UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                    FORM 10-K

                        FOR ANNUAL AND TRANSITION REPORTS

                     PURSUANT TO SECTION 13 OR 15(d) OF THE

                       SECURITIES AND EXCHANGE ACT OF 1934

(Mark One)

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

For the fiscal year ended December 31, 2001

                                       OR

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

For the transition period from __________________ to __________________.

                        Commission File Number 000-30929

                         KERYX BIOPHARMACEUTICALS, INC.
             (Exact Name of Registrant as Specified in Its Charter)

                 DELAWARE                                   13-4087132
      (State or Other Jurisdiction of                   (I.R.S. Employer
      Incorporation or Organization)                    Identification No.)

             101 Main Street
           Cambridge, Massachusetts                            02142
  (Address of Principal Executive Offices)                   (Zip Code)

        Registrant's telephone number, including area code: 617-494-5515

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

                                      NONE

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

                    COMMON STOCK, PAR VALUE $0.001 PER SHARE


<PAGE>


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

Yes [X] No [ ]

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

     As of March 21, 2002,  the aggregate  market value of the Common Stock held
by non-affiliates of the registrant was $70,785,136. Such aggregate market value
was  computed  by  reference  to the closing  sale price of the Common  Stock as
reported on the National Market segment of The Nasdaq Stock Market on such date.
For  purposes  of making  this  calculation  only,  the  registrant  has defined
affiliates as including all directors,  executive  officers and 10% stockholders
of the Company.

     As of March 21,  2002,  there were  19,895,185  shares of the  registrant's
Common Stock outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

     As stated in Part III of this Annual  Report on Form 10-K,  portions of the
registrant's definitive proxy statement for the registrant's 2002 Annual Meeting
of Stockholders  are incorporated by reference in Part III of this Annual Report
on Form 10-K.


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                                TABLE OF CONTENTS

                                     PART I

                                                                            PAGE

ITEM 1.        Business..............................................          5

ITEM 2.        Properties............................................         25

ITEM 3.        Legal Proceedings.....................................         26

ITEM 4.        Submission of Matters to a Vote of Security
               Holders...............................................         26

                               PART II

ITEM 5.        Market for Registrant's Common Equity and
               Related Stockholder Matters...........................         27

ITEM 6.        Selected Financial Data...............................         29

ITEM 7.        Management's Discussion and Analysis of
               Financial Condition and Results of
               Operations............................................         30

ITEM 7A.       Quantitative and Qualitative Disclosure About
               Market Risk...........................................         37

ITEM 8.        Financial Statements and Supplementary
               Data..................................................         38

ITEM 9.        Changes in and Disagreements With Accountants
               on Accounting and Financial Disclosures...............         39

                              PART III

ITEM 10.       Directors and Executive Officers of the
               Company...............................................         39

ITEM 11.       Executive Compensation................................         39

ITEM 12.       Security Ownership of Certain Beneficial
               Owners and Management.................................         39

ITEM 13.       Certain Relationships and Related Transactions........         39


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<PAGE>


                                     PART IV

ITEM 14.       Exhibits, Financial Statement Schedules, and
               Reports on Form 8-K...................................         39

     This   Form   10-K   contains   trademarks   and   trade   names  of  Keryx
Biopharmaceuticals,  Inc.,  including our name,  logo and the KinAce mark.  This
Form 10-K may also include trademarks and trade names of other companies.


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<PAGE>


                                     PART I

ITEM 1. BUSINESS.

Overview

     We use data discovered  through the mapping of the human genome to generate
drug candidates that target the regulation of protein  kinases.  Protein kinases
play a key role in the way cells  communicate.  We believe  that our approach to
drug design  allows us to discover  more drug  candidates  in less time and with
lower levels of toxicity than our  competitors.  We are focusing our development
efforts  on  several  KinAce  leads in the  areas of  oncology,  metabolism  and
immunology.  We recently  obtained  the  exclusive  worldwide  rights to a novel
technology,  which we call Small  Integrated  Building-blocks,  or SIB,  for the
conversion of peptides and other existing  drugs into small  molecules that have
the potential for oral delivery.  We believe the SIB technology will prove to be
an  important  adjunct  to our  core  KinAce  platform,  as well as  potentially
expanding the business opportunities for our other compounds and technologies.

     In addition to developing drug candidates with our KinAce platform, we have
been developing sulodexide, or KRX-101, to which we have an exclusive license in
North America,  Japan and other markets.  Our efforts in this area have included
extensive  discussions  with the  United  States  Food and Drug  Administration,
referred to as the FDA,  concerning  our planned  Phase III  clinical  trials of
KRX-101 for the treatment of the kidney  disease known as diabetic  nephropathy.
The FDA granted  KRX-101  its  "Fast-Track"  designation  for the  treatment  of
diabetic  nephropathy.  We have  also  initiated  a Phase II  clinical  trial of
KRX-101 in South Africa for the  treatment  of  HIV-associated  nephropathy,  or
HIVAN.

     To date, none of our drug candidates has received  approval for sale in any
market.

Our Strategy

     We intend to:

     o    advance  KRX-101 into a Phase III clinical  trial program for diabetic
          nephropathy and pursue its use to treat additional diseases;

     o    complete  our Phase II clinical  trial of KRX-101 in South  Africa for
          HIVAN;

     o    complete  pre-clinical  development  of KRX-123 for  hormone-resistant
          prostate  cancer and file an  initial  new drug  application  to enter
          clinical trials for this drug candidate;

     o    use our KinAce platform to generate new drug candidates  especially in
          the areas of oncology and metabolic and immunological diseases;

     o    begin  development  of  small  molecule  drug  leads  based on our SIB
          technology;

     o    develop our drug candidates internally or license them to others based
          on an assessment of clinical and financial resources; and

     o    further develop and expand our existing  relationships  with corporate
          collaborators  and initiate  new  relationships  for the  development,
          marketing and distribution of our drug candidates.


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Corporate Information

     We were incorporated as a Delaware corporation in October 1998. Although we
started  operating  our  business  in  November  1999,  many  of  our  principal
technologies  and drug  candidates  were developed by our  predecessor  company,
Partec Ltd.,  and its  subsidiaries  during the period  January 1997 to November
1999.  Consequently,  in this  report,  "we",  "us"  and  "our"  refer  to Keryx
Biopharmaceuticals,  Inc.,  its  predecessor  company and its or our  respective
subsidiaries  unless the context requires  otherwise.  Our executive offices are
located at 101 Main Street, Cambridge, Massachusetts 02142. Our telephone number
is  617-494-5515.  Our e-mail  address is  info@keryx.com.  We also  maintain an
office at 7 Hartom  Street,  Har Hotzvim,  Jerusalem,  91236,  Israel,  where we
conduct a substantial amount of our operations.

KRX-101

Overview

     We have  obtained a license to develop  sulodexide,  or  KRX-101,  to treat
diabetic  nephropathy and other  conditions.  Sulodexide is a drug that has been
sold in Europe for many years by our licensor for other medical  conditions  and
has a well-established  safety profile for these conditions.  After having filed
an  application  with the FDA to  begin  clinical  trials  of  KRX-101  to treat
nephropathy in Type II diabetics,  we received input on designing  protocols for
Phase III clinical trials. Over the past year, we have had discussions with both
the FDA and prospective  corporate partners concerning the design and conduct of
the Phase III clinical  trials.  Based upon our work and these  discussions,  we
recently  filed our preferred  protocols  with the FDA. We hope to meet with the
FDA in the near  future and  receive  its  concurrence  with our plans for these
Phase III clinical trials.

     There are an  estimated  10.3  million  diagnosed  diabetics  in the United
States,  of whom  approximately  90% have been  diagnosed with Type II diabetes.
Type II diabetes results from the body's  inability to properly use insulin,  as
distinguished  from Type I diabetes  that results  from the body's  inability to
manufacture insulin. The American Diabetes  Association,  or ADA, estimates that
between 10% and 20% of  diagnosed  Type II  diabetics  have  nephropathy.  These
figures  suggest  that  approximately  one  to two  million  diagnosed  Type  II
diabetics  in the United  States  have  nephropathy.  We believe  the  estimated
potential annual market for KRX-101 for the treatment of diabetic nephropathy is
in excess of one billion dollars.

Scientific Background

     Diabetes often damages the intricate system of delicate capillary loops, or
glomeruli,  in the human kidney. As these loops lose their structural integrity,
their ability to selectively filter the blood's contents diminishes and protein,
chiefly albumin, is lost into the urine resulting in diabetic  nephropathy.  The
presence of albumin in urine,  known as  albuminuria,  causes  direct  damage to
other crucial kidney  structures.  This damage may  eventually  result in kidney
failure, which can be treated only by dialysis or kidney transplantation.

     KRX-101 repairs and maintains glomerular  membranes,  thus reducing protein
leakage,  and directly  inhibits  the  inflammation  and scarring of  structures
within the  kidney.  We believe  these  beneficial  effects may delay or prevent
kidney failure resulting from diabetic nephropathy.


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<PAGE>


Development Status

     There have been more than 20 studies  published in leading medical journals
assessing the safety of KRX-101 in humans. KRX-101 has been administered to more
than 3,000 patients in clinical trials  conducted in Europe for the treatment of
certain  diabetic and  non-diabetic  conditions  and, to our knowledge,  has not
demonstrated any significant side effects for those uses.

     Captopril,  a type of drug known as an ACE  inhibitor,  was approved by the
FDA for Type I  diabetes  with  macroalbuminuria,  a  condition  in which  large
amounts of protein is inappropriately excreted by the kidneys.  However, the FDA
has not approved the use of ACE inhibitors for Type II diabetic nephropathy,  as
clinical trials have not conclusively demonstrated the beneficial effects of ACE
inhibitors in this patient population. In the absence of approved drugs for Type
II diabetic  nephropathy,  the ADA has recommended the use of ACE inhibitors for
Type II  diabetic  nephropathy.  However,  studies  have  demonstrated  that ACE
inhibitors are not as effective for  nephropathy of Type II diabetes as they are
for nephropathy of Type I diabetes. In addition,  patients with Type II diabetes
experience  more  frequent  side  effects from ACE  inhibitors  than the general
population. Recently, several pharmaceutical companies have attempted to develop
angiotension receptor blockers, or ARBs, to treat diabetic nephropathy. However,
a recent FDA advisory  committee  recommended  that the FDA reject one such drug
for the treatment of diabetic nephropathy.


     The licensor of KRX-101 conducted a Phase II study of the use of sulodexide
to treat diabetic nephropathy,  in 200 patients in Europe between 1996 and 1999.
The trial was a four-month dose response trial that showed a clear  relationship
between dosage levels and reduction in albuminuria. This trial also demonstrated
a reduction in  albuminuria in patients with Type II diabetes being treated with
ACE inhibitors.  In June 2000, we filed an investigational new drug application,
or IND,  with the FDA for  permission  to conduct a  clinical  trial for Type II
diabetic  nephropathy.  This  application  contains  data  from  the  200-person
clinical  trial for this  condition  conducted by the licensor.  On the basis of
this data and the IND we submitted in June 2000,  the FDA invited us to submit a
protocol for a pivotal Phase III clinical trial. The ultimate clinical timeline,
and consequent cost, for further development of KRX-101 will depend on the FDA's
acceptance  of the protocols we have recently  filed or,  alternatively,  on any
requests the FDA might have to alter such protocols.

Additional Indications

     We believe KRX-101 has significant potential to treat other diseases. These
conditions include, but are not limited to, HIVAN, a condition we believe shares
a  similar  mechanism  of  action  as  diabetic  nephropathy,  pre-eclampsia,  a
complication  of pregnancy  involving a sudden rise in blood  pressure,  and the
nephrotic syndrome, a condition marked by deficiency of albumin in the blood. We
recently  initiated a Phase II clinical  trial in South Africa for the treatment
of HIVAN.  In addition,  we have filed patent  applications  to cover the use of
KRX-101 for the treatment of HIVAN and other indications.

KinAce Drug Discovery Platform

Overview

     We believe our KinAce  platform  represents one of the first practical uses
of the genomics database to systematically  generate drug candidates that target
protein  kinases.  We use  computer  programs to analyze  genomic data that then
enables us to create compounds that aim to regulate kinases.

