<PAGE>
 
                                                                        Draft
                                                                        11/12/98
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                    FORM 10-Q

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

        For the quarterly period                   Commission File number 
        ended September 30, 1998                         0 - 27698

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


           DELAWARE                                   04-3296309
 (State or other jurisdiction of            (I.R.S. Employer Identification No.)
 incorporation or organization)

     300 Atlantic Street
          Suite 402
    Stamford, Connecticut                                  06901
(Address of principle executive office)                  (Zip Code)

                                 (203) 351-2300
              (Registrant's telephone number, including area code)



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
filing requirements for the past 90 days.


Yes    X      No    
     ----        ---


Number of shares outstanding of the issuer's classes of common stock as of
November 13, 1998.



           Class                                Number of Shares Outstanding
--------------------------------------          ----------------------------
Common Stock, par value $.01 per share                  11,850,461

                                       1
<PAGE>
 
                                  CHIREX INC.

                                     INDEX

<TABLE>
<CAPTION>
                                                                                                      PAGE NUMBER
     
PART I.       FINANCIAL INFORMATION
<S>        <C>                                                                                     <C>
              Item 1.  Financial Statements

                       Consolidated Balance Sheets
                       December 31, 1997 and September 30, 1998                                              3

                       Consolidated Statements of Operations and Comprehensive Operations
                       for the nine-month periods ended September 30, 1997 and 1998                          4

                       Consolidated Statements of Cash Flows for the
                       nine-month periods ended September 30, 1997 and 1998                                  5

                       Notes to Consolidated Interim Financial Statements                                    6


              Item 2.  Management's Discussion and Analysis of
                       Financial Condition and Results of Operations                                         8


PART II.      OTHER INFORMATION

              Item 4.  Submission of Matters to a Vote of Security Holders.                                 12

              Item 5.  Other Information                                                                    12

              Item 6.  Exhibits and Reports on Form 8-K                                                     12

              SIGNATURE                                                                                     12

</TABLE>

   This Quarterly Report on Form 10-Q 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," and
similar expressions are intended to identify forward-looking statements. Many
important factors could cause actual results to differ materially from those
indicated by forward-looking statements made herein and presented elsewhere by
management from time to time.

                                       2
<PAGE>
 
                         PART I - FINANCIAL INFORMATION
                                     ITEM 1
                              FINANCIAL STATEMENTS

                                   CHIREX INC.
                           CONSOLIDATED BALANCE SHEETS
                 AS OF DECEMBER 31, 1997 AND SEPTEMBER 30, 1998
                 (dollars in thousands except per-share amounts)

<TABLE>
<CAPTION>
 
                                                                                DECEMBER 31,            SEPTEMBER 30,
                                                                                   1997                     1998
                                                                               -------------            -------------
                                                                                                         (unaudited)
<S>                                                                            <C>                      <C>   
ASSETS                                                                                          
------                                                                                          
                                                                                                
Current Assets:                                                                                 
       Cash                                                                      $   5,347               $   5,172
       Trade and other receivables                                                  18,811                  22,098
       Inventories                                                                  23,225                  31,112
       Other current assets                                                          3,774                   5,170
                                                                                 ---------               --------- 
            Total current assets                                                    51,157                  63,552
Property, plant and equipment, net                                                 120,755                 144,810
Other non-current assets                                                             3,591                   2,734
Intangible assets, net                                                              27,564                  26,689
                                                                                 ---------               --------- 
       TOTAL ASSETS                                                              $ 203,067               $ 237,785
                                                                                 =========               ========= 
                                                                                                         
LIABILITIES AND STOCKHOLDERS' EQUITY                                                                     
------------------------------------                                                                     
                                                                                                         
Current Liabilities:                                                                                     
       Accounts payable                                                          $   8,763               $  23,925
       Accrued expenses                                                             11,587                  11,046
       Income taxes payable                                                            348                       -
       Current portion of long-term debt                                             7,311                  15,111
                                                                                 ---------               --------- 
            Total current liabilities                                               28,009                  50,082
Long-term debt                                                                      69,675                  78,389
Deferred income taxes                                                                7,955                  10,078
Deferred income                                                                      4,333                   5,661
Contingencies                                                                            -                       -
                                                                                 ---------               --------- 
       Total liabilities                                                           109,972                 144,210
                                                                                 ---------               --------- 
                                                                                                         
