<PAGE>

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

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

                                    FORM 10-Q

[X]   QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934
                 FOR THE QUARTERLY PERIOD ENDED OCTOBER 1, 2004

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

                         COMMISSION FILE NUMBER 0-19952

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

                                 CHRONIMED INC.
             (Exact name of registrant as specified in its charter)

              MINNESOTA                                        41-1515691
              ---------                                        ----------
 (State or other jurisdiction of                            (I.R.S. Employer
  incorporation or organization)                          Identification Number)

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

                             10900 RED CIRCLE DRIVE
                           MINNETONKA, MINNESOTA 55343

                    (Address of principal executive offices)
                                   (Zip Code)

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

        Registrant's telephone number, including area code (952) 979-3600

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

      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 checkmark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
                                                                  Yes [X] No [ ]

      Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.

       Common Stock, $.01 par value - 12,823,740 shares outstanding as of
                                October 31, 2004

================================================================================

<PAGE>

                                 CHRONIMED INC.

                          QUARTERLY REPORT ON FORM 10-Q

                      FOR THE QUARTER ENDED OCTOBER 1, 2004

                                      INDEX

<TABLE>
<CAPTION>
                                                                                                           PAGE
                                                                                                           ----
<S>                                                                                                       <C>
PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements

                  Consolidated Balance Sheets - October 1, 2004 (unaudited) and July 2, 2004                    2

                  Consolidated Statements of Income (unaudited) - Three months ended
                  October 1, 2004, and September 26, 2003                                                       3

                  Consolidated Statements of Cash Flows (unaudited) - Three months ended
                  October 1, 2004, and September 26, 2003                                                       4

                  Notes to Consolidated Financial Statements - October 1, 2004                              5 - 9

Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations            10 - 15

Item 3.  Quantitative and Qualitative Disclosures About Market Risk                                            15

Item 4.  Controls and Procedures                                                                               15

PART II - OTHER INFORMATION

Item 1.  Legal Proceedings                                                                                     16

Items 2, 3, 4, and 5 have been omitted since all items are not applicable or the
answers are negative.

Item 6.   Exhibits                                                                                             16

SIGNATURES                                                                                                     17
</TABLE>

                                       1
<PAGE>


                         PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS.

                                 CHRONIMED INC.
                           CONSOLIDATED BALANCE SHEETS

                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                    OCTOBER 1,
                                                       2004             JULY 2,
                                                    (UNAUDITED)          2004
                                                    -----------        ---------
<S>                                                 <C>                <C>
ASSETS
Current assets
    Cash and cash equivalents                        $ 19,382           $ 16,624
    Short-term investments                              1,001              1,507
    Accounts receivable (net of allowances
       of $6,744 and $6,321, respectively)             40,942             41,932
    Inventory                                          11,244             10,348
    Prepaid expenses                                    2,686              1,441
    Income taxes receivable                               201                220
    Deferred taxes                                      2,388              2,913
                                                     --------           --------
        Total current assets                           77,844             74,985

Property and equipment, net                             4,742              4,942

Goodwill                                               34,480             34,480
Other assets, net                                         147                147
                                                     --------           --------
        Total assets                                 $117,213           $114,554
                                                     ========           ========

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
    Accounts payable                                 $ 14,695           $ 12,486
    Accrued expenses                                    4,297              3,865
    Accrued bonus                                         251              1,654
                                                     --------           --------
        Total current liabilities                      19,243             18,005

Deferred taxes                                          2,201              1,938

Shareholders' equity
    Preferred stock                                         -                  -
    Common stock, issued and outstanding shares--
         12,824 and 12,823, respectively                  128                128
    Additional paid-in capital                         58,338             58,332
    Retained earnings                                  37,303             36,151
                                                     --------           --------
        Total shareholders' equity                     95,769             94,611
                                                     --------           --------
        Total liabilities and shareholders' equity   $117,213           $114,554
                                                     ========           ========
</TABLE>

See notes to consolidated financial statements

                                       2
<PAGE>

                                 CHRONIMED INC.
                        CONSOLIDATED STATEMENTS OF INCOME
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                              THREE MONTHS ENDED
                                                     ----------------------------------
                                                      OCTOBER 1,          SEPTEMBER 26,
                                                        2004                  2003
                                                     -----------          -------------
<S>                                                  <C>                  <C>
Revenue                                              $ 142,625             $ 128,602

Cost of revenue                                        127,018               113,427
                                                     ---------             ---------
        Gross profit                                    15,607                15,175

Operating expenses
    Selling and marketing                                1,490                 1,322
    General and administrative                          10,586                10,703
    Merger related costs                                   896                     -
    Bad debt                                             1,041                   934
                                                     ---------             ---------
        Total operating expenses                        14,013                12,959

Income from operations                                   1,594                 2,216

Interest income, net                                        44                    51
Other income                                               251                     -
                                                     ---------             ---------

Income before income taxes                               1,889                 2,267
Income tax expense                                        (737)                 (264)
                                                     ---------             ---------
Net income                                           $   1,152             $   2,003
                                                     =========             =========