     Protein kinases play a key role in the way cells communicate.  When protein
kinases  give an  inappropriate  signal,  the result is often a disease or other
unwanted medical condition.  Our KinAce platform uses a proprietary algorithm to
identify  unique  regulatory  regions  within  each  kinase.  Once


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<PAGE>


this unique  regulatory  region is  identified,  we can duplicate it to form the
basis of a  compound  that can  potentially  inhibit  or  stimulate  the  signal
transduction pathway associated with that kinase.  During the last year, we have
focused  on  developing  what we  believe  are  our  most  promising  compounds,
including  KRX-123 for  hormone-resistant  prostate cancer,  KRX-683 for Type II
diabetes and KRX-211 for immunological disorders.

     We expect to file in 2002 an IND to enter  human  clinical  trials  for our
first KinAce compound, KRX-123 for hormone-resistant prostate cancer. We believe
hormone-resistant  prostate  cancer,  for which there is  currently  no curative
treatment,  represents an estimated  potential annual worldwide market in excess
of $450  million.  We are  developing  our  other  KinAce  compounds  through  a
combination of in-house  efforts and research and  development  agreements  with
others.

Scientific Background

     Cells  within  the human  body,  like those  within  all living  organisms,
communicate with each other to coordinate their growth and differentiation.  The
primary  mechanism by which cells  communicate is a messenger system  comprising
the transmission of biochemical  signals.  These "signals" are soluble molecules
that are  secreted by cells.  In general,  signals from outside a cell come into
contact with a receptor on the cell surface and are then "transduced" across the
cell membrane.  The signal is then propagated along specific pathways within the
cell by  molecules  that  transmit  the signal to  specific  target  organelles.
Protein kinases function as these cellular messengers.

     Scientists  have estimated that over 600 distinct  protein kinases exist in
the human genome.  Protein kinases control a variety of functions carried out by
cells and may  contribute to disease if they are "turned on" when they should be
"turned  off," or "turned off" when they should be "turned on." For example,  in
certain cancers, the excess activity of protein kinases allows uncontrolled cell
division.  "Turning off" these protein kinases may provide one method of halting
the growth of malignancies.  Conversely, increasing protein kinase activity when
it is inadequate may improve other unwanted medical conditions.

     We use our KinAce platform  technology to develop small compounds  designed
to inhibit or stimulate the activity of a precise  region of a specific  kinase.
Each small compound mimics the precise region unique to the target kinase.

Advantages of the KinAce Approach

     We believe  that our KinAce  platform  has the  following  advantages  over
traditional drug discovery methods.

     o    Increased hit rate. Our KinAce platform targets highly specific kinase
          regions,  and once  identified  it is less  complicated  to  ascertain
          precisely  which compound will have the desired  biological  effect on
          that region. Accordingly, we are able to focus our efforts on only ten
          to twenty compounds for testing per kinase target.

     o    Reduced time to discovery.  Our approach enables us to reduce the time
          from  discovery  to  drug  lead,   while  avoiding  the  need  to  use
          high-throughput screening.

     o    Reduced  toxicity.  We believe the increased  specificity  of our drug
          candidates  should result in less  toxicity.  Our drug  candidates are
          designed to regulate a region unique to a particular  kinase


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          and cause  biological  changes that are  specific to the  functions of
          that kinase alone.  Other drug discovery  methods target a region that
          is common to many  kinases  and  consequently  are more likely to also
          cause biological changes in healthy cells. Toxicity may occur when the
          treatment  has a negative  impact on the functions of healthy cells as
          well as on the targeted site.

     o    Greater versatility. We believe that our ability to stimulate, as well
          as inhibit,  protein  kinases makes our drug candidates more versatile
          in  the  treatment  of  diseases  and  conditions.  Compounds  of  our
          competitors   typically  aim  only  to  inhibit  kinase  activity.  In
          addition, the platform is applicable to a wide range of kinases.

     o    Applicability  to  small  molecule  technology.   Using  our  recently
          acquired SIB technology, we can convert our peptide leads into what we
          believe are  pharmaceutically  more attractive small molecules.  Small
          molecules   have   improved   formulation   and   delivery   profiles.
          Additionally,  we believe  that the  rational  approach  of our KinAce
          technology  will  allow  for  the  rational,   accelerated  design  of
          SIB-based small molecules.

Product Development Programs

     During  2001,  we  made a  strategic  decision  to  narrow  our  focus  and
concentrate  on the  development  of our most  promising  leads in the  areas of
oncology, metabolism and immunology. Below is a description of these leads.

Oncology

     KRX-123--Hormone-Resistant Prostate Cancer

     Our most  advanced  KinAce drug  candidate is KRX-123 for the  treatment of
hormone-resistant  prostate cancer,  referred to as HRPC, a currently  incurable
condition  with an  estimated  potential  annual  market  size in excess of $450
million.  We found that Lyn kinase, a member of the Src protein kinase family is
over-expressed in HRPC. We have generated in-vitro and in-vivo data showing that
HRPC can be treated through KRX-123's  regulation of Lyn kinase pathway. We also
have observed significant regression in hormone-resistant prostate tumors during
pre-clinical  testing when compared to control groups. As a result of additional
formulation  work needed to optimize this drug product,  we now  anticipate  the
filing of an IND for this clinical trial will occur by the end of 2002.

     Due to the rapidly fatal nature of HRPC and the absence of any FDA-approved
curative  treatment for this condition,  we believe we may be able to attain FDA
"fast  track"  review  status for our IND. If we obtain  marketing  approval for
KRX-123 for the  treatment of HRPC, we intend to expand the  indications  of the
drug to treat hormone-sensitive, or earlier stage, prostate cancers.

Metabolism

     KRX-683--Type II Diabetes

     Type II  diabetes  is  often  a  result  of  defective  energy  metabolism.
Epidemiological evidence strongly suggests that there is a nutritional component
associated  with this form of  diabetes.  People who are obese have an increased
incidence of Type II diabetes, a condition known as the diabesity syndrome.


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     We have  identified a specific  kinase that we believe to be involved  with
glucose  metabolism.  We believe that  upregulation  of this  protein  kinase in
persons  afflicted with Type II diabetes causes a decreased  metabolic rate with
resultant  insulin  resistance and  hyperglycemia.  We have tested  KRX-683,  an
inhibitor of this kinase,  in both in-vitro and in-vivo tests. The in-vivo tests
have shown a drop in serum glucose levels upon  administration of KRX-683,  with
lower  levels of glucose  being  maintained  even after we ceased to  administer
KRX-683.  We believe that the  maintenance  of lower  glucose  levels even after
discontinuation  of KRX-683 is quite  significant,  as it provides evidence that
KRX-683 may have long-lasting effects on metabolic regulation.  We believe these
tests have also helped validate our KinAce concept.

     The efficacy of KRX-683 is  currently  being tested in other models of Type
II  diabetes.  Also  underway is  extensive  pre-clinical  testing to  determine
appropriate  dosing,  potential  toxicities,  and side effects.  We also plan to
investigate other indications for this agent.

Immunology

     KRX-211--Septic Shock

     There are an estimated  500,000  cases of septic shock in the United States
each year.  Septic shock is a  life-threatening  reaction to a severe infection,
for which there is currently no  FDA-approved  treatment.  During  septic shock,
bacteria  produce  toxins that cause a cascade of events  resulting in extremely
low blood pressure and subsequent multiple organ failure. The mortality rate for
those with septic shock is approximately 50%.

     We have designed  KRX-211 to inhibit JAK3, a protein kinase  presumed to be
implicated in septic shock. We have  demonstrated  the  effectiveness of KRX-211
in-vitro and in an in-vivo  model of septic  shock.  One hour after  symptoms of
septic shock  arose,  half of the test group was injected  with  KRX-211,  and a
control group was injected with a placebo  solution.  After 48 hours, 80% of the
test group  treated  with  KRX-211  survived,  while none in the  control  group
survived.

     The NIH has  selected  KRX-211  to  undergo  extensive  in-vivo  testing in
preparation for clinical trials. These tests, involving more than 1,000 animals,
are  anticipated  to  last  up to 12  months.  We  are  currently  developing  a
formulation  of  KRX-211  that will  address  certain  issues  that arose in the
initial in-vivo tests.

     Further  pre-clinical  and  clinical  testing for septic shock will be very
expensive.  Therefore,  we intend to fully support the ongoing NIH testing,  and
following  the  successful  conclusion  of such  testing,  we intend to  license
KRX-211 to a partner with the resources to clinically develop this compound.

     KRX-211 has also demonstrated  efficacy in in-vivo models for the treatment
of  rheumatoid  arthritis and  experimental  allergic  encephalitis  (a model of
multiple   sclerosis).   We  intend  to  continue   internally  the  preclinical
development of this compound to treat immunological disorders.


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<PAGE>

The SIB Technology

Overview

     We recently obtained worldwide  exclusive rights to a technology,  known as
the Small  Integrated  Building-block,  or SIB,  technology,  developed  by Haim
Gilon,  a professor of  chemistry  at the Hebrew  University  of  Jerusalem.  We
believe the SIB technology will enable the design of proprietary  small molecule
mimics of our  KinAce-derived  peptides by a modular scaffold building technique
that  can be  likened  to  building  with  Legos.  We  anticipate  that  the SIB
technology will also be able to generate libraries of related compounds that may
result in small molecules that increase the  pharmacological  attractiveness  of
the original KinAce-derived compound.

Advantages

     We believe that the SIB technology may offer us the following advantages:

     o    For certain  indications,  such as  diabetes,  the  conversion  of our
          peptides  into small  molecules  may increase the  attractiveness  and
          value of those  KinAce-derived  compounds  because small molecules (i)
          more easily penetrate the cell membrane, (ii) can be delivered orally,
          and (iii) are, on average,  easier and less costly to manufacture than
          peptides.

     o    SIB-designed  small molecules  exhibit increased  flexibility  thereby
          allowing for  increased  complimentary  conformation,  or induced fit,
          and, consequently, improved pharmacological benefits.

     o    The SIB  technology  can be used to design  small  molecule  mimics of
          other non-Keryx peptide drugs.

Competition

KRX-101

     ACE inhibitors are the current standard of care recommended by the American
Diabetes Association to treat diabetic nephropathy.  ACE inhibitors are marketed
by a number of companies.  However,  ACE inhibitors are not FDA-approved for, or
as effective in,  nephropathy of Type II diabetes as they are for nephropathy of
Type I diabetes.  Preliminary  clinical  evidence  suggests  that KRX-101 may be
additive with ACE inhibitors for nephropathy of both Type I and Type II diabetes
by reducing albuminuria further than ACE therapy alone.

     Other   companies  are   developing   drugs   designed  to  treat  diabetic
complications,  including  Exocell,  Inc.,  which  has  one  compound  aimed  at
nephropathy in a Phase III clinical trial.

KinAce Platform

     Several biotechnology and pharmaceutical  companies are active in the field
of   signal    transduction,    including   Sugen,   Inc.   (a   subsidiary   of
Pharmacia-Upjohn),   Ariad   Pharmaceuticals   Inc.,   Tularik,   Inc.,   Ligand
Pharmaceuticals Inc. and ICOS Corporation.  In addition, Vertex Pharmaceuticals,
Inc.  and  Novartis  Pharma AG have formed an alliance to discover  eight kinase
inhibitors.

     Generally,  our  competitors  target  common,  non-specific  regions within
protein kinases to identify lead compounds. This drug discovery method generates
a large number of  compounds  that must be tested by high  throughput  screening
before a drug candidate is found. We believe that our targeted


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approach to drug discovery gives us a significant advantage over our competitors
by  allowing  us to  generate  more  drug  candidates  in  less  time  and  with
potentially lower toxicities.

     In addition,  a significant number of products are in clinical  development
for HRPC.  These  products  adopt a variety of  therapeutic  approaches  and may
compete with KRX-123 in the future.

Intellectual Property

General

     Patents and other proprietary  rights are very important to the development
of our business.  We will be able to protect our proprietary  technologies  from
unauthorized use by third parties only to the extent that our proprietary rights
are covered by valid and enforceable  patents or are  effectively  maintained as
trade secrets.  It is our intention to seek and maintain  patent  protection for
our drug candidates and our proprietary technologies.

KRX-101

     Pursuant to our  license for  KRX-101,  we have  obtained  rights to twelve
families of patents and  applications.  These include at least 54 patents issued
in various countries, of which ten are issued in the United States. The licensed
patent  families  cover the use of KRX-101  to treat  diabetic  nephropathy  and
retinopathy,  the  use of  related  compounds  to  treat  diabetic  nephropathy,
neuropathy  and   retinopathy,   and  processes  for  making   diverse   heparin
derivatives.  The licensed  patent  families also cover  multiple  processes for
making a wide variety of heparin derivatives. These patents and applications are
being  maintained  throughout  the  territories  in which  they were  filed.  In
addition,  as part of our effort to expand the  indications  and patent coverage
for KRX-101,  we have filed three new patent  applications for novel indications
for KRX-101 and one new patent  application  addressing  novel  formulations and
dosage  levels of KRX-101 in the  treatment  of  diabetic  nephropathy.  The key
KRX-101 related  patents and  applications,  if issued,  expire at various times
between  2012  and  2021.  We  believe  that we  will  have  sufficient  time to
commercially  exploit the inventions covered by the patents during the effective
lives of the inventions.