Stockholders' equity:                                                                                    
       Common stock ($.01 par value, 30,000,000 shares authorized,                                       
            11,792,990 and 11,833,711 shares issued and outstanding on                                   
            December 31, 1997 and September 30, 1998, respectively)                    118                     118
       Additional paid-in capital                                                  100,788                 101,731
       Retained earnings                                                           (11,411)                (12,642)
       Cumulative translation adjustment                                             3,600                   4,368
                                                                                 ---------               --------- 
            Total stockholders' equity                                              93,095                  93,575
                                                                                 ---------               --------- 
       TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                $ 203,067               $ 237,785
                                                                                 =========               ========= 
</TABLE>

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

                                       3
<PAGE>
 
                                   CHIREX INC.
                    CONSOLIDATED STATEMENTS OF OPERATIONS AND
               CONSOLIDATED STATEMENTS OF COMPREHENSIVE OPERATIONS
                FOR THE THREE-MONTH AND NINE-MONTH PERIODS ENDED
                           SEPTEMBER 30, 1997 AND 1998
                                   (unaudited)
                    (in thousands, except per-share amounts)

<TABLE>
<CAPTION>
                                                                    Three Months Ended                   Nine Months Ended
                                                                       September 30                         September 30
                                                           ---------------------------------     ---------------------------------
                                                                 1997              1998               1997               1998
                                                           --------------     --------------     -------------     ---------------
<S>                                                        <C>                <C>                <C>               <C> 
CONSOLIDATED STATEMENTS OF OPERATIONS

Revenues:
      Product sales                                             $ 21,411           $ 31,640          $ 67,691           $ 83,600
      License fee and royalty income                                 194                 75               577                327
                                                           --------------     --------------     -------------     --------------
                 Total revenues                                   21,605             31,715            68,268             83,927
                                                           --------------     --------------     -------------     --------------
                                                                                                                   
Costs and expenses:                                                                                                
      Cost of goods sold                                          16,319             24,866            51,097             65,624
      Selling, general and administrative                          1,885              2,844             6,451              9,121
      Research and development                                       912                953             2,993              3,239
      Restructuring and other expenses net                                                                         
           of proceeds from disposition in 1997                        -              2,802             6,593              3,023
                                                           --------------     --------------     -------------     --------------
                 Total costs and expenses                         19,116             31,465            67,134             81,007
                                                           --------------     --------------     -------------     --------------
                                                                                                                   
Operating profit                                                   2,489                250             1,134              2,920
                                                                                                                   
Interest expense - net                                                11             (1,054)              (64)            (3,883)
Amortization of goodwill                                            (291)              (291)             (873)              (873)
                                                           --------------     --------------     -------------     --------------
                                                                                                                   
Income (loss) before income taxes                                  2,209             (1,095)              197             (1,836)
Benefit (provision) for income taxes                                (609)               351               (93)               605
                                                                                                                   
                                                           --------------     --------------     -------------     --------------
Net income (loss)                                               $  1,600           $   (744)         $    104           $ (1,231)
                                                           ==============     ==============     =============     ==============
                                                                                                                   
Weighted average number of common shares outstanding              11,534             11,817            11,279             11,808
                                                           ==============     ==============     =============     ==============
Weighted average number of common shares                                                                           
      and common stock equivalents outstanding                    11,803             11,817            11,548             11,808
                                                           ==============     ==============     =============     ==============
                                                                                                                   
Net income (loss) per common share:                                                                                
      Basic                                                     $   0.14           $  (0.06)         $   0.01           $  (0.10)
                                                           ==============     ==============     =============     ==============
      Diluted                                                   $   0.13           $  (0.06)         $   0.01           $  (0.10)
                                                           ==============     ==============     =============     ==============
                                                                                                                   
CONSOLIDATED STATEMENTS OF COMPREHENSIVE OPERATIONS                                                                
                                                                                                                   
Net income (loss)                                               $  1,600           $   (744)         $    104           $ (1,231)
                                                                                                                   
Change in cumulative translation adjustment                       (1,219)               818            (2,591)               768
                                                                                                                   
                                                           ==============     ==============     =============     ==============
Comprehensive net income (loss)                                 $    381           $     74          $ (2,487)          $   (463)
                                                           ==============     ==============     =============     ==============
</TABLE>


