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                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

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

                                   FORM 10-K

                       FOR ANNUAL AND TRANSITION REPORTS
                    PURSUANT TO SECTIONS 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934

(Mark One)

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

For the fiscal year ended:  December 31, 1997

                                       OR

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

For the transition period from ___________  to ______________

                          Commission file No.: 0-28494

                        Millennium Pharmaceuticals, Inc.
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             (Exact Name of registrant as Specified in its Charter)

            Delaware                                            04-3177038
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(State or Other Jurisdiction of                             (I.R.S. Employer
 Incorporation or Organization)                              Identification No.)

               640 Memorial Drive, Cambridge, Massachusetts 02139
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              (Address of Principal Executive Offices) (Zip Code)

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

Securities registered pursuant to Section 12(b) of the Act: NONE

Securities registered pursuant to Section 12(g) of the Act:

                         Common Stock, $.001 par value
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                                 Title of class


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      Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

                        Yes   X           No
                           ------           ------

      Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

      The aggregate market value of voting Common Stock held by non-affiliates
of the registrant was $542,397,943, based on the last reported sale price of the
Common Stock on the Nasdaq Stock Market on March 13, 1998.

      Number of shares outstanding of the registrant's class of Common
Stock as of March 13, 1998:  29,312,329.

Documents incorporated by reference:
Annual Report to Stockholders for fiscal year ended December 31, 1997 - Part II
Proxy Statement for the 1998 Annual Meeting of Stockholders - Part III 


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                                     PART I

ITEM 1. BUSINESS

GENERAL

      Millennium Pharmaceuticals, Inc., a Delaware corporation organized in 1993
("Millennium" or the "Company", which terms include, except where the context
otherwise requires, the Company's subsidiaries), is applying a comprehensive
platform of genomics and related technologies to pursue multiple business
opportunities in the discovery and development of life-science-based products
and services. Most of the Company's activities currently are directed at the
field of human healthcare. A principal objective of the Company is to enable and
accelerate the discovery and development of new, proprietary therapeutic and
diagnostic products capable of addressing major diseases at their root causes,
rather than simply identifying and treating disease symptoms.

      The Company's technology platform incorporates advanced capabilities in
genetics, genomics, molecular biology, cell biology, biochemistry, chemistry and
analytical instrumentation. Using these capabilities and advanced robotics and
informatics technologies, the Company has created a series of high-throughput
processes that the Company believes have the potential to transform the
discovery and development of life-science-based products and services by
significantly improving both the speed of the discovery and development process
and the value of its output.

      Millennium's strategy is to pursue its multiple business opportunities
through divisions and subsidiaries that specialize in particular areas, but
cooperate closely with one another. Millennium believes that these dedicated
units allow it to pursue each opportunity with appropriate focus, maintain an
entrepreneurial environment within each unit and attract high-caliber employees.
The Company has established formal and informal relationships between the
various units to provide each unit within the overall group with access to
Company assets or capabilities that are relevant to the business of the
particular unit.

      From its inception in 1993 until 1996, Millennium's main focus was the
development of its technology platform and the application of this platform to
the early stages of drug discovery for important human diseases. During 1997,
Millennium significantly expanded the scope and scale of its operations. The
Company's key objectives in this expansion were to increase its capabilities and
involvement in the later stages of drug discovery and to establish new focused
business units to pursue additional business opportunities. Key steps in the
expansion included:


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      o     The acquisition of ChemGenics Pharmaceuticals, Inc. ("ChemGenics")
            in February 1997. This acquisition significantly extended
            Millennium's capabilities in drug discovery to encompass later
            stages of the discovery process. It also provided the Company with
            new research expertise in important infectious diseases and two
            additional strategic partnerships.

      o     The establishment of the Company's pharmaceuticals division,
             MPharma, focused on the development of small-molecule drugs.

      o     The establishment in May 1997 of a new 82% owned subsidiary,
            Millennium BioTherapeutics, Inc. ("MBio"), focused on the
            development of therapeutic proteins and antibodies, vaccines and
            gene therapy and antisense products. MBio entered into a strategic
            alliance in the area of therapeutic proteins with Eli Lilly and
            Company ("Lilly") and obtained a $20 million equity investment from
            Lilly.

      o     The establishment of the Company's new wholly-owned subsidiary,
            Millennium Predictive Medicine, Inc. ("MPMx"), focused on Diagnomics
            (genomics-based diagnostics) and pharmacogenomics (correlation of
            patient genotypes to drug responses).

      o     The incorporation of the Company's new wholly-owned subsidiary,
            Millennium Information, Inc. ("MInfo"), to focus on generating and
            integrating diverse biomedical data to provide products and services
            to the healthcare industry.

      In addition to these units, the Company has established significant
internal groups internally focused on its technology platform. These groups are
responsible for the continuing development and integration of the platform and
for facilitating use of the platform within the Company and its subsidiaries as
well as by the Company's and its subsidiaries' strategic partners.

      The commercialization strategy of the Company and its subsidiaries is to
form strategic alliances with major current participants in the relevant
marketplaces. The Company has formed alliances based upon the transfer of its
technology platform, alliances which combine technology transfer with a focus on
a specific disease or therapeutic approach and alliances focused on a disease or
specific therapeutic approach. To date, Millennium has entered into eight
alliances focused on a specific disease or therapeutic approach. The MPharma
division is a party to seven of these alliances, and MBIO is a party to one. The
alliances being managed by the MPharma division are based upon MPharma's most
advanced drug-discovery programs. They include an alliance with Hoffmann-La
Roche Inc. ("Roche") in obesity and type II diabetes; two separate alliances
with Lilly covering certain cardiovascular diseases and select areas within
oncology; an alliance with Astra AB ("Astra") in


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inflammatory respiratory diseases; two separate alliances with American Home
Products Corporation ("AHP") in certain diseases of the central nervous system
and in bacterial diseases; and an alliance with Pfizer, Inc. ("Pfizer") in
fungal diseases.

      The Company's business strategy also includes the formation of significant
alliances based on the transfer of its technology platform to other companies
that wish to apply this platform within their own discovery and development
programs. In October 1997 the Company entered into a major strategic alliance
with Monsanto Company ("Monsanto") under which Monsanto will apply Millennium's
technology platform in plant agriculture and human healthcare. Technology
transfer from Millennium is also a component of certain of the Company's
disease-focused alliances. Millennium believes that its technology platform can
have a significant impact on the discovery and development of products and
services in other life- science-based industries.

      To ensure the continual improvement of its technology platform, Millennium
also forms collaborations which bring emerging technologies into the Company. As
part of this strategy, the Company established a corporate consortium in April
1997 with Bristol-Myers Squibb Company ("BMS") and Affymetrix, Inc.
("Affymetrix") to fund a five-year research program in functional genomics at
the Whitehead Institute/Massachusetts Institute of Technology Center for Genome
Research.

BACKGROUND

     DISCOVERY AND DEVELOPMENT PROCESSES FOR LIFE-SCIENCE-BASED PRODUCTS AND
SERVICES

      PHARMACEUTICALS

      TRADITIONAL APPROACH. The great majority of drugs in use today consist of
relatively small chemical compounds. Such drugs are often referred to as "small-
molecule drugs," to distinguish them from protein and other biotherapeutic drugs
which are significantly larger molecules. As used herein, the term
"pharmaceuticals" refers only to "small-molecule drugs," and the term
"biotherapeutics" is used to describe protein and other biotherapeutic drugs.

      The discovery of new small-molecule drugs for a particular disease
typically involves several steps. The first step is the identification of a drug
"target" for therapeutic intervention - - a molecule or structure somewhere in
the body, inside or on the surface of cells, which is either directly involved
in the disease or lies in a biochemical pathway leading to the disease. The next
step is to identify compounds which interact with this drug target and modulate
the drug target's activity in a manner that might help reverse, inhibit or
prevent the disease process. This step is normally accomplished by screening
large collections (or "libraries") of synthetic chemicals and natural products
in a trial and error process designed to identify those


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compounds that can interact with the drug target. The most promising compounds
to emerge from this process are advanced to the next stage, in which synthetic
derivatives of these compounds are generated and tested to arrive at one or a
few "lead compounds." The interactions of these lead compounds with the drug
target and their activity in animal and/or cellular models of the disease
suggest that they could be developed successfully into new drugs. The best of
these lead compounds are then subjected to rigorous testing, first in animals
and then in humans, to establish their safety and efficacy as drugs.

      Because of the absence of any suitable technology for the systematic
identification and characterization of molecules and structures involved in
disease mechanisms, the selection of new targets for drug discovery historically
has been a haphazard process. Drug targets have often been selected based on
speculation that they might be involved in disease processes, rather than
because of any clear, well-documented association with specific diseases. As a
result, many drug candidates fail during clinical trials because they turn out
to be ineffective and/or unsafe, and many drugs which do reach the market treat
only the symptoms of diseases rather than their underlying causes.

      IMPACT OF GENOMICS AND RELATED TECHNOLOGIES. Every human disease
ultimately has an underlying genetic basis. The initiation, continuation and
progression of the disease reflects some aspect of the structure or expression
of the patient's genes and/or those of a pathogen. Systematic study of human
genes in the context of disease should therefore lead to the identification of
those genes which underlie important diseases. These genes, their protein
products and/or the biochemical pathways in which they lie should be attractive
drug targets for therapeutic intervention.

      In the past, however, systematic study of genes in the context of disease
has been extremely difficult. Each person carries a very large number of genes
on his or her chromosomes - - according to current estimates, in excess of
100,000 different genes (known collectively as the "human genome"). Because of
the numbers involved, the identification of individual genes or sets of genes
correlated with specific diseases has posed major technological challenges.

      In recent years, this situation has changed dramatically. Fueled by broad
interest in determining the entire DNA sequence of the human genome, major
improvements have been made in the technologies available for identifying and
cataloguing genes in complex organisms. These technologies include high-
throughput methods for sequencing genes, for monitoring and comparing their
expression in different situations and for following their inheritance in
families prone to particular diseases. These technologies depend crucially on
the integration of molecular biology with robotics, informatics and analytical
instrumentation. The integration of these disciplines provides powerful
capabilities for generating, 


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capturing and analyzing large volumes of data concerning genes and their
expression - - making it possible for the first time to mount a systematic
search to discover and characterize the genes and biochemical pathways which
underlie human diseases. At Millennium, this search is providing many new drug
targets with well-validated roles in various diseases. The Company believes
that compounds active against these targets may be highly effective and specific
in treating the underlying causes of these diseases.

      Major advances have also been made in the technologies available for
screening chemical and natural-product libraries to identify compounds active
against specific drug targets and for the subsequent generation of lead
compounds optimized for their activity against these drug targets. Intelligent
integration of robotics, informatics and analytical instrumentation has again
played an enabling role in these advances - in this arena, coupled with novel
combinatorial approaches to the synthesis of chemical libraries. The Company
believes that the combined effect of these developments will permit more rapid
identification of higher-quality lead compounds.

      Taken together, these new approaches to selecting drug targets, developing
lead compounds and understanding drug responses may deliver whole new classes of
drugs which are safe and effective for treating a broad range of important
diseases in diverse individuals.

      BIOTHERAPEUTICS AND PREDICTIVE MEDICINE

      Genomics and related technologies have major applications in human
healthcare beyond the discovery of small-molecule drugs. Key additional
applications include the identification of important new biotherapeutic products
and the development of novel approaches to the prediction, diagnosis and
management of diseases.

      Biotherapeutics are proteins or nucleic acids administered directly to
patients for therapeutic benefit. Protein biotherapeutics in current use
include: secreted proteins, such as interferons, erythropoietin, insulin and
human growth hormone; therapeutic antibodies, such as OKT3 and ReoPro(R); and
vaccines, such as the vaccine for hepatitis B. In 1997, biotherapeutic products
generated over $8 billion in annual worldwide sales. Nucleic acid
biotherapeutics fall into two general classes: gene therapy products and
antisense products. Although no product in either nucleic acid class has yet
reached the marketplace, a number are currently in development.

      There are multiple ways in which genomics technologies can contribute to
the development of novel biotherapeutics. High-throughput gene-discovery
programs can lead to the rapid identification of novel genes. Through the use of
informatics and functional genomics strategies, these genes and/or their protein
products can be


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identified as potential candidates for therapeutic protein or gene therapy
applications or as potential targets for development of therapeutic antibodies,
antisense or vaccine-based drugs.

      In the realm of predictive medicine, genomics technologies can be used to
identify genes that predispose individuals to disease, participate in the
initiation, progression and resolution of disease and determine individual
responses to different treatments that may be available. As a result, the
identification of such genes can form the basis for novel strategies and
products for the prediction, diagnosis and management of diseases.

      The Company believes that improved methods for the discovery of drug
targets and the development of lead compounds will lead to safer and more
effective new drugs. Efficacy and safety may be enhanced even further by another
important application of genomics technologies, referred to as
"pharmacogenomics." The goal of pharmacogenomics is to understand why a
particular drug may be more effective in some people than in others and/or have
more pronounced side-effects in certain people. Differences in the way people
respond to a drug are believed to reflect genetic differences between them;
different people may have slightly different versions of the genes involved in
the beneficial and/or the adverse effects of the drug. Millennium believes that
genomics technologies will permit the identification of the genetic differences
that underlie variability in responses to drugs and that, as a result, it will
be possible to individualize the selection of drugs for patients so that each
patient receives only those drugs likely to be effective and safe for him or
her.

      OTHER BUSINESSES

      The fundamental power of genomics technologies is their ability to
identify, in a rapid and comprehensive manner, genes that underlie complex
biological traits. In human healthcare, the traits of interest are diseases.
Outside of human healthcare, there are many traits of economic importance to
which genomics technologies can be successfully applied. In plant agriculture,
for example, these include the yields, nutritional content, disease-resistance
and drought-tolerance of crop plants and the susceptibility of pests, pathogens
and weeds to agrochemicals. Similarly, important traits can be identified in
other major life-science-based industries, such as animal agriculture and
industrial enzymes.

THE MILLENNIUM STRATEGY

      Millennium's business strategy is to develop a comprehensive, integrated
platform of genomics and related technologies and to use this platform to pursue
multiple opportunities in life-science-based industries. The Company's primary
current focus is on opportunities relating to the discovery and development of
new products and services in the healthcare industry. To pursue multiple
business


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opportunities simultaneously, the Company has established focused units
(divisions or subsidiaries) specializing in particular areas, believing that
each unit can then address its designated area with the energy and drive of a
start-up enterprise. At the same time, the Company recognizes the importance of
enabling each unit to take advantage of the combined capabilities of the overall
organization.

      The Company and MBio have entered into an agreement whereby each party has
assigned or licensed to the other party technology and rights in the other
party's core area of interest. See " -- Millennium BioTherapeutics Inc.--
Overview." The Company anticipates entering into similar arrangements with MPMx,
MInfo and other subsidiaries that it may establish in the future, although the
precise terms of such arrangements have not been finalized and may vary from the
terms of the agreements between the Company and MBio.

      In general, the Company's strategy for pursuing business opportunities is
to form alliances with major participants in the relevant markets. The Company
focuses in these alliances on the discovery of innovative new products, relying
on its partners for the development and marketing of these products. The
Company's revenues from these alliances come in the form of fixed up-front
payments and research funding, with the right to milestone payments and
royalties (or a share of profits) based on the success of any products that
result from the alliance. The Company also forms alliances based on the transfer
of its technology platform to partners. Revenues in such alliances may include
up-front payments and fees associated with the successful transfer of
technology. In some instances, the Company has also obtained access to its
partners' technologies (such as libraries of chemical compounds) to enhance the
Company's operations outside of the alliance.

      With these approaches, the Company believes that it is well positioned to
capture value from a broad array of opportunities in diverse life-science-based
industries.

TECHNOLOGY PLATFORM

      Millennium's broad technology platform reflects the Company's strong
belief that success in genomics-based product discovery and development requires
the use of multiple parallel approaches, accelerated and integrated through the
latest advances in informatics and "process technologies" (i.e., automation,
miniaturization, and analytical instrumentation).

      The Company has established dedicated technology groups responsible for
developing and maintaining the Company's technology platform and for supporting
the use of this platform by Millennium, its subsidiaries and its strategic
partners.


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   GENE IDENTIFICATION STRATEGIES

      GENETIC APPROACHES

      HUMAN GENETICS. Genetic studies of families and populations prone to
particular diseases can identify genes involved in these diseases. "Markers"
spaced at regular intervals along the human chromosomes are studied in affected
and unaffected individuals, a process known as genotyping. If specific markers
are co- inherited more frequently in affected than in unaffected individuals,
these markers define a chromosomal region (or a "map position") containing a
gene or genes involved in the disease. The genes in question may then be
identified by some combination of three approaches: higher-resolution mapping
(repeating the co- inheritance studies with additional markers known to fall in
the region of interest but located more closely to one another than those used
for the initial "genome scan"); "positional cloning" (isolation of microbial
clones of human DNA corresponding to the map position which has been
identified); and high-throughput sequencing (to identify protein-encoding
regions (i.e. genes) in this region, and to compare them in normal and affected
individuals).

      To gain access to suitable families and populations around the world,
Millennium has entered into a number of collaborations with academic centers.
The Company's capabilities in human genetics include the design and proper
clinical management of appropriate studies, technology for automated
high-throughput genotyping and sequencing, custom-developed software for data
capture and analysis and positional cloning. With these capabilities, the
Company has made significant progress in the mapping and positional cloning of
genes implicated in a number of important human diseases.