Basic net income per share                           $    0.09             $    0.16
Diluted net income per share                         $    0.09             $    0.15
                                                     =========             =========

Basic weighted-average shares                           12,823                12,583
Diluted weighted-average shares                         12,982                13,096
</TABLE>

See notes to consolidated financial statements

                                       3
<PAGE>

                                 CHRONIMED INC.
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                       THREE MONTHS ENDED
                                                                                 ------------------------------
                                                                                 OCTOBER 1,       SEPTEMBER 26,
                                                                                    2004              2003
                                                                                 ----------       -------------
<S>                                                                              <C>              <C>
Operating activities
        Net income                                                                $  1,152          $  2,003

    Adjustments to reconcile income to net cash provided
        by (used in) operating activities:
            Depreciation and amortization                                              584               573
            Deferred income taxes                                                      788                 -
            Changes in operating assets and liabilities:
                Accounts receivable                                                    990            (4,672)
                Income taxes                                                            19                73
                Inventory                                                             (896)             (760)
                Accounts payable                                                     2,209            (3,113)
                Accrued expenses                                                      (971)             (382)
                Other assets                                                        (1,245)             (579)
                                                                                  --------          --------
        Net cash provided by (used in) operating activities                          2,630            (6,857)

Investing activities
    Purchases of property and equipment                                               (384)             (461)
    Proceeds from sale of short-term investments                                       506                 -
                                                                                  --------          --------
        Net cash provided by (used in) investing activities                            122              (461)

Financing activities
    Net proceeds from issuance of common stock                                           6               437
                                                                                  --------          --------
        Net cash provided by financing activities                                        6               437

Increase (Decrease)  in cash and cash equivalents                                    2,758            (6,881)
Cash and cash equivalents at beginning of year                                      16,624            22,854
                                                                                  --------          --------
Cash and cash equivalents at end of period                                        $ 19,382          $ 15,973
                                                                                  ========          ========
</TABLE>

See notes to consolidated financial statements

                                       4
<PAGE>

                                 CHRONIMED INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

1.    SIGNIFICANT ACCOUNTING POLICIES

BUSINESS

      Chronimed Inc. ("Chronimed" or the "Company"), a specialty pharmacy
service provider,, distributes prescription drugs, coordinates customer
benefits, and provides specialized therapy management services for people with
certain health conditions, including HIV/AIDS, organ transplants, and other
conditions treated with biotech injectable medications. We work with patients,
physicians and other health care providers, pharmaceutical manufacturers, health
plans and insurers, and government agencies to improve clinical and economic
outcomes. We distribute prescription drugs nationally through our Chronimed mail
service and StatScript Pharmacy community-based pharmacies. Our patients
typically have conditions that are generally not being served by traditional
pharmacies, require high-cost, complex medications, and have complex
reimbursement characteristics.

BASIS OF PRESENTATION

      The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments, consisting of normal recurring accruals, considered necessary for a
fair presentation have been included. Operating results for the three months
ended October 1, 2004, are not necessarily indicative of the results that may be
expected for the fiscal year ending July 1, 2005. The balance sheet at July 2,
2004, has been derived from the audited financial statements at that date, but
does not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. For further
information, refer to the consolidated financial statements and footnotes
thereto included in our Annual Report on Form 10-K for the fiscal year ended
July 2, 2004.

FISCAL YEAR

      We use a four-week, four-week, five-week (4-4-5) quarterly accounting
cycle with the fiscal year ending on the Friday closest to June 30 and the
fiscal quarters ending on the Friday closest to the last day of the respective
month. Fiscal 2005 will include 52 weeks with the year ending July 1, 2005.
Fiscal 2004 included 53 weeks (14 weeks in the fourth quarter) with the year
ending July 2, 2004.

REVENUE RECOGNITION

      Revenue is recognized at the time prescriptions are shipped to or picked
up by the patient. We participate in various third-party provider networks,
Medicare, and state Medicaid programs. Under a majority of these networks, the
amount to be paid for our products is determined (or "adjudicated") through
electronic connections with these networks at the time of sale. However, for
certain payors for which there is no electronic adjudication process available
at the time of sale, we bill a standard list price (versus a known contracted
price) and then simultaneously determine an appropriate estimate for expected
payor discount based on our reimbursement history for each payor class. This
reimbursement history is updated quarterly. Revenue is then reported net of the
estimated payor discounts and adjusted in future periods as final settlements
are determined.

STOCK-BASED COMPENSATION

      We have adopted the disclosure-only provisions of Statement of Financial
Accounting Standards No. 123 (Statement No. 123), "Accounting for Stock-Based
Compensation," as amended by Statement of Financial Accounting Standards No. 148
but apply Accounting Principles Board Opinion No. 25 (APB 25) and related

                                       5
<PAGE>

interpretations in accounting for our stock plans. Under APB 25, when the
exercise price of an employee stock option equals the market price of the
underlying stock on the date of grant, no compensation expense is recognized.
The following table illustrates the effect on net income and earnings per share
if we had applied the fair value recognition provisions of Statement No. 123 to
stock-based employee compensation.