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

                                       4
<PAGE>
 
                                  CHIREX INC.
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
         FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1997 AND 1998
                                  (UNAUDITED)
                                (in thousands)

<TABLE>
<CAPTION>
                                                                                        Nine Months Ended
                                                                                          September 30
                                                                          --------------------------------------------
                                                                                1997                       1998
                                                                          ------------------         -----------------
<S>                                                                       <C>                        <C> 
Cash flows from operating activities:
      Net income (loss)                                                             $   104                  $ (1,231)
      Adjustments to reconcile net income (loss) to cash provided
           by operating activities:
           Depreciation & amortization                                                7,054                     9,250
           Deferred tax provision                                                       294                     1,864
           Restructuring and impairment charge                                        8,391                     3,023
           Proceeds from sale of acetaminophen business                              (6,308)                        -
           Changes in assets and liabilities:
                Receivables                                                          (1,812)                   (2,572)
                Inventories                                                          (2,564)                   (7,693)
                Other current assets                                                   (936)                    1,391
                Accounts payable and accrued expenses                                (5,973)                   10,851
                Income taxes payable                                                  1,893                    (2,010)
                Deferred income                                                        (298)                    1,161
                Other non-current assets and liabilities                                (33)                        -
                                                                          ------------------         -----------------
      Net cash provided from operating activities                                      (188)                   14,034
                                                                          ------------------         -----------------

Cash flows from investing activities:
      Proceeds from disposition of acetaminophin business                             4,100                         -
      Capital expenditures                                                           (6,767)                  (28,277)
                                                                          ------------------         -----------------
      Net cash used in investing activities                                          (2,667)                  (28,277)
                                                                          ------------------         -----------------

Cash flows from financing activities:
      Borrowings on line of credit and revolving credit facility, net                  (839)                   13,435
      Proceeds from issuance of stock                                                 4,180                         -
      Proceeds from exercise of stock options                                           914                       530
                                                                          ------------------         -----------------
      Net cash provided from financing activities                                     4,255                    13,965
                                                                          ------------------         -----------------

Effect of exchange rate changes on cash                                                 254                       103
                                                                          ------------------         -----------------

Net increase (decrease) in cash                                                       1,654                      (175)
Cash at beginning of period                                                             291                     5,347
                                                                          ------------------         -----------------
Cash at end of period                                                               $ 1,945                   $ 5,172
                                                                          ==================         =================
</TABLE>



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

                                       5
<PAGE>
 
                                  CHIREX INC.
              NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS


1.  NATURE OF OPERATIONS AND PRINCIPLES OF CONSOLIDATION


NATURE OF OPERATIONS


    ChiRex Inc. (the "Company" or "ChiRex") serves the outsourcing needs of some
of the largest pharmaceutical and life science companies in the world by
providing pharmaceutical fine chemical manufacturing and process development
services and offering its customers access to the Company's extensive portfolio
of proprietary technologies.  The Company's contract manufacturing services
developed over the past thirty years, include process research and development,
hazard evaluation, clinical quantity production and pilot-scale and commercial-
scale manufacturing at its world-class, current Good Manufacturing Practices
("cGMP") facilities in Dudley, England and Annan, Scotland.  The Company's
common stock is publicly traded in the United States on the Nasdaq Stock
Market's National Market ("NASDAQ") under the symbol "CHRX".


PRINCIPLES OF CONSOLIDATION


    The financial statements of the Company include the historical results of
its subsidiaries for the entire period presented or from the date of
acquisition.

    The interim financial statements, in the opinion of management, reflect all
adjustments (including normal recurring adjustments) necessary for a fair
presentation of the results for the interim period ended September 30, 1998.
The results of operations for the interim period are not necessarily indicative
of the results of operations expected for the fiscal year.

    See Form 10-K filed as of and for the year ended December 31, 1997 for
additional information.

2.  RECENT ACCOUNTING DEVELOPMENTS:

Net Loss per Common Share


    Basic income (loss) per common share for the third quarter and nine-month
periods ended September 30, 1997 and 1998 were computed by dividing the net
income (loss) by the weighted average shares outstanding during the period in
accordance with Statement of Financial Accounting Standards No. 128, Earnings
per Share ("SFAS 128").  Since the effect of the assumed exercise of stock
options of 503,000 shares and 530,000 shares for the third quarter and first
nine months of 1998, respectively, were anti-dilutive, basic and diluted 
loss per common share as presented on the statement of operations are the
same.  Upon adoption of SFAS 128 at year-end 1997, the Company's reported
earnings per common share for the third quarter and first nine months of 1997
were required to be restated.  There was no effect on net income (loss) per
common share for the third quarter and first nine months of 1997 from the
adoption of SFAS 128.