      These capabilities in human genetics can be readily adapted and applied to
the identification of genes underlying traits of interest in other species -
such as diseases in mice, as described below, or economically important traits
in plants and animals.

      MOUSE GENETICS. Genetic studies in mice can often provide faster
identification of human disease genes than corresponding studies in humans. This
is because genes and diseases in mice are often closely similar to their human
counterparts, but the association between them can be studied more rapidly since
mice (unlike humans) can be bred rapidly and selectively. To capitalize on the
advantages of working with mice, the Company has built substantial expertise in
mouse genetics. This includes the development of proprietary markers, genetic
maps, advanced breeding strategies and a significant animal facility. In
combination with technologies adapted from the Company's activities in human
genetics, this expertise has allowed the Company relatively rapidly to identify
murine genes whose human counterparts may play significant roles in important
diseases. Examples of such genes and their human counterparts that the Company
has identified include the tub 


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and db/OB-R genes, believed to be important in obesity. During 1997, Millennium
was issued a United States Patent covering the tub gene.

      MICROBIAL GENETICS. Genetic and genomic studies of microbes, such as
bacteria and yeast, are important for two reasons. First, these studies may
result in the identification of genes essential for microbial growth, which
should provide attractive drug targets for new antibiotics for the treatment of
infectious diseases caused by such microbes. Second, such studies can help
determine the functions of human genes, many of which have counterparts in
microbial systems. In fact, the study of these microbial counterparts is
particularly useful because microbial genes are significantly easier to
understand and manipulate than human genes.

      Millennium has developed considerable expertise in genetic investigation
and manipulation of a broad range of bacterial and fungal species, including
pathogens important for humans, animals and plants. The Company has employed
this expertise to identify a significant number of drug targets in its
antifungal and antibacterial research programs. During 1997, the Company was
issued a United States patent covering one of its novel approaches to antifungal
drug discovery.

      NON-GENETIC APPROACHES

      TRANSCRIPTIONAL PROFILING. Genes contain encoded information instructing
cells how to make proteins. Each gene encodes one protein. For that protein to
be made by a cell, the gene must first be transcribed into a copy known as
messenger RNA (mRNA). This transcript then directs synthesis of the encoded
protein in a process known as translation. Cells differ from one another because
each cell type makes a different spectrum of proteins - - and along the way, a
different population of mRNA transcripts. Similarly, diseased cells differ from
normal cells by virtue of the spectrum of proteins, and the population of
transcripts, which they produce. Comparison of transcript populations in normal
and diseased cells and tissues can therefore identify the transcripts, and thus
the genes, associated with a particular disease.

      For this reason, Millennium has developed or accessed a number of powerful
approaches for examining and comparing transcript populations in different cells
and tissues representing normal and diseased conditions. Many of these
approaches involve conversion of mRNA transcripts into DNA copies known as
complementary DNA (cDNA), which is easier to handle than mRNA and can be
amplified by the polymerase chain reaction (PCR). The approaches include RADE, a
high-throughput method for comparing amplified cDNAs (and thus mRNAs) from
different samples, and the use of cDNA "microarrays" (multiple different cDNAs
placed in high-density arrays on solid surfaces) to determine whether samples of
interest contain corresponding mRNAs. Crucial to the success of these approaches
are customized


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software tools developed by Millennium for tracking experiments, generating
microarrays and capturing and analyzing data.

      The Company has applied its transcriptional profiling technologies to
identify a number of genes with potentially significant roles in various
diseases. For example, the Company applied transcriptional profiling to identify
the gene that encodes melastatin, a protein which appears to suppress metastasis
in malignant melanomas.

      HIGH-THROUGHPUT SEQUENCING. The information carried within genes to direct
the synthesis of proteins resides within the DNA sequences of those genes. Each
gene is part of a polymeric chain built from four nucleotide monomers
(represented by the letters A, C, G and T). The sequence of these monomers in
the chain specifies what protein should be made. Accordingly, to identify and
assign function to the large number of genes in the human and other genomes, it
is essential to have very high-capacity methods for determining, storing and
analyzing DNA sequence information.

      Millennium has developed comprehensively automated processes for high-
throughput DNA sequencing as well as a proprietary suite of software tools for
the capture, storage and analysis of large volumes of DNA sequence data
(including Millennium's proprietary Sequence Explorer(TM) software package). The
Company uses these capabilities to support its multiple approaches to gene
discovery, including: positional cloning projects in human and mouse genetics
programs; sequencing of genomic regions surrounding known genes to identify
unknown relatives derived by gene-duplication events; and sequencing of cDNA
copies made from mRNAs extracted from various cells and tissues.

      EXPRESSION CLONING. Among the most interesting proteins in any organism
are those that are secreted or that reside on cell surfaces. Secreted proteins
often carry signals from one cell/tissue to another. Cell-surface proteins often
serve as the receptors for such signals. Most currently approved biotherapeutics
are secreted proteins; many current small-molecule drugs exert their effects
through cell-surface receptors.

      Millennium has developed high-throughput methodologies specifically to
clone genes that encode secreted and cell-surface proteins and is applying these
methodologies to identify such genes and proteins in significant numbers. For
example, Millennium has used these methodologies in its discovery of the gene
that encodes ob-r, the receptor for the hormone leptin, which is a fundamental
regulator of weight and appetite.


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      FUNCTIONAL GENOMICS/DRUG TARGET VALIDATION

      Genes discovered by the methods described above may already be implicated
in a disease or some other biological trait of interest. However, significant
additional study is often required in order to establish more precisely the
specific functions of these genes and the roles they play in the disease or
trait of interest. The process of ascribing function to genes is known as
functional genomics.

      In a pharmaceutical project, the main purpose of functional genomics is to
validate specific genes or their products as appropriate targets for new drugs.
Such drug "target validation" requires a demonstration that modulation of the
function of the putative drug target gene (or its product) is likely to have a
beneficial therapeutic effect. For non-pharmaceutical projects, the specifics of
what is meant by "validation" will clearly be different, but the general
principle will remain the same - - a demonstration will be required that some
function or information essential for a successful commercial product can be
derived by the use, modulation or monitoring of the gene (or protein encoded by
the gene) for further development as a product.

      Conversion of newly identified genes into validated drug targets or
product candidates is a key step in the overall process of genomics-based
product discovery. Efficiency and greater productivity at this stage can provide
a significant competitive advantage. Accordingly, Millennium has dedicated a
substantial portion of its research and development activities to functional
genomics and drug target validation.

      One of the major challenges in functional genomics is quickly to reduce
the relatively large numbers of potential drug targets (or product candidates)
that typically emerge from a high-throughput gene-discovery program to a
relatively small number of high-priority candidates for further investigation.
Millennium addresses this challenge with a staged approach, starting with
high-throughput techniques that require relatively little effort per gene, then
gradually increasing the effort that it expends on each potential drug target as
the total number of drug targets decreases.

      The high-throughput techniques used for initial prioritization include
computational biology and microarray-based transcriptional profiling. Candidates
which appear promising in these initial studies are then evaluated further by
approaches, such as histology-based expression profiling, pathway profiling and
cellular and animal models, until sufficient information has been gathered to
nominate one or more of these candidates as targets for drug discovery or, in
the case of non-pharmaceutical projects, as being suitable for further
development into products. These techniques are described in greater detail
below.


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      COMPUTATIONAL BIOLOGY

      With appropriate software tools, much may be inferred about the function
of a gene from its sequence. Information gathered about previously known genes
over many years by scientists from around the world can be accessed instantly,
and homologies identified between these and newly discovered genes which suggest
what functions may be ascribed to the latter. Of particular interest are
homologies suggesting that a newly discovered gene falls into the same class as
genes with known medical or commercial utility, such as those encoding the
receptors, ion channels and enzymes that are the targets of many current
small-molecule drugs.

      Millennium's Sequence Explorer software provides powerful tools for
accessing and interpreting both public and private Millennium databases of DNA
sequence information. The Company is continually developing enhanced
computational capabilities for "mining" DNA sequence data in order to extract
the function of the gene (and its protein product) encoded by such DNA sequence.

      BENCH BIOLOGY

      EXPRESSION PROFILING. The pattern of expression of a newly discovered gene
- - where and when it is transcribed and translated, in which cells and tissues
and under what circumstances - - provides vital clues to the function of that
gene. Expression patterns can be determined using a variety of approaches
directed towards either the transcription or the translation stage of
expression. Ideally, both stages should be monitored for two reasons. First, not
all mRNAs are translated, and it may be important to know which ones are and
which ones are not. Secondly, many proteins undergo significant
"post-translational" modifications after being synthesized. These modifications
cannot be detected by monitoring transcripts and often have crucial effects on
the activities of the proteins under investigation.

      At the mRNA level, expression can be monitored in cells or tissue samples
using cDNA microarrays and other transcriptional profiling technologies, as
described above. Alternatively, transcripts can be localized more precisely to
specific cells and sub-cellular organelles by a technique known as in situ
hybridization, which involves the microscopic examination of tissue slices that
have been treated to highlight the presence and location of specific
transcripts.

      Similar options are available for monitoring expression at the protein
level. The locations of proteins within tissue slices can be determined using
specially stained antibodies (a technique known as immunocytochemistry). In
addition, the population of proteins present in a cell or tissue extract can be
examined using "proteomics," technologies designed to identify all of the
different protein species within a cell or tissue sample and/or those protein
species which are present in one sample but not in another.


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      Millennium's platform includes an integrated set of technologies for
investigating expression patterns at both the mRNA and the protein level,
including cDNA microarrays, in situ hybridization and immunocytochemistry. The
Company has also invested significant resources in building an extensive
collection of normal and diseased tissue samples in which the expression
patterns of genes of interest can be studied. These technologies and tissue
samples have played a significant role in the validation by Millennium of a
number of genes/gene products as targets for drug discovery. The Company is also
actively developing new proteomics technologies to ascertain differences in
expression at the level of translated proteins and/or post- translational
modification status.

      PATHWAY PROFILING. Any given property of an organism usually reflects the
coordinated activity of a set of genes (proteins) acting in concert, rather than
the isolated activity of an individual gene (protein). Stated another way, most
processes within an organism take place via pathways in which signals or
metabolites are processed in a defined sequence by different proteins acting in
succession. Accordingly, each gene emerging from a discovery effort has a
two-fold significance. First, it may prove useful as a drug target (or product
candidate) in its own right. Secondly, it represents an entry point into a
pathway composed of additional, possibly superior, potential drug targets. To
take advantage of this latter possibility, appropriate technologies are required
for the identification of other proteins in the pathway, a process known as
"pathway profiling."

      Millennium has developed various pathway profiling capabilities, including
the use of yeast two- and three-hybrid systems and BIAcore biosensors
(technologies which can detect and monitor interactions between different
proteins lying in a biochemical pathway) and the application of transcriptional
profiling to identify sets of genes transcribed in a coordinated manner, which
indicates that they may participate in a common biochemical pathway.

      CELLULAR AND ANIMAL MODELS. Important information about the function of a
gene can be derived by arranging for that gene to be expressed in specific cells
or tissues, or in the organism as a whole, at levels higher or lower than usual.
For experiments of this type, Millennium has developed significant expertise in
the construction and utilization of specialized gene-delivery systems, and in
the generation of transgenic and knockout microbes and mice. A "transgenic"
organism is one carrying a gene from another species. A "knockout" organism is
one in which a particular gene has been disabled. The Company also has broad
experience in a variety of the biochemical and cell-biology assays required to
interpret such experiments.

      LEAD DISCOVERY

      HIGH-THROUGHPUT SCREENING. In the discovery process for small-molecule
drugs, gene products (that is, proteins) which have been validated as suitable
targets


                                      -15-
<PAGE>   16

for therapeutic intervention are configured into screening systems for testing
large libraries of compounds to identify those capable of interacting with these
drug targets in a useful manner. Various skills are required for success in this
process. Each screen must be configured so that it has an easily detectable
readout, can be performed economically, is capable of high throughput, is robust
enough to process samples of widely differing purity and quality and has
appropriate sensitivity and specificity. Implementation of the screen then
requires diverse skills in sample tracking, automation, data capture and
analysis.

      Millennium's technology platform incorporates a broad range of skills in
the configuration and implementation of high-throughput screens. The Company
currently performs all high-throughput screening for the antifungal and
antibacterial programs which are the subjects of its collaborations with Pfizer
and AHP as well as to screen proprietary Millennium drug targets.

      CHEMICAL DIVERSITY. Also key to success in drug discovery is the
availability of large, diverse libraries of chemical compounds. Ideally, these
libraries encompass both synthetic and natural compounds, since both classes are
well represented in the current pharmacopoeia.

      For its drug-discovery programs, Millennium has secured access to a broad
range of chemical compounds and natural products. The Company's sources of
synthetic chemicals include libraries made available by Lilly and AHP under the
terms of Millennium's collaborations with these companies (see " -- Strategic
Alliances -- Technology Alliances"), novel combinatorial libraries synthesized
at Millennium and compounds purchased from various sources.

      The Company is currently expanding its efforts to generate additional
proprietary synthetic chemistry libraries. The Company believes that such
libraries will be particularly useful sources of pharmacologically active
compounds.

      Millennium's sources of natural products include a proprietary collection
of over 50,000 fungal species collected from numerous sites around the world as
well as proprietary transgenic fungi. These transgenic fungi are readily
culturable fungi which the Company has engineered to synthesize compounds which
are normally made only in fungi that are difficult or impossible to culture.
These transgenic fungi provide Millennium with access to a rich diversity of
naturally occurring compounds which has not previously been accessible to the
pharmaceutical industry.

      During 1997 the Company was issued a United States patent on an approach
for generating novel sources of natural compounds involving crossing two
incompatible strains of the fungus Aspergillus, resulting in synthesis of
compounds not found in either of the parent strains.


                                      -16-
<PAGE>   17

      INFORMATICS AND ADVANCED PROCESS TECHNOLOGIES. Successful application of
genomics to the discovery of new drugs and other products requires the
simultaneous deployment of multiple different technologies across a broad array
of experimental procedures. This multi-disciplinary approach presents numerous
challenges, ranging from the diversity and complexity of the overall process to
the sheer volume of data which must be captured and interpreted.

      To address these challenges, Millennium places a heavy emphasis on the use
of advanced informatics and process technologies to integrate and accelerate the
many diverse activities of its genomics programs. Accordingly, the Company's
technology platform includes a number of custom-developed informatics tools that
enable users to capture, track and interpret large volumes of data from various
activities, such as genotyping, DNA sequencing and expression profiling, and to
incorporate data from both Millennium's own programs and published sources into
their analyses. The Company's technology platform also incorporates a high
degree of automation, controlled in many cases by proprietary software, and
advanced capabilities in analytical instrumentation such as fluorimetry and mass
spectrometry.

PHARMACEUTICAL DIVISION (MPHARMA)

     OVERVIEW

      Through the application of the Company's integrated platform of genomics
and related technologies, the Company is engaged through its MPharma division in
the discovery of novel drug targets and lead compounds which may be developed
into new small-molecule drugs for major human diseases. Such drugs are the
mainstay of the traditional pharmaceutical industry. Characteristically amenable
to formulation for oral administration, they are particularly appropriate for
the treatment of chronic diseases that often require the daily administration of
medications over many years.

      In accordance with its overall commercialization strategy, the Company has
entered into a number of alliances focused on drug discovery with pharmaceutical
partners that have substantial resources and expertise in research, preclinical
and clinical development, regulatory issues and marketing. The Company intends
to pursue additional such alliances as appropriate.

     DISEASE PROGRAMS

      OBESITY

      In the field of obesity, the Company is conducting gene identification and
drug target validation activities and has entered into a strategic alliance with
Roche. See " -- Strategic Alliances -- Disease Program Alliances -- Hoffmann-La
Roche Inc."


                                      -17-
<PAGE>   18

      Approximately 34 million individuals in the United States may be
classified as obese (greater than 20% above ideal body weight). This serious
medical condition has limited therapeutic alternatives and can increase the risk
of additional serious medical conditions, such as coronary heart disease,
certain cancers and type II diabetes. Although obesity is believed to have
multiple contributing causes, studies of identical twins suggest that genetic
factors are a principal cause of the disease.

      The MPharma division is currently undertaking several projects in the
field of obesity, employing animal models, mouse genetics, human genetics and
other components of Millennium's technology platform. These have led to the
identification of a number of genes responsible for obesity in animal models or
strongly implicated in the disease, including: the gene encoding ob-r, the
receptor for the hormone leptin, a fundamental regulator of weight and appetite;
the gene encoding the uncoupling protein homologue (UCPH), which regulates
metabolism and energy expenditure; and the gene encoding the melanocortin
4-receptor (MC4-R), a G-protein coupled receptor which is an important regulator
of body weight. The MPharma division and Roche are currently conducting drug
target identification, validation and development programs with respect to these
and other genes. In addition, through collaborations with academic
investigators, MPharma is conducting human genetics studies in appropriate
populations in the American Midwest and the rural Anhui province of China.

      In July 1996, the Company and Roche announced the acceptance into Roche's
small-molecule screening program of a drug target identified by Millennium, an
achievement for which Millennium received a milestone fee pursuant to its
strategic alliance agreement with Roche.

      During 1997, the Company was awarded United States patents relating to the
tub and UCPH genes which were discovered in the Company's obesity program.

      TYPE II DIABETES

      In its type II diabetes research program, the Company is principally
employing a gene identification strategy based on human genetics and has entered
into a strategic alliance with Roche. See " -- Strategic Alliances -- Disease
Program Alliances -- Hoffmann-La Roche Inc."