<TABLE>
<CAPTION>
                                                                                 THREE MONTHS ENDED
                                                                          ---------------------------------
                                                                          OCTOBER 1,          SEPTEMBER 26,
(IN THOUSANDS, EXCEPT PER SHARE DATA)                                        2004                 2003
                                                                          ----------          -------------
<S>                                                                       <C>                 <C>
Net income - as reported                                                   $  1,152              $  2,003
Deduct pro forma stock-based employee
     compensation cost, net of related tax effects                             (445)                 (367)
                                                                           --------              --------
Net income - pro forma                                                     $    707              $  1,636
                                                                           ========              ========
Earnings per share - basic as reported                                     $   0.09              $   0.16
Earnings per share - basic pro forma                                       $   0.06              $   0.13
Earnings per share - diluted as reported                                   $   0.09              $   0.15
Earnings per share - diluted pro forma                                     $   0.06              $   0.13
</TABLE>

ACCOUNTS RECEIVABLE ALLOWANCES

Allowance for Doubtful Accounts

      We determine an allowance for doubtful accounts amount based upon an
analysis of the aging of the accounts receivable and historical write-off
experience. Bad debt expense is recorded as an operating expense in our
Consolidated Statements of Income.

Allowance for Payor Discounts

      We determine an allowance for payor discounts based on an analysis of
historical payment experience. Payor discount allowances are recorded as offsets
to revenue in our Consolidated Statements of Income.

INVENTORIES

      Inventories consist of goods held for resale and are carried at the lower
of cost or market determined under the average cost method.

CASH AND CASH EQUIVALENTS

      We consider all investments with an original maturity of 90 days or less
when purchased to be cash equivalents. Cash equivalents are carried at cost,
which approximates fair market value, and consist principally of money market
accounts.

SHORT-TERM INVESTMENTS

      We classify our investments with maturities of over 90 days when purchased
as available-for-sale. These investments are stated at market value, with any
material unrealized gains or losses, net of tax, included as a component of
shareholders' equity until realized. Interest income is included as a component
of current earnings.

                                       6
<PAGE>

      As of October 1, 2004, our short-term investments consisted of $1.0
million in government agency securities with remaining maturities of less than
twelve months. These investments are stated at cost which approximates market
value. There were no material unrealized gains or losses.

                                       7
<PAGE>

PER SHARE DATA

      Net income per share is calculated in accordance with Financial Accounting
Standards Board Statement No. 128, "Earnings per Share." Potential common shares
are included in the diluted net income per share calculation when dilutive.
Potential common shares consisting of common stock issuable upon exercise of
outstanding common stock options are computed using the treasury stock method.
Our basic net income per share is computed by dividing net income by the
weighted average number of common shares outstanding during the period. Diluted
net income per share is computed by dividing net income by the weighted average
number of common shares outstanding during the period, increased to include
dilutive potential common shares issuable upon the exercise of stock options
that were outstanding during the period. The table below is a reconciliation of
the numerator and denominator in the basic and diluted net income per share
calculation.

<TABLE>
<CAPTION>
                                                             THREE MONTHS ENDED
                                                        ------------------------------
                                                        OCTOBER 1,       SEPTEMBER 26,
(IN THOUSANDS, EXCEPT PER SHARE DATA)                      2004               2003
                                                        ----------       -------------
<S>                                                     <C>              <C>
Numerator
    Net income                                           $  1,152           $  2,003

Denominator
    Denominator for basic net income per share -
        weighted average shares outstanding                12,823             12,583
    Effect of dilutive stock options                          159                513
                                                         --------           --------
    Denominator for diluted net income per share -
        weighted average shares outstanding                12,982             13,096
                                                         ========           ========

Basic net income per share                               $   0.09           $   0.16
Diluted net income per share                             $   0.09           $   0.15
                                                         ========           ========
</TABLE>

      Employee stock options of 1,504,529 and 1,034,625 for the first quarters
of fiscal 2005 and 2004, respectively, have been excluded from the diluted net
income per share calculation because their effect would be antidilutive.

2.    SIGNIFICANT CONCENTRATIONS

      Payor reimbursements from Aetna, Inc., a single large contracted payor,
represented approximately 21% of our revenue in the first quarter of fiscal 2005
and 22% in the first quarter of fiscal 2004. In fiscal 2004, Aetna announced
that its contracted specialty pharmacy business, which is currently served by
three providers, of which one is Chronimed, would be consolidated into a new
joint venture, named Aetna Specialty Pharmacy, with another provider. Aetna
indicated that this new business will begin in 2005 and that it expected to
transition the business fully into Aetna Specialty Pharmacy by the calendar
third quarter of 2005. Chronimed expects that approximately 85% of its business
with Aetna will be transitioned by the end of calendar 2005, and that the
remaining 15% will continue being served by Chronimed. No other private payor or
single government agency represented more than 10% of our revenues.