Comprehensive Income

    In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
130").  This statement establishes standards for reporting and display of
comprehensive income and its components.  Components of comprehensive income are
net income and all other non-owner changes in equity such as the change in the
cumulative translation adjustment.  This statement requires that an enterprise:
(a) classify items of other comprehensive income by their nature in a financial
statement and (b) display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in capital in the equity
section of a balance sheet.  SFAS 130 is effective for financial statements
issued for periods beginning after December 15, 1997.  Presentation of
comprehensive income for earlier periods provided for comparative purposes is
required and has been presented in these financial statements.

                                       6
<PAGE>
 
3.  

    As of September 30, 1998, the Company was not in compliance with certain 
financial covenants of its revolving-credit and term-loan credit facilities (the
"Facilities Agreement"). The lenders have permanently waived these defaults and
the Company has agreed to certain modifications to the Facilities Agreement.
After taking into consideration the waivers and modifications to the Facilities
Agreement, the Company is in compliance with all of the terms of the Facilities
Agreement at September 30, 1998. Under the Company's current business plan,
management expects the Company will be unable to satisfy certain financial
covenants in the future, however the Company has received an unconditional
letter from its lenders expressing their intent to continue their support of the
Company and to negotiate in good faith, further modifications to the Facilities
Agreement as necessary.

4.

    The Company announced in July 1998, a restructuring including management
changes and the transition to a product management structure. The Company
expects to record a total pre-tax restructuring charge of $4.9 million in 
fiscal-year 1998 related to severance and other costs of this restructuring, of
which $2.8 million has been recognized for expenses incurred in the quarter
ended September 30, 1998 with the balance expected to be recognized in the
fourth quarter. Third quarter 1998 restructuring expenses include severance
costs related to management changes made to implement the product management
structure. As of September 30, 1998 approximately $1.8 million of this
restructuring charge is reflected in accrued expenses on the balance sheet.

5.  RECLASSIFICATION

    Certain amounts in the prior period's financial statements have been
reclassified to be consistent with the current period presentation.


                                       7
<PAGE>
 
Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

    The following discussion and analysis should be read in conjunction with the
historical consolidated financial statements and the notes thereto included
elsewhere herein.

INTRODUCTION

    ChiRex Inc. (the "Company" or "ChiRex") serves the outsourcing needs of some
of the largest pharmaceutical and life science companies in the world by
providing pharmaceutical fine chemical manufacturing and process development
services and offering its customers access to the Company's extensive portfolio
of proprietary technologies.  The Company's contract manufacturing services
developed over the past thirty years, include process research and development,
hazard evaluation, clinical quantity production and pilot-scale and commercial-
scale manufacturing at its world-class, current Good Manufacturing Practices
("cGMP") facilities in Dudley, England and Annan, Scotland.

    In April 1997, the Company disposed of its acetaminophen (paracetamol, an
over-the-counter analgesic) business and in September 1997, the Company ceased
production of acetaminophen.  At the time of the disposition, acetaminophen was
the largest volume product manufactured by the Company, representing
approximately 31% of the Company's 1996 pro-forma revenues, but was not highly
profitable at the gross margin level.  In connection with the disposition of the
business, the Company recorded a $6.6 million pre-tax restructuring charge net
of proceeds on disposition in the second quarter of 1997, and implemented
measures designed to offset the effect of the disposal on operating performance.
The Company's decision to dispose of its acetaminophen business followed a
strategic review of several alternatives and was based on a number of factors,
including the continued domination of the acetaminophen business by high volume,
low cost manufacturers and the Company's expectation that the market price of
acetaminophen would continue to erode.