      Approximately 14 million persons in the United States are affected by type
II diabetes, also known as adult-onset or non-insulin dependent diabetes
mellitus (NIDDM). The disease is the seventh leading cause of death in the
United States. Studies of identical twins indicate that type II diabetes is
primarily due to genetic factors. This condition is a complex disorder involving
a combination of factors, including the inability of certain tissues to respond
to insulin and an inability of the pancreas to produce appropriate levels of
insulin.


                                      -18-
<PAGE>   19

      Millennium's human genetics studies in type II diabetes are designed to
identify disease genes involved in both of these disease processes. These
studies have led to the mapping of a gene, NIDDM2, which may be associated with
the development of a form of adult-onset diabetes linked to low insulin
secretion.

      In November 1996, the Company and Roche announced the achievement of a
research milestone associated with the identification of a gene implicated in
the development of type II diabetes.

      CARDIOVASCULAR DISEASE

      The MPharma division's research program in cardiovascular disease includes
projects in atherosclerosis and congestive heart failure. The Company has
entered into a strategic alliance with Eli Lilly concerning these projects. See
" -- Strategic Alliances -- Disease Program Alliances -- Eli Lilly and Company."

      Heart disease has a prevalence in the United States of approximately 18
million individuals. Its major cause is atherosclerosis. Risk factors for
atherosclerosis include gender, elevated cholesterol levels, smoking, high blood
pressure, diabetes mellitus and severe obesity. Studies indicate that a person's
genetic make-up, as indicated by a family history of heart disease, is the
single most significant risk factor for early onset of the disease. However, the
genetic basis of atherosclerosis remains largely unclear. Approximately 5
million Americans suffer from heart failure and an additional 500,000 cases are
diagnosed annually. The mortality rate from heart disease is extremely high. Few
effective therapies are available.

      The MPharma division's program in atherosclerosis utilizes three different
approaches to novel gene discovery in atherosclerotic vascular disease: human
genetics, mouse genetics and transcriptional profiling. The human genetics
program, being conducted through collaborations with academic investigators,
aims to identify genes responsible for, respectively, early-onset vascular
disease and inherited lipid defects in children that promote atherosclerosis in
adulthood. The mouse genetics approach focuses on a knockout-mouse model of
atherosclerosis, with the goal of identifying genes that modify or protect
against developing the disease. The transcriptional profiling approaches include
an investigation of how biomechanical forces affect gene expression in cells
from the walls of blood vessels. This latter program has led to the discovery of
several genes which appear to play a role in protecting blood vessels from the
formation of atherosclerotic lesions. These genes have been the subject of
several scientific papers authored by Millennium and its collaborators,
including papers published in 1997 in The Proceedings of the National Academy of
Sciences and Cell.

      The MPharma division initiated a program in congestive heart failure in
1997. In this program, MPharma is using proprietary cDNA technologies to
identify novel genes in critical pathways involved in the transition from
healthy to failing


                                      -19-
<PAGE>   20

myocardium (a layer of muscle in the heart). In September 1997, Millennium and
Lilly expanded their alliance in cardiovascular disease to include congestive
heart failure.

      INFLAMMATORY RESPIRATORY DISEASES

      In the field of inflammatory respiratory diseases, the MPharma division is
conducting gene identification and drug target validation activities and has
entered into a strategic alliance with Astra. See " -- Strategic Alliances --
Disease Program Alliances -- Astra AB."

      Asthma affects approximately 12 million individuals in the United States.
Current treatments for moderate to severe asthma, while effective in managing
symptoms of the disease, are known to have significant side-effects over the
long term. Although asthma has both genetic and environmental factors, a number
of studies have indicated that asthma is substantially attributable to a genetic
component.

      The MPharma division currently is undertaking several projects in the
field of inflammatory respiratory diseases through human genetics, mouse
genetics and cDNA approaches. The human genetics program is being conducted in
appropriate populations in China and northern New England. The mouse genetics
and cDNA- based programs are focused on the identification of key genes that
control immunological conditions important in inflammatory respiratory diseases,
including asthma. In the mouse program, MPharma is also analyzing a strain of
mice with a defect in a pathway believed to be important for inflammatory
responses. In the cDNA-based program, RADE and expression cloning are being used
extensively to identify critical regulatory genes in inflammatory pathways. The
MPharma division has also established several animal disease models expressing
physiologic and inflammatory disease markers for use in both gene discovery and
gene validation. These programs are generating knowledge and information useful
in understanding both respiratory and non-respiratory inflammatory diseases.

      ONCOLOGY

      In the field of oncology, the Company is conducting gene identification
activities related to a variety of cancers, including prostate, breast and
colorectal cancer and melanoma, and has entered into a strategic alliance with
Lilly with respect to select areas within oncology, including prostate cancer
and multiple-drug resistance. See " -- Strategic Alliances -- Disease Program
Alliances -- Eli Lilly and Company."

      Over one million new cancer cases are reported in the United States
annually. Cancers of all types result in over 500,000 deaths in the United
States each year, making cancer the second leading cause of death in the United
States. In addition to 


                                      -20-
<PAGE>   21

surgery and radiotherapy, there are nearly 50 FDA-approved drug therapies for
the treatment of a variety of cancers. Many of these therapies have severe
adverse side effects.

      The MPharma division is currently undertaking several projects focusing on
the areas of hormone-refractory prostate cancer, multi-drug resistant tumors,
melanomas and breast cancer using both human genetics and cDNA approaches.
MPharma is also employing RADE and other transcriptional profiling technologies
to identify genes that function in the progression of a variety of different
types of cancer. The Company has entered into collaborations with major medical
centers to gain access to tumor samples. Millennium has identified drug target
candidates in multi-drug resistant tumors, and genes implicated in the
initiation and progression of melanomas. MPharma has commenced drug target
validation studies on these genes, including gene transfer into animal models of
cancer progression. The knowledge and information being generated in these
projects is relevant to cancers both within and outside the scope of the
Company's alliance with Lilly.

      During 1997 the Company was issued two United States patents covering a
gene encoding melastatin, a protein which appears to suppress metastasis in
malignant melanomas.

      DISEASES OF THE CENTRAL NERVOUS SYSTEM

      In the field of central nervous system diseases, the Company is
principally employing human genetics to identify the genes responsible for
affective disorders and schizophrenia and has entered into a strategic alliance
with AHP. In addition, the Company is using cDNA approaches to identify genes
potentially implicated in the initiation and/or progression of generalized
depression, epilepsy and neurodegeneration. See " -- Strategic Alliances --
Disease Program Alliances -- American Home Products Corporation."

      Bipolar affective disorder, also known as manic depression, affects at
least 2 million people in the United States, while the related disorder, common
depression, may affect up to 13 million persons. Siblings of individuals
affected with bipolar affective disorder appear tenfold more likely to develop
the disease than siblings in the general population, suggesting an underlying
genetic basis. Schizophrenia is a debilitating disease of the central nervous
system, characterized by severe cognitive impairment, which affects
approximately 2.5 million persons in the United States.

      For its studies on the genetics of bipolar affective disorder, the MPharma
division is collaborating with academic investigators who have access to
appropriate populations. Genetic linkages have been identified in these
populations, and positional cloning efforts are in progress to identify the
disease genes which these linkages represent.


                                      -21-
<PAGE>   22

      In the area of schizophrenia and schizoaffective disorders, the MPharma
division is collaborating with a consortium of academic clinicians who have
access to populations of schizophrenia-prone families which have undergone
extensive clinical characterization. Genotyping of individuals in these
populations is in progress.

      FUNGAL INFECTIONS

      In the field of fungal infections, the MPharma division is engaged in the
identification and validation of new targets for antifungal drugs and in high-
throughput screening to identify potential lead compounds. MPharma is conducting
these activities in a collaboration with Pfizer. See " -- Strategic Alliances --
Disease Program Alliances -- Pfizer."

      Approximately 2 million systemic fungal infections occur annually
worldwide. The proportion of hospital-acquired infections in the United States
due to fungi (as opposed to other pathogens) nearly doubled from 1980 to 1990,
from 6% to over 10% of all such infections. The increasing incidence of systemic
fungal infections is due in part to the growing number of patients whose immune
systems are compromised due to HIV infection, chemotherapy treatments, increased
use of immunosuppressive drugs or aging. Despite current approaches to
treatment, the mortality rate in patients with systemic fungal infections is
extremely high, ranging from 30% to 80%, depending on the disease.

      Only two major classes of antifungal drugs are in use today, both of which
have significant inadequacies. One class of antifungal drugs, which includes
Amphotericin-B, while generally effective against Candida, Aspergillus, and
Cryptococcus, must be administered intravenously and has serious side effects in
many patients. The other major class of antifungal drugs is the azoles. Azoles
are well tolerated and available in orally active forms. However, they are
ineffective against important pathogenic species such as Aspergillus. Moreover,
strains of fungal infections that are resistant to the azoles have emerged,
particularly in patients with AIDS.

      Using its expertise in fungal genetics and genomics and in lead-discovery
technologies, the Company has identified significant numbers of genes that are
essential for the growth of pathogenic fungi, prioritized these genes on the
basis of their likely suitability as targets for novel antifungal drugs,
configured screens to identify compounds active against the most promising
antifungal drug targets and conducted several high-throughput screens of large
chemical libraries. These activities have led to the discovery of several series
of lead compounds that are the subject of ongoing research.

      During 1997 the Company was issued a United States patent relating to
novel methods for discovering inhibitors of fungal pathogenicity (the
disease-causing ability of fungi).


                                      -22-
<PAGE>   23

      BACTERIAL INFECTIONS

      In the field of bacterial infections, the MPharma division is engaged in
the identification and validation of new targets for antibacterial drugs and in
high- throughput screening to identify potential lead compounds. MPharma has
entered into a collaboration with AHP in this field. See " -- Strategic
Alliances -- Disease Program Alliances -- American Home Products Corporation."

      Infectious diseases are the third leading cause of death in the United
States, and account for 25% of all physician visits. Antibiotics are the second
most frequently prescribed class of drugs. Bacterial resistance to antibiotics
is a serious problem. For example, drug-resistant pneumococci cause 15,000 cases
of meningitis each year in the United States, 7,000 cases of sepsis/bacteremia,
150,000 cases of pneumonia and over 1 million cases of otitis media. Between 3
and 35% of pneumococcal illness is due to drug-resistant strains, depending on
geographical location and season of the year. Mortality and hospital length of
stay are at least doubled for resistant strains of bacterial organisms compared
with strains responsive to treatment. Only one antibiotic, vancomycin, remains
effective against hospital- acquired staphylococcal infections.

      The MPharma division is applying its expertise in bacterial genetics and
genomics to identify significant numbers of genes that are essential for the
growth of pathogenic bacteria, prioritize these genes on the basis of their
likely suitability as targets for novel antibacterial drugs and pinpoint the
molecular targets of compounds identified by other means as having antibacterial
activity. These activities led to the acceptance by AHP during 1997 of three
novel targets for antibacterial drug discovery identified by MPharma.

      HELICOBACTER PYLORI ("H. PYLORI")

      H. pylori is a bacterium that is generally considered to be the primary
cause of gastric ulcer disease and chronic gastritis. H. pylori has been
implicated in cancer of the stomach as well as other cancers. Approximately 5
million people in the Unites States suffer from peptic ulcers, and a further 2.5
million from gastritis. It has been estimated that 50% of the United States
population is infected with H. pylori. Current antibiotic treatments for H.
pylori suffer from sub-optimal success rates, the development of resistance and
poor patient compliance.

      The MPharma division is using proprietary bacterial gene-discovery
approaches to identify novel targets for antibiotic drugs designed to eradicate
H. pylori from infected individuals with enhanced efficacy and reduced
side-effects compared with current therapies. MPharma has configured and
conducted screens of novel drug targets and identified a number of potential
lead compounds. The 


                                      -23-
<PAGE>   24

MPharma division currently is seeking a pharmaceutical company partner to form
an alliance to continue this program.

      OTHER PROGRAMS

      In addition to the foregoing disease research programs, the MPharma
division is conducting additional research efforts in the fields of
osteoporosis, non-respiratory inflammation and autoimmune diseases.

STRATEGIC ALLIANCES

     DISEASE PROGRAM ALLIANCES

      The Company has entered into a total of seven strategic alliances in
connection with disease research programs being conducted by the MPharma
division. In calendar year 1997, the Company recognized total revenues of
approximately $46.3 million under these alliances. In each of these alliances,
Millennium generally has agreed not to conduct certain research, independently
or with any commercial third party, which is in the same field as that covered
by the alliance agreement. The Company has retained commercialization rights to
certain therapeutic and diagnostic applications of the discoveries resulting
from these funded research programs. See " -- Retained Commercialization
Rights."

      Each of the agreements governing the strategic alliances for the MPharma
division's disease research programs is subject to certain contingencies
including, in certain instances, early termination rights. In the event that
specified additional research, product development and associated regulatory
milestones are achieved, the Company's strategic partners will be obligated to
make milestone payments to the Company. Generally, each of these agreements also
entitles the Company to royalties and/or a share of the profits on product
sales, which are payable for the longer of the life of the applicable patent or
a period of time specified in each agreement.

      HOFFMANN-LA ROCHE INC.

      In March 1994, the Company and Roche entered into a strategic alliance in
the fields of obesity and type II diabetes. Under the terms of a related stock
purchase agreement, F. Hoffmann-La Roche Ltd. (Basel, Switzerland), an affiliate
of Roche, made a $6.0 million equity investment in the Company. Roche also
agreed to fund a five-year program of obesity and type II diabetes research by
the Company. Unless extended, this program is due to terminate in March 1999.

      The agreement provides Roche with exclusive worldwide royalty-bearing
rights to develop and commercialize small molecule therapeutics for obesity and
type II diabetes based on the Company's gene discoveries arising from the
collaboration. Roche has an exclusive royalty-bearing right to develop and
commercialize


                                      -24-
<PAGE>   25

therapeutic proteins, antisense drugs, oligonucleotides and gene therapy for
obesity and type II diabetes outside of North America. Within North America,
Millennium has retained the right to develop and commercialize therapeutic
proteins, antisense drugs, oligonucleotides and gene therapy for obesity and
type II diabetes, subject to Roche's right to co-promote such products.

      The agreement with Roche is subject to termination by Roche at any time
after the completion of the five-year research program in March 1999 on six
months' notice, as well as upon three months' notice upon a sale of majority
control of the Company, the sale of all or substantially all of Millennium's
assets or the sale of all or substantially all of Millennium's assets to which
the agreement with Roche relates.

      ELI LILLY AND COMPANY

      In October 1995, the Company and Lilly entered into a strategic alliance
in the field of atherosclerosis (the "Atherosclerosis Agreement") and in March
1996, Millennium and Lilly entered into a strategic alliance in select areas
within oncology (the "Oncology Agreement"). Under the terms of the
Atherosclerosis Agreement, Lilly made an $8.0 million equity investment in the
Company. Lilly also agreed to fund five-year programs of atherosclerosis and
cancer research by the Company starting in, respectively, October 1995 and March
1996. Lilly may elect to extend the funding of the Company's research in either
or both of these fields for a further three years. In September 1997, Lilly and
Millennium expanded the scope of the atherosclerosis research program to include
congestive heart failure.

      Each of the agreements provides Lilly with exclusive worldwide
royalty-bearing rights to develop and commercialize small-molecule drugs and
therapeutic proteins and co-exclusive rights to develop and commercialize gene
therapy products for atherosclerosis, congestive heart failure or cancer based
on the Company's gene discoveries in the alliance research programs. Millennium
has retained exclusive rights to all diagnostic and antisense drug applications
arising from the strategic alliance research programs. In addition, Millennium
has granted Lilly a right of first negotiation with respect to research programs
in the cardiovascular area falling outside of the field of atherosclerosis.

      Lilly has granted the Company non-exclusive rights to use select
combinatorial chemistry libraries and high-throughput screening technologies
controlled by Lilly to conduct a limited number of screens with the Company's
drug targets to identify product candidates for medical indications other than
specific medical indications designated by Lilly as being of strategic
importance to Lilly. The Company has exclusive worldwide rights to develop and
commercialize such product candidates. The Company will be obligated to pay
Lilly royalties on the sale of products identified by the Company using Lilly's
combinatorial chemistry libraries. The Company also has granted Lilly a
non-exclusive right to use certain genomics technologies (see " -- Strategic
Alliances -- Technology Alliances").


                                      -25-
<PAGE>   26

      Lilly originally had the right to terminate the Atherosclerosis Agreement
at any time after October 1998, provided that if Millennium had met specified
research objectives Lilly would be required to provide 90 days' notice and one
additional year of research funding. In September 1997, on the basis of
achievements in several key areas of the program during its first two years,
Lilly waived this right and accelerated its commitment to fund the program for a
full five years. Lilly has the right to terminate the Oncology Agreement at any
time after April 1999, again provided that if Millennium has met specified
research objectives Lilly would be required to provide 90 days' notice and one
additional year of research funding. Lilly also has the right to terminate its
research funding obligations under each agreement under various circumstances.

      ASTRA AB

      In December 1995, the Company and Astra entered into a strategic alliance
in the field of inflammatory respiratory diseases. Astra has agreed to fund a
five-year program of inflammatory respiratory diseases research by the Company.
Astra also may elect to extend its funding of the Company's research in this
field for an additional two years. Astra has the right to terminate the research
program in early 1999 in the event that Millennium fails to achieve specified
research objectives.