KinAce Platform

     We have an  exclusive  worldwide  license to the KinAce  technology,  which
includes one issued  patent in the United  States and Australia and ten families
of patent  applications  associated  with our KinAce  platform,  which have been
filed in various  countries,  including the United States,  all the countries of
the European Patent Convention,  Japan, Canada,  Australia and China. The issued
patent and the  applications  identify and claim large  classes of peptides that
modulate  the  activity  of  protein  kinases,  which  encompass  our lead  drug
candidates. In addition, the applications describe a wide variety of therapeutic
uses for these classes of peptides,  including the treatment of various cancers,
diabetes,  septic shock,  multiple sclerosis and inflammatory bowel disease. The
applications  also identify and claim specific portions of these protein kinases
upon which the selection of peptide drug candidates is based.  The technology of
the recently  issued U.S.  patent  provides a direct  pathway from gene sequence
data to potential drug candidates--an  approach that we believe represents a new
and extraordinarily efficient paradigm for drug discovery. We intend to continue
to file  patent  applications  to cover  additional  members of  protein  kinase
families,  specific drug  candidates and additional  therapeutic  indications as
they are  developed.  In addition,  we have two patent  applications  pending in
connection  with our  bioinformatics  activities  directed mainly to a screening
algorithm based on our platform for  identifying  crucial regions in the kinase.
The KinAce-related patent and patent applications, if such


                                       12
<PAGE>


issue,  will expire at various  times  between 2017 and 2022. We believe that we
will have  sufficient  time to  commercially  exploit the inventions  covered by
these applications during the effective lives of the inventions.

The SIB Technology

     The SIB technology,  to which we have an exclusive,  worldwide license,  is
covered  by a patent  application,  filed in the  United  States in 2001,  which
protects  both the  chemical  structure of the SIB,  the  combinatorial  library
produced,  and its usage in the  modulation  of protein  activity.  This  patent
application,  if  issued,  will  expire in 2022.  We  believe  that we will have
sufficient  time  to  commercially   exploit  the  inventions  covered  by  this
application during the effective life of the invention.

Other Intellectual Property Rights

     In April 2000,  we applied to register  the names  "Keryx" and  "KinAce" as
trademarks with the Israeli and U.S. Patent and Trademark  Office.  In addition,
we depend upon trade secrets,  know-how and continuing technological advances to
develop and maintain our competitive  position.  To maintain the confidentiality
of  trade  secrets  and  proprietary  information,  we  require  our  employees,
scientific  advisors,  consultants  and  collaborators,  upon  commencement of a
relationship with us, to execute confidentiality  agreements and, in the case of
parties  other than our  research  and  development  collaborators,  to agree to
assign  their  inventions  to us. These  agreements  are designed to protect our
proprietary  information  and to grant us  ownership  of  technologies  that are
developed in connection with their  relationship  with us. These  agreements may
not,  however,  provide  protection  for  our  trade  secrets  in the  event  of
unauthorized disclosure of such information.

Agreements

KRX-101

     License  Agreement.  Our  license  with Alfa  Wassermann  SpA grants us the
exclusive rights to KRX-101 for diabetic  nephropathy,  diabetic retinopathy and
diabetic neuropathy in the United States, Canada, Japan, Australia, New Zealand,
South Africa and Israel,  and entitles Alfa Wassermann to annual royalties of up
to $900,000 and fixed milestone  payments of up to $2,950,000.  To date, we have
paid $400,000 in annual royalties and milestone  payments.  The license includes
rights to at least 54 patents that have been registered in the above  countries,
rights in additional  patent  applications,  and grants us exclusive,  worldwide
ownership  of any  novel  indication  for  KRX-101  that we  develop.  Under the
license,  we must use our reasonable  best efforts to  commercialize  and market
KRX-101.  Alfa  Wassermann  must pay us a royalty to the  extent  that it or its
sub-licensees  receive  revenues from products that  incorporate  information or
know-how  developed by us. Alfa  Wassermann must share a portion of the costs of
data or intellectual property developed by us that it decides to utilize. Unless
terminated for reason of breach or other customary termination  provisions,  the
license  terminates  upon the later of the expiration of all  underlying  patent
rights or ten years  from the first  commercial  sale of KRX-101 by us. The most
recent patent  application was filed in June 2000, and, if granted,  will expire
in June 2020, subject to any extensions that may be granted.

     Manufacturing  Agreements.  We have two  manufacturing  agreements  for the
production  of  KRX-101.  Opocrin  S.p.A.,  a  manufacturer  of bulk  biological
products,  has  agreed  to  manufacture  and  supply  our raw  requirements  for
sulodexide  until 2009.  Our agreement with Opocrin may be terminated by them or
us on 180 days'  notice for any reason.  Pharmaceutics  International,  Inc.,  a
manufacturer  of medicinal  gelcaps,  has agreed to produce the KRX-101  gelcaps
necessary for the proposed clinical trials. Until


                                       13
<PAGE>


the  agreed-upon  manufacturing  is completed,  this agreement may be terminated
only by us. Both Opocrin and Pharmaceutics International maintain cGMP-certified
manufacturing facilities that will be used for the manufacture of KRX-101.

KinAce Platform

     License  Agreement.  Pursuant to a license with  Children's  Medical Center
Corporation,  referred  to as CMCC,  we have the  exclusive  worldwide  right to
commercialize  the KinAce  platform  and  practice  the claims  contained in the
patents and patent applications owned by CMCC. The license gives us the right to
develop,  produce,  manufacture,  market and  sublicense  products  based on the
patents and patent applications  licensed to us by CMCC, any subsequently issued
patents and future patent  applications.  Unless  terminated for breach or other
customary  termination  provisions,  the  license  terminates  upon the later of
November 2014 or the expiration of the last patent  covered by the license.  The
most recent patent application was filed in February 2002 and, if granted,  will
expire in February 2022, subject to the granting of any extensions.

     Under the license, we must use our reasonable best efforts to commercialize
and market one or more products  based upon the KinAce  technology.  The license
contains certain financing and development milestones.  To date, we have met all
of our milestones under this agreement.  According to the remaining  development
milestones,  we must file an IND application for a licensed product with the FDA
(or a foreign equivalent) by June 2003, and we must file a New Drug Application,
or NDA, with the FDA (or a foreign  equivalent)  within six years from our first
filing of an IND application. Should CMCC reasonably determine that we failed to
meet any of the development  milestones  that remain to be fulfilled  because we
did not devote  diligent  efforts and adequate  resources,  the license could be
terminated, which would materially harm our business.

The SIB Technology

     License  Agreement.  In January  2002,  we obtained an exclusive  worldwide
license from the Yissum Research & Development  Company of the Hebrew University
of Jerusalem,  referred to as Yissum,  covering patent applications and know-how
underlying  the SIB technology for the conversion of peptides and other existing
drugs  into small  molecules  that have the  potential  for oral  delivery.  The
license  gives  us the  right  to  develop,  produce,  manufacture,  market  and
sublicense  products  based on Yissum's  know-how and current and future  patent
applications and any subsequently  issued patents.  Unless terminated for breach
or other customary termination provisions, the license continues in effect until
no product covered by the license is being sold by us.

     Under  the  license,  we  must  use  commercially   reasonable  efforts  to
commercialize and market one or more products based upon the SIB technology.  If
we fail to devote  such  efforts to the  development  and  commercialization  of
products based upon the SIB  technology,  the license could be terminated.  Such
termination may materially harm our business.

     Sponsored Research  Agreement.  Professor Haim Gilon is the inventor of the
SIB  technology.  We have  entered into a consulting  agreement  with  Professor
Gilon.  Under  the  consulting  agreement,   Professor  Gilon  must  provide  us
consulting services to aid our development of the SIB technology. The consulting
agreement  may be  terminated  by us  should  Professor  Gilon  fail to meet any
research  milestone as set forth in the Sponsored Research Agreement we executed
with Yissum. In connection with his consulting  agreement,  we granted Professor
Gilon an option to  purchase  20,000  shares of our common  stock,  based on our
customary terms. This option vests in four equal parts on each of the first


                                       14
<PAGE>


four  anniversaries of his consulting  agreement.  Under the Sponsored  Research
Agreement, we must pay quarterly fees to Yissum. To date, we have made the first
quarterly  payment to Yissum in  connection  with this  agreement.  The research
agreement  expires  in  January  2006,  although  it may be  extended  by mutual
agreement  for  additional  periods of 180 days.  We may  terminate the research
agreement  and cease making  payments to Yissum should  Professor  Gilon fail to
meet any milestones  contained in that  agreement or, should we choose,  for any
reason  upon 90 days  notice.  If we choose to  terminate  upon 90 days  notice,
without also choosing to terminate the license  agreement,  we will be liable to
make a one-time  payment to Yissum  equal to  one-half of the  remainder  of the
monies due  pursuant  to the  Sponsored  Research  Agreement.  In  general,  the
milestones are  project-specific  and require Professor Gilon to meet enumerated
product development timetables.

Sales and Marketing

     We do not intend to build our own sales and marketing  force.  Instead,  we
intend to market any future products through corporate partnerships with leading
biotechnology  or  pharmaceutical   companies.  By  contracting  with  corporate
partners for the manufacturing,  marketing and distribution of products, we hope
to limit our exposure to  capital-intensive  activities beyond our expertise and
concentrate on developing new compounds and technologies.

Employees

     We presently have 63 employees,  23 of whom hold M.D. or Ph.D.  degrees and
23 of whom hold other advanced degrees.  In addition,  we have  approximately 15
scientists who work under sponsored research or consulting agreements. Of our 63
full-time  employees,  45  work  in  research  and  development  and 18  work in
administration  and  finance.  None  of  our  employees  are  represented  by  a
collective bargaining  agreement,  we have never experienced a work stoppage. We
consider our relations with our employees and consultants to be good.

Research and Development

     Company-sponsored  research and development  expenses totaled $6,923,000 in
1999, $6,686,000 in 2000, and $7,399,000 in 2001.

Government Regulation

     Numerous  governmental  authorities in the United States,  Israel and other
countries  regulate the manufacture and marketing of our drug candidates and our
ongoing  research and  development  activities.  None of our drug candidates has
been approved for sale in any market. Before marketing in the United States, any
drug  developed by us must undergo  rigorous  pre-clinical  testing and clinical
trials and an extensive regulatory approval process implemented by the FDA under
the Federal Food, Drug and Cosmetic Act. The FDA regulates,  among other things,
the preclinical and clinical testing, safety, efficacy, approval, manufacturing,
record  keeping,  adverse  event  reporting,   packaging,   labeling,   storage,
advertising,  promotion,  export,  sale and  distribution  of  biopharmaceutical
products.

     The  regulatory  review and  approval  process is  lengthy,  expensive  and
uncertain.  We will have to submit extensive  pre-clinical and clinical data and
supporting information to the FDA for each indication or use to establish a drug
candidate's safety and efficacy before we can secure FDA approval.  The approval
process takes many years,  requires the expenditure of substantial resources and
may involve ongoing  requirements  for  post-marketing  studies or surveillance.
Before  commencing  clinical trials in humans,  we must submit an IND to the FDA
containing,  among other things,


                                       15
<PAGE>


preclinical  data,  chemistry,  manufacturing  and control  information,  and an
investigative  plan,  and the FDA must  allow  the IND to become  effective.  We
expect to rely on some of our collaborative  partners to file INDs and generally
direct the regulatory approval process for some of our drug candidates.

     The FDA may permit expedited development,  evaluation, and marketing of new
therapies intended to treat persons with serious or life-threatening  conditions
for which there is an unmet  medical need under its Fast Track Drug  Development
Program.  A  sponsor  can  apply  for  fast  track  designation  at the  time of
submission  of an IND, or at any time prior to receiving  marketing  approval of
the New  Drug  Application,  or NDA.  To  receive  fast  track  designation,  an
applicant must demonstrate:

     o    that  the drug is  intended  to treat a  serious  or  life-threatening
          condition;

     o    that the drug is intended to treat a serious  aspect of the condition;
          and

     o    that the drug has the potential to address unmet  medical  needs,  and
          this  potential is being  evaluated  in the planned  drug  development
          program.