      Our one-year contract with Roche Laboratories Inc. to be the exclusive
U.S. distributor of Fuzeon(R) during the initial twelve month progressive
distribution phase expired in April 2004. Fuzeon sales represented 8.3%, or
$12.0 million, of our revenue in the first quarter of fiscal 2005 which was
slightly lower than in the first quarter of fiscal 2004. Although Fuzeon is now
available through retail and specialty pharmacies, Chronimed will continue to be
a distributor for Fuzeon and the exclusive distributor for Fuzeon patients
receiving their medications through

                                       8
<PAGE>

Roche's Patient Assistance Program.

      We signed a three-year wholesaler agreement with Cardinal Health, a large
national distributor, for the majority of our pharmaceutical purchases effective
August 2003 in our fiscal 2004. We used McKesson Corporation, another large
national distributor, for the majority of our pharmaceutical purchases until
August 2003. Cardinal Health made up 89.9% of our inventory purchases in the
first quarter of fiscal 2005, and Cardinal Health and McKesson together made up
83.7% of our inventory purchases for the first quarter of fiscal 2004. Following
the expiration of our one-year contract with Roche Laboratories Inc., we began
purchasing Fuzeon from Cardinal Health rather than from Roche, which increased
our purchasing concentration with Cardinal Health. In the event that we are
unable to purchase pharmaceuticals through Cardinal Health, we believe we would
be able to purchase the same inventory through other national pharmaceutical
distributors, although the terms and conditions could be less favorable to
Chronimed.

      Our primary concentration of credit risk is third party payor accounts
receivable, which consist of amounts owed by various governmental agencies and
insurance companies. We manage our receivables by regularly reviewing accounts
and contracts and by providing appropriate allowances for uncollectible amounts.
Aetna, Inc. represented 7% of our gross accounts receivable balance at October
1, 2004, and July 2, 2004. No private payor or single government agency
represented more than 10% of our accounts receivable balances. Concentration of
credit risk relating to accounts receivable is limited to some extent by the
diversity and number of patients and payors and the geographic dispersion of our
operations.

3.    COMPREHENSIVE INCOME

      Net income equaled comprehensive income for the respective periods.

4.    INCOME TAXES

      Our income tax rate was 39.0% in the first quarter of fiscal 2005. In the
first quarter of fiscal 2004, our income tax rate was 11.6% due to a $0.6
million benefit resulting from a reduction in income tax liabilities associated
with prior tax years that had been audited and closed. Without this reduction,
the first quarter of fiscal 2004 income tax rate would have been 38.0%. We
expect our combined fiscal 2005 Federal and State tax rate to approximate 39.0%
due to expanded business in higher-taxed states.

5.    ACQUISITION OF ACCENT RX

      On December 9, 2003, we purchased certain assets of Accent Rx for $4.2
million in cash. Accent Rx was a specialty mail service pharmacy focusing
primarily on the distribution of pharmaceutical products to individuals living
with HIV/AIDS and post-organ transplants. Accent Rx has been integrated into our
existing mail service operations. We paid cash for customer prescription records
and allocated the $4.2 million purchase price as goodwill.

      Beginning December 10, 2003, customers of Accent Rx were served through
Chronimed's mail service operations, resulting in approximately $3.0 million in
revenue during the quarter ended October 1, 2004.

      The following unaudited pro forma combined financial information is in
accordance with Statement of Financial Accounting Standards No. 141, "Business
Combinations," and is based on the respective historical financial results of
Chronimed and Accent Rx, Inc. as though the business combination had been
completed as of the beginning of the periods presented.

                                       9
<PAGE>

<TABLE>
<CAPTION>
                                                                             THREE MONTHS ENDED
                                                                             ------------------
                                                                                SEPTEMBER 26,
(IN THOUSANDS, EXCEPT PER SHARE DATA)                                               2003
                                                                                -------------
<S>                                                                             <C>
Revenue                                                                           $134,126
Income from operations                                                               2,012
Net income                                                                           1,721

Earnings per share - basic                                                        $   0.14
Earnings per share - diluted                                                      $   0.13
</TABLE>

6.    PROPOSED MERGER

      On August 9, 2004, we announced that the boards of directors of Chronimed
Inc. and MIM Corporation (Nasdaq: MIMS) had unanimously approved a strategic
merger and that the companies had signed a definitive merger agreement. It is
expected that the combined company, which will be named BioScrip Inc., will have
broad disease coverage, focused therapy management, expansive national retail
and mail distribution capabilities and a solid PBM platform. Based on financial
results reported by each company for the twelve month periods ended June 30, and
July 2, 2004, respectively, the two companies generated combined revenues of
approximately $1.1 billion and pretax income of $20.9 million. Upon consummation
of the merger, each Chronimed shareholder will receive 1.025 MIM shares for each
Chronimed share held. MIM expects to issue approximately 13.1 million shares to
Chronimed shareholders in the merger. Following the merger, Chronimed
shareholders would own approximately 37% of the new company and MIM shareholders
will own approximately 63%. The transaction is structured as a tax-free
reorganization for both companies and Chronimed's shareholders. The closing of
the merger is subject to approval of both companies' shareholders and is
expected to occur in December 2004.