      The agreement provides Astra with exclusive worldwide royalty-bearing
rights to develop and commercialize small-molecule drugs in the inflammatory
respiratory diseases field based on the Company's gene discoveries arising from
the collaboration. Millennium and Astra have agreed to explore opportunities to
jointly develop and commercialize therapeutic proteins identified in the
research program in the field of inflammatory respiratory diseases. In the
absence of an agreement on joint development, Astra has exclusive worldwide
rights for therapeutic proteins in the field of inflammatory respiratory
diseases delivered by oral inhalation or nasal administration. Millennium and
Astra also have agreed to explore opportunities to jointly develop and
commercialize antisense drugs identified in the research program. In the absence
of an agreement on joint development, Astra has exclusive worldwide rights in
the field of inflammatory respiratory diseases for antisense drugs delivered by
oral inhalation or nasal administration, as well as co-exclusive worldwide
rights in such field for antisense drugs not delivered by oral inhalation or
nasal administration. The Company also has granted Astra a non-exclusive right
to use certain genomics technologies. Millennium has retained exclusive rights
to all diagnostic and gene therapy applications arising from the strategic
alliance research program.

      AMERICAN HOME PRODUCTS CORPORATION

      CENTRAL NERVOUS SYSTEM DISORDERS. In August 1996, the Company entered into
a strategic alliance with American Home Products Corporation to discover and
develop targets and assays to identify small molecule drugs and vaccines for


                                      -26-
<PAGE>   27

treatment and prevention of disorders of the central nervous system. The
strategic alliance with AHP consists of three major components: central nervous
system ("CNS") disease drug-discovery research, informatics technology and
support and technology exchange. See " -- Strategic Alliances -- Technology
Alliances."

      The Company has initially focused the CNS drug discovery research program
on psychiatric disorders including anxiety, depression and schizophrenia, with
future programs envisioned in additional CNS disorders of high unmet medical
need, such as Alzheimer's disease, certain forms of stroke, substance abuse and
epilepsy. The Wyeth-Ayerst division of AHP will be responsible for the worldwide
development and marketing of any small molecule drugs and vaccines arising from
the collaboration for the prevention and treatment of CNS diseases and
disorders. The Company generally retains rights relating to the worldwide
development and marketing of antisense drugs and diagnostic products and
services arising from the collaboration. Millennium has granted a right of first
refusal to AHP with respect to further opportunities for the joint development
of non-vaccine therapeutic proteins and gene therapy products in the CNS field
identified in the research program.

      ANTIBACTERIALS. Through its acquisition of ChemGenics in February 1997,
Millennium became engaged in a strategic alliance with AHP to discover novel
drug leads for treating bacterial infections in humans. Under the terms of the
alliance, AHP is funding and collaborating with Millennium on a five-year
program of antibacterial research which is due to conclude in November 2001.

      During 1997, AHP accepted three antibacterial drug targets from Millennium
for drug candidate screening. As a result, AHP made a milestone payment to
Millennium for each drug target and a bonus payment for delivering three drug
targets in the first year of the alliance.

      The alliance agreement provides AHP with exclusive worldwide
royalty-bearing rights to develop and commercialize small-molecule drugs arising
from the collaboration for human bacterial diseases other than H. pylori
infections. Commencing one year after the end of the research term, Millennium
will have certain rights to develop and commercialize Millennium or AHP products
arising from the collaboration if AHP is not developing a product from the
collaboration with the same activity profile.

      AHP has the right to terminate the agreement if certain research
objectives have not been met by November 1999.

      PFIZER

      Through its acquisition of ChemGenics, Millennium also became engaged in a
strategic alliance with Pfizer to discover novel drug leads for treating fungal
infections in human. Under the terms of this alliance, Pfizer is funding and


                                      -27-
<PAGE>   28

collaborating with Millennium on a four-year program of antifungal research
which is due to conclude in December 1999. Effective October 1997, Pfizer agreed
to expand the scope of the program for the remainder of its term.

      The agreement provides Pfizer the option for a period ending one year
after the end of the research program to acquire exclusive royalty-bearing
worldwide rights to develop and commercialize products to treat human fungal
infections discovered as part of the collaboration. If the option is not
exercised for a particular candidate product and Pfizer is not developing
another product with a similar profile of activity arising from the
collaboration, Millennium will be permitted to develop and commercialize that
candidate itself or with third parties. If Millennium or a licensee of
Millennium sells any such product, a royalty payment to Pfizer may be required.

     TECHNOLOGY ALLIANCES

      To realize value from its investment in technology development, and to
access additional resources for such development, Millennium has agreed to
transfer components of its technology platform to its partners as part of
certain of its strategic alliances. These alliances are with companies operating
primarily in the pharmaceutical and plant agriculture industries. The Company
believes that its technology platform potentially is applicable to a
significantly broader range of life-science-based industries, including the
biotechnology, animal health, chemical and enzyme industries. Millennium is
actively pursuing additional technology alliances in these industries as well as
in the pharmaceutical industry.

      LILLY, ASTRA, AHP

      Millennium's alliances with Lilly, Astra and AHP in connection with,
respectively, atherosclerosis, inflammatory respiratory diseases and central
nervous system diseases each include a significant component of technology
transfer. In each case, Millennium has granted rights to use, and has undertaken
to transfer, certain genomics technologies to its partner, primarily
technologies for high-throughput sequencing, informatics and transcriptional
profiling. Millennium also made certain commitments to provide continuing
support for technology it has transferred. Under certain circumstances,
Millennium may receive royalties on certain products in whose discovery or
development Millennium technologies have played a role. See " -- Disease Program
Alliances."

      The Company has obtained certain rights to screen its own drug targets
against small molecule compound libraries owned by AHP as part of a technology
exchange program with AHP. The Company has also obtained certain rights to use
high-throughput drug screening and combinatorial chemistry library technologies
from Lilly. See " -- Disease Program Alliances -- Eli Lilly and Company."


                                      -28-
<PAGE>   29

      MONSANTO

      In October 1997, Millennium entered into a broad five-year collaborative
agreement with Monsanto relating to the application of genomics technologies in
Monsanto's life-science-based businesses. In connection with this agreement,
Monsanto has established a wholly-owned subsidiary, Cereon Genomics LLC
("Cereon"), which is based in Cambridge, Massachusetts. Millennium granted
Cereon and Monsanto an exclusive license to use Millennium's genomics
technologies in plant agriculture and certain aspects of dairy agriculture and
agreed to collaborate exclusively with Cereon and Monsanto in these fields.
Millennium agreed not to compete or grant licenses to others in these fields for
a period of ten years after the five-year term of the collaboration. The Company
also granted a non-exclusive license to Monsanto to apply Millennium's genomics
technologies outside of these fields.

      Monsanto agreed to pay Millennium $118 million in up-front, licensing and
technology-transfer fees over the five-year term of the agreement, of which $38
million was paid in December 1997. The agreement also provides for further
payments by Monsanto to Millennium of up to $100 million over five years for
achieving mutually determined research objectives and for the payment of
royalties to Millennium on the sale of certain products originating from
research conducted by Cereon. Millennium was also granted non-exclusive rights
outside the field of agriculture to use certain discoveries and technologies
developed within Cereon and Monsanto.

      Monsanto has the right to terminate the agreement in the event that a
company with sales exceeding $1 billion in plant agriculture and certain aspects
of dairy agriculture acquires more than a specified percentage of the combined
voting power of the outstanding securities of Millennium or acquires all or
substantially all of Millennium's assets.

     FUNCTIONAL GENOMICS CONSORTIUM

      In April 1997, the Company joined a corporate consortium with BMS and
Affymetrix to fund a five-year research program in functional genomics at the
Whitehead Institute/Massachusetts Institute of Technology Center for Genome
Research (the "Genome Center"). BMS is a major pharmaceutical company, and
Affymetrix is a biotechnology company focused on high-density microarray
technologies and their applications in genomics and genetics.

      Under the terms of the agreements, BMS, Affymetrix and Millennium have
agreed to support a program of investigator-initiated research at the Genome
Center to develop the next generation of genomics technologies. The consortium
members have agreed to provide approximately $8 million per year for five years
to the Genome Center. In addition, Affymetrix and Millennium have agreed to
provide the 


                                      -29-
<PAGE>   30

Genome Center with access to certain of their technologies. In return, the
consortium members, including Millennium, will be entitled to certain license
rights to developments funded by the consortium or resulting from the use of
contributed technology.

     RETAINED COMMERCIALIZATION RIGHTS

      The Company has retained a broad range of rights to commercialize certain
therapeutic and diagnostic applications of discoveries resulting from the
disease- focused research programs which are funded by its strategic partners.
These retained rights fall broadly into three categories - - small-molecule
drugs, biotherapeutics and diagnostics.

      In each of its strategic alliances, Millennium has retained the
co-exclusive right to use the molecular drug targets that result from the funded
research programs to identify and develop small-molecule drugs to treat medical
indications that fall outside of the field(s) covered by the alliance from which
the target originated. The Company is using a number of these drug targets and
retained rights as the basis for additional drug-discovery programs which it is
conducting by itself and may conduct with additional partners.

      Millennium has also retained certain exclusive or co-exclusive rights to
develop and market therapeutic proteins and antibodies, vaccines and gene
therapy and antisense products stemming from discoveries made in the MPharma
division's disease-focused drug-discovery alliances. These rights have been
transferred to, and are being utilized by, the Company's MBio subsidiary.

      Millennium has retained rights to develop and market diagnostic products
and services resulting from the research programs conducted by the MPharma
division under the strategic alliances with Roche, Lilly, Astra, AHP and Pfizer.
These rights are being transferred to the Company's MPMx subsidiary.

MILLENNIUM BIOTHERAPEUTICS, INC.

     OVERVIEW

      Millennium BioTherapeutics was organized in May 1997 to discover and
develop novel lead product candidates for new biotherapeutics to treat major
human diseases. As of March 1, 1998, MBio had approximately 60 full-time
employees and was contracting with other units within the Company for the
services of approximately 30 additional full-time equivalent employees. To
secure funding for its program in therapeutic proteins and to provide for the
further development and commercialization of discoveries made in this program,
MBio has entered into a strategic alliance with Lilly. MBio has retained the
right to develop and commercialize half of all the therapeutic products
discovered in this alliance. MBio


                                      -30-
<PAGE>   31

also has retained all rights to therapeutic antibodies, vaccines and gene
therapy and antisense products as well as certain other protein product
opportunities. MBio intends to pursue further strategic alliances as
appropriate.

      Biotherapeutics constitute a significant and growing class of therapeutic
products. Biotherapeutics are used to treat and prevent a variety of important
conditions, such as diabetes, anemia, complications of chemotherapy, heart
attacks, strokes and a broad range of infectious diseases. MBio believes that
genomics-based approaches will significantly accelerate the discovery and
development of novel biotherapeutic products for a wide range of diseases. MBio
further believes that it can gain a competitive advantage in the discovery and
development of such products through the application of Millennium's integrated
platform of genomics and related technologies.

      The Company has generally agreed to assign to MBio all product development
opportunities and technology rights (including opportunities and rights arising
under the Company's collaboration agreements) in MBio's core area of interest
(i.e. biotherapeutic proteins and antibodies, vaccines, and gene therapy and
antisense products), and MBio has generally agreed to assign to the Company all
product development opportunities and technology rights outside MBio's core area
of interest. In addition, the Company has granted to MBio a royalty-free
non-exclusive, non- sublicensable license to the Company's process technologies
and a royalty-free, exclusive sublicensable license to certain product-related
technology, in each case within MBio's core area of interest. Similarly, MBio
has granted to the Company a royalty-free, non-exclusive, non-sublicensable
license to MBio's process technologies and a royalty-free, exclusive,
sublicensable license to certain product-related technology, in each case
outside MBio's core area of interest.

      BIOTHERAPEUTICS

      Biotherapeutics fall into five main product classes: therapeutic proteins,
therapeutic antibodies, gene therapy products, antisense products and vaccines.

      Most therapeutic proteins now available are produced from cloned genes.
These proteins may represent biotechnology's biggest contribution to date to
human healthcare. Examples of therapeutic protein products include: Humulin(R)
(human insulin); Humatropin(R) (human growth hormone); Neupogen(R) (granulocyte
colony-stimulating factor, G-CSF); Epogen(R) (erythropoietin); Intron-A(R)
(interferon alpha); Betaseron(R) and Avonex(R) (interferon beta); Kogenate(R)
(factor VIII); Activase(R) (tissue plasminogen activator, TPA); and Ceredase(R)
(glucocerebrosidase).

      Therapeutic proteins are often divided into two main categories. The first
category, which may be termed "replacement therapies," are proteins which
supplement or replace proteins whose absence or deficiency is an underlying
cause of the disease in question. Examples include glucocerebrosidase in
Gaucher's disease


                                      -31-
<PAGE>   32

and factor VIII in hemophilia. The second category, which may be termed
"pharmacologic therapies," are proteins which stimulate natural processes within
the body for therapeutic effect, but whose absence is not an underlying cause of
the disease. Examples of pharmacologic therapies include G-CSF, which stimulates
the regeneration of neutrophils following cancer chemotherapy, thereby
protecting patients against infection, and TPA, which stimulates the breakdown
of dangerous blood clots in heart-attack and stroke patients. MBio believes that
genomics technologies will enable the identification of many new potential
products in both of these categories.

      Therapeutic uses of antibodies are based on the unique ability of
antibodies to recognize and bind potently to specific molecular shapes. In some
cases, the antibody targets a protein or process in the body which will
otherwise have adverse effects. For example, by blocking the aggregation of
platelets, ReoProR inhibits potentially dangerous blood clotting after
angioplasty. In other cases, the antibody binds specifically to the surface of
unwanted cells, such as tumor cells, and initiates the destruction of these
cells by the body's immune system. In an alternative but similar approach, a
toxin or radioactive label is coupled with the antibody and used to destroy the
unwanted cells. MBio believes that genomics technologies will enable the
identification of a new generation of targets whose neutralization or
recognition by antibodies could have a beneficial therapeutic effect.

      Gene therapy consists of the administration to a patient of a gene that
encodes a protein having a therapeutic benefit. Gene therapy may have potential
advantages in situations in which there is a need for prolonged administration
of therapeutic proteins or for their delivery only to defined sites within the
body. For example, a protein that is chronically deficient in a particular
disease might be provided by relatively infrequent administration of the gene
encoding that protein, rather than by frequent intravenous or subcutaneous
administration of the purified protein. Alternatively, a disease might most
appropriately be treated by localized administration of a specific protein to a
particular organ system, which is difficult to achieve with injectable proteins
but expected to be achievable by gene therapy. MBio believes that genomics
technologies will be successful in enabling the identification of many genes
that will be good candidates for use in gene therapy products.

      Antisense therapy can be viewed as the opposite of gene therapy. Instead
of providing a gene that encodes a protein whose effect is beneficial, the goal
of antisense therapy is to block the activity of a gene that encodes a protein
whose effect is harmful. The gene's activity is blocked using a synthetic DNA-
or RNA-like molecule which by virtue of its sequence is capable of binding to
mRNA transcripts copied from the gene. This binding prevents translation of the
mRNA, and thereby inhibits synthesis of the harmful protein. Genomics
technologies have the capability to identify genes and transcripts whose
activities it would be beneficial to block. Such genes and transcripts represent
potential targets for antisense therapies.


                                      -32-
<PAGE>   33

      A vaccine is a preparation which sufficiently resembles a pathogen to
provoke an immune response, but which does not cause disease. Vaccination primes
the immune system to mount a vigorous response upon subsequent exposure to the
pathogen in question, preventing development or progression of the disease that
the pathogen causes. Historically, the main targets of vaccines have been
infectious diseases. Accordingly, the target pathogens have been viruses and
bacteria, such as poliovirus and the bacteria which cause diphtheria, pertussis
and tetanus. More recently there has been a strong interest in developing both
preventive and therapeutic cancer vaccines, for which the target "pathogens" are
cancer cells. Whatever the nature of the pathogen, proteins that are present on
its exterior surface and unique to the pathogen have the potential to provoke
pathogen-specific immune responses. Such proteins therefore represent potential
constituents of vaccines. MBio believes that genomics technologies will be
useful in identifying such proteins.

      DISCOVERY PROGRAMS

      Discovery research efforts at MBio are currently focused on two major
product categories - - therapeutic proteins and therapeutic antibodies. In the
field of therapeutic proteins, MBio has entered into a strategic alliance with
Lilly. See " -- Strategic Alliances -- Eli Lilly and Company." MBio is not
currently engaged in efforts directed specifically to the discovery of gene
therapy, antisense or vaccine products, although it anticipates initiating
programs in these areas in the future.

      MBio's alliance with Lilly is directed toward the discovery of novel
therapeutic proteins, in particular novel members of the families to which
existing "pharmacologic therapy" proteins belong, such as hormones, cytokines
and growth factors. The program utilizes approaches based on cDNA sequencing,
expression cloning, transcriptional profiling and genomic sequencing for gene
discovery. MBio's strategy for determining biological function is to move as
rapidly as possible from gene discovery to in vivo evaluation of gene biology.
Accordingly, MBio employs high-throughput biological validation approaches, such
as informatics and expression profiling in diseased tissues, followed by
medium-throughput approaches, such as in vivo over-expression of genes of
interest in mice. As necessary, MBio applies lower- throughput approaches, such
as generation of transgenic and/or knock-out mice and production of protein
supplies for cell biology assays. MBio has discovered and is engaged in research
on a number of therapeutic protein candidates.

      MBio also has identified and expects to continue to identify potential
targets for therapeutic antibodies as part of its discovery effort for
therapeutic proteins. The approaches being used by MBio in this area to identify
drug targets include transcriptional profiling in diseased tissues. MBio is also
developing high-throughput technologies for functional validation of potential
therapeutic antibodies.