     The FDA must  respond  to a request  for fast track  designation  within 60
calendar days of receipt of the request. Over the course of drug development,  a
product in a fast track  development  program must continue to meet the criteria
for fast track designation.  Sponsors of products in fast track drug development
programs must be in regular  contact with the  reviewing  division of the FDA to
ensure  that the  evidence  necessary  to  support  marketing  approval  will be
developed and presented in a format conducive to an efficient review.

     Sponsors of products in fast track drug development programs ordinarily are
eligible for priority  review and also may be permitted to submit portions of an
NDA to the FDA for review before the complete application is submitted. Sponsors
of drugs  designated  as fast  track  also may seek  approval  under  the  FDA's
accelerated  approval  regulations,  which permits the FDA to grant  accelerated
approval  based on a  determination  by the FDA that the  effect on a  surrogate
endpoint is reasonably likely to predict clinical benefit.  A surrogate endpoint
is defined as a laboratory or physical sign that is used in  therapeutic  trials
as a  substitute  for a clinically  meaningful  endpoint and that is expected to
predict  the  effect  of  the  therapy.  However,  requirements  for  submitting
"substantial evidence" to demonstrate efficacy and for payment of user fees must
still be met  under.  Further,  fast track  and/or  accelerated  approvals  will
ordinarily be  conditioned on postmarket  studies to verify the drug's  clinical
benefit and the  relationship  of the  surrogate  endpoint to clinical  benefit.
Approval of a fast track drug may be withdrawn in an expedited  manner if, among
other reasons, a post approval study fails to verify clinical benefit.

     Clinical  testing must meet  requirements  for  institutional  review board
oversight,  informed consent and good clinical practices,  and must be conducted
pursuant to an IND, unless exempted.

     Clinical trials are conducted in sequential phases. In Phase I, the drug is
administered to a small group of humans,  either healthy volunteers or patients,
to test for safety, dosage tolerance,  absorption,  metabolism,  excretion,  and
clinical  pharmacology.  In Phase II, a somewhat  larger  number of patients are
studied to assess the efficacy of the product,  to ascertain  dose tolerance and
the optimal dose range,  and to gather  additional  data  relating to safety and
potential adverse events. In Phase III, studies establish safety and efficacy in
an expanded  patient  population.  The FDA may require  Phase IV  post-marketing
studies to gather additional evidence of safety and efficacy.


                                       16
<PAGE>


     The  length  of  time   necessary  to  complete   clinical   trials  varies
significantly  and may be difficult to predict.  Clinical results are frequently
susceptible  to  varying  interpretations  that  may  delay,  limit  or  prevent
regulatory approvals.  Additional factors that can cause delay or termination of
our clinical trials, or that may increase the costs of these trials, include:

     o    slow patient  enrollment due to the nature of the clinical trial plan,
          the proximity of patients to clinical sites, the eligibility  criteria
          for participation in the study or other factors;

     o    inadequately  trained or  insufficient  personnel at the study site to
          assist  in  overseeing  and  monitoring  clinical  trials or delays in
          approvals from a study site's review board;

     o    longer  treatment time required to  demonstrate  efficacy or determine
          the appropriate product dose;

     o    insufficient supplies of the drug candidate;

     o    adverse medical events or side effects in treated patients; and

     o    ineffectiveness of the drug candidate.

     In addition,  the FDA may place a clinical trial on hold or terminate it if
it concludes that subjects are being exposed to an unacceptable health risk. Any
drug is likely to produce some toxicity or  undesirable  side effects in animals
and in  humans  when  administered  at  sufficiently  high  doses  and/or  for a
sufficiently long time.  Unacceptable  toxicity or side effects may occur at any
dose level at any time in the course of studies in animals  designed to identify
unacceptable  effects of a drug candidate,  known as toxicological  studies,  or
clinical trials of drug candidates.  The appearance of any unacceptable toxicity
or side effect could cause us or regulatory  authorities  to  interrupt,  limit,
delay  or  abort  the  development  of any  of our  drug  candidates  and  could
ultimately prevent approval by the FDA or foreign regulatory authorities for any
or all targeted indications.

     Before receiving FDA approval to market a product, we must demonstrate that
the product is safe and  effective for its intended use by submitting to the FDA
an NDA containing the preclinical and clinical data that have been  accumulated,
together  with  chemistry  and  manufacturing  and controls  specifications  and
information,  and proposed  labeling,  among other things. The FDA may refuse to
accept a NDA for filing if certain content  criteria are not met and, even after
accepting a NDA, the FDA may often  require  additional  information,  including
clinical data, before approval.

    As part of the  approval  process,  the FDA must  inspect and  approve  each
manufacturing facility. Among the conditions of approval is the requirement that
a manufacturer's quality control and manufacturing procedures conform to current
Good Manufacturing Practices, or cGMP. Manufacturers must expend time, money and
effort to ensure compliance with cGMP, and the FDA conducts periodic inspections
to certify compliance. It may be difficult for our manufacturers or us to comply
with the  applicable  cGMP and other FDA regulatory  requirements.  If we or our
contract  manufacturers fail to comply, then the FDA will not allow us to market
products that have been affected by our failure.

     If the FDA grants  approval,  the approval will be limited to those disease
states,  conditions  and patient  populations  for which the product is safe and
effective,  as demonstrated through clinical studies.  Further, a product may be
marketed  only in those dosage forms and for those  indications  approved in the
NDA. Certain changes to an approved NDA, including, with certain exceptions, any
changes to


                                       17
<PAGE>


labeling,  require  approved  supplemental  applications  before the drug may be
marketed as changed.  We will have a  continuing  obligation  to comply with all
conditions  of  approval  and  other  regulatory  requirements  such as cGMP and
adverse event reporting  requirements.  The nature of marketing  claims that the
FDA will permit us to make in the labeling and  advertising of our products will
be limited to those  specified in an FDA approval,  and the  advertising  of our
products  will  be  subject  to  comprehensive  regulation  by the  FDA.  Claims
exceeding  those that are  approved  will  constitute a violation of the Federal
Food,  Drug,  and  Cosmetics  Act.  Violations of the Federal  Food,  Drug,  and
Cosmetics  Act  or  regulatory  requirements  at any  time  during  the  product
development  process,  approval process,  or after approval may result in agency
enforcement  actions,  including  withdrawal  of  approval,  recall,  seizure of
products,  injunctions,  fines  and/or civil or criminal  penalties.  Any agency
enforcement action could have a material adverse effect on us.

     Should we wish to market our products  outside the United  States,  we must
receive marketing authorization from the appropriate regulatory authorities. The
requirements governing the conduct of clinical trials,  marketing authorization,
pricing  and  reimbursement  vary widely  from  country to country.  At present,
foreign marketing  authorizations are applied for at a national level,  although
within the European  Union,  or EU,  registration  procedures  are  available to
companies  wishing to market a product in more than one EU member state.  If the
regulatory authority is satisfied that adequate evidence of safety,  quality and
efficacy has been presented,  a marketing  authorization  will be granted.  This
foreign  regulatory  approval  process involves all of the risks associated with
FDA approval discussed above.

     Failure to comply  with  applicable  federal,  state and  foreign  laws and
regulations  would likely have a material  adverse  effect on our  business.  In
addition,  federal,  state  and  foreign  laws  and  regulations  regarding  the
manufacture  and sale of new drugs are  subject  to  future  changes.  We cannot
predict what effect,  if any, such changes might have on our business,  but such
changes could have a material adverse effect.

                           FORWARD-LOOKING STATEMENTS

     Some of the statements in this Form 10-K and the Exhibits  attached  hereto
contain forward-looking statements within Section 21E of the Securities Exchange
Act of 1934, as amended. When used in this Form 10-K and the Exhibits, the words
"anticipate," "believe," "estimate," "may," "expect" and similar expressions are
generally intended to identify forward-looking statements. These forward-looking
statements include statements about our:

     o    expectations for increases in operating expenses;

     o    expectations for increases in research and development and general and
          administrative   expenses  in  order  to  develop  new   products  and
          manufacture commercial quantities of products;

     o    expectations for the development,  manufacturing,  and approval of new
          products;

     o    expectations for incurring  additional capital  expenditures to expand
          our research and development capabilities;

     o    expectations  for  generating  revenue  or  becoming  profitable  on a
          sustained basis;

     o    ability to enter into additional  marketing agreements and the ability
          of  our  existing   marketing   partners  to  commercialize   products
          incorporating our technologies;

     o    estimate of the sufficiency of our existing cash and cash  equivalents
          and investments to finance our operating and capital requirements;



                                       18
<PAGE>


     o    expected losses; and

     o    expectations for future capital requirements.

     Our actual results could differ materially from those results expressed in,
or  implied  by,  these   forward-looking   statements.   Potential   risks  and
uncertainties that could affect our actual results include those discussed below
under the heading  "Risk  Factors."  The list of factors that may affect  future
performance and the accuracy of forward-looking statements is illustrative,  but
by no means exhaustive.  Accordingly,  all forward  looking-statements should be
evaluated with the understanding of their inherent uncertainty.

     Although we believe that the expectations  reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, events, levels of
activity,  performance or achievements.  We do not assume responsibility for the
accuracy and completeness of the forward-looking statements.

     We do not intend to update any of the forward-looking  statements after the
date of this Form 10-K to conform them to actual results.

                                  RISK FACTORS

     You should carefully consider the following risks and uncertainties. If any
of the following occurs, our business,  financial condition or operating results
could be  materially  harmed.  This could cause the trading  price of our common
stock to decline and you may lose all or part of your investment.

                          RISKS RELATED TO OUR BUSINESS

WE HAVE A LIMITED OPERATING HISTORY AND HAVE INCURRED OPERATING LOSSES SINCE OUR
INCEPTION.  WE EXPECT  TO INCUR  LOSSES IN THE  FUTURE  AND WE MAY NEVER  BECOME
PROFITABLE.

     We have a limited operating  history.  You should consider our prospects in
light of the  risks  and  difficulties  frequently  encountered  by early  stage
companies.  In addition,  we have incurred  operating losses since our inception
and expect to continue to incur operating losses for the foreseeable  future. As
of December 31,  2001,  we had an  accumulated  deficit of  approximately  $33.7
million. We expect to expand our research and development efforts significantly,
which will result in  increasing  losses.  We may continue to incur  substantial
operating losses even if we begin to generate  revenues from our drug candidates
or technologies.

     We have not yet  commercialized  any products or technologies and cannot be
sure we will ever be able to do so. Even if we commercialize  one or more of our
drug  candidates or technologies  we may not become  profitable.  Our ability to
achieve profitability  depends on a number of factors,  including our ability to
complete  our  development  efforts,  obtain  regulatory  approval  for our drug
candidates  and  to   successfully   commercialize   our  drug   candidates  and
technologies.

OUR DRUG DISCOVERY METHODS ARE UNPROVEN AND MAY NOT LEAD TO COMMERCIALLY  VIABLE
DRUGS.

     There is limited scientific  understanding of protein kinase regulation and
its role in complex diseases. Our drug discovery efforts are focused on a number
of protein  kinases whose  functions  have not yet been fully  identified.  As a
result,  the safety and effectiveness of our KinAce drug candidates have not


                                       19
<PAGE>


yet been established and our research and development  activities may not result
in any  commercially  viable  products.  In addition,  because the  compounds we
develop with our KinAce platform are made up of small peptides, we may be unable
to produce  drugs that can be taken  orally.  If we are unable to  formulate  an
effective  way to deliver our KinAce  compounds we may be unable to market these
drug candidates.

OUR DRUG  CANDIDATES  ARE IN EARLY STAGES OF  DEVELOPMENT  AND MAY NEVER RECEIVE
NECESSARY REGULATORY APPROVALS.

     Our  drug  candidates  are in  early  stages  of  development.  We have not
received, and may never receive, regulatory approval for clinical trials for any
of our drug  candidates,  other than  KRX-101,  which is currently in a Phase II
trial in South Africa for the treatment of HIV-associated  Nephropathy.  We will
need to conduct significant  additional research and human testing before we can
apply for product approval with the FDA or with regulatory  authorities of other
countries. Pre-clinical testing and clinical development are long, expensive and
uncertain processes.  Satisfaction of regulatory  requirements typically depends
on  the  nature,  complexity  and  novelty  of  the  product  and  requires  the
expenditure  of  substantial  resources.  Data  obtained from  pre-clinical  and
clinical tests can be interpreted in different ways, which could delay, limit or
prevent regulatory  approval.  It may take us many years to complete the testing
of our drug  candidates  and  failure  can occur at any  stage of this  process.
Negative or inconclusive results or medical events during a clinical trial could
cause us to delay or terminate our development efforts.