                                       10
<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

RESULTS OF OPERATION

      The following management's discussion and analysis of financial condition
and results of operations ("MD&A") should be read in conjunction with the MD&A
included in our Annual Report on Form 10-K for the fiscal year ended July 2,
2004.

      The following table represents income and expense items for the first
quarters of fiscal 2005 and 2004 as a percentage of revenue.

<TABLE>
<CAPTION>
                                                                                        THREE MONTHS ENDED
                                                                                  --------------------------------
                                                                                   OCTOBER 1,        SEPTEMBER 26,
FISCAL YEAR                                                                           2004              2003
                                                                                  -----------        -------------
<S>                                                                               <C>                <C>
Revenue                                                                              100.0%             100.0%
Cost of revenue                                                                       89.1               88.2
                                                                                     -----              -----
Gross profit                                                                          10.9               11.8
Operating expenses
    Selling and marketing                                                              1.1                1.0
    General and administrative                                                         7.4                8.4
    Merger related costs                                                               0.6                0.0
    Bad debt                                                                           0.7                0.7
                                                                                     -----              -----
Total operating expenses                                                               9.8               10.1
Income from operations                                                                 1.1                1.7
Interest income, net                                                                   0.0                0.1
Other income                                                                           0.2                0.0
Income tax expense                                                                    (0.5)              (0.2)
                                                                                     -----              -----
Net income                                                                             0.8%               1.6%
                                                                                     =====              =====
</TABLE>

REVENUE

      Revenue increased $14.0 million, or 10.9%, from $128.6 million in the
first quarter of fiscal 2004 to $142.6 million in the first quarter of fiscal
2005. The increase in revenue for the quarter was due primarily to two factors.
First, the December 2003 acquisition of Accent Rx, a specialty mail service
pharmacy focusing primarily on HIV/AIDS and post-organ transplant disease
states, contributed an estimated $3.0 million in revenue to our existing mail
service operations in the first quarter of fiscal 2005. Second, the number of
patients served in the first quarter of fiscal 2005, particularly patients with
HIV, organ transplants, rheumatoid arthritis, and multiple sclerosis, increased
by approximately 12% compared to the same period last year.

      Our patient populations are concentrated among three disease areas
including HIV/AIDS, organ transplants, and other complex conditions treated with
biotech injectable medications. The table below shows revenue by disease state
for the first quarters of fiscal 2005 and 2004 as a percentage of total revenue.

                                       11
<PAGE>

<TABLE>
<CAPTION>
                                         THREE MONTHS ENDED
                                    ----------------------------
                                    OCTOBER 1,     SEPTEMBER 26,
(% OF TOTAL REVENUE)                  2004            2003
                                    ----------     -------------
<S>                                 <C>            <C>
HIV/AIDS                               53%              51%
Transplant                             18%              19%
Other disease states                   29%              30%
                                      ---              ---
Total                                 100%             100%
                                      ===              ===
</TABLE>

      Our disease mix stayed relatively constant in the first quarter of fiscal
2005 compared to the year ago quarter. HIV patient revenue in the first quarter
grew $9.2 million, or 13.9%, from the same period in fiscal 2004. One of the key
reasons we continue to generate growth in HIV revenue is our willingness to work
with the various state Medicaid and AIDS Drug Assistance Programs to bring the
medications to patients. These tightly-funded payors required a complex process
of benefit determination and billing that many pharmacy providers do not handle.
HIV revenue growth slowed when our one-year exclusive contract with Roche
Laboratories Inc. ended April 26, 2004, and Roche expanded their Fuzeon
distribution network. Product revenue declined, from our third quarter fiscal
2004 high of approximately $18 million, by $1 million in the fourth quarter of
fiscal 2004 and by another $5 million in the first quarter of fiscal 2005. Our
Fuzeon revenue was approximately $12 million, or 8% of revenue, in our first
quarter of fiscal 2005, which was slightly lower than the same period last year.
Transplant patient revenue grew $1.8 million, or 7.3%, from the same period in
fiscal 2004 despite the January 2004 reduction in Medicare reimbursement. The
remainder of our patient revenue for the first quarter of 2005 grew $3.0
million, or 7.9%. Rheumatoid arthritis and multiple sclerosis revenue for the
first quarter of 2005 grew a combined 74%, due to focused sales efforts, offset
by a decrease in hepatitis C and Aetna oncology.

      Our business consists of four major payor categories including Aetna,
Medicaid and other state programs, Medicare, and all other payors. The table
below shows revenue by payor for the first quarters of fiscal 2005 and 2004 as a
percentage of total revenue.