                                      -33-
<PAGE>   34

      STRATEGIC ALLIANCES

      ELI LILLY AND COMPANY. In May 1997, MBio and Lilly entered into a
strategic alliance in the field of therapeutic proteins. Under the terms of this
alliance, Lilly and MBio each provides half of the funding for a research
program at MBio to discover therapeutic proteins, and each receives exclusive
rights to half of the therapeutic proteins discovered. Therapeutic antibodies
and certain other proteins are excluded from the alliance. In conjunction with
the formation of this alliance, Lilly made an equity investment of $20 million
in MBio, for which it received approximately 18% of MBio's capital stock. In the
event that specified research, product development and associated regulatory
milestones are achieved by Lilly in its development of proteins resulting from
the alliance, Lilly will be obligated to make milestone payments to MBio. Lilly
also will be obligated to pay royalties to MBio on the sale of certain
therapeutic products that may result from the alliance.

      Candidate therapeutic proteins identified in the jointly-funded research
program which meet certain specified criteria become available for selection by
either Lilly or MBio for further development. Each company is entitled to select
an equal number of the proteins from the pool of qualified candidates, with the
companies taking alternating turns to select candidates for further development.
Each company is under obligations of diligence to develop each protein it has
selected. Any protein which is not diligently developed may be returned to the
selection pool, or be transferred to the other partner. Each company has
exclusive worldwide rights, sub- licensable under certain conditions, and
royalty-bearing in the case of Lilly, to develop and commercialize therapeutic
proteins it has selected. MBio and Lilly each has royalty-bearing worldwide
rights to use proteins from the jointly funded program as drug targets to
discover small-molecule drugs. MBio has transferred these rights to Millennium
for use by the MPharma division.

      Lilly has the right to terminate the research program on each of its third
and its fourth anniversary upon at least 120 days' written notice. Either party
may terminate the agreement at any time upon 30 days' written notice if majority
control of the other party is acquired by any pharmaceutical or other health
care company.

MILLENNIUM PREDICTIVE MEDICINE, INC.

     OVERVIEW

      Millennium Predictive Medicine was organized in September 1997 to discover
and develop novel products and services for pharmaceutical companies, diagnostic
companies and healthcare providers seeking to optimize the prevention,
diagnosis, treatment and management of diseases. As of March 1, 1998, MPMx had
approximately 10 full-time employees. MPMx initially is focusing its efforts in
two areas, pharmacogenomics and Diagnomics. MPMx intends to seek strategic
alliances in each of these areas.


                                      -34-
<PAGE>   35

      Despite tremendous advances during the twentieth century, much medical
care is still suboptimal. Many diseases are diagnosed using tests which provide
only a snapshot of current symptoms, rather than a predictive assessment of
underlying causes. In addition, many diseases are treated with drugs which,
while safe and effective in some patients, may be ineffective and even dangerous
in others. The Company believes that genomics and related technologies can make
a fundamental contribution to the optimization of medical care by providing
tests which report informatively on the underlying causes and likely outcomes of
diseases and predict accurately the responses of individual patients to drugs.
The Company further believes that MPMx can gain a competitive advantage in
developing such tests and related services through the application of
Millennium's integrated platform of genomics and related technologies.

      Diagnostic products and services generally have shorter product
development and regulatory approval time than therapeutic products. Therefore,
Millennium believes that products and services developed by MPMx may be among
the first arising from the Company's genomics programs to generate sales
revenues.

      PHARMACOGENOMICS

      Different people often respond in different ways to the same drug. A drug
which is safe and effective in one patient may be toxic and ineffective in
another. MPMx believes that such differences in response reflect genetic
differences between the individuals concerned. Pharmacogenomic studies seek to
establish correlations between specific genetic variations and specific
responses to drugs. By establishing such correlations, pharmacogenomics may
permit both new and existing drugs to be targeted to those patients in which
they are most likely to be both effective and safe. MPMx therefore expects that
the pharmacogenomics products and services it is developing will enable
pharmaceutical companies to accelerate clinical trials, improve the success rate
of such trials and realize significant extra value from existing drugs and
failed clinical development candidates. MPMx further expects that these products
and services will allow healthcare organizations to provide improved patient
care at the same or lower cost.

      DIAGNOMICS

      Many current diagnostic tests are directed towards the symptoms, rather
than the causes, of the diseases they are used to monitor. As a result, these
tests generally provide information only about a patient's current condition. In
contrast, Diagnomics are intended to be genomics-derived molecular diagnostics
which assess the underlying causes of diseases rather than just their symptoms.
In MPMx's view, Diagnomics will provide information with inherent prognostic,
therapeutic and economic implications, enabling a shift in medical care towards
planned and cost-effective treatment of the underlying causes of disease. The
initial focus for MPMx's


                                      -35-
<PAGE>   36

Diagnomics program will be cancer, chemotherapy, cardiovascular and CNS
disorders.

MILLENNIUM INFORMATION, INC.

      MInfo was incorporated in September 1997 to use the Company's integrated
platform of genomics and related technologies to generate and integrate diverse
biomedical data in order to provide high-value information products and services
to the healthcare industry. MInfo is currently in the process of hiring its
initial staff. For its first generation of products and services, MInfo expects
to integrate genomics information with data linking transcriptional and protein
profiles to small molecules. The Company believes that this integrated
information will have significant commercial value in the pharmaceutical and
other healthcare industries.

RESEARCH AND DEVELOPMENT

      The Company's total research and development expenses were $17,838,000,
$34,803,000 and $74,828,000 for 1995, 1996 and 1997, respectively. Collaborative
research and development revenues totalled $22,880,000, $31,764,000 and
$89,933,000 in 1995, 1996 and 1997, respectively.

SIGNIFICANT CUSTOMERS

      Substantially all of the Company's revenues are derived from its strategic
alliances. In 1997, revenues from the Company's strategic alliances with
Monsanto, Lilly, AHP and Roche accounted for approximately 42%, 18%, 17% and
11%, respectively, of the Company's total revenues. The Company has three
alliances with Lilly and two alliances with AHP. A loss of any of these
strategic alliance partners could have a material adverse effect on the
Company's business, financial condition and results of operations. See " --
Strategic Alliances -- Disease Program Alliances" and " -- Technology Alliances"
and " -- Factors That May Affect Results -- Reliance on Strategic Partners."

PATENTS AND PROPRIETARY RIGHTS

      As of March 1, 1998, Millennium and its subsidiaries had more than 200
pending U.S. and international patent applications and seven issued U.S.
patents. The Company seeks United States and international patent protection for
the drug leads, genes and proteins it discovers, as well as therapeutic and
diagnostic products and processes, drug screening methodologies, transgenic
animals and other inventions based on such drug leads or genes. The Company's
commercial success will depend in part on obtaining such patent protection. The
Company also intends to seek patent protection or rely upon trade secret rights
to protect certain other technologies which may be used to discover and
characterize drug leads, genes and proteins and which may be used to develop
novel therapeutic and diagnostic products and processes.


                                      -36-
<PAGE>   37

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

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

      Others may have filed and in the future are likely to file patent
applications covering genes or gene products that are similar or identical to
those of the Company. No assurance can be given that any such patent application
will not have priority over patent applications filed by the Company. Any legal
action against the Company or its strategic partners claiming damages and
seeking to enjoin commercial activities relating to the affected products and
processes could, in addition to subjecting the Company to potential liability
for damages, require the Company or its strategic partner to obtain a license in
order to continue to


                                      -37-
<PAGE>   38

manufacture or market the affected products and processes. There can be no
assurance that the Company or its strategic partners would prevail in any such
action or that any license required under any such patent would be made
available on commercially acceptable terms, if at all. The Company believes that
there may be significant litigation in the industry regarding patent and other
intellectual property rights. If the Company becomes involved in such
litigation, it could consume a substantial portion of the Company's managerial
and financial resources.

      There is substantial uncertainty concerning whether human clinical data
will be required for issuance of patents for human therapeutics. If such data is
required, the Company's ability to obtain patent protection could be delayed or
otherwise adversely affected. Although the United States Patent and Trademark
Office ("USPTO") issued new utility guidelines in July 1995 that address the
requirements for demonstrating utility for biotechnology inventions,
particularly for inventions relating to human therapeutics, utility will be
determined on a case-by-case basis. Moreover, there can be no assurance that the
USPTO's position will not change with respect to what is required to establish
utility for gene sequences and products and methods based on such sequences.

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

      The Company's academic collaborators have certain rights to publish data
and information in which the Company has rights. While the Company believes that
the limitations on publication of data developed by its collaborators pursuant
to its collaboration agreements will be sufficient to permit the Company to
apply for patent protection, there is considerable pressure on academic
institutions to publish discoveries in the genetics and genomics fields. There
can be no assurance that such 


                                      -38-
<PAGE>   39

publication would not affect the Company's ability to obtain patent protection
for some inventions in which it may have an interest.

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

GOVERNMENT REGULATION

      The Company is applying its technologies to the discovery and development
of therapeutic and diagnostic products including: small-molecule drugs,
biotherapeutic proteins and antibodies, vaccines, gene therapy and antisense
products and genomic-based and proteomic-based diagnostic and pharmacogenomic
products. The Company and these proposed products are subject to comprehensive
regulations by the FDA in the United States and by comparable authorities in
other countries. These regulatory authorities and other federal, state, and
local entities will regulate, among other things, the preclinical and clinical
testing, safety, effectiveness, approval, clearance, manufacture, labeling,
marketing, export, storage, record keeping, advertising, and promotion of the
Company's proposed products.

      FDA approval or clearance of the Company's proposed products, including a
review of the manufacturing processes and facilities used to produce such
products, will be required before such products may be marketed in the United
States. The process of obtaining approvals or clearance from the FDA can be
costly, time consuming, and subject to unanticipated delays. There can be no
assurance that approvals or clearances of the Company's proposed products,
processes, or facilities will be granted on a timely basis, or at all. Any
failure to obtain or delay in obtaining such approvals or clearances would
adversely affect the ability of the Company to market its proposed products.
Moreover, even if regulatory approval or clearance is granted, such approval or
clearance may include significant limitations on indicated uses for which a
product could be marketed and could be subject to withdrawal under certain
circumstances.

      Any diagnostic testing products that the Company may develop will be
regulated in the United States as medical devices. Prior to introduction into
interstate commerce, medical devices must be found "substantially equivalent" to
a legally marketed Class I or Class II device or to a Class III device for which
the FDA has not required premarket approval. If a manufacturer cannot
demonstrate substantial equivalence in its premarket notification submission,
the manufacturer will be required to submit a premarket approval application or
PMA, which generally requires preclinical and clinical trial data, to prove the
safety and effectiveness of the device. Certain devices may be exempt from
premarket notification, but other


                                      -39-
<PAGE>   40

regulatory requirements will apply, including the Food, Drug and Cosmetic Act's
general controls, for example, the Quality System Regulations. Permission to
market may be suspended or withdrawn if compliance with regulatory standards is
not maintained or if problems occur following initial marketing.

      The process required by the FDA before the Company's drug or biological
products may be approved for marketing in the United States generally involves
(i) preclinical laboratory and animal tests, (ii) submission to the FDA of an
IND, which must become effective before clinical trials may begin, (iii)
adequate and well- controlled human clinical trials to establish the safety and
efficacy of the product for its intended indication, (iv) submission to the FDA
of a marketing application and (v) FDA review of the marketing application in
order to determine, among other things, whether the product is safe and
effective for its intended uses. There is no assurance that the FDA review
process will result in product approval on a timely basis, or at all.

      An IND is a submission which the sponsor of a clinical trial of an
investigational new drug or biological product (such as a vaccine) must make to
the FDA, and which must become effective before clinical trials may commence.
The IND submission must include, among other things, a description of the
sponsor's investigational plan; protocols for each planned study; chemistry,
manufacturing, and control information; pharmacology and toxicology information;
and a summary of previous human experience with the investigational drug or
biological product.

      A New Drug Application ("NDA") is an application to the FDA to market a
new drug. A Biologics License Application ("BLA") is an application to the FDA
to market a biological product. An NDA or BLA, depending on the submission, must
contain, among other things, information on chemistry, manufacturing controls
and potency and purity; nonclinical pharmacology and toxicology; human
pharmacokinetics and bioavailability; and clinical data. The new drug or
biologic may not be marketed in the United States until the FDA has approved the
NDA or BLA, as the case may be. In addition, for both NDAs and BLAs, the
application will not be approved until the FDA conducts a manufacturing
inspection and approves the applicable manufacturing process for the drug or
biologic.

      Preclinical tests include laboratory evaluation of product chemistry and
animal studies to gain preliminary information about a product's pharmacology
and toxicology and to identify any safety problems that would preclude testing
in humans. Products must generally be manufactured according to cGMP and
preclinical safety tests must be conducted by laboratories that comply with FDA
regulations regarding good laboratory practices. The results of the preclinical
tests are submitted to the FDA as part of an IND and are reviewed by the FDA
prior to the commencement of human clinical trials. Unless the FDA objects to,
or makes comments or raises questions concerning, an IND, the IND will become
effective 30 days following its receipt by the FDA and initial clinical studies
may begin, although 


                                      -40-
<PAGE>   41

companies often obtain affirmative FDA approval before beginning such studies.
There can be no assurance that submission of an IND will result in FDA
authorization to commence clinical trials.

      Clinical trials involve the administration of the investigational new drug
or biologic to healthy volunteers and to patients under the supervision of a
qualified principal investigator. Clinical trials must be conducted in
accordance with the FDA's Good Clinical Practice requirements under protocols
that detail, among other things, the objectives of the study, the parameters to
be used to monitor safety, the effectiveness criteria to be evaluated and a
statistical plan to evaluate the study results. Each protocol must be submitted
to the FDA as part of the IND. Further, each clinical study must be conducted
under the authority of an Institutional Review Board ("IRB"). The IRB will
consider, among other things, ethical factors, the safety of human subjects, the
possible liability of the institution and the informed consent disclosure which
must be made to participants in the clinical trial.

      Clinical trials are typically conducted in three sequential phases,
although the phases may overlap. During Phase I, when the drug or biologic is
initially administered, often to healthy human subjects, the product is tested
for safety, dosage tolerance, absorption, metabolism, distribution, and
excretion. Phase II involves studies in a limited patient population to (i)
evaluate preliminarily the efficacy of the product for specific, targeted
indications, (ii) determine dosage tolerance and optimal dosage, and (ii)
identify possible adverse effects and safety risks. When a new product is found
to have an effect and to have an acceptable safety profile in Phase II
evaluation , Phase III trials are undertaken in order to further evaluate
clinical efficacy and to further test for safety within an expanded patient
population. The FDA may suspend clinical trials at any point in this process if
it concludes that clinical subjects are being exposed to an unacceptable health
risk.

      The results of the preclinical studies and clinical studies, the chemistry
and manufacturing data, and the proposed labeling, among other things, are
submitted to the FDA in the form of an NDA or BLA, approval of which must be
obtained prior to commencement of commercial sales. The FDA may refuse to accept
the NDA or BLA for filing and substantive review if certain administrative and
content criteria are not satisfied, and even after accepting the NDA or BLA for
review, the FDA may require additional testing or information before approval of
the NDA or BLA. In any event, the FDA must deny an NDA or BLA if applicable
regulatory requirements are not ultimately satisfied. Moreover, if regulatory
approval of a product is granted, such approval may be made subject to various
conditions, including post-marketing testing and surveillance to monitor the
safety of the product, or may entail limitations on the indicated uses for which
it may be marketed. Finally, product approvals may be withdrawn if compliance
with regulatory standards is not maintained or if problems occur following
initial marketing.


                                      -41-
<PAGE>   42

      In November 1997, Congress amended the Food and Drug Modernization Act of
1997 and eliminated certain previously required filings including Product
License Applications (PLAs), which were previously required to market biologic
products, and Establishment License Applications (ELAs), which were previously
required to obtain biologic manufacturing establishment licenses. All biologic
products are now subject only to the BLA process. The FDA is currently
undertaking to further develop and define the regulations for BLAs. Although the
FDA's intent in promulgating new regulations for biologics has been, in part, to
lessen the burdens of the regulatory approval process, there can be no assurance
that any new regulations, if applicable to the Company's proposed products, will
have the intended effect of reducing review times.

      Both before and after approval or clearance is obtained, a product, its
manufacturer, and the sponsor of the marketing application for the product are
subject to comprehensive regulatory oversight. Violations of regulatory
requirements at any stage, including the preclinical and clinical testing
process, the approval or clearance process, or thereafter (including after
approval or clearance) may result in various adverse consequences, including FDA
delay in approving, clearing or refusal to approve or clear a product,
withdrawal of an approved or cleared product from the market and/or the
imposition of criminal penalties against the manufacturer and/or sponsor. In
addition, later discovery of previously unknown problems may result in
restrictions on such product, manufacturer, or sponsor, including withdrawal of
the product from the market. Also, new government requirements may be
established that could delay or prevent regulatory approval or clearance of the
Company's products under development.

      Whether or not FDA approval has been obtained, approval of a therapeutic
product by comparable government regulatory authorities in foreign countries
must be obtained prior to marketing such product in such countries. The approval
procedure varies from country to country, and the time required may be longer or
shorter than that required for FDA approval. Although there are some procedures
for unified filing for certain European countries, in general, each country has
its own procedures and requirements. The Company does not currently have any
facilities or personnel outside the United States.