     Clinical trials also have a high risk of failure.  A number of companies in
the pharmaceutical industry,  including biotechnology  companies,  have suffered
significant setbacks in advanced clinical trials, even after achieving promising
results in earlier  trials.  If we experience  delays in the testing or approval
process or if we need to perform more or larger  clinical trials than originally
planned,  our  financial  results  and the  commercial  prospects  for our  drug
candidates may be materially impaired.  For example, as a result of encountering
delays in the  development  of an  effective  formulation  of our  KRX-123  drug
candidate, our ability to file an IND application to conduct clinical trials for
KRX-123 has been delayed. In addition,  we have limited experience in conducting
and managing the clinical trials necessary to obtain regulatory  approval in the
United States and abroad and, accordingly, may encounter unforeseen problems and
delays in the approval process.

IF WE ARE  UNABLE TO  SUCCESFFULLY  BEGIN OR  COMPLETE  OUR  CLINICAL  TRIALS OF
KRX-101,  OUR ABILITY TO ACHIEVE OUR CURRENT BUSINESS STRATEGY WILL BE ADVERSELY
AFFECTED.

     The ultimate  clinical  timeline and consequent cost for the development of
KRX-101 will depend,  in part, on the FDA's  acceptance of the protocols we have
filed  or,  alternatively,  on any  requests  the FDA might  have to alter  such
protocols.  We cannot be certain  whether the FDA will accept the  protocols  we
have  presented.  If we do not receive  approval to conduct  clinical trials for
KRX-101 from the FDA, or if approval is delayed,  we will be unable to carry out
our present  business  strategy.  Even if the FDA accepts our protocols,  it may
require  us to expand  the size or scope of the  clinical  trials,  which  could
increase  the  cost  and  time   required  to  complete  the  clinical   trials.
Accordingly,  we may not be able to  complete  the  clinical  trials  within  an
acceptable time frame, if at all.

     Whether or not and how quickly we complete  clinical trials is dependent in
part upon the rate of enrollment of patients.  Patient  enrollment is a function
of many factors,  including the size of the patient population, the proximity of
patients to  clinical  sites,  the  eligibility  criteria  for the study and the
existence of competitive  clinical  trials.  If we experience  delays in patient
enrollment,  in either  the


                                       20
<PAGE>


South African  HIVAN trial or the Phase III trials  presented to the FDA, we may
incur additional costs and delay our development program for KRX-101.

BECAUSE WE LICENSE OUR PRIMARY  PROPRIETARY  TECHNOLOGIES,  TERMINATION OF THESE
AGREEMENTS WOULD PREVENT US FROM DEVELOPING OUR LEAD DRUG CANDIDATES.

     We do not own the KRX-101,our  KinAce platform,  or the SIB technology.  We
have licensed these  technologies from others.  These license agreements require
us to meet  development  or  financing  milestones  and impose  development  and
commercialization  due diligence on us. In addition,  under these  agreements we
must pay royalties on sales of products resulting from licensed technologies and
pay  the  patent  filing,  prosecution  and  maintenance  costs  related  to the
licenses.  If we do not meet our  obligations  in a timely  manner or  otherwise
breach the terms of our agreements, our licensors could terminate the agreements
and we would lose the rights to , KRX-101 and the KinAce and SIB technologies.

IF WE ARE UNABLE TO ADEQUATELY  PROTECT OUR INTELLECTUAL  PROPERTY THIRD PARTIES
MAY BE ABLE TO USE OUR TECHNOLOGY,  WHICH COULD ADVERSELY  AFFECT OUR ABILITY TO
COMPETE IN THE MARKET.

     Our  commercial  success will depend in part on our ability and the ability
of our licensors to obtain and maintain  patent  protection on our drug products
and technologies and successfully defend these patents and technologies  against
third-party challenges. The patent positions of pharmaceutical and biotechnology
companies  can be  highly  uncertain  and  involve  complex  legal  and  factual
questions.  No  consistent  policy  regarding  the breadth of claims  allowed in
biotechnology patents has emerged to date.  Accordingly,  the patents we use may
not be sufficiently  broad to prevent others from practicing our technologies or
from  developing  competing  products.  Furthermore,  others  may  independently
develop  similar or  alternative  technologies  or design  around  our  patented
technologies.  The  patents  we use may be  challenged,  invalidated  or fail to
provide us with any competitive advantage.

     We rely on trade  secrets to  protect  technology  where we believe  patent
protection  is  not  appropriate  or  obtainable.  However,  trade  secrets  are
difficult  to  protect.  While  we  require  our  employees,  collaborators  and
consultants to enter into confidentiality agreements, this may not be sufficient
to adequately  protect our trade secrets or other  proprietary  information.  In
addition,  we share ownership and publication rights to data relating to some of
our drug candidates with our research  collaborators and scientific advisors. If
we cannot  maintain  the  confidentiality  of this  information,  our ability to
receive  patent  protection or protect our  proprietary  information  will be at
risk.

LITIGATION OR THIRD-PARTY  CLAIMS OF INTELLECTUAL  PROPERTY  INFRINGEMENT  COULD
REQUIRE  US TO SPEND  SUBSTANTIAL  TIME AND  MONEY  DEFENDING  SUCH  CLAIMS  AND
ADVERSELY AFFECT OUR ABILITY TO DEVELOP AND COMMERCIALIZE OUR PRODUCTS.

     Third  parties may assert that we are using  their  proprietary  technology
without authorization.  In addition, third parties may have or obtain patents in
the future and claim that our  technologies  infringe their  patents.  If we are
required to defend against  patent suits brought by third parties,  or if we sue
to protect our patent rights,  we may be required to pay substantial  litigation
costs,  and our  management's  attention  may be  diverted  from  operating  our
business.  In addition,  any legal action against our licensors or us that seeks
damages or an injunction of our commercial  activities  relating to the affected


                                       21
<PAGE>


technologies could subject us to monetary liability and require our licensors or
us to obtain a license to continue to use the affected  technologies.  We cannot
predict  whether  our  licensors  or we would  prevail in any of these  types of
actions or that any required  license  would be made  available on  commercially
acceptable terms, if at all.

IF WE LOSE OUR KEY  PERSONNEL  OR ARE  UNABLE TO ATTRACT  AND RETAIN  ADDITIONAL
PERSONNEL, OUR OPERATIONS WOULD BE DISRUPTED AND OUR BUSINESS WOULD BE HARMED.

     We have 63 employees and  approximately  15 persons working under sponsored
research agreements or consulting  agreements.  To successfully develop our drug
candidates,  we must be able to attract and retain highly skilled scientists and
clinical  development  personnel.  In  addition,  if we lose the services of our
current  personnel,  in  particular,  Dr. Morris  Laster,  our Chairman,  or Dr.
Benjamin  Corn,  our Chief  Executive  Officer  and  President,  our  ability to
continue to develop our lead drug  candidates  will be materially  impaired.  We
maintain a $2.0 million keyman life insurance  policy covering Dr. Laster.  This
amount may not be sufficient  to compensate us for the loss of his services.  In
addition,  while we have employment  agreements  with our key executives,  these
agreements would not prevent any of them from terminating  their employment with
us.

IF WE DO NOT ESTABLISH OR MAINTAIN DRUG DEVELOPMENT, MANUFACTURING AND MARKETING
ARRANGEMENTS  WITH  THIRD  PARTIES,  WE  MAY  BE  UNABLE  TO  COMMERCIALIZE  OUR
TECHNOLOGIES INTO PRODUCTS.

     A key part of our strategy is to establish drug  development  collaboration
arrangements  with third  parties  and enter into  manufacturing  and  marketing
arrangements with third parties.  For example,  we have entered into a sponsored
research  agreement  pursuant to which Yissum is conducting some of the research
and development  with respect to the SIB Technology.  We are a young company and
do not  possess  all of  these  capabilities  on our own.  We must  successfully
contract with third parties to:

     o    assist us in developing,  testing,  obtaining  regulatory approval for
          and commercializing some of our compounds and technologies;

     o    manufacture our drug candidates; and

     o    market and distribute our drug candidates.

     If we are unable to  successfully  contract  with third  parties  for these
services, or if existing arrangements for these services are terminated, whether
or not  through  our  actions,  or if such  third  parties  do not  perform  the
contracted-for tasks as required, we may have to delay, scale back or end one or
more of our drug development  programs or seek to develop or  commercialize  our
technologies independently, which will be costly and result in delays. Moreover,
these agreements may provide our  collaborators  with significant  discretion in
determining  the efforts and resources  that they will apply to the  development
and commercialization of products based on our technologies. Accordingly, to the
extent  that we rely on third  parties to  research,  develop  or  commercialize
products  based on our  technologies,  we are  unable to  control  whether  such
products will be scientifically or commercially successful.


                                       22
<PAGE>


IF OUR  COMPETITORS  DEVELOP AND MARKET  PRODUCTS THAT ARE MORE  EFFECTIVE  THAN
OURS, OUR COMMERCIAL OPPORTUNITY MAY BE REDUCED OR ELIMINATED.

     Our commercial opportunity will be reduced or eliminated if our competitors
develop and market products that are more effective,  have fewer side effects or
are less expensive than our drug  candidates.  Other  companies have products or
drug  candidates in various stages of  pre-clinical  or clinical  development to
treat diseases for which we are seeking to discover and develop drug candidates.
Some of these potential competing drugs are further advanced in development than
our drug candidates and may be commercialized earlier. Even if we are successful
in developing  effective drugs, our products may not compete  successfully  with
products produced by our competitors.

     Our  competitors   include   pharmaceutical   companies  and  biotechnology
companies, as well as universities and public and private research institutions.
In  addition,  companies  active  in  different  but  related  fields  represent
substantial  competition  for us.  Many of our  competitors  have  significantly
greater capital resources, larger research and development staffs and facilities
and  greater  experience  in drug  development,  regulation,  manufacturing  and
marketing  than we do.  These  organizations  also  compete  with us to  recruit
qualified   personnel,   attract   partners   for   joint   ventures   or  other
collaborations,  and license  technologies  that are competitive with ours. As a
result,  our  competitors  may be able to more easily develop  technologies  and
products that would render our  technologies or our drug candidates  obsolete or
noncompetitive.

BECAUSE  OUR  PRINCIPAL  OPERATIONS  ARE  LOCATED  IN  ISRAEL,  ANY  SIGNIFICANT
POLITICAL,  ECONOMIC  OR MILITARY  INSTABILITY  IN THE REGION  COULD  MATERIALLY
DISRUPT OUR BUSINESS.

     Although we are  incorporated  in the State of  Delaware,  we maintain  our
research and development activities in the State of Israel.  Currently,  most of
our personnel are located in Israel. Our business may be disrupted by political,
economic  or  military  conditions  affecting  Israel  and other  risks that are
inherent in international business. These include:

     o    political and economic instability;

     o    the impact of terrorism and military operations;

     o    the difficulty of administering business abroad;

     o    the need to comply with export laws,  tariff and tax  regulations  and
          regulatory requirements;

     o    currency fluctuations; and

     o    the  obligation  of male  residents of Israel,  including  some of our
          employees,  to perform annual military reserve duty and possibly to be
          called to active duty under emergency circumstances.

IF WE ARE UNABLE TO OBTAIN ADDITIONAL FUNDS ON TERMS FAVORABLE TO US, OR AT ALL,
OUR BUSINESS WOULD BE HARMED.

     Based  on our  current  plans,  we  believe  our  existing  cash  and  cash
equivalents  will be  sufficient  to fund our  operating  expenses  and  capital
requirements until at least mid-2003.  However,  the actual amount of funds that
we will need prior to or after  that date will be  determined  by many  factors,
some of which are beyond our control. As a result, we may need funds sooner than
we currently anticipate. These factors include:

     o    the progress of our research activities;


                                       23
<PAGE>


     o    the number and scope of our research programs;

     o    the progress of our pre-clinical and clinical development activities;

     o    the progress of the  development  efforts of parties with whom we have
          entered into research and development agreements;

     o    our ability to  establish  and  maintain  current and new research and
          development and licensing arrangements;

     o    our ability to achieve our milestones under licensing arrangements;

     o    the costs involved in enforcing  patent claims and other  intellectual
          property rights; and

     o    the costs and timing of regulatory approvals.

