilized                        (13,488)   (10,822)  (7,250)
Research and development tax credit                    2,549      5,004    2,698
Other                                                  (144)       (59)     (11)
                                                     -------    -------   ------
Total                                                  2,405      4,945    2,687
                                                     =======    =======   ======
</TABLE>


    Significant components of the Company's deferred tax assets and
liabilities consist of the following:

<TABLE>
<CAPTION>

                                                             As of December 31,
                                                             -------------------
                                                               2000       1999
In thousands of euros,                                         ----       ----
<S>                                                          <C>        <C>
Deferred tax liabilities:
 Intangibles expensed upon acquisition for tax purposes          (728)      (270)
                                                             --------   --------
Deferred tax assets:
 Net operating loss carry forwards                             38,073     25,368
 Research and development costs capitalized and
  amortized for tax purposes                                    7,926      8,290
 Other                                                          1,288         59
Total deferred tax assets                                      47,287     33,717
Valuation allowance                                          (46,559)   (33,447)
Net deferred tax                                                   --      --
                                                             ========   ========
</TABLE>


    As of December 31, 2000, the Company had French net operating loss carry
forwards of approximately 101.8 million euros, of which 92.2 million euros has
no expiration date. The remaining 9.6 million euros net operating loss carry
forwards will expire in the years 2001 through 2005, if not utilized, as
follows :

    In thousands of euros, as of December 31

<TABLE>
<CAPTION>

<S>                                                                        <C>
    2001                                                                   1,808
    2002                                                                      --
    2003                                                                      --
    2004                                                                      --
    2005                                                                   7,753
                                                                           -----
    Total                                                                  9,561
                                                                           =====
</TABLE>


    The Company also has research income tax credits receivable of 13.2
million euros which are recoverable if not used to offset taxes payable in the
fourth year following their generation. Of the total amount receivable, 2.9
million euros is recoverable in 2001, 2.7 million euros in 2002, 5.0 million
euros in 2003 and 2.5 million euros in 2004.

    The Company has U.S. net operating loss carry forwards of approximately
3.9 million euros which expire in the years 2007 through 2014 for federal tax
purposes, and 1.4 million euros which expire in the years 2001 through 2004
for State of California tax purposes. The Company has net operating loss carry
forwards from its other subsidiaries of approximately 1.2 million euros of
which 441,000 euros expire in 2000 through


                                      F-20

<PAGE>
Genset SA - Notes to Consolidated Financial Statements (continued)

2003. The utilization of these net operating loss carry forwards is limited to
the future operations of the Company in the tax jurisdictions in which such
carry forwards arose.

    A tax audit is in process in France covering the years 1997 and 1998.
Management does not anticipate significant liability resulting from this tax
audit.

9.  Information on personnel and directors

    As of December 31, the Company had the following number of employees:

<TABLE>
<CAPTION>

                                                             2000    1999   1998
                                                             ----    ----   ----
<S>                                                          <C>     <C>    <C>
    R&D                                                       322    344     333
    Other                                                     207    168     146
                                                              ---    ---     ---
    Total                                                     529    512     479
                                                              ===    ===     ===
</TABLE>


    Salary expenses in the years 2000, 1999, and 1998 were 28.2 million euros,
23.0 million euros and 17.0 million euros, respectively.

    The aggregate amount of compensation paid by the Company to all of its
directors as a group (seven persons in 2000, including four independent
directors who receive limited compensation for services as directors, and
reimbursement of expenses incidental to their attendance at Board of Directors
meetings) for services in all capacities for 2000 was approximately 1.4
million euros. The aggregate amount of compensation paid by the Company to all
of its executive officers (excluding directors) as a group (17 persons) for
their services in 2000 was approximately 2.6 million euros.

    The Company contributes to pensions for personnel in France in accordance
with French law, by contributions based on salaries to the relevant state-
sponsored organizations. The Company has no further liability in connection
with these plans.

    French law also requires payment of a lump sum retirement indemnity to
employees based upon years of service and compensation at retirement. Benefits
do not vest prior to retirement. The Company's obligations in this matter as
of December 31, 2000 and 1999 were immaterial.