      In addition to regulations enforced by the FDA, the Company also is
subject to regulation under the Occupational Safety and Health Act, the
Environmental Protection Act, the Toxic Substances Control Act, the Resource
Conservation and Recovery Act and other present and potential future federal,
state or local regulations. The Company's research and development involves the
controlled use of hazardous materials, chemicals and various radio active
compounds. Although the Company believes that its safety procedures for storing,
handling, using an disposing of such materials comply with the standards
prescribed by applicable regulations, the risk of accidental contaminations or
injury form these materials cannot be completely eliminated. In the event of
such an accident, the Company could be held liable for 


                                      -42-
<PAGE>   43

any damages that result and any such liability could have a material adverse
effect of the Company.

COMPETITION

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

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

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

EMPLOYEES


                                      -43-
<PAGE>   44

      As of March 1, 1998, the Company and its subsidiaries had approximately
520 full-time employees, of whom approximately 145 hold Ph.D. or M.D. degrees
and approximately 120 hold other advanced degrees, approximately 390 are engaged
in research and development activities and approximately 130 are engaged in
business development, finance, operations support and administration. The
Company and its subsidiaries currently plan to hire up to approximately 200
additional employees by the end of 1998.

FACTORS THAT MAY AFFECT RESULTS

      This Annual Report on Form 10-K contains forward-looking statements. For
this purpose, any statements contained herein that are not statements of
historical fact may be deemed to be forward-looking statements. Without limiting
the foregoing, the words "believes," "anticipates," "plans," "expects,"
"intends," and similar expressions are intended to identify forward-looking
statements. There are a number of important factors that could cause the
Company's actual results to differ materially from those indicated by such
forward-looking statements. Those factors include, without limitation, those set
forth below and elsewhere in this Annual Report on Form 10-K.

      UNCERTAINTIES RELATING TO TECHNOLOGICAL APPROACHES; RISKS RELATED TO
PRODUCT DEVELOPMENT. To date, the Company has not developed or commercialized
any products or services based on its genomics and related technologies. The
Company's lead programs and development focus have been primarily directed to
complex polygenic and multifactorial diseases in the field of human healthcare.
There is limited scientific understanding generally relating to the role of
genes in these diseases and relatively few products and services based on gene
discoveries have been developed and commercialized. There can be no assurance
that the Company's technological approach to gene identification and target
validation will consistently enable the Company to successfully identify and
characterize genes that predispose individuals to diseases.

      Any therapeutic and diagnostic products and services based on the
Company's gene discoveries which may in the future be developed by the Company
or any of its current and future strategic partners will require significant
research, development, testing and regulatory approvals prior to
commercialization. The development of these products and services will be
subject to the risks of failure inherent in the development of products and
services based on new technologies. These risks include the possibilities that
any products or services based on these technologies will be found to be
ineffective, unreliable or unsafe, or otherwise fail to receive necessary
regulatory approvals; that products or services, if safe and effective, will be
difficult to manufacture on a large scale or will be uneconomical to market;
that proprietary rights of third parties will preclude the Company or its
strategic partners from


                                      -44-
<PAGE>   45

marketing products or services; and that third parties will market superior or
equivalent products or services.

      Accordingly, even if the Company is successful in identifying genes
associated with specific diseases, there can be no assurance that its gene
discoveries will lead to the development of therapeutic and diagnostic products
and services capable of addressing these diseases. The failure to successfully
commercialize products based on Company-discovered genes would have a material
adverse effect on the Company's business, financial condition and operating
results.

      HISTORY OF OPERATING LOSSES; ANTICIPATION OF FUTURE LOSSES; UNCERTAINTY OF
ADDITIONAL FUNDING. To date, substantially all of the Company's revenues have
resulted from payments from strategic partners. The Company has not yet
generated any therapeutic or diagnostic products or services which have entered
preclinical studies or generated any revenue from therapeutic or diagnostic
product or service sales. The Company anticipates that it will be a number of
years, if ever, before it will recognize revenue from therapeutic or diagnostic
product or service sales or royalties.

      As of December 31, 1997, the Company had an accumulated deficit of
approximately $99,366,000 (including a non-recurring charge of $83,800,000 for
acquired in-process research and development related to the acquisition of
ChemGenics). Even if the Company succeeds in developing a therapeutic or
diagnostic product or service, the Company expects to incur losses for at least
the next several years and that such losses are likely to increase as the
Company expands its infrastructure and its research and development activities.
To achieve profitability, the Company, alone or with others, must successfully
develop therapeutic or diagnostic products or services, conduct clinical trials,
obtain required regulatory approvals and successfully manufacture, market and
sell such therapeutic or diagnostic products or services. The time required to
reach commercial revenue and profitability is highly uncertain and there can be
no assurance that the Company will be able to achieve any such revenue and
profitability on a sustained basis, if at all.

      The Company's approach of applying a comprehensive platform of genomics
and related technologies in the discovery of life-science based products and
services has required that Millennium establish a substantial scientific
infrastructure. The Company has consumed substantial amounts of cash to date and
expects capital and operating expenditures to increase over the next several
years as it expands its infrastructure and its research and development
activities.

      The Company believes that existing cash and investment securities and
anticipated cash flow from existing strategic alliances will be sufficient to
support the Company's operations through at least 1999. The Company's actual
future capital requirements, however, will depend on many factors, including
progress of its 


                                      -45-
<PAGE>   46

development and discovery programs, the number and breadth of these programs,
achievement of milestones under strategic alliance arrangements, the ability of
the Company to establish and maintain additional strategic alliance and
licensing arrangements, and the progress of the development efforts of the
Company's strategic partners. Other factors that may affect the Company's future
capital requirements include the level of the Company's activities relating to
commercialization rights it has retained in its strategic alliance arrangements,
competing technological and market developments, costs associated with acquiring
rights to technologies developed outside the Company, costs associated with
facility expansion, costs associated with collection of patient information and
DNA samples, costs involved in enforcing patent claims and other intellectual
property rights and the costs and timing of regulatory approvals.

      The Company expects that it will require significant additional financing
in the future, which it may seek to raise through public or private equity
offerings, debt financings or additional strategic alliance and licensing
arrangements. Such additional financing may not be available when needed, or may
not be available on terms favorable to the Company or its stockholders. To the
extent the Company raises additional capital by issuing equity securities,
ownership dilution to stockholders will result. To the extent that the Company
raises additional funds through strategic alliance and licensing arrangements,
the Company may be required to relinquish rights to certain of its technologies
or product candidates, or to grant licenses on terms that are not favorable to
the Company, either of which could have a material adverse effect on the
Company's business, financial condition and results of operations. In the event
that adequate funds are not available, the Company's business would be adversely
affected.

      RELIANCE ON STRATEGIC PARTNERS. The Company's strategy for development and
commercialization of therapeutic and diagnostic products and services based upon
its gene discoveries depends upon the formation of various strategic alliances,
such as the Company's strategic alliances with Roche, Lilly, Astra, AHP, Pfizer
and Monsanto. There can be no assurance that the Company will be able to
establish additional strategic alliance or licensing arrangements necessary to
develop and commercialize products and services based upon the Company's
discovery and development programs, that any such arrangements or licenses will
be on terms favorable to the Company or that the current or any future strategic
alliances or licensing arrangements ultimately will be successful.

      In certain of its strategic alliances, the Company is dependent on its
strategic partners for the preclinical study, clinical development, regulatory
approval, manufacturing, marketing and sale of therapeutic and diagnostic
products and services based on the results of these collaborative programs. The
agreements with these strategic partners allow them significant discretion in
electing whether to pursue any of these activities. The Company cannot control
the amount and timing of resources its strategic partners devote to the
Company's discovery and


                                      -46-
<PAGE>   47

development programs or to the potential products or services which may result
from these programs. If any of the Company's strategic partners were to breach
or terminate its agreement with the Company or otherwise fail to conduct its
collaborative activities successfully in a timely manner, the Company's
discovery and development programs, including the preclinical or clinical
development or commercialization of products or services, would be delayed or
terminated. Any such delay or termination could have a material adverse effect
on the Company's business, financial condition and results of operations.

      The Company relies on its strategic partners for significant funding in
support of the Company's discovery and development programs. See " --
Significant Customers." The Company could be required to devote additional
internal resources to its product and service development, or scale back or
terminate certain development programs or seek alternative collaborative
partners, if funding from one or more of its collaborative programs were reduced
or terminated.

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

      Recently there have been a significant number of consolidations among
pharmaceutical companies. Any such consolidation involving a company with which
the Company is collaborating could result in the diminution or termination of,
or delays in, the development or commercialization of products or research
programs under one or more of the Company's strategic alliances.

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


                                      -47-
<PAGE>   48

      All of the Company's strategic alliance agreements are subject to
termination under various circumstances. Each strategic partner has the right to
terminate its agreement with the Company (while maintaining rights and licenses
to certain Company discoveries) should the Company fail to meet certain
performance criteria specified in the relevant strategic alliance agreement.
Certain of the Company's strategic alliance agreements provide that, upon
expiration of a specified period after commencement of the agreement, its
strategic partner has the right to terminate the agreement on short notice
without cause. Certain of the Company's strategic alliance agreements have
initial terms that expire in the next 12 months, including its strategic
alliance agreements with Astra (expiring in December 1998), Pfizer (expiring in
December 1998), Roche (expiring in March 1999) and Lilly in the area of oncology
(expiring in April 1999). There can be no assurance that the Company will be
able to successfully negotiate a continuation of such agreements, if it seeks to
do so. The termination or non-renewal of any strategic alliance could have a
material adverse effect on the Company's business, financial condition and
results of operations.

      RISKS ASSOCIATED WITH ESTABLISHMENT OF DIVISIONS AND SUBSIDIARIES.
Millennium has adopted a strategy of establishing business divisions and
subsidiaries in order to pursue multiple business opportunities and increase its
capabilities and involvement in the later stages of drug discovery and
development. In 1997, the Company organized MPharma, its pharmaceutical
division, and three subsidiaries, MBio, MPMx and MInfo. The Company does not
hold all of the equity in one of these subsidiaries and anticipates that there
will be minority stockholders in other subsidiaries in the future.

      Millennium has sought to develop both informal and formal relationships
between and among subsidiaries and divisions to provide each unit within the
overall group with access to the assets and capabilities of the overall group
that are relevant to the business of the particular unit. However, conflicts
could arise in the future between or among Millennium and its divisions and
subsidiaries with respect to, among other things, future business opportunities
and the sharing of technologies, facilities, administrative services or other
resources.

      Certain officers and directors of the Company, including Mark Levin, Chief
Executive Officer and Chairman of the Board of Directors of the Company, and
Steven Holtzman, Chief Business Officer of the Company, currently serve as
directors of each of the subsidiaries. Mr. Levin also serves as the President of
MBio. The Company's present executive officers and managers may assume other
positions within Millennium's current or future subsidiaries, causing them to be
unavailable to serve the Company or to reduce the amount of time they devote to
the affairs of the Company. Furthermore, members of the Board of Directors of
Millennium and the officers of Millennium who are also affiliated with one or
more of the subsidiaries will be required to consider not only the short-term
and long-term impact of operating decisions on the Company, but also the impact
of such decisions on the subsidiaries. In some cases, the impact of such
decisions could be disadvantageous


                                      -48-
<PAGE>   49

to the Company or to any or all of the subsidiaries. Conflicts which may arise
among the Company and such divisions or subsidiaries could have a material
adverse effect on the Company's business, financial condition or results of
operations.

      EXPANSION OF OPERATIONS; MANAGEMENT OF GROWTH. The Company recently has
significantly increased the scale of its operations to support the expansion of
its disease research programs and its strategic alliances, including expansion
due to the acquisition of ChemGenics in February 1997, the organization during
1997 of three new subsidiaries, MBio, MPMx and MInfo, and the initiation of a
major strategic alliance with Monsanto in October 1997. This expansion has
included the hiring of a significant number of additional personnel. As of March
1, 1998, the Company and its subsidiaries had approximately 520 full-time
employees, an increase of 160 employees since March 1, 1997. The Company plans
to hire up to approximately 200 new employees by the end of 1998. In addition to
hiring new employees, the Company's growth has and will require the acquisition
of significant amounts of additional equipment, including software and
informatics resources, and the leasing of additional facilities.

      The Company's growth has resulted in an increase in responsibilities
placed upon the Company's management and has placed added pressures on the
Company's operational and financial systems. The Company's ability to manage
such growth effectively will depend upon its ability to broaden its management
team and to attract, hire and retain skilled employees. The Company's success
will also depend on the ability of its officers and key employees to continue to
implement and improve its operational, management information and financial
control systems and to expand, train and manage its employee base. Inability to
manage growth effectively could have a material adverse effect on the Company's
business, financial condition and operating results.

      INTENSE SCIENTIFIC AND COMMERCIAL COMPETITION. The field of genomics is
highly competitive. Competitors of the Company in the genomics area include,
among others, public companies, private biotechnology and diagnostic companies
and major pharmaceutical companies. Universities and other research
institutions, including those receiving funding from the federally funded Human
Genome Project, also compete with Millennium. A number of entities are
attempting to rapidly identify and patent randomly sequenced genes and gene
fragments, typically without specific knowledge of the function of such genes or
gene fragments. In addition, certain other entities are pursing a gene
identification, characterization and product development strategy based on
positional cloning and other genomics technologies.

      Many of the organizations competing against the Company have greater
capital resources, research and development staffs and facilities, and greater
experience in drug discovery and development, obtaining regulatory approvals and
product manufacturing and greater marketing capabilities than the Company. The
Company's competitors may discover, characterize or develop therapeutic or


                                      -49-
<PAGE>   50

diagnostic products or services for important genes in advance of Millennium or
may make discoveries which render non-competitive or obsolete the products or
services that the Company or its strategic alliance partners may seek to
develop, any of which could have a material adverse effect on any related
Millennium disease research program. The Company expects competition to
intensify in genomics research as technical advances in the field are made and
become more widely known.

      Generally, the Company's strategic alliance agreements do not restrict the
strategic partner from pursuing competing development efforts. Any product
candidate of the Company, therefore, may be subject to competition with a
potential product under development by a strategic partner.

      PATENTS AND PROPRIETARY RIGHTS; THIRD PARTY RIGHTS. The Company's
commercial success will depend in part on obtaining patent protection on gene
discoveries and on products, methods and services based on such discoveries. As
of March 1, 1998, Millennium and its subsidiaries had more than 200 pending
United States and foreign patent applications and seven issued United States
patents. The patent positions of pharmaceutical, biopharmaceutical and
biotechnology companies, including Millennium, are generally uncertain and
involve complex legal and factual questions. There can be no assurance that any
of the Company's pending patent applications will result in issued patents, that
the Company will develop additional proprietary technologies that are
patentable, that any patents issued to the Company or its strategic partners
will provide a basis for commercially viable products or will provide the
Company with any competitive advantages or will not be challenged by third
parties, or that the patents of others will not have an adverse effect on the
ability of the Company to do business. In addition, patent law relating to the
scope of claims in the technology fields in which the Company operates is still
evolving. The degree of future protection for the Company's proprietary rights,
therefore, is uncertain. Furthermore, there can be no assurance that others will
not independently develop similar or alternative technologies, duplicate any of
the Company's technologies, or design around the patented technologies developed
by the Company. In addition, the Company could incur substantial costs in
litigation if it is required to defend itself in patent suits brought by third
parties or if it initiates such suits.

      The Company has applied for patent protection for novel genes, partial
gene sequences ("ESTs") of novel genes and novel uses for known genes identified
through its research programs. There is substantial uncertainty regarding the
patentability of ESTs or full-length genes absent biological data demonstrating
functional relevance. Based on recent technological advances in gene sequencing
technology, a number of groups other than the Company are attempting to rapidly
identify ESTs and full-length genes, the functions of which have not been
characterized. Washington University, for example, is currently identifying ESTs
through partial sequencing pursuant to funding provided by Merck & Co., Inc.,
and depositing the ESTs identified in a public database. The public availability
of EST information prior to the time the Company applies for patent protection
on a


                                      -50-
<PAGE>   51

corresponding full-length gene could adversely affect the Company's ability to
obtain patent protection with respect to such gene. To the extent any patents
issue to other parties on such partial or full-length genes, the risk increases
that the potential products and processes of the Company or its strategic
partners may give rise to claims of patent infringement.

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

      There is substantial uncertainty concerning whether human clinical data
will be required for issuance of patents for human therapeutics. If such data is
required, the Company's ability to obtain patent protection could be delayed or
otherwise adversely affected. Although the United States Patent and Trademark
Office ("USPTO") issued new utility guidelines in July 1995 that address the
requirements for demonstrating utility for biotechnology inventions,
particularly for inventions relating to human therapeutics, utility will be
determined on a case-by-case basis. Moreover, there can be no assurance that the
USPTO's position will not change with respect to what is required to establish
utility for gene sequences and products and methods based on such sequences.
Furthermore, the enactment of the legislation implementing the General Agreement
on Trade and Tariffs has resulted in certain changes to United States patent
laws that became effective on June 8, 1995. Most notably, the term of patent
protection for patent applications filed on or after June 8, 1995 is no longer a
period of seventeen years from the date of grant. The new term of United States
patents will commence on the date of issuance and terminate twenty years from
the earliest effective filing date of the application. Because the time from
filing to issuance of biotechnology patent applications is often more than three
years, a twenty-year term from the effective date of filing may result in a
substantially shortened term of patent protection, which may adversely impact
the Company's patent position. If this change results in a shorter period of
patent coverage, the Company's business could be adversely affected to the
extent that the duration and level of the royalties it is entitled to receive
from its strategic partners is based on the existence of a valid patent.