     If  our  capital   resources  are   insufficient  to  meet  future  capital
requirements, we will have to raise additional funds. If we are unable to obtain
additional funds on terms favorable to us, we may be required to cease or reduce
our operating  activities or sell or license to third parties some or all of our
technology.  If we raise  additional funds by selling  additional  shares of our
capital stock, the ownership  interests of our stockholders will be diluted.  If
we raise additional funds through the sale or license of our technology,  we may
be unable to do so on terms favorable to us.

CONCENTRATION  OF OWNERSHIP  OF OUR COMMON  STOCK AMONG OUR  EXISTING  EXECUTIVE
OFFICERS,  DIRECTORS AND PRINCIPAL  STOCKHOLDERS  MAY PREVENT NEW INVESTORS FROM
INFLUENCING SIGNIFICANT CORPORATE DECISIONS.

     As of December 31, 2001,  our executive  officers,  directors and principal
stockholders  (including their  affiliates)  beneficially own, in the aggregate,
approximately 45% of our outstanding common stock, including,  for this purpose,
currently  exercisable  options and warrants held by our executive  officers and
directors. As a result, these persons, acting together, will have the ability to
effectively  determine the outcome of all matters  submitted to our stockholders
for  approval,  including  the election and removal of directors and any merger,
consolidation  or sale of all or substantially  all of our assets.  In addition,
such persons,  acting together, will have the ability to effectively control our
management and affairs.  Accordingly,  this  concentration of ownership may harm
the market price of our common stock by  discouraging a potential  acquiror from
attempting to acquire our company.

OUR STOCK PRICE COULD BE VOLATILE AND YOUR INVESTMENT COULD DECLINE IN VALUE.

   The trading  price of our common  stock is likely to be highly  volatile  and
subject to wide  fluctuations in price in response to various  factors,  many of
which are beyond our control, including:

          o    developments concerning our drug candidates;

          o    announcements   of   technological   innovations  by  us  or  our
               competitors;

          o    new products introduced or announced by us or our competitors;


                                       24
<PAGE>


          o    changes in financial estimates by securities analysts;

          o    actual or anticipated variations in quarterly operating results;

          o    expiration  or  termination  of licenses,  research  contracts or
               other collaboration agreements;

          o    conditions   or  trends  in  the   regulatory   climate  and  the
               biotechnology, pharmaceutical and genomics industries;

          o    changes in the market valuations of similar companies; and

          o    additions or departures of key personnel.


     In addition,  equity markets in general,  and the market for  biotechnology
and life sciences  companies in particular,  have experienced  extreme price and
volume  fluctuations that have often been unrelated or  disproportionate  to the
operating  performance of companies traded in those markets.  These broad market
and industry factors may materially affect the market price of our common stock,
regardless of our development and operating performance.  In the past, following
periods of volatility in the market price of a company's securities,  securities
class-action  litigation has often been  instituted  against that company.  Such
litigation,  if instituted against us, could cause us to incur substantial costs
to defend such claims and divert  management's  attention and  resources,  which
could seriously harm our business.

ANTI-TAKEOVER  PROVISIONS IN OUR CHARTER DOCUMENTS AND DELAWARE LAW COULD MAKE A
THIRD-PARTY  ACQUISITION OF US DIFFICULT.  THIS COULD LIMIT THE PRICE  INVESTORS
MIGHT BE WILLING TO PAY IN THE FUTURE FOR OUR COMMON STOCK.

     Provisions in our  certificate of  incorporation  and bylaws could have the
effect  of  making  it  more  difficult  for a third  party  to  acquire,  or of
discouraging  a third party from  attempting  to acquire,  or control us.  These
provisions could limit the price that certain  investors might be willing to pay
in the future for shares of our common stock.  Our certificate of  incorporation
allows us to issue  preferred  stock with  rights  senior to those of the common
stock  without any  further  vote or action by the  stockholders  and our bylaws
eliminate the right of stockholders  to call a special meeting of  stockholders,
which could make it more difficult for stockholders to effect certain  corporate
actions. These provisions could also have the effect of delaying or preventing a
change in control.  The issuance of preferred stock could decrease the amount of
earnings  and assets  available  for  distribution  to the holders of our common
stock or could adversely affect the rights and powers,  including voting rights,
of such holders. In certain  circumstances,  such issuance could have the effect
of decreasing the market price of our common stock.

ITEM 2. PROPERTIES.

     We currently lease space in Jerusalem, Israel and Cambridge, Massachusetts.
Our  facilities  in Israel  consist  of 19,000  square  feet of leased  space in
Jerusalem's  primary high technology park, Kiryat Mada, Har Hotzvim,  Jerusalem,
Israel 91236. This facility provides space for our  administrative and financial
functions  and  houses  a 14,400  square  foot  on-site  laboratory  devoted  to
bioinformatics,  drug


                                       25
<PAGE>


discovery and drug compound formulation. Although we anticipate that our current
Jerusalem  facility will be sufficient for our needs for the next several years,
we anticipate  that additional  space will be available for future  expansion as
necessary.

     Our  facilities in the United States consist of 2,915 square feet of leased
space at 101 Main Street,  Cambridge,  Massachusetts 02142. This facility houses
our executive  offices and personnel who are  responsible for  coordinating  our
financial,  business development and clinical development functions. Although we
anticipate  that our current  United States  facility will be sufficient for our
needs in the next several years,  we expect  additional  space will be available
for future expansion as necessary.

ITEM 3. LEGAL PROCEEDINGS.

     We are not a party to any material legal or arbitration proceedings nor are
we aware of any that are pending or threatened.

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

     We did not submit any matters to a vote of our  security  holders,  through
the solicitation of proxies or otherwise, during the fourth quarter of 2001.


                                       26
<PAGE>


                                     PART II

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

     Our common stock is listed on the Nasdaq  National  Market under the symbol
KERX. We commenced  trading on the Nasdaq  National Market on July 28, 2000. The
following  table sets forth the high and low  closing  sale prices of our common
stock for the periods indicated.

                                                       COMMON STOCK PRICE
                                               ---------------------------------
                                                 HIGH                      LOW
                                               --------                  -------
YEAR ENDED DECEMBER 31, 2001

Fourth Quarter ........................        $ 8.1000                  $4.8600
Third Quarter .........................        $ 9.8500                  $5.8000
Second Quarter ........................        $10.5900                  $7.0000
First Quarter .........................        $10.6875                  $6.3750


                                                       COMMON STOCK PRICE
                                               ---------------------------------
                                                 HIGH                      LOW
                                               --------                  -------
YEAR ENDED DECEMBER 31, 2000
Fourth Quarter .........................        $16.5625                $ 9.2500
Third Quarter ..........................        $13.9379                $10.1875
Second Quarter .........................              --                      --
First Quarter ..........................              --                      --

     As of December 31, 2001,  there were 89 record holders of our common stock.
We have  never  declared  or paid any cash  dividends  on our common  stock.  We
currently  intend to retain  any future  earnings  to fund the  development  and
growth  of  our  business.  Therefore,  we do not  anticipate  paying  any  cash
dividends in the foreseeable  future. Any future  determination to pay dividends
will be at the discretion of our board of directors.

Use of Proceeds

     On August 2, 2000,  we  completed an initial  public  offering of 4,600,000
shares of common  stock at $10.00 per share.  The managing  underwriters  in the
offering  were WestLB  Panmure  Ltd.  (in the United  Kingdom)  and Roth Capital
Partners,  Inc. (in the United  States).  The shares of common stock sold in the
offering were  registered  under the  Securities  Act of 1933 on a  Registration
Statement on Form S-1 (Registration  No. 333-37402) that was declared  effective
by the Securities  and Exchange  Commission on July 28, 2000. The proceeds to us
from the offering,  including the over-allotment option of 600,000 shares, after
deducting  underwriting  discounts and commissions of approximately $3.6 million
and other offering expenses of approximately  $2.1 million,  were  approximately
$46.3 million. Of the net offering proceeds,  through December 31, 2001, we have
used the proceeds of our initial public offering as follows:

     o    approximately $3.1 million has been spent on the clinical  development
          of KRX-101,

     o    approximately $1.3 million has been spent on the clinical  development
          of KRX-123,


                                       27
<PAGE>


     o    approximately  $6.4  million  has been spent on the  expansion  of our
          KinAce platform and the further development of additional compounds,

     o    and  approximately  $8.5 million has been spent as working capital and
          for general corporate purposes.

     The timing and amounts of our further  actual  expenditures  will depend on
several factors, many of which are outside our control,  including the timing of
our entry into  collaboration  agreements,  the progress of our clinical trials,
the  progress of our  research and  development  programs,  the results of other
pre-clinical  and  clinical  studies  and the  timing  and  costs of  regulatory
approvals.

     Until we use the net proceeds, we intend to invest the funds in short-term,
investment-grade, interest-bearing instruments.


                                       28
<PAGE>


ITEM 6. SELECTED FINANCIAL DATA.

     The following Statement of Operations Data for the years ended December 31,
2001,  2000,  1999,  1998 and 1997 and the Balance Sheet Data as of December 31,
2001,  2000,  1999, 1998 and 1997, are derived from our  consolidated  financial
statements  that have been  audited  by KPMG  Somekh  Chaikin,  a member of KPMG
International,  independent  public  accountants.  The financial  data set forth
below  should  be read in  conjunction  with  the  Management's  Discussion  and
Analysis of Financial  Condition  and Results of  Operations,  and the financial
statements and notes included elsewhere in this Form 10-K.

<TABLE>
<CAPTION>
Years Ended December 31,                     2001          2000         1999         1998         1997
------------------------                     ----          ----         ----         ----         ----
(in thousands, except per share data)

<S>                                       <C>           <C>           <C>          <C>          <C>
Statements of Operations Data:

Management fees from related party        $     --      $     --      $    --      $    66      $   233

Expenses
   Research and development:
     Non-cash compensation                     (17)        3,186        5,426           --           --
     Other research and development          7,416         3,500        1,497        1,407          569
                                          --------      --------      -------      -------      -------
     Total Research and development
     expenses                                7,399         6,686        6,923        1,407          569

   General and administrative:
     Non-cash compensation                     139         2,668          588           --           --
     Other general and administrative        4,302         3,232        1,225        1,011          525
                                          --------      --------      -------      -------      -------
     Total general and administrative
     expenses                                4,441         5,900        1,813        1,011          525
                                          --------      --------      -------      -------      -------

Total operating expenses                    11,840        12,586        8,736        2,418        1,094
                                          --------      --------      -------      -------      -------

Operating loss                             (11,840)      (12,586)      (8,736)      (2,352)        (861)

Interest income (expenses), net              2,231         1,317         (257)        (157)         (11)
                                          --------      --------      -------      -------      -------

Net loss before income tax                $ (9,609)     $(11,269)     $(8,993)     $(2,509)     $  (872)

Net loss                                  $ (9,806)     $(11,489)     $(9,003)     $(2,539)     $  (882)
                                          ========      ========      =======      =======      =======

Basic & diluted loss per common share     $  (0.50)     $  (0.89)     $ (1.11)     $ (0.31)     $(10.11)
                                          ========      ========      =======      =======      =======
</TABLE>




<TABLE>
<CAPTION>
As of December 31,                            2001          2000         1999         1998         1997
------------------                            ----          ----         ----         ----         ----
(in thousands)

Balance Sheet Data:

<S>                                       <C>           <C>           <C>          <C>          <C>
Cash and cash equivalents, interest
receivable and investment securities      $ 37,856      $ 48,900      $ 4,127      $   128      $   647

Working capital                             35,235        37,908        3,984         (157)          35

Total assets                                43,067        50,264        4,948          620          832

Long-term obligations                          766           304          118          527        1,028

Total stockholders' equity (deficit)        39,215        48,867        4,436         (241)        (882)
</TABLE>


                                       29
<PAGE>


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

     The following  discussion  should be read in conjunction with our financial
statements and related notes included in this Form 10-K.

Overview

     We  were  incorporated  as a  Delaware  corporation  in  October  1998.  We
commenced   operations  in  November   1999,   following  our   acquisition   of
substantially  all of the assets and certain of the  liabilities of Partec Ltd.,
our  predecessor  company  that  began its  operations  in January  1997.  Since
commencing operations,  our activities have been primarily devoted to developing
our technologies,  raising capital,  purchasing assets for our corporate offices
and laboratory facilities and recruiting  personnel.  We are a development stage
company and have no product sales to date. Our major sources of working  capital
have been proceeds from various private placements of equity securities and from
our initial  public  offering  of  5,200,000  shares of common  stock at $10 per
share. We have two wholly owned subsidiaries  located in Israel,  Keryx (Israel)
Ltd., an Israeli registered company, which engages in administrative  functions,
and Keryx Biomedical  Technologies  Ltd., an Israeli registered  company,  which
engages in research and development activities.