    The U.S. subsidiary has adopted a retirement savings plan qualified under
Section 401(k) of the Internal Revenue Code, which is a pretax savings plan
covering substantially all United States employees. Under the Plan, employees
may contribute up to 15% of their pretax salary, subject to certain
limitations. There is no obligation to make employer contributions.

    As of December 31, 2000, other subsidiaries had no pension plans.

10. Fair value of financial instruments

    As of December 31, 2000 and 1999, the carrying values of financial
instruments such as cash and cash equivalents, trade receivables and payables,
other receivables and accrued liabilities, and the current portions of long-
term debt and capital lease obligations approximated their market values,
based on the short-term maturities of these instruments. As of December 31,
2000 and 1999, the fair value of long-term debt was 50.3 million euros and 4.2
million euros, respectively. Fair value is determined based on expected future
cash flows, discounted at market interest rates, and other appropriate
valuation methodologies.

    As of December 31, 2000 there was no foreign currency contract obligation.
As of December 31, 1999, the fair value of foreign currency contract
obligations was 2.4 million euros. Fair value of foreign currency contract
obligations are estimated by obtaining quotes from brokers.


                                      F-21

<PAGE>
Genset SA - Notes to Consolidated Financial Statements (continued)

11. Lease commitments

    The Company leases certain of its equipment under capital leases.
Capitalized costs of approximately 3.0 million euros and 2.8 million euros are
included in property and equipment as of December 31, 2000 and 1999,
respectively. Accumulated amortization of these leased assets was
approximately 2.2 million euros and 1.8 million euros as of December 31, 2000
and 1999, respectively.

    Future minimum lease payments under capital lease obligations due for the
fiscal years ending December 31 are as follows, in thousands of euros :

<TABLE>
<CAPTION>
<S>                                                                          <C>
    2001                                                                     359
    2002                                                                     356
    2003                                                                      87
    2004 and thereafter years                                                 32
                                                                            ----
    Total minimum lease payments                                             834
    Less amount representing interest                                        (21)
                                                                            ----
    Present value of net minimum lease payments                              813
    Less current portion                                                    (340)
                                                                            ----
    Long-term portion of minimum lease payments                              473
                                                                            ====
</TABLE>


    The Company leases certain office, laboratory and research facilities
under operating leases which expire through 2009. The majority of these leases
have nine-year terms, but are cancelable at the Company's option at each
three-year anniversary. Future minimum lease payments under operating leases
due for the fiscal years ending December 31 are as follows, in thousands of
euros :

<TABLE>
<CAPTION>
<S>                                                                        <C>
    2001                                                                   2,605
    2002                                                                   2,190
    2003                                                                   2,013
</TABLE>


    Rental expense for the years ended December 31, 2000, 1999, and 1998 was
approximately 2.6 million euros, 3.9 million euros, and 1.9 million euros
respectively.

12. Segment and geographic information

Segment information

    The Company has two reportable segments which are organized along its
divisional lines : the Oligonucleotide Division and the Research and
Development Division. The Oligonucleotide Division produces and sells various
products based on pieces of synthetic DNA, or oligonucleotides, which are a
principal raw material for genomics research. The Research and Development
Division conducts genomics research.

    The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. The Company evaluates
performance based on revenues and operating income.

<TABLE>
<CAPTION>

                                                          As of December 31,
                                                      --------------------------
In thousands of euros,                                  2000      1999     1998
                                                      -------    ------   ------
<S>                                                   <C>        <C>      <C>
Oligonucleotide Division
Total revenues                                         15,271    11,630    8,455
Direct costs                                          (15,004)   (9,863)  (7,757)
Operating income (loss)                                   267     1,767      698
</TABLE>



                                      F-22

<PAGE>
Genset SA - Notes to Consolidated Financial Statements (continued)