    On October 31, 1997, the Company completed the purchase of a Glaxo Wellcome
FDA cGMP pharmaceutical production facility located in Annan, Scotland.  The
Company paid approximately $66.8 million (40.0 million) for the facility plus an
additional payment for certain working capital of approximately $1.7 million
((Pounds)1.0 million).  As part of the transaction, Glaxo Wellcome awarded the
Company a five-year contract to supply certain pharmaceutical intermediates and
active ingredients with an aggregate sales value of approximately $450 million.
Under the Asset Purchase Agreement, ChiRex purchased all of the buildings, land
and equipment at the 154-acre Annan, Scotland property, encompassing three main
production facilities plus certain working capital.  The Company plans to invest
approximately $25 million over two years to accommodate newly contracted
products and to modify the facility for multi-product pharmaceutical fine
chemical manufacturing.  Under the Supply Agreement, ChiRex will manufacture up
to ten products at Annan and Dudley.  The acquisition has been accounted for as
a purchase and, accordingly, the operating results of the Annan facility have
been included in the Company's consolidated financial statements from the date
of acquisition.

    Substantially all of the Company's revenues and expenses are denominated in
Great Britain pounds sterling, and to prepare the Company's financial statements
such amounts are translated into U. S. dollars at average exchange rates in
accordance with generally accepted accounting principles.

                                       8
<PAGE>
 
RESULTS OF OPERATIONS

Three-month period ended September 30, 1997 and 1998

    Total revenues increased $10.1 million, or 46.8% to $31.7 million in the
third quarter of 1998, from $21.6 million in the comparable period in 1997, as
new products came on stream and shipments under the Glaxo Wellcome supply
contract expanded, partly offset by the unfavorable effect on revenues from the
sale of the acetaminophen business which contributed $4.9 million in revenues in
the third quarter of 1997.

    Cost of goods sold increased $8.5 million, or 52.4% to $24.9 million in the
three-month period ended September 30, 1998 from $16.3 million in last year's
third quarter.  This increase is due to the higher volume of new product sales
partly offset by lower acetaminophen sales, expenses associated with new product
introductions and the under-utilization of the Annan facility acquired in the
fourth quarter of 1997 during its re-conditioning into a multi-product  
pharmaceutical fine chemical manufacturing facility.  As a result of the above
factors, gross margin percentage in the third quarter of 1998 decreased to 21.6%
from 24.5% in 1997.

    Research and development expenses increased $41 thousand, or 4.5% to $1.0
million in the third quarter of 1998.  This increase was due mainly to the cost
of additional research chemists and pilot plant costs to support the new product
pipeline.

    Selling, general and administrative expenses increased $1.0 million or
50.9%, to $2.8 million in the three-month period ended September 30, 1998 from
$1.9 million last year. This increase is due primarily to additional expenses
associated with the Annan facility acquired in the fourth quarter of 1997.

    Interest expense was $1.1 million in the third quarter of 1998 compared to
interest income of $11 thousand in last year's third quarter.  This is a result
of higher borrowing levels resulting from the acquisition of the Annan facility
in the fourth quarter of 1997 and significant capital improvement projects in
1998.

    The Company announced in July 1998, a restructuring including management
changes and the transition to a product management structure.  The Company
expects to record a total pre-tax restructuring charge of $4.9 million in
fiscal-year 1998 related to severance and other costs of this restructuring, 
of which $2.8 million has been recognized for expenses incurred in the quarter
ended September 30, 1998 with the balance expected to be recognized in the
fourth quarter. Third quarter 1998 restructuring expenses include severance
costs related to management changes made to implement the product management
structure. As of September 30, 1998, approximately $1.8 million of this
restructuring charge is reflected in accrued expenses on the balance sheet.

    The benefit for income taxes was $0.4 million in the three-month period
ended September 30, 1998, versus a $0.6 million provision for income taxes in
the comparable prior-year period. This represents an effective rate of 32.1% in
1998 compared to an effective rate of 27.6% in the same period in 1997. The
higher effective tax rate in 1998 is the result of profitability expectations
for 1998.

    As a result of the factors described above, the Company reported a net loss
of $0.7 million in the third quarter of 1998 compared to net income of $1.6
million for the comparable prior-year period.

Nine-month period ended September 30, 1997 and 1998

    Total revenues increased $15.7 million, or 22.9% to $83.9 million in the
first nine months of 1998, from $68.3 million in the comparable period in 1997,
as new products came on stream and shipments under the Glaxo Wellcome supply
contract expanded, partly offset by the unfavorable effect on revenues from the
sale of the acetaminophen business which contributed $17.0 million in revenues
to the first nine months of 1997.