     Research and development expenses consist primarily of salaries and related
personnel costs,  fees paid to consultants,  sponsored  research  associates and
outside service  providers for laboratory  development,  manufacturing  expenses
related to the  production  of  clinical  trial  inventory  materials  and other
expenses relating to the design,  development,  testing,  and enhancement of our
product  candidates.  We expense our research and development  costs as they are
incurred.

     General and  administrative  expenses  consist  primarily  of salaries  and
related  expenses for  executive,  finance and other  administrative  personnel,
professional fees and other corporate expenses,  including business development,
general  legal  activities,  and various costs  relating to our  operations as a
public company.

     Our results of operations include non-cash compensation expense as a result
of grants of stock and stock options.  Compensation  expense for options granted
to employees represents the difference between the intrinsic value of our common
stock and the exercise price of the options at the date of grant. We account for
stock-based employee and director  compensation  arrangements in accordance with
the provisions of Accounting  Principles  Board Opinion No. 25,  "Accounting for
Stock Issued to Employees,"  referred to as APB No. 25, and Financial Accounting
Standards Board, or FASB, issued  Interpretation No. 44, "Accounting for Certain
Transactions  Involving  Stock  Compensation"  and  comply  with the  disclosure
provisions of Statement of Financial  Accounting  Standards No. 123, "Accounting
for Stock-Based  Compensation."  Compensation for options granted to consultants
has been  determined in  accordance  with SFAS No. 123, as the fair value of the
equity  instruments  issued,  and according to the  guidelines set forth in EITF
96-18,  "Accounting  for  Equity  Instruments  that are  Issued  to  Other  than
Employees for Acquiring,  or in Conjunction with Selling, Goods or Services" and
EITF 00-18  "Accounting  Recognition for Certain  Transactions  involving Equity
Instruments  Granted to Other Than Employees,"  referred to as SFAS No. 123. APB
Opinion  No. 25 has been  applied in  accounting  for fixed and  milestone-based
stock  options to  employees  and  directors  as allowed  by SFAS No.  123.  The
compensation  cost is  recorded  over  the  respective  vesting  periods  of the
individual stock options.  The expense is included in the respective  categories
of  expense  in the  statement  of  operations.  We expect to record  additional
non-cash compensation expense in the


                                       30
<PAGE>


future, which may be significant. However, because some of the options issued to
consultants  either  do not vest  immediately  or vest upon the  achievement  of
certain milestones, the total expense is uncertain.

Critical Accounting Policies

     The  discussion  and  analysis of our  financial  condition  and results of
operations are based upon our consolidated financial statements, which have been
prepared in accordance  with  accounting  principles  generally  accepted in the
United States. The preparation of these financial statements requires us to make
estimates  and  judgments  that  affect  the  reported   amount  of  assets  and
liabilities and related  disclosure of contingent  assets and liabilities at the
date of our  financial  statements  and the  reported  amounts of  revenues  and
expenses  during the  applicable  period.  Actual  results may differ from these
estimates under different assumptions or conditions.

     Critical  accounting  policies are defined as those that are  reflective of
significant   judgments  and  uncertainties,   and  may  potentially  result  in
materially  different  results under different  assumptions  and conditions.  In
applying these critical accounting policies, our management uses its judgment to
determine the  appropriate  assumptions to be used in making certain  estimates.
These estimates are subject to an inherent degree of uncertainty. For a detailed
discussion of the application of these and other accounting policies, please see
Note 1 in the  Notes to our  Consolidated  Financial  statements.  Our  critical
accounting policies include the following:

     Foreign  currency  translation.  In preparing  our  consolidated  financial
statements,  we translate  non-US dollar amounts in the financial  statements of
our Israeli subsidiaries into US dollars. Under the relevant accounting guidance
the  treatment  of any  gains or  losses  resulting  from  this  translation  is
dependent  upon  management's  determination  of the  functional  currency.  The
functional  currency is determined  based on management's  judgment and involves
consideration  of all relevant  economic facts and  circumstances  affecting the
subsidiaries. Generally, the currency in which a subsidiary transacts a majority
of  its  transactions,   including  billings,   financing,   payroll  and  other
expenditures  would  be  considered  the  functional   currency.   However,  any
dependency  upon the parent and the nature of the  subsidiary's  operations must
also be considered.  If any subsidiary's functional currency is deemed to be the
local  currency,  then any gain or loss  associated with the translation of that
subsidiary's  financial  statements  would be included as a separate part of our
stockholders'  equity  under the caption  "cumulative  translation  adjustment."
However,  if the  functional  currency of the  subsidiary is deemed to be the US
dollar then any gain or loss  associated with the translation of these financial
statements  would be included  within our statement of operations.  Based on our
assessment of the factors  discussed  above, we consider the US dollar to be the
functional  currency for each of our Israeli  subsidiaries.  Therefore all gains
and losses from translations are recorded in our statement of operations.

     Accounting  for  income  taxes.  As part of the  process of  preparing  our
consolidated  financial  statements we are required to estimate our income taxes
in  each of the  jurisdictions  in  which  we  operate.  This  process  involves
management  estimating our actual  current tax exposure  together with assessing
temporary  differences  resulting from differing treatment of items, for tax and
accounting  purposes.  These  differences  result in  deferred  tax  assets  and
liabilities,  which are included within our consolidated  balance sheet. We must
then assess the  likelihood  that our deferred tax assets will be recovered from
future taxable income and, to the extent we believe that recovery is not likely,
we must establish a valuation allowance.  To the extent we establish a valuation
allowance or increase  this  allowance  in a period,  we must include an expense
within the tax provision in the statement of operations.  Significant management
judgment is required in determining our provision for income taxes, our deferred
tax assets and liabilities and any valuation  allowance recorded against our net


                                       31
<PAGE>


deferred  tax  assets.  We have fully  offset our US  deferred  tax asset with a
valuation   allowance.   Our  lack  of  earnings  history  and  the  uncertainty
surrounding  our ability to generate  taxable  income prior to the expiration of
such  deferred tax assets were the primary  factors  considered by management in
establishing  the valuation  allowance.  The deferred tax asset in our financial
statements relates to our wholly owned Israeli subsidiaries.

     Stock  Compensation.  We have  issued  options and  warrants to  employees,
directors and  consultants.  In applying SFAS No. 123, we use the  Black-Scholes
pricing  model to calculate  the fair market value of our options and  warrants.
The Black-Scholes model takes into account volatility in the price of our stock,
the risk-free  interest rate,  the estimated life of the option or warrant,  the
closing  market price of our stock and the exercise  price.  For purposes of the
calculation,  it was assumed that no  dividends  will be paid during the life of
the options and warrants.

     In accordance with EITF 96-18,  "Accounting for Equity Instruments that are
Issued to Other than  Employees for Acquiring,  or in Conjunction  with Selling,
Goods or Services," total compensation expense for options issued to consultants
is determined  at the  "measurement  date." The expense is  recognized  over the
vesting period for the options. Until the measurement date is reached, the total
amount of compensation expense remains uncertain.  We record option compensation
based on the fair value of the options at the reporting date.  These options are
then  revalued,  or the total  compensation  is  recalculated  based on the then
current fair value, at each subsequent  reporting date. This results in a change
to the amount previously  recorded in respect of the option grant and additional
expense or a negative  expense may be recorded in  subsequent  periods  based on
changes in the  assumptions  used to  calculate  fair value,  such as changes in
market price, until the measurement date is reached and the compensation expense
is determined.

Results of Operations

Years Ended December 31, 2001 and 2000

     Revenue.  We did not have any revenue for the years ended December 31, 2001
and December 31, 2000.

     Research  and  Development  Expenses.  Research  and  development  expenses
increased by $713,000 to  $7,399,000  for the year ended  December 31, 2001,  as
compared to expenses of $6,686,000  for the year ended December 31, 2000. Net of
non-cash compensation, research and development expenses increased by $3,916,000
to  $7,416,000  due  primarily to growth in  personnel,  manufacturing  expenses
associated with KRX-101 clinical trial inventory and increased pre-clinical work
to advance our KinAce platform.  We expect our research and development costs to
continue to increase  significantly over the next several years as we expand our
research and product  development  efforts and implement our business  strategy.
Non-cash  compensation  expense  related to stock  option  grants  was  negative
$17,000 for the year ended  December 31, 2001 as compared to $3,186,000  for the
year ended December 31, 2000. This negative  non-cash  compensation  expense was
primarily due to the revaluation of previously issued options to consultants.

     General and Administrative  Expenses.  General and administrative  expenses
decreased by $1,459,000 to $4,441,000  for the year ended  December 31, 2001, as
compared to expenses of $5,900,000  for the year ended December 31, 2000. Net of
non-cash  compensation,   general  and  administrative   expenses  increased  by
$1,070,000 to $4,302,000  due  primarily to increased  personnel and  management
expenses,  and increased  investments  in business  development  and  facilities
required  to support  our  growth.  We expect  our  general  and  administrative
expenses to continue to increase over the next several years as we implement our
business strategy and commercialize our products.  Non-cash


                                       32
<PAGE>


compensation  expense  related to stock option  grants was $139,000 for the year
ended  December 31, 2001 as compared to $2,668,000  for the year ended  December
31, 2000.

     Interest Income (Expense), Net. Interest income, net, increased by $914,000
to  $2,231,000  for the year ended  December 31, 2001,  as compared to income of
$1,317,000 for the year ended  December 31, 2000.  The increase  resulted from a
higher level of invested funds due primarily to proceeds from our initial public
offering that closed in August 2000, that were invested for a full year in 2001.

     Income Taxes.  Income tax expense  decreased by $23,000 to $197,000 for the
year ended December 31, 2001, as compared to an expense of $220,000 for the year
ended December 31, 2000.  Income tax expense is  attributable  to taxable income
from the continuing operations of our subsidiaries in Israel. As of December 31,
2001, we have recorded a deferred tax asset against  income taxes for the period
then  ended.  Income  taxes are  related to the  taxable  income of our  Israeli
subsidiaries.  This income is  eliminated  upon  consolidation  of our financial
statements.

     Impact of Inflation.  The effects of inflation  and changing  prices on our
operations were not significant during the periods presented.

Years Ended December 31, 2000 and 1999

     Revenue.  We did not have any revenue for the years ended December 31, 2000
and December 31, 1999.

     Research  and  Development  Expenses.  Research  and  development  expenses
decreased by $237,000 to  $6,686,000  for the year ended  December 31, 2000,  as
compared to expenses of $6,923,000  for the year ended December 31, 1999. Net of
non-cash compensation, research and development expenses increased by $2,003,000
to $3,500,000 due primarily to professional  fees and  expenditures on expansion
of our existing research and development activities during the period.  Non-cash
compensation   expense  related  to  stock  option  grants  was  $3,186,000  and
$5,426,000 for the years ended December 31, 2000 and 1999, respectively.

     General and Administrative  Expenses.  General and administrative  expenses
increased by $4,087,000 to $5,900,000  for the year ended  December 31, 2000, as
compared to expenses of $1,813,000  for the year ended December 31, 1999. Net of
non-cash  compensation,   general  and  administrative   expenses  increased  by
$2,007,000 to $3,232,000 due primarily to professional services and expansion of
our  existing  general  and  administrative  activities.  Non-cash  compensation
expense related to stock option grants was $2,668,000 and $588,000 for the years
ended December 31, 2000 and 1999, respectively.

     Interest  Income  (Expense),   Net.  Interest  income,  net,  increased  by
$1,574,000 to $1,317,000 for the year ended December 31, 2000, as compared to an
expense of $257,000 for the year ended December 31, 1999. The increase  resulted
from a higher level of invested funds due primarily to proceeds from the initial
public offering that closed in August 2000.

     Income Taxes.  Income tax expense increased by $210,000 to $220,000 for the
year ended  December 31, 2000, as compared to an expense of $10,000 for the year
ended December 31, 1999.  This increase is  attributable  to taxable income from
the continuing  operations of our single subsidiary in Israel at that time. This
income is eliminated upon consolidation of our financial statements.

     Impact of Inflation.  The effects of inflation  and changing  prices on our
operations were not significant during the periods presented.