                                      -51-
<PAGE>   52

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

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

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

      UNCERTAINTY OF GOVERNMENT REGULATORY APPROVALS. The FDA and comparable
agencies in foreign countries impose substantial requirements upon the
manufacturing and marketing of human therapeutic, diagnostic and vaccine
products and services such as those proposed to be developed by the Company or
its strategic alliance partners. The process of obtaining FDA and other required
regulatory approvals is lengthy and expensive. The time required for FDA and
other approvals is uncertain and typically takes a number of years, depending on
the complexity and novelty of the product. The Company and/or its strategic
alliance partners may encounter significant delays or excessive costs in their
efforts to secure necessary approvals or licenses.


                                      -52-
<PAGE>   53

      Because certain of the products likely to result from the Company's
research and development programs involve the application of new technologies
and may be based on a new therapeutic approach, such products may be subject to
substantial additional review by various governmental regulatory authorities
and, as a result, regulatory approvals may be obtained more slowly than for
products using more conventional technologies. For example, proposals to conduct
clinical research involving gene therapy at institutions supported by the
National Institutes of Health ("NIH") must be approved by the Recombinant DNA
Advisory Committee ("RAC") and the NIH. In addition, the U.S. Government has
recently established a working group to assess whether additional regulations in
the area of genetic testing may be appropriate, which could result in further
regulation.

      There can be no assurance that FDA or other approvals will be obtained in
a timely manner, if at all. Any delay in obtaining, or the failure to obtain,
such approvals could materially adversely affect the Company's ability to
generate product or service or royalty revenues. Even if FDA or other approvals
are obtained, the marketing and manufacturing of diagnostic and therapeutic
products are subject to continuing FDA and other regulatory review. 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. Additional governmental regulations
may be promulgated which could delay regulatory approval of the Company's or a
strategic partner's potential products. The Company cannot predict the impact of
adverse governmental regulations which might arise from future legislative or
administrative action.

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

      UNCERTAINTY ASSOCIATED WITH PRECLINICAL AND CLINICAL TESTING. The grant of
regulatory approval for the commercial sale of any of the Company's potential
products will depend in part on the Company and/or its strategic alliance
partner successfully conducting extensive preclinical and clinical testing to
demonstrate the product's safety and efficacy in humans. The Company has limited
experience in conducting preclinical and clinical development activities.
Neither the Company nor any strategic alliance partner has submitted an IND to
the FDA for any product candidate under development by the Company.


                                      -53-
<PAGE>   54

      The results of preclinical studies by the Company and/or its strategic
alliance partners may be inconclusive and may not be indicative of results that
will be obtained in human clinical trials. In addition, results attained in
early human clinical trials relating to the products under development by the
Company may not be indicative of results that will be obtained in later clinical
trials. As results of particular preclinical studies and clinical trials are
received, the Company and/or its strategic alliance partners may abandon
projects which they might otherwise have believed to be promising.

      There can be no assurance that the Company will be permitted to undertake
and complete human clinical trials of any of the Company's potential products,
either in the U.S. or elsewhere. If such trials are permitted, there can be no
assurance that the products under development will not have undesirable side
effect or other characteristics that may prevent them from being approved or
limit their commercial use if approved. Clinical testing is very expensive, and
the Company and/or its strategic alliance partners will have to devote
substantial resources for the payment of clinical trial expenses.

      In certain circumstances the Company may rely, in part, on its strategic
alliance partners, academic institutions and on clinical research organizations
to conduct and monitor certain clinical trials. There can be no assurance that
such entities will conduct the clinical trials successfully. Furthermore, the
Company will have less control over such trials than if the Company were the
sole sponsor thereof. As a result, there can be no assurance that these trials
will commence or be completed as planned. Failure to commence or complete any of
its planned clinical trials could have a material adverse effect on the
Company's business, financial condition or results of operations.

      ABSENCE OF SALES AND MARKETING EXPERIENCE; LIMITED MANUFACTURING
CAPABILITY. Although Millennium plans to rely significantly on strategic
alliance partners for the marketing and distribution of its products and
services, the Company may market and sell certain of its products and services
directly and may engage in certain other marketing activities in collaboration
with its strategic alliance partners. The Company has no experience in sales,
marketing or distribution. The Company does not expect to establish a direct
sales capability until such time as it has one or more products or services in
development which are approaching marketing approval.

      To the extent the Company enters into marketing or distribution
arrangements with strategic alliance partners, any revenues the Company receives
will depend upon the efforts of third parties. There can be no assurance that
any third party would market the Company's products and services successfully or
that any third-party collaboration would be on terms favorable to the Company.
If any marketing partner did not market a product or service successfully, the
Company's business would be materially adversely affected. If Millennium's plan
to rely on


                                      -54-
<PAGE>   55

strategic alliance partners for significant aspects of marketing and selling the
Company's products were unsuccessful for any reason, Millennium would need to
recruit and train a marketing and sales force which would entail the incurrence
of significant additional costs.

      There can be no assurance that the Company would be able to attract and
build a sufficient marketing staff or sales force, that the cost of establishing
such a marketing staff or sales force would be justifiable in light of any
product or service revenues or that the Company's direct sales and marketing
efforts would be successful. In addition, if the Company succeeds in bringing
one or more products or services to market, it may compete with other companies
that currently have extensive and well-funded marketing and sales operations.
There can be no assurance that the Company's marketing and sales efforts would
enable it to compete successfully against such other companies.

      The Company lacks commercial-scale facilities to manufacture any products
under development in accordance with current Good Manufacturing Practices
("GMP") requirements prescribed by the FDA. The Company expects to be dependent
on third party manufacturers or collaborative partners for all of its clinical
trials and commercial production of products. In the event that the Company were
unable to obtain contract manufacturing, it may not be able to commercialize its
products. Where third-party arrangements are established, the Company will
depend upon such third parties to perform their obligations in a timely manner.
There can be no assurance that third parties depended upon by the Company would
perform and any failures by third parties could delay clinical trial development
or the submission of products for regulatory approval, impair the Company's
ability to commercialize its products as planned and deliver products on a
timely basis, or otherwise impair the Company's competitive position, which
could have a material adverse effect on the Company' business, financial
condition or result or operation.

      If the Company determined to develop its own manufacturing capabilities,
it would need to recruit qualified personnel and build or lease the requisite
facilities and equipment because it has no experience in manufacturing on a
commercial scale and no facilities or equipment therefor. There can be no
assurance that Millennium would be able to successfully develop its own
manufacturing capabilities in a cost-effective or timely manner. In addition,
the manufacture of any products by the Company is subject to regulation by the
FDA and comparable agencies in foreign countries. Delay in complying or failure
to comply with such manufacturing requirements could materially adversely affect
the marketing of the Company's products and the Company's business, financial
condition and results of operations.

      AVAILABILITY OF, AND COMPETITION FOR, FAMILY RESOURCES. The Company's gene
identification strategy includes genetic studies of families and populations
prone to particular diseases. These studies are based upon statistical analyses
of disease inheritance patterns and require the collection of large numbers of
DNA samples 


                                      -55-
<PAGE>   56

from affected individuals, their families and other suitable populations. The
Company is dependent upon collaborations with a number of academic centers for
the identification of donor populations and the collection and supply of the DNA
samples used in its human disease gene research programs. The availability of
DNA samples from large, family-based or other suitable populations is therefore
critical to the Company's ability to discover the genes responsible for human
diseases through human genetic approaches. The competition for these resources
is intense and certain of the Company's competitors have obtained rights to
significantly more family resources than the Company. There can be no assurance
that the Company will be able to obtain access to DNA samples necessary to
support its human gene discovery programs and any material lack of availability
of such DNA samples would have an adverse effect on the Company's business.

      ATTRACTION AND RETENTION OF KEY EMPLOYEES AND CONSULTANTS. The Company is
highly dependent on the principal members of its management and scientific
staff, none of whom is bound by a long-term employment agreement with the
Company. The loss of services of any of these personnel could impede
significantly the achievement of the Company's development objectives and could
have a material adverse effect on the Company's business, financial condition
and operating results. Furthermore, recruiting and retaining qualified
scientific personnel to perform research and development work in the future will
also be critical to the Company's success. There is intense competition among
pharmaceutical and health care companies, universities and nonprofit research
institutions for experienced scientists, and there can be no assurance that the
Company will be able to attract and retain personnel on acceptable terms.

      In addition, the Company relies on its scientific advisors to assist the
Company in formulating its discovery and developing strategy. All of the
scientific advisors are employed by employers other than the Company and have
commitments to other entities that may limit their availability to the Company.
Some of the Company's scientific advisors also consult for companies that may be
competitors of the Company.

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


                                      -56-
<PAGE>   57

able to negotiate additional acceptable collaborations with collaborators at
academic and other institutions or that its existing collaborations will be
successful.

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

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

      The ability of the Company and any strategic partner to commercialize
therapeutic and diagnostic products and services may depend in part on the
extent to which reimbursement for the products and services will be available
from government and health administration authorities, private health insurers
and other third party payors. Significant uncertainty exists as to the
reimbursement status of newly approved health care products and services. Third
party payors, including Medicare, increasingly are challenging the prices
charged for medical products and services. Government and other third party
payors are increasingly attempting to contain health care costs by limiting both
coverage and the level of reimbursement for new therapeutic and diagnostic
products and services and by refusing in some cases to provide coverage for uses
of approved products for disease indications for which the FDA has not granted
labeling approval. There can be no assurance that any third party insurance
coverage will be available to patients for any products and services discovered
and developed by the Company or its strategic partners. If adequate coverage and
reimbursement levels are not provided by government and other third party payors
for the Company's products and services, the market acceptance of these products
and services may be reduced, which may have a 


                                      -57-
<PAGE>   58

material adverse effect on the Company's business, financial condition and
results of operations.

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

      RISKS ASSOCIATED WITH ACQUISITIONS. As part of its business strategy, the
Company may from time to time acquire assets and businesses principally relating
to or complementary to its operations, including for the purpose of acquiring
specific technology. Any acquisitions by the Company will be accompanied by the
risks commonly encountered in acquisitions of companies. Such risks include,
among other things, potential exposure to unknown liabilities of acquired
companies or to acquisition costs and expenses exceeding amounts anticipated for
such purposes, the difficulty and expense of assimilating the operations,
acquired technology and personnel of the acquired businesses, the potential
disruption of the Company's ongoing business and diversion of management time
and attention, and the potential failure to achieve anticipated financial,
operating and strategic benefits from such acquisitions.

      In order to finance any such acquisition, it may be necessary for the
Company to raise additional funds through public or private financing. Such
financing, if available at all, may be on terms which are not favorable in the
Company, and, in the case of equity financings, may result in dilution to the
Company's stockholders.

      There can be no assurance that the Company would be successful in
overcoming these risks or any other problems encountered in connection with any
such acquisitions. If the Company is unsuccessful in doing so, its business,
financial condition and results of operations could be materially and adversely
affected.

ITEM 2. PROPERTIES

      The Company's facilities currently consist of an aggregate of
approximately 242,000 square feet of office, research and laboratory space and
an animal facility in


                                      -58-
<PAGE>   59

several locations in Cambridge, Massachusetts, pursuant to leases that expire
from 1999 through 2003.

      In addition, the Company has a commitment to lease approximately 175,000
square feet of laboratory and office space to be located in Cambridge,
Massachusetts. This facility is under construction. The Company plans to
commence occupancy in the first half of 1999. The lease is for a 15 year term
beginning upon occupancy.

ITEM 3. LEGAL PROCEEDINGS

      The Company is not a party to any legal proceedings.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

      No matters were submitted to a vote of security holders of the Company,
through solicitation of proxies or otherwise, during the last quarter of the
year ended December 31, 1997.

EXECUTIVE OFFICERS OF THE COMPANY

      The following table sets forth the names, ages and positions of the
executive officers of the Company.

<TABLE>
<CAPTION>
NAME                        AGE                         POSITION
----                        ---                         --------

<S>                         <C>           <C>                                 
Mark J. Levin               47            Chairman of the Board, Chief Executive
                                          Officer and Director

Steven H. Holtzman          44            Chief Business Officer

Frank D. Lee, Ph.D.         46            Chief Research Technology Officer

Michael Pavia, Ph.D.        42            Chief Technology Development Officer
</TABLE>

----------

      Mark J. Levin has served as Chairman of the Board of Directors since March
1996, Chief Executive Officer of the Company since November 1994, and as a
director of the Company since inception. From 1987 to 1994, Mr. Levin was a
partner at Mayfield Fund ("Mayfield") a venture capital firm, and co-director of
its Life Science Group. While employed with Mayfield, Mr. Levin was the founding
Chief Executive Officer of several biotechnology and biomedical companies,
including Cell Genesys Inc., CytoTherapeutics Inc., Tularik Inc. and Focal, Inc.
Mr. Levin holds an M.S. in Chemical and Biomedical Engineering from Washington
University. Mr. Levin also serves on the Board of Directors of CytoTherapeutics
Inc.


                                      -59-
<PAGE>   60

      Steven H. Holtzman has served as Chief Business Officer of the Company
since May 1994. From 1986 to 1993, Mr. Holtzman was with DNX Corporation
("DNX"), a biomedical company, and its subsidiaries. He was a founder and the
first employee of DNX, served as a member of the Board of Directors, and held
several senior management positions including, from 1992 to 1993, President of
DNX Biotherapeutics Inc., a subsidiary of DNX, and from 1990 to 1993, Executive
Vice President of DNX. Mr. Holtzman received his graduate B.Phil. degree in
Philosophy from Oxford University, which he attended as a Rhodes Scholar. Mr.
Holtzman currently serves as co-chairperson of the Biotechnology Industry
Organization's Bioethics Committee and is a member of the National Bioethics
Advisory Commission.

      Frank D. Lee, Ph.D. joined the Company in July 1994 as Vice President,
Research, became Chief Scientific Officer in January 1996 and became Chief
Research Technology Officer in November 1997. From 1989 to 1994, Dr. Lee served
as Director of Molecular Biology at DNAX Research Institute of Molecular and
Cellular Biology, Inc., a subsidiary of Schering-Plough Corporation, a
pharmaceutical company ("DNAX"), and from 1981 to 1989 he served as a Senior
Staff Scientist at DNAX. Dr. Lee received his Ph.D. from Stanford University and
did his postdoctoral research at Stanford University School of Medicine in the
Department of Pharmacology and was a Senior Fellow of the American Cancer
Society. Dr. Lee also did postdoctoral research at the Massachusetts Institute
of Technology's Center for Cancer Research as a fellow of the Helen Hay Whitney
Foundation.

      Michael Pavia, Ph.D. has served as Chief Technology Development Officer of
the Company since September 1997. From 1993 to 1997, he was employed by Sphinx
Pharmaceuticals, a division of Eli Lilly & Company, where he was most recently
Vice President-Cambridge Research. From 1992 to 1993, Dr. Pavia was Vice
President of Chemistry at Genesis Pharmaceuticals, Inc., a drug development
company. Dr. Pavia also worked in senior scientific positions in the Department
of Chemistry at the Parke-Davis Pharmaceutical Research Division of
Warner-Lambert Co., a pharmaceutical company. He holds a B.S. in Chemistry from
Lehigh University and a Ph.D. in Organic Chemistry from the University of
Pennsylvania.

                                    PART II

ITEM 5.     MARKET FOR THE COMPANY'S COMMON EQUITY AND
            RELATED STOCKHOLDER MATTERS

      (a)   MARKET PRICE OF AND DIVIDENDS ON THE COMPANY'S COMMON STOCK AND
            RELATED STOCKHOLDER MATTERS

      The Common Stock of Millennium has been traded on the Nasdaq National
Market under the symbol MLNM since May 6, 1996. Prior to May 6, 1996, the
Company's Common Stock was not publicly traded. On March 13, 1998, the closing


                                      -60-
<PAGE>   61

price for the sale of a share of the Company's Common Stock on the Nasdaq Stock
Market was $19.75. The following table sets forth for the periods indicated the
high and low closing prices per share of the Common Stock as reported by the
Nasdaq National Market.

<TABLE>
<CAPTION>
                                                          1996
                                                          ----
                                                 HIGH               LOW
                                                 ----               ---

<S>                                             <C>                <C>   
Second Quarter .............................    $24.00             $15.50
          (May 6 through June 30, 1996)

Third Quarter ..............................    $19.12             $11.50

Fourth Quarter .............................    $21.75             $16.12
</TABLE>

<TABLE>
<CAPTION>
                                                          1997
                                                          ----

                                                 HIGH               LOW
                                                 ----               ---
<S>                                             <C>                <C>   
First Quarter ..............................    $21.50             $13.625

Second Quarter .............................    $17.50             $13.00

Third Quarter ..............................    $21.125            $12.50

Fourth Quarter .............................    $21.25             $16.75
</TABLE>

      On March 13, 1998, the Company had approximately 402 stockholders of
record. The Company has never declared or paid any cash dividends on its Common
Stock. The Company currently intends to reinvest earnings, if any, to support
the development of its business and does not expect to pay cash dividends for
the foreseeable future.

      (b)   USE OF PROCEEDS

      The following information is provided pursuant to Rule 463 under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
Company's first registration statement filed pursuant to the
Securities Act:

      On May 6, 1996, the Securities and Exchange Commission declared effective
a registration statement of Form S-1 (333-2490) (the "Registration Statement")
registering 4,500,000 shares (the "Shares") of the Company's Common Stock, $.001
par value per share ("Common Stock"). An offering of such shares (the
"Offering") commenced on the same date. The managing underwriters for the
Offering were Goldman, Sachs & 


                                      -61-
<PAGE>   62

Co. and Robertson Stephens & Company. The Offering terminated after the sale of
all of the Shares. All of the Shares were sold on behalf of the Company and the
aggregate offering price of the Shares was $54.0 million.