    Cost of goods sold increased $14.5 million, or 28.4% to $65.6 million in the
nine-month period ended September 30, 1998 from $51.1 million in last year's
first nine months.  This increase is due to the higher volume of new product
sales 

                                       9
<PAGE>
 
partly offset by lower acetaminophen sales, expenses associated with new product
introductions, and the under-utilization of the Annan facility acquired in the
fourth quarter of 1997 during its re-conditioning into a general-purpose
pharmaceutical fine chemical manufacturing facility. The Company also
experienced production interruptions for one product during the second quarter
that resulted in unfavorable manufacturing variances. The production
difficulties for this product were resolved and full-scale production resumed in
mid-July 1998. As a result of the above factors, gross margin percentage in the
first nine months of 1998 decreased to 21.8% from 25.2% in 1997.

    Research and development expenses increased $0.2 million, or 8.2% to $3.2
million in the first nine months of 1998.  This increase was due mainly to the
cost of additional research chemists and pilot plant costs to support the new
product pipeline.

    Selling, general and administrative expenses increased $2.7 million or
41.4%, to $9.1 million in the nine-month period ended September 30, 1998 from
$6.5 million last year. This increase is due primarily to additional expenses
associated with the Annan facility acquired in the fourth quarter of 1997 and
expenses incurred related to the search for a Chief Operating Officer.

    The Company expects to record a total pre-tax restructuring charge of $4.9
million in fiscal-year 1998 associated with the restructuring announced in July
1998, of which $2.8 million has been recognized for expenses incurred in the
third quarter with the balance expected to be recognized in the fourth quarter.
Other expenses were $3.0 million in the nine-month period ended September 30,
1998 versus $6.6 million in the comparable prior-year period. The 1998
restructuring charge and other expenses includes $2.8 million incurred in the
third quarter 1998 for the aforementioned restructuring and $0.2 million of
other costs incurred in the second quarter 1998 by a special committee of the
Company's board of directors whose work culminated in the restructuring
announced in July 1998. The 1997 restructuring charge represented expenses
associated with the disposition of the acetaminophen business.

    Interest expense was $3.9 million in the first nine months of 1998 compared
to $0.1 million last year. This is a result of higher borrowing levels resulting
from the acquisition of the Annan facility in the fourth quarter of 1997 and
significant capital improvement projects in 1998.

    The benefit for income taxes was $0.6 million in the nine-month period ended
September 30, 1998, versus a $0.1 million provision for income taxes in the
comparable prior-year period.  This represents an effective rate of 33.0% in
1998 compared to an effective rate of 47.2% in the same period in 1997.

    As a result of the factors described above, the Company reported net loss of
$1.2 million in the first nine months of 1998 compared to net income of $0.1
million for the comparable prior-year period.

LIQUIDITY AND CAPITAL RESOURCES

    Cash provided from operations for the first nine months of 1998 of $14.0
million is $14.2 million higher than the $0.2 million used in the same period in
1997 and reflects a $1.1 million reduction in the Company's net investment in
operating assets.

    Net cash used in investing activities in the first nine months of 1998 was
$28.3 million compared to $2.7 million in the same period of 1997.  Capital
spending in 1998 includes expenditures for plant maintenance, alteration of
equipment at Dudley to accommodate new products, and modification of the Annan
facility. The majority of these expenditures are to accommodate newly contracted
products at Dudley and Annan, and to convert the Annan facility to a multi-
product pharmaceutical fine chemical manufacturing facility.

    Net cash provided from financing activities for the first nine months of
1998 of $13.9 million is the result of $13.4 million in borrowings under the
company's revolving credit facility and $0.5 million in proceeds received from
the exercise of stock options.

                                       10
<PAGE>
 
    As of September 30, 1998, the Company was not in compliance with certain
financial covenants of its revolving-credit and term-loan credit facilities (the
"Facilities Agreement").  The lenders have permanently waived these defaults and
the Company has agreed to certain modifications to the Facilities Agreement.
After taking into consideration the waivers and modifications to the Facilities
Agreement, the Company is in compliance with all of the terms of the Facilities
Agreement at September 30, 1998. Under the Company's current business plan, 
management expects the Company will be unable to satisfy certain financial 
covenants in the future, however, the Company has received an unconditional 
letter from its lenders expressing their intent to continue their support of the
Company and to negotiate in good faith, further modifications to the Facilities
Agreement as necessary.