<TABLE>
<CAPTION>
                                               THREE MONTHS ENDED
                                           --------------------------
                                           OCTOBER 1,   SEPTEMBER 26,
(% OF TOTAL REVENUE)                          2004          2003
                                           ----------   -------------
<S>                                        <C>          <C>
Aetna                                          21%           22%
Medicaid and other state programs              36%           33%
Medicare                                        7%            7%
All other payors                               36%           38%
                                              ---           ---
Total                                         100%          100%
                                              ===           ===
</TABLE>

      Aetna revenue in the first quarter of fiscal 2005 grew $2.1 million, or
7.5%, from the same period last year. The decrease as a percentage of revenue
from 22% to 21% was primarily due to growth of non-Aetna payors. In addition,
Aetna transferred the oncology portion of its specialty pharmacy business to
another provider in fiscal 2004. The loss in oncology revenue was partially
offset by Aetna's decision to award us distribution of both bone marrow and
other standard transplant medications. In fiscal 2004, Aetna announced that its
contracted specialty pharmacy business, which is currently served by three
providers, of which one is Chronimed, would be consolidated into a new joint
venture, named Aetna Specialty Pharmacy, with another provider. Chronimed
expects that approximately 85% of its business with Aetna will be transitioned
by the end of calendar 2005, and that the remaining 15% will continue being
served by Chronimed. Aetna indicated that this new business will begin in 2005
and that it expected to fully transition the business into Aetna Specialty
Pharmacy by the calendar third quarter of 2005. Except for Aetna, no other
private payor accounted for 10% or more of our revenues in the three months
ended October 1, 2004, and September 26, 2003. Revenue from Medicaid and other
state programs grew $8.1 million, or 18.8%, in the first quarter of fiscal 2005
compared to the same period in fiscal 2004. In the first quarter of fiscal 2005,
revenue from Medicare, the federal program which covers many organ transplant

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<PAGE>

recipients, remained relatively flat compared to the same period last year due
primarily to increased volume at lower reimbursement rates. All other payor
revenue grew $3.8 million, or 7.8% compared to the same period last year.

      We distribute our products through 31 distribution facilities. This
includes our mail service facilities and our nationwide StatScript Pharmacy
chain. The table below shows revenue by distribution channel for the first
quarters of fiscal 2005 and 2004 as a percentage of total revenue.

<TABLE>
<CAPTION>
                                 THREE MONTHS ENDED
                            ---------------------------
                            OCTOBER 1,    SEPTEMBER 26,
(% OF TOTAL REVENUE)           2004            2003
                            ----------    -------------
<S>                         <C>           <C>
Retail                          61%             55%
Mail Service                    39%             45%
Total                          100%            100%
</TABLE>

      Our StatScript retail pharmacy revenue, in the first quarter of fiscal
2005, grew $15.6 million, or 21.8%, compared to the same period in fiscal 2004.
Our retail pharmacies predominantly serve HIV/AIDS patients and organ transplant
recipients. Our mail service revenue, in the first quarter of fiscal 2005,
decreased $1.6 million, or 2.8%, compared to the same period in fiscal 2004. The
reduction was due primarily to the reduction in oncology from Aetna and the
migration of transplant to the StatScript retail channel.

Cost of Revenue and Gross Profit

      Total gross profit dollars increased $0.4 million, or 2.8%, from $15.2
million in the first quarter of fiscal 2004 to $15.6 million in the first
quarter of fiscal 2005 driven by the 10.9% increase in revenue. First quarter
gross margins as a percentage of revenue decreased from 11.8% in fiscal year
2004 to 10.9% in fiscal year 2005. The expected decline in gross margin
percentage was due primarily to reductions in the reimbursement rates from a
State of Indiana government payor, Medicare, Florida and California Medicaid,
and Aetna as further described below.

      Effective October 2003, shortly after last year's fiscal first quarter,
the State of Indiana government-sponsored HIV program reduced its reimbursement
rate. The quarterly impact of this reduction on revenue, gross margin, and
operating income was approximately $0.6 million.

      Effective January 2004, the Medicare Prescription Drug Improvement and
Modernization Act reduced reimbursement for transplant medications provided to
patients covered under Medicare Part B. This Act reduced reimbursement
approximately 10% on all Medicare-covered transplant medications. The quarterly
impact of this reduction on revenue, gross margin, and operating income was
approximately $1.0 million.

      In the first quarter of fiscal 2005, we experienced reductions in
reimbursement from Florida Medicaid effective July 2004 and from California
Medicaid effective September 2004 as a result of state budget pressures.
Effective September 2004, Aetna, our largest payor, lowered its reimbursement
rate on several key drugs. The estimated impact of these first quarter
reimbursement reductions on the three months ended October 1, 2004 was $0.6
million in revenue, gross margin, and operating income. Looking forward, for the
upcoming three months ending December 31, 2004, we expect the full quarter
impact of these reimbursement reductions to be approximately $1.2 million.

Operating Expenses

      Our operating expenses include selling and marketing, general and
administrative (G&A), and bad debt expenses. Our G&A expenses include both
corporate G&A expenses (corporate management, information systems,

                                       13
<PAGE>

accounting, and human resources) and direct G&A expenses (division management,
customer service, billing, and pharmacy fulfillment).

Selling and Marketing Expenses

      Our selling and marketing expenses increased $0.2 million, or 12.8%, from
$1.3 million in the first quarter of fiscal 2004 to $1.5 million in the first
quarter of fiscal 2005 due primarily to increased selling expenses, particularly
salary and commissions. Selling and marketing expenses as a percentage of
revenue remained unchanged at 1.0% in the first quarters of fiscal 2004 and
2005.