<TABLE>
<CAPTION>

<S>                                                                                                      <C>          <C>     <C>
Capital expenditures                                                                                     2,045        417     1,175
Headcount                                                                                                  165        130       109
R&D Division
Total revenues                                                                                          17,346     19,392    21,278
Direct costs                                                                                           (41,933)   (41,766)  (31,918)
Operating income (loss)                                                                                (24,587)   (22,374)  (10,640)
Capital expenditures                                                                                     3,046      4,119    12,259
Headcount                                                                                                  322        344       333
Reconciliation
Intersegment revenues                                                                                   (2,790)    (3,326)   (2,822)
Corporate general and administrative expenses not allocated to segment                                 (11,901)    (9,552)   (9,464)
Total Genset
Revenues                                                                                                29,827     27,696    26,911
Operating income (loss)                                                                                (36,221)   (30,159)  (19,406)
</TABLE>


Geographic information

    Information about the Company's and its subsidaries' operations by
geographic area is as follows:

<TABLE>
<CAPTION>

                                                                                      As of December 31,
                                                          -------------------------------------------------------------------------
                                                          Europe    United States    Asia and Oceania    Elimination   Consolidated
                                                          -------   -------------    ----------------    -----------   ------------
<S>                                                       <C>       <C>              <C>                 <C>           <C>
In thousand of euros,
2000
----
Sales to third parties                                     21,157        2,313             6,357             __            29,827
Intercompany sales                                            795          532               206           (1,533)             --
                                                          -------       ------             -----           ------         -------
Total revenues                                             21,952        2,845             6,563           (1,533)         29,827
Operating loss                                            (37,702)      (7,799)              907            8,373         (36,221)
Identifiable assets                                       127,757        2,807             5,955           (4,988)        131,531
1999
----
Sales to third parties                                     23,247        2,193             2,262               (6)         27,696
Intercompany sales                                            947          104                 2           (1,053)             --
                                                          -------       ------             -----           ------         -------
Total revenues                                             24,194        2,297             2,264           (1,059)         27,696
Operating loss                                            (31,193)      (5,858)              260            6,632         (30,159)
Identifiable assets                                        78,585        2,493             2,740           (2,872)         80,946
1998
----
Sales to third parties                                     24,383        1,797               731               --          26,911
Intercompany sales                                            593           --                --             (593)             --
                                                          -------       ------             -----           ------         -------
Total revenues                                             24,976        1,797               731             (593)         26,911
Operating loss                                            (16,296)      (2,692)             (419)               1         (19,406)
Identifiable assets                                       101,899        2,394             1,438           (4,137)        101,594
</TABLE>


    Intercompany sales between geographic regions are accounted for at cost
plus a gross margin.


                                      F-23

<PAGE>
Genset SA - Notes to Consolidated Financial Statements (continued)

    The Company's export sales from France were divided as follows :

<TABLE>
<CAPTION>

                                                           As of December 31,
In thousand of euros,                                    2000      1999     1998
                                                       ------    ------   ------
<S>                                                    <C>       <C>      <C>
United States                                          10,436    12,910   15,444
United Kingdom                                            736       737      529
Italy                                                     176       251      209
Other European countries                                2,668     3,604    3,002
Asia and Middle East                                    1,886       605      183
Others                                                     51        45       35
                                                       ------    ------   ------
Total                                                  15,953    18,152   19,402
                                                       ======    ======   ======
</TABLE>


13. Subsequent events

    In February 2001, the Company announced the launch of the operational
phase of its "GENSET PHARMA" initiative. This initiative contemplates a social
plan which would result in the elimination of approximately 80 jobs in the
Company's Genomics Research Center outside Paris. At the same time, the
Company's new pharmaceutical genomics activities require the strengthening of
certain qualifications, which will result in the creation of approximately 30
new jobs.

    The restructuring costs will be expensed in the first quarter of 2001
(approximately 5.0 million euros, of which 3.5 million euros is expected to be
a non cash write-off of the net book value of fixed assets).

    Also in the first quarter of 2001, the Company renegotiated its gene
discovery agreement with Abbott to make it more consistent with its new
strategy. Under the new agreement, Genset was released from performing any
further research for Abbott, recovered the intellectual property generated in
its bipolar program, agreed to make a one-time payment to Abbott and to
license to Abbott at a future date a protein in the area of CNS for target
screening.

    The Company is currently exploring the potential sale of the
Oligonucleotide Division and no definitive decision has been reached yet
whether to retain or sell the business.


                                      F-24