    The Company expects to satisfy its cash requirements, including the
requirements of its subsidiaries, through internally generated cash and
borrowings.

YEAR 2000 DISCLOSURE

    The Company has dedicated internal resources to identify and resolve "year
2000" compliance issues with respect to computer systems and applications
utilized by the Company.  The Company has also engaged external resources,
including hiring an independent consulting firm, and will purchase necessary
computer software and upgrades to become year 2000 compliant. The Company will 
develop comprehensive testing procedures once necessary software and equipment
have been installed to validate year 2000 compliance. The Company is
implementing a year 2000 compliant management information system at its Annan
facility in connection with its business plans for this location. The Company's
plan is to implement these systems at the Company's other locations, including
the Dudley facility, in 1999. The Company expects to spend approximately $3.0
million on systems and equipment which are year 2000 compliant.

     The Company believes that the systems at two of the three production
facilities at Annan are year 2000 compliant.  At present, the Company is not
utilizing the third production facility at Annan.  In the event that the Company
commences operations at this third facility, it expects to spend $1.0 million
upgrading the facility's computer systems and applications and will expense 
these costs in accordance with current accounting guidance.

     No assurance can be given that the year 2000 compliance issues will be
resolved without any future disruption or that the Company will not incur
significant additional expense in resolving the issue.  In addition, the failure
of certain of the Company's significant suppliers and customers to address the
year 2000 compliance issues could have a material adverse effect on the company.

     Contingency plans have been addressed for all major computer systems and
applications, and they include manual capability of certain business areas if
necessary, and the controlled shutdown and start up of the manufacturing plant
for a minimum period of days during the date change.  The approach, methodology,
plans, and contingencies for internal processes have been reviewed by our 
independent computer consultant and are subject to further development and 
testing. With regards to external factors such as supply of raw materials,
access to funds and potential utility disruption, the Company's contingency
plans are at a preliminary stage and require further development.

FOREIGN CURRENCY

    The Company currently expects that sales of its products outside the United
States will continue to be a substantial percentage of its net sales. The
Company currently intends to hedge its foreign exchange exposure to a certain
extent by entering into forward contracts with banks to the extent that the
timing of the currency flows can reasonably be anticipated.  The Company
believes it has a natural currency hedge because its operating expenses tend to
be denominated in matched currencies.  Also the Company has partly offset
foreign currency-denominated assets with foreign currency-denominated
liabilities.

    Financial results of the Company could be adversely or beneficially affected
by fluctuations in foreign exchange rates. Fluctuations in the value of foreign
currencies will affect the U. S. dollar value of the Company's net investment in
its foreign subsidiaries, with related effects included in a separate component
of stockholders' equity titled Cumulative Translation Adjustments. Operating
results of foreign subsidiaries are translated into U. S. dollars at average
monthly exchange rates and balance sheet amounts are translated at period-end
exchange rates.  In addition, the U. S. dollar value of transactions based in
foreign currency also fluctuates with exchange rates. The Company expects that
the largest foreign currency exposure will result from activity in Great Britain
pounds sterling, German marks and Dutch guilders.

                                       11
<PAGE>
 
PART II - OTHER INFORMATION


ITEM 4.    Submission of Matters to a vote of Security Holders.
           ----------------------------------------------------

           -NONE-

ITEM 5.    Other Information
           -----------------

           -NONE-

ITEM 6.    Exhibits and Reports on Form 8-K
           --------------------------------

           (a)  Exhibits. The exhibits listed on the accompanying Exhibit Index
                are filed as part of this Quarterly Report on Form 10-Q.

           (b)  Current Reports on Form 8-K:
                    On September 1, 1998, the Company filed a Current Report on
                    Form 8-K reporting management changes and restructuring.

SIGNATURE


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.

                                               CHIREX INC.



Date:  November 16, 1998                        By:  /s/ Jon E. Tropsa
                                                     -----------------

                                                     Jon E. Tropsa
                                                     Vice President, Finance

                                       12
<PAGE>
 
EXHIBIT INDEX


Exhibit Number            Description
--------------            -----------

      4.5                 Second Amendment dated 16 November 1998
                          to Facilities Agreement dated 30 October 1997

      27                  Financial Data Schedule.

                                       13