      The following is a reasonable estimate of the amount of expenses incurred
for the Company's account in connection with the issuance and distribution of
the securities registered for each of the following:

<TABLE>
      <S>                                                          <C>        
      Underwriting discounts and commissions:                      $ 4,347,000
      Finders fees:                                                          0
      Expenses paid to or for Underwriters:                                  0
      Other expenses:                                                  650,000
                                                                   ----------- 
            Total expenses:                                        $ 4,997,000
                                                                   ===========               
            Net offering proceeds to the Company after            
                  deducting total expenses:                        $57,103,000
</TABLE>

      None of the foregoing expenses were direct or indirect payments to
directors, officers, general partners of the Company or their associates;
persons owning 10 percent (10%) or more of any class of equity securities of the
Company; or affiliates of the Company.

      The Company has not segregated cash proceeds of the Offering from other
funds of the Company. For the purpose of making the estimates set forth in this
section, the Company has assumed that all of the cash proceeds of the Offering
were used to support ongoing operations, exclusive of research funding received
through its strategic alliances. The estimated use of proceeds for working
capital includes operating expenses for research and development and for general
and administrative activities. Set forth below is a reasonable estimate of the
amount of net offering proceeds to the Company used for each of the following:

<TABLE>
      <S>                                                          <C>        
      Construction of plant, building and facilities:              $         0
      Purchase and installation of machinery and equipment:          3,132,000
      Purchases of real estate:                                              0 
      Acquisition of other businesses:                               4,500,000
      Repayment of indebtedness:                                     6,147,000 
      Working capital:                                              43,324,000 
      Temporary investments:                                                 0
</TABLE>

      There are no other purposes for which at least the lessor of five percent
(5%) of the issuer's total offering proceeds or $100,000 has been used.
Moreover, none of such uses of the net offering proceeds were direct or indirect
payments to directors, officers, general partners of the Company or their
associates; persons owning 10 percent (10%) or more of any class of equity
securities of the issuer; or affiliates of the 


                                      -62-
<PAGE>   63

Company. Such payments did not represent a material change in the use of
proceeds described in the prospectus contained in the Registration Statement.

ITEM 6.     SELECTED FINANCIAL DATA

      Incorporated by reference from the Company's 1997 Annual Report to
Shareholders under the heading "Selected Financial Data", which appears in
Exhibit 13 to this Annual Report on Form 10-K.

ITEM 7.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 
            CONDITION AND RESULTS OF OPERATIONS

      Incorporated by reference from the Company's 1997 Annual Report to
Stockholders under the heading "Management's Discussions and Analysis of
Financial Condition and Results of Operations", which appears in Exhibit 13 to
this Annual Report on Form 10-K.

ITEM 8.     FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

      The financial statements filed as part of this Annual Report on Form 10-K
are listed under Item 14 below and are incorporated by reference from the
Company's 1997 Annual Report to Stockholders under the heading "Financial
Statements and Notes Thereto", which appears in Exhibit 13 to this Annual Report
on Form 10-K.

ITEM 9.     CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
            ACCOUNTING AND FINANCIAL DISCLOSURE

      During the Company's two most recent fiscal years there have been no
disagreements with the Company's independent accountants on accounting and
financial disclosure matters.

                                    PART III

ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS

      The information required by this item (with respect to Directors) is
incorporated by reference from the information under the captions "Election of
Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance"
contained in the Company's Proxy Statement to be filed with the Securities and
Exchange Commission in connection with the solicitation of proxies for the
Company's 1998 Annual Meeting of Stockholders to be held on June 2, 1998 (the
"Proxy Statement").

      The required information concerning Executive Officers of the Company is
contained in Part I of this Annual Report on Form 10-K under the heading
"Executive Officers of the Company."


                                      -63-
<PAGE>   64

ITEM 11.    EXECUTIVE COMPENSATION

      The information required by this item is incorporated by reference from
the information under the captions "Election of Directors -- Compensation for
Directors," "Executive Compensation," "Report of the Compensation Committee" and
"Compensation Committee Interlocks and Insider Participation" contained in the
Proxy Statement.

ITEM 12.    STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
            MANAGEMENT

      The information required by this item is incorporated by reference from
the information under the caption "Stock Ownership of Certain Beneficial Owners
and Management" contained in the Proxy Statement.

ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      The information required by this item is incorporated by reference from
the information contained under the caption "Certain Transactions" contained in
this Proxy Statement.

                                    PART IV

ITEM 14.    EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
            ON FORM 8-K

      (a) The following documents are included as part of this Annual Report on
Form 10-K or are incorporated by reference from the Company's 1997 Annual Report
to Stockholders.

            1.    The following financial statements (and related notes) of the
                  Company are incorporated by reference from the 1997 Annual
                  Report to Stockholders.

                  Report of Independent Auditors on Financial
                  Statements                                                35*

                  Consolidated Balance Sheets at December 31, 1997 
                  and 1996                                                  36*

                  Consolidated Statements of Operations for the years 
                  ended December 31, 1997, 1996, and 1995                   37*

                  Consolidated Statements of Cash Flows for the years 
                  ended December 31, 1997, 1996, and 1995                   38*


                                      -64-
<PAGE>   65

                  Statements of Stockholders' Equity for the years
                  ended December 31, 1997, 1996 and 1995                    39*

                  Notes to Financial Statements                             41*

                  *Refers to page number of 1997 Annual Report to Stockholders

            2.    All schedules are omitted as the information required is
                  inapplicable or the information is presented in the
                  consolidated financial statements or the related notes.

            3.    The Exhibits listed in the Exhibit Index immediately preceding
                  the Exhibits are filed as a part of this Annual Report on Form
                  10-K.

      (b) The following Current Reports on Form 8-K were filed by the Company
during the last quarter of the period covered by this report:

            1.    Current Report on Form 8-K filed with the Securities and
                  Exchange Commission on November 4, 1997.

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

      The following trademarks of the Company are mentioned in this Annual
Report on Form 10-K: Millennium, Millennium Pharmaceuticals, Millennium
Predictive Medicine, Millennium Information, Millennium BioTherapeutics, MBio,
MPMx, MInfo, Diagnomics, RADE and Sequence Explorer. Other trademarks used in
this Annual Report on Form 10-K are the property of their respective owners.


                                      -65-
<PAGE>   66

                                   SIGNATURES

      Pursuant to the requirements of the Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                    MILLENNIUM PHARMACEUTICALS, INC.


                                    By:   /S/ MARK J. LEVIN
                                          ------------------------------------
                                          Mark J. Levin
                                          Chief Executive Officer

      Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the Company
in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE                        TITLE                            DATE
---------                        -----                            ----

<S>                              <C>                              <C> 
/S/ MARK J. LEVIN                Chief Executive Officer and      March 25, 1998
----------------------------     Director (Principal Executive                  
Mark J. Levin                    Officer)                                       
                                 

/S/ STEVEN H. HOLTZMAN           Chief Business Officer           March 25, 1998
----------------------------
Steven H. Holtzman


/S/ JANET C. BUSH                Vice President of Finance        March 25, 1998
----------------------------     (Principal Financial and 
Janet C. Bush                    Accounting Officer)      
                                 


/S/ JOSHUA BOGER                 Director                         March 25, 1998
----------------------------
Joshua Boger, Ph.D.


/S/ EUGENE CORDES                Director                         March 25, 1998
----------------------------
Eugene Cordes, Ph.D.


/S/ A. GRANT HEIDRICH            Director                         March 25, 1998
----------------------------
A. Grant Heidrich, III


/S/ WILLIAM W. HELMAN            Director                         March 25, 1998
----------------------------
William W. Helman
</TABLE>


                                      -66-
<PAGE>   67

<TABLE>
<S>                              <C>                              <C> 
/S/ Raju Kucherlapati            Director                         March 25, 1998
----------------------------
RAJU KUCHERLAPATI


/S/ ERIC S. LANDER               Director                         March 25, 1998
----------------------------
Eric S. Lander, Ph.D.
</TABLE>


                                      -67-
<PAGE>   68

                                 Exhibit Index

      The following exhibits are filed as part of this Annual Report on Form
10-K. 

EXHIBIT NO.                               DESCRIPTION
-----------                               -----------

    (2)3.1   Amended and Restated Certificate of Incorporation of the Company

    (2)3.2   Amended and Restated Bylaws of the Company

    (1)4.1   Specimen Certificate for shares of Common Stock, $.001 par value,
             of the Company

(8)(1)10.1   1996 Director Option Plan

   (1)10.2   Third Amended and Restated Investors' Rights Agreement, as amended,
             dated February 1, 1996 by and among the Company and the persons
             named on the signature pages thereto.

   (1)10.3   Agreement dated as of August 10, 1995 by and between the Company
             and Joshua Boger.

   (1)10.4   Agreement dated as of August 10, 1995 by and between the Company
             and Eugene Cordes.

   (1)10.5   Agreement dated as of April 21, 1993, by and between the Company
             and Raju Kucherlapati.

   (1)10.6   Letter Agreement dated November 30, 1994 by and between the Company
             and Mark J. Levin.

   (1)10.7   Letter Agreement dated April 14, 1994 by and between the Company
             and Steven H. Holtzman.

   (1)10.8   Promissory Note dated March 15, 1996 made in favor of the Company
             by Steven H. Holtzman.

   (1)10.9   Master Lease Agreement dated March 22, 1993 by and between the
             Company and Comdisco, Inc.

  (1)10.10   Loan and Security Agreement dated October 28, 1994 by and between
             the Company and MMC/GATX Partnership No. 1


                                      -68-
<PAGE>   69

  (1)10.11   Master Equipment Lease Agreement dated July 14, 1995 by and between
             the Company and Lighthouse Capital Partners, L.P.

  (1)10.12   Loan Agreement dated February 15, 1996 by and between the Company
             and Lighthouse Capital Partners, L.P.

  (4)10.13   Form of Master Equipment Lease Financing Agreement, as amended,
             dated September 19, 1996 by and between the Company and GE Capital
             Corporation.

  (7)10.14   Amendment to Master Equipment Lease Agreement dated June 16, 1997
             by and between the Company and GE Capital Corporation.

  (1)10.15   Lease Agreement dated August 25, 1993, as amended, by and between
             the Company and the Massachusetts Institute of Technology.

  (4)10.16   Lease Agreement dated October 26, 1996 by and between the Company
             and Fort Washington Limited Partnership

  (5)10.17   Lease Agreement between the Company and Old Cambridge Realty Trust,
             Inc.

  (5)10.18   Form of Sub-Lease Agreement, dated June 28, 1996, by and between
             the Company (as successor to ChemGenics) and PerSeptive Biosystems,
             Inc.

  (6)10.19   Lease dated March 28, 1997 by and between the Company and Old
             Cambridge Property LLC

  (6)10.20   Subordination Non-Disturbance and Attornment Agreement dated March
             28, 1997 by and among LaSalle National Bank, as Trustee for Asset
             Securitization Corporation Commercial Mortgage Pass-Through
             Certificates, Series D-4, Old Cambridge Property LLC and the
             Company.

  (7)10.21   Lease dated May 15, 1997 by and between the Company and
             Massachusetts Institute of Technology.

     10.22   Lease dated November 17, 1997 by and between the Company and FC
             45/75 Sidney, Inc.

 +(1)10.23   Sponsored Research Agreement dated March 25, 1994 by and between
             the Company and F. Hoffman-La Roche Ltd.

 +(1)10.24   Research and License Agreement dated October 3, 1995 by and between
             the Company and Eli Lilly and Company.


                                      -69-
<PAGE>   70

 +(1)10.25   Research and License Agreement dated December 9, 1995 by and
             between the Company and Astra AB.

 +(1)10.26   Research and License Agreement dated April 8, 1996 by and between
             the Company and Eli Lilly and Company.

 +(3)10.27   CNS Research, Collaboration and License Agreement effective as of
             August 1, 1996 by and between American Home Products Corporation
             and the Company.

 +(3)10.28   Bioinformatics Access and License Agreement effective as of August
             1, 1996 by and between American Home Products Corporation and the
             Company.

 +(3)10.29   Transcription Profiling Technology Access and License Agreement
             effective as of August 1, 1996 by and between American Home
             Products Corporation and the Company.

 +(5)10.30   Collaborative Research Agreement, dated as of January 1, 1995, by
             and between the Company (as successor to ChemGenics) and Pfizer,
             Inc.

 +(5)10.31   License Option, License and Royalty Agreement, dated as of January
             1, 1995, by and between the Company (as successor to ChemGenics)
             and Pfizer, Inc.

 +(5)10.32   Collaborative Research and License Agreement, dated as of November
             1, 1996, by and between the Company (as successor to ChemGenics)
             and American Home Products Corporation, represented by its
             Wyeth-Ayerst Laboratories division.

 +(5)10.33   License Agreement, dated as of June 28, 1996, by and between the
             Company (as successor to ChemGenics) and PerSeptive Biosystems,
             Inc.

  (5)10.34   Master Agreement, dated as of May 7, 1996, by and between the
             Company (as successor to ChemGenics) and PerSeptive Biosystems,
             Inc.

  (5)10.35   Amendment, dated November 22, 1996, to the Master Agreement dated
             May 7, 1996 between the Company (as successor to ChemGenics) and
             PerSeptive Biosystems, Inc.

  (5)10.36   Omnibus Amendment Agreement dated December 18, 1996 between the
             Company (as successor to ChemGenics) and PerSeptive Biosystems,
             Inc.


                                      -70-
<PAGE>   71

  (5)10.37   Consulting and Interim Services Agreement dated as of June 28,
             1996, by and between the Company (as successor to ChemGenics) and
             PerSeptive Biosystems, Inc.

  (5)10.38   Confidentiality and Non-Competition Agreement dated as of June 28,
             1996, by and between the Company (as successor to ChemGenics) and
             PerSeptive Biosystems, Inc.

  (5)10.39   Amendment, Consent and Waiver dated January 18, 1997 by and among
             the Company, ChemGenics and American Home Products Corporation
             acting through its Wyeth-Ayerst Division ("Wyeth-Ayerst").

  (5)10.40   Letter Agreement dated January 18, 1997 by and among the Company,
             ChemGenics and Pfizer, Inc.

  (5)10.41   Letter Agreement dated January 18, 1997 by and among the Company,
             ChemGenics and PerSeptive Biosystems, Inc.

  (5)10.42   Amendment to Collaborative Research and License Agreement dated
             March 20, 1997 by and among the Company, ChemGenics and Wyeth-
             Ayerst.

 +(7)10.43   Sponsored Research Agreement by and among Whitehead Institute for
             Biomedical Research, Affymetrix, Inc., Bristol-Myers Squibb Company
             and the Company dated April 28, 1997.

 +(7)10.44   Consortium Member Agreement by and among Affymetrix, Inc., Bristol-
             Myers Squibb Company and the Company dated April 28, 1997.

 +(7)10.45   Collaboration Agreement by and among the Company, Millennium
             BioTherapeutics, Inc. ("MBIO") and Eli Lilly and Company dated as
             of May 28, 1997.

 +(7)10.46   Technology Transfer and License Agreement by and between the
             Company and MBIO dated as of May 28, 1997.

 +(7)10.47   Rights Exchange Agreement by and between the Company and MBIO dated
             as of May 28, 1997.

 +(9)10.48   Agreement dated October 27, 1997 by and among the Company, Monsanto
             Company and Cereon Genomics Inc. (formerly Monsanto Agricultural
             Genomics II LLC).


                                      -71-
<PAGE>   72

(10)10.49    Agreement and Plan of Merger dated January 20, 1997 by and among
             the Company, CPI Acquisition Corp. and ChemGenics Pharmaceuticals,
             Inc.

    13       1997 Annual Report to Stockholders (which shall be deemed filed 
             only with respect to those portions specifically incorporated by
             reference herein).

    21       Subsidiaries of the Company.
 
    23.1     Consent of Ernst & Young LLP, Independent Auditors.

    27.1     Financial Data Schedule for year ended December 31, 1997.

    27.2     Restated Financial Data Schedule for year ended December 31, 1996.

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

(1)   Incorporated herein by reference to the Company's Registration Statement
      on Form S-1, as amended (File No. 333-2490).

(2)   Incorporated herein by reference to the Company's 10-Q for the quarter
      ending March 31, 1996.

(3)   Incorporated herein by reference to the Company's 10-Q for the quarter
      ending June 30, 1996.

(4)   Incorporated herein by reference to the Company's 10-Q for the quarter
      ending September 30, 1996.

(5)   Incorporated herein by reference to the Company's 10-K for the fiscal year
      ending December 31, 1996.

(6)   Incorporated herein by reference to the Company's 10-Q for the quarter
      ending March 31, 1997.

(7)   Incorporated herein by reference to the Company's 10-Q for the quarter
      ending June 30, 1997.

(8)   Management contract or compensatory plan or arrangement filed as an
      exhibit to this Form pursuant to Items 14(a) and 14(c) of Form 10-K.

(9)   Incorporated hereby by reference to the Company's Amendment No. 1 to
      Current Report on Form 8-K, filed with the SEC on January 30, 1998.

(10)  Incorporated herein by reference to the Company's Current Report on Form
      8-K, filed with the SEC on February 20, 1997.


                                      -72-
<PAGE>   73

+     Confidential treatment requested as to certain portions.


                                      -73-