General and Administrative Expenses

      Our general and administrative expenses decreased $0.1 million, or 1.1%,
from $10.7 million in the first quarter of fiscal 2004 to $10.6 million in the
first quarter of fiscal 2005. General and administrative costs decreased as a
percentage of revenue from 8.3% to 7.4% in the first quarters of fiscal 2004 and
2005, respectively, by the leveraging of general and administrative expenses
over increasing revenue volume.

Merger Related Costs

      We had $0.9 million in merger related costs, primarily investment banking
and legal fees, in the first quarter of fiscal 2005. We expect additional merger
expenses in our second quarter through the closing of the deal. We also expect
to incur restructuring and transition charges in our second quarter of fiscal
2005 and beyond as we integrate the operations of Chronimed and MIM.

Bad Debt

      Our bad debt increased $0.1 million from $0.9 million in the first quarter
of fiscal 2004 to $1.0 million in the first quarter of fiscal 2005. Bad debt
expense as a percentage of revenue for the first quarter of fiscal 2005 was
consistent with the average bad debt expense of 0.7% of revenue for fiscal 2004.

Interest Income

      Interest income, net of interest expense, remained relatively constant at
less than $0.1 million in the first quarters of fiscal 2005 and 2004. Interest
income resulted from current cash balances. We had no short-term borrowing costs
on our line of credit in the first quarters of fiscal 2005 and 2004.

Other Income

      Other income for this year's first quarter included $0.3 million for the
collection of a fully reserved note receivable.

Income Taxes

      Our income tax rate was 39.0% in the first quarter of fiscal 2005. In the
first quarter of fiscal 2004, our income tax rate was 11.6% due to a $0.6
million benefit resulting from a reduction in income tax liabilities associated
with prior tax years that had been audited and closed. Without this reduction,
the first quarter of fiscal 2004 income tax rate would have been 38.0%. We
expect our combined fiscal 2005 Federal and State tax rate to approximate 39.0%
due to expanded business in higher-taxed states.

LIQUIDITY AND CAPITAL RESOURCES

      As of October 1, 2004, we had $58.6 million of working capital, compared
to $57.0 million as of July 2, 2004. During the three-month period ended October
1, 2004, we generated $2.6 million of cash from operating activities. Our
accounts receivable decreased $1.0 million due to the timing of the collection
of rebates and an increase in reserves. We continue to experience a delay in
receiving a $2.1 million payment from the District of Columbia Department of
Mental


                                       14
<PAGE>

Health. The receivable arose from sales during the period from November 2002 to
February 2003. We expect to receive full payment on this receivable. Average
days sales outstanding (DSO) of our accounts receivable was 28 days both at July
2, 2004 and at October 1, 2004. Inventory increased $0.9 million to support our
business growth. The average days inventory on hand was 8 days both at July 2,
2004, and October 1, 2004. Accounts payable increased $2.2 million due primarily
to the payment timing to our pharmaceutical wholesaler. Accrued expenses
decreased $1.0 million due primarily to our fiscal year end bonus payments to
employees. Other assets increased $1.2 million due mostly to an increase in
prepaid expenses arising from a special Minnesota health care tax, the majority
of which will be refunded in our third quarter of fiscal 2005.

      We generated approximately $0.1 million of cash in investing activities
during the three-month period ended October 1, 2004 consisting of $0.4 million
in purchases of leasehold improvements, furniture, equipment, and computer
hardware and software offset by $0.5 million in proceeds from the sale of
short-term investments.

      We had no outstanding borrowings as of October 1, 2004 and July 2, 2004.
Shareholders' equity as of October 1, 2004 and July 2, 2004 was $95.8 million
and $94.6 million, respectively. Net tangible assets, as of October 1, 2004 and
July 2, 2004, were $61.3 million and $60.1 million, respectively. As of October
1, 2004, we had a secured line of credit totaling $30 million. The borrowing
base on the line of credit is a calculated amount based on our inventory and
non-government accounts receivable balances. We had no borrowings under our line
of credit during the first quarter of fiscal 2005. We are in compliance with the
covenants of the line of credit as of October 1, 2004. Under the terms of the
agreement, the debt is secured by receivables and inventory and bears interest
at the Eurodollar rate plus an applicable margin depending on our covenant
calculation (approximately 3.86% at October 1, 2004). The line of credit expires
in April 2006.

      We believe that our cash and cash equivalents, short term investments,
line of credit, and cash provided by operating activities should allow us to
meet foreseeable cash requirements and provide the flexibility to fund future
working capital growth. However, we would need to seek additional debt or equity
financing beyond our current $30 million line of credit to fund any major
business acquisitions. We expect our capital project requirements to be
approximately $3 million in fiscal 2005.

      Our future contractual commitments consist entirely of payments due under
operating leases. See Note 4, Notes to Consolidated Financial Statements,
included in our Annual Report on Form 10-K for the fiscal year ended July 2,
2004.

IMPACT OF INFLATION

      Changes in prices charged by biopharmaceutical manufacturers and
wholesalers for the drugs we dispense, along with increasing labor costs,
freight and supply costs and other overhead expenses, affect our cost of revenue
and general and administrative expenses. Historically, we have been able to pass
a portion of the effect of such increases to the payor and patient pursuant to
automatic price adjustments made under our payor contracts. As a result, changes
due to inflation have not had significant adverse effects on our operations.

FORWARD-LOOKING STATEMENTS

      Information contained in this Management's Discussion and Analysis of
Financial Condition and Results of Operations, other than historical or current
facts, should be considered forward-looking statements as defined in the Private
Securities Litigation Reform Act of 1995. These statements reflect management's
current views of future events and financial performance that involve a number
of risks and uncertainties. These factors include, but are not limited to, the
following: our ability to maintain satisfactory on-going arrangements with
biopharmaceutical manufacturers and wholesalers, and their ability to satisfy
our volume, pricing, and product requirements; decrease in demand for drugs we
handle; changes in Medicare or Medicaid reimbursement, rules and regulations;
loss of relationships with, and/or significant reductions in reimbursements
from, payors (including Aetna or other material contracts); the commencement of
legal proceedings against us and our Board of Directors; failure of our
shareholders to approve the merger; negative cost containment trends or
financial difficulties by our payors; changes in or unknown violations of
various federal, state, and local regulations; costs and other effects of

                                       15
<PAGE>

legal or administrative proceedings; the adoption of new or changes to existing
accounting policies and practices and the application of such policies and
practices; the amount and rate of growth in our selling, general and
administrative expenses and the impact of unusual items resulting from our
ongoing evaluation of our business strategies, asset valuations and
organizational structures; the impairment of a significant amount of our
goodwill or intangible assets; the effects of and changes in, trade, monetary
and fiscal policies, laws and regulations, and other activities of government
agencies; changes in social and economic conditions; changes in interest rates;
increased competition; our reliance on a single shipping provider to handle our
mail deliveries; our ability to obtain competitive financing to fund operations
and growth; loss or retirement of key executives; continuing qualifications to
list our securities on the Nasdaq National Market; developments in medical
research affecting the treatment or cure of conditions for which we distribute
medications; the ability of management and accounting controls to assure
accurate and timely recognition of revenue and earnings; computer system,
software, or hardware failures or malfunctions; and adverse publicity, news
coverage, and reporting by independent analysts. These and other risks and
uncertainties are discussed in further detail in the cautionary statement filed
as Exhibit 99.1 as part of Chronimed's Annual Report and Form 10-K for the
fiscal year ended July 2, 2004 filed with the Securities and Exchange
Commission.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

      We are exposed to interest rate risk primarily through our borrowing
activities under our line of credit discussed in Item 2 of this report. Our
short-term borrowings would bear interest at variable rates based on the
Eurodollar rate plus an applicable margin depending on our covenant calculation.
A 10% increase in interest rates would not have a significant effect on our
interest expense based on the fact that we have had no borrowings to date in
fiscal 2005. Interest rate risk on our investments is immaterial due to our
level of investment dollars. Foreign currency exchange rate risk, commodity
price risk, or other market risks (e.g. equity price) are not present. We do not
use financial instruments for trading or other speculative purposes and are not
a party to any leveraged financial instruments.


ITEM 4. CONTROLS AND PROCEDURES

      Our management, including the Chief Executive Officer and Chief Financial
Officer, have conducted an evaluation of the effectiveness of disclosure
controls and procedures (as such term is defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange
Act")) as of the end of the period covered by this report. Based on such
evaluation, our Chief Executive Officer and Chief Financial Officer have
concluded that, as of the end of such period, our disclosure controls and
procedures are effective.

      There have not been any changes in our internal controls over financial
reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the
Exchange Act) during our most recent quarter that have materially affected, or
are reasonably likely to materially affect, our internal controls over financial
reporting.

                                       16
<PAGE>

                           PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

      There have been no material developments in legal proceedings involving
Chronimed Inc. or its subsidiaries since those reported in our Annual Report on
Form 10-K for the fiscal year ended July 2, 2004.

ITEM 6. EXHIBITS

        31.1  Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of
              2002 (Chief Executive Officer).

        31.2  Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of
              2002 (Chief Financial Officer).

        32.1  Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
              Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief
              Executive Officer).

        32.2  Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
              Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief
              Financial Officer).

                                       17
<PAGE>

                                   SIGNATURES

      Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                                      CHRONIMED INC.

Dated: November 5, 2004               By /s/ HENRY F. BLISSENBACH
                                         ---------------------------------------
                                         Henry F. Blissenbach
                                         Chief Executive Officer and
                                         Chairman of the Board of Directors

Dated: November 5, 2004                  /s/ GREGORY H. KEANE
                                         ---------------------------------------
                                         Gregory H. Keane
                                         Vice President, Chief Financial Officer
                                         and Treasurer (Principal Financial and
                                         Accounting Officer)


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