                                       33
<PAGE>


Liquidity and Capital Resources

     We have financed our operations  from inception  primarily  through various
private and public  financings.  As of December  31,  2001,  we had received net
proceeds of $46.3  million from our initial  public  offering and $11.6  million
from private placement  issuances of common and preferred stock,  including $2.9
million raised through the  contribution by holders of their notes issued by our
predecessor company.

     As of December 31, 2001,  we had $37.9 million in cash,  cash  equivalents,
interest receivable and short-term securities. Cash used in operating activities
for the period  ended  December  31,  2001 was $7.3  million as compared to $5.2
million for the comparable period ended December 31, 2000. This increase was due
primarily to increased  expenses  associated with the expansion of our business.
Net cash provided by investing  activities was $8.0 million for the period ended
December  31,  2001.  This was  primarily  the  result of  long-term  investment
maturities, offset by capital expenditures.

     We have incurred negative cash flow from operations since our inception. We
anticipate  incurring  negative cash flow from  operations  for the  foreseeable
future. We have spent, and expect to continue to spend,  substantial  amounts in
connection  with  implementing  our  business  strategy,  including  our planned
product development efforts, our clinical trials, and our research and discovery
efforts.

     As of December 31, 2001, we have known contractual obligations, commitments
and  contingencies of $2,434,000.  Of this amount,  $595,000 relates to research
agreements, with $583,000 due during 2002 and the remaining $12,000 due in 2003.
The  additional  $1,839,000  relates to operating  lease  obligations,  of which
$574,000  is due during  2002,  a total of $884,000 is due during 2003 and 2004,
with the remaining $381,000 due during 2005.

<TABLE>
<CAPTION>
                                                                           Payments Due by Period
                                             -----------------------------------------------------------------------------

       Contractual Obligations               Total         Less than 1 Year     1-3 Years        4-5 Years   After 5 Years
       -----------------------               -----         ----------------     ---------        ---------   -------------

<S>                                        <C>                <C>                <C>              <C>              <C>
Research Agreements                        $  595,000         $  583,000         $ 12,000               --         --
Operating Leases                           $1,839,000         $  574,000         $884,000         $381,000         --
Total Contractual Cash Obligations         $2,434,000         $1,157,000         $896,000         $381,000         --
</TABLE>

     Additionally,  we have undertaken to make milestone  payments to certain of
our licensors,  contingent upon attaining  certain goals, of up to approximately
$4.0 million.  In certain cases,  such payments will reduce any royalties due on
sales of related products. In the event that the milestones are not achieved, we
remain  obligated  to pay one licensor  $50,000  annually  thereafter  until the
license expires.

     We believe that our $37.9 million in cash, cash equivalents, and short-term
investments  as of December 31, 2001 will be sufficient to enable us to meet our
planned operating needs and capital  expenditures  until mid-2003.  Our cash and
cash  equivalents  as of  December  31,  2001  are  invested  in  highly  liquid
investments such as cash,  money market  accounts,  short-term US corporate debt
securities,  and short-term obligations of domestic governmental agencies. As of
December 31,


                                       34
<PAGE>


2001 we are  unaware  of any known  trends or any  known  demands,  commitments,
events, or uncertainties  that will, or that are reasonably likely to, result in
a material increase or decrease in our required  liquidity.  Our liquidity needs
throughout 2002 will continue to be funded from existing cash, cash equivalents,
and short-term investments.

     Our forecast of the period of time through  which our  financial  resources
will be adequate to support our operations is a  forward-looking  statement that
involves  risks and  uncertainties.  The actual  amount of funds we will need to
operate is subject to many factors, some of which are beyond our control.

These factors include the following:

     o    the progress of our research activities;

     o    the number and scope of our research programs;

     o    the progress of our pre-clinical and clinical development activities;

     o    the progress of the  development  efforts of parties with whom we have
          entered into research and development agreements;

     o    our ability to maintain current research and development  programs and
          to establish new research and development and licensing arrangements;

     o    our ability to achieve our milestones under licensing arrangements;

     o    the costs  involved in  prosecuting  and  enforcing  patent claims and
          other intellectual property rights; and

     o    the costs and timing of regulatory approvals.

     We have based our estimate on  assumptions  that may prove to be wrong.  We
may need to  obtain  additional  funds  sooner  or in  greater  amounts  than we
currently   anticipate.   Potential   sources  of  financing  include  strategic
relationships,  public or private sales of our stock or debt and other  sources.
We may seek to access the public or private equity  markets when  conditions are
favorable  due  to our  long-term  capital  requirements.  We do  not  have  any
committed  sources  of  financing  at this  time,  and it is  uncertain  whether
additional  funding  will be  available  when we need it on terms  that  will be
acceptable to us, or at all. If we raise funds by selling  additional  shares of
common stock or other  securities  convertible  into common stock, the ownership
interest of our  existing  stockholders  will be diluted.  If we are not able to
obtain  financing when needed,  we may be unable to carry out our business plan.
As a result, we may have to significantly limit our operations and our business,
financial condition and results of operations would be materially harmed.

Recently Issued Accounting Standards

     In June 2001, the FASB issued SFAS No. 141,  "Business  Combinations,"  and
SFAS No. 142, "Goodwill and Other Intangible Assets". SFAS 141 requires that the
purchase  method of accounting be used for all business  combinations.  SFAS 141
specifies  criteria that intangible  assets  acquired in a


                                       35
<PAGE>


business  combination  must meet to be recognized and reported  separately  from
goodwill.  SFAS 142 will  require  that  goodwill  and  intangible  assets  with
indefinite  useful  lives  no  longer  be  amortized,  but  instead  tested  for
impairment at least annually in accordance with the provisions of SFAS 142. SFAS
142  also  requires  that  intangible  assets  with  estimable  useful  lives be
amortized  over  their  respective  estimated  useful  lives to their  estimated
residual  values,  and reviewed for  impairment in accordance  with SFAS 121 and
subsequently, SFAS 144 after its adoption.

     We adopted the  provisions of SFAS 141 as of July 1, 2001,  and SFAS 142 is
effective  for  periods  beginning  on or after  January 1, 2002.  Goodwill  and
intangible  assets  determined to have an  indefinite  useful life acquired in a
purchase business combination completed after June 30, 2001, but before SFAS 142
is adopted in full, are not amortized.  Goodwill and intangible  assets acquired
in business combinations  completed before July 1, 2001 continue to be amortized
and tested for impairment prior to the full adoption of SFAS 142.

     Upon  adoption  of SFAS 142,  we are  required  to  evaluate  our  existing
intangible   assets  and  goodwill  that  were  acquired  in  purchase  business
combinations  and to make any  necessary  reclassifications  in order to conform
with the new classification  criteria in SFAS 141 for recognition  separate from
goodwill.  We will be required to reassess the useful lives and residual  values
of all intangible  assets  acquired and make any necessary  amortization  period
adjustments  by the  end of the  first  interim  period  after  adoption.  If an
intangible  asset is identified as having an indefinite  useful life, we will be
required to test the  intangible  asset for  impairment in  accordance  with the
provisions of SFAS 142 within the first interim  period.  Impairment is measured
as the excess of carrying value over the fair value of an intangible  asset with
an  indefinite  life.  Any  impairment  loss will be  measured as of the date of
adoption  and  recognized  as the  cumulative  effect of a change in  accounting
principle in the first interim period.

     In connection with SFAS 142's transitional goodwill impairment  evaluation,
we are required to perform an assessment of whether there is an indication  that
goodwill is impaired as of the date of adoption.  To  accomplish  this,  we must
identify our reporting  units and determine the carrying value of each reporting
unit by assigning the assets and  liabilities,  including the existing  goodwill
and intangible  assets,  to those reporting units as of January 1, 2002. We will
then have up to six months from January 1, 2002 to  determine  the fair value of
each reporting unit and compare it to the carrying amount of the reporting unit.
To the extent the carrying  amount of a reporting unit exceeds the fair value of
the reporting unit, an indication exists that the reporting unit goodwill may be
impaired  and we must  perform  the second step of the  transitional  impairment
test.  The second step is required to be completed  as soon as possible,  but no
later than the end of the year of adoption.  In the second step, we must compare
the implied fair value of the reporting  unit goodwill with the carrying  amount
of the reporting unit  goodwill,  both of which would be measured as of the date
of adoption.  The implied fair value of goodwill is determined by allocating the
fair  value of the  reporting  unit to all of the  recognized  and  unrecognized
assets  and the  liabilities  of the  reporting  unit in a manner  similar  to a
purchase price allocation,  in accordance with SFAS 141. The residual fair value
after this  allocation is the implied fair value of the reporting unit goodwill.
Any transitional  impairment loss will be recognized as the cumulative effect of
a change in accounting  principle in our  statement of income.  We do not expect
the  adoption  of SFAS  141 and  SFAS 142 to have a  significant  impact  on our
consolidated financial statements.

     In June 2001,  the FASB issued SFAS 143,  Accounting  for Asset  Retirement
Obligations.  SFAS  143  requires  us to  record  the  fair  value  of an  asset
retirement  obligation  as a  liability  in the period in which we incur a legal
obligation  associated  with the retirement of tangible  long-lived  assets that
result from the acquisition,  construction, development and/or normal use of the
assets. We also record a


                                       36
<PAGE>


corresponding asset, which is depreciated over the life of the asset. Subsequent
to the initial  measurement of the asset retirement  obligation,  the obligation
will be  adjusted  at the end of each  period to reflect the passage of time and
changes in the estimated  future cash flows  underlying the  obligation.  We are
required to adopt SFAS 143 on January 1, 2003. We do not believe the adoption of
SFAS  143  will  have  a  significant  impact  on  our  consolidated   financial
statements.

     In August 2001, the FASB issued SFAS 144,  Accounting for the Impairment or
Disposal of Long-Lived  Assets.  SFAS 144  addresses  financial  accounting  and
reporting for the  impairment or disposal of long-lived  assets.  This Statement
requires that  long-lived  assets be reviewed for impairment  whenever events or
changes in  circumstances  indicate that the carrying amount of an asset may not
be  recoverable.  Recoverability  of assets to be held and used is measured by a
comparison of the carrying  amount of an asset to future net cash flows expected
to be generated by the asset.  If the  carrying  amount of an asset  exceeds its
estimated future cash flows, an impairment charge is recognized by the amount by
which the carrying amount of the asset exceeds the fair value of the asset. SFAS
144 requires companies to separately report discontinued  operations and extends
that  reporting to a component of an entity that either has been disposed of (by
sale, abandonment,  or in a distribution to owners) or is classified as held for
sale.  Assets to be disposed of are reported at the lower of the carrying amount
or fair value less costs to sell.  We are  required to adopt SFAS 144 on January
1, 2002 and do not believe it will have a significant impact on our consolidated
financial statements.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.

     Interest Rate Risk. The primary  objective of our investment  activities is
to preserve  principal  while at the same time  maximizing the income we receive
from  our  investments  without  significantly  increasing  risk.  Some  of  the
securities  that we invest in may have market risk.  This means that a change in
prevailing  interest  rates may cause the principal  amount of the investment to
fluctuate.  For  example,  if we hold a security  that was  issued  with a fixed
interest rate at the then-prevailing rate and the prevailing interest rate later
rises, the principal amount of our investment will probably decline. We maintain
our  portfolio in cash  equivalents  and short- and long-term  interest  bearing
securities,  including  corporate  debt,  money market funds and government debt
securities. The average duration of all of our investments in 2001 was less than
one year. Due to the short-term nature of these investments,  we believe we have
no  material  exposure  to  interest  rate risk  arising  from our  investments.
Therefore, no quantitative tabular disclosure is required.


                                       37
<PAGE>


ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

     Our Consolidated Financial Statements as of December 31, 2001 are presented
beginning on page F-1 of this Annual Report on Form 10-K.  The  following  table
sets forth  unaudited  selected  operating  results  for each of the four fiscal
quarters in the years ended  December 31, 2001 and December 31, 2000. We believe
that the following  selected  quarterly  information  includes all  adjustments,
consisting only of normal, recurring adjustments,  that we consider necessary to
present this information  fairly. You should read this financial  information in
conjunction with the financial  statements and related notes appearing elsewhere
in this Annual Report on Form 10-K. Our results of operations have fluctuated in
the past and are likely to continue to fluctuate greatly from quarter to quarter
in the future. Therefore, results of operations for any previous periods are not
necessarily indicative of results of operations to be recorded in the future.

<TABLE>
<CAPTION>
                                                                       2001
                                           -------------------------------------------------------------
                                              Mar. 31         June 30        Sept. 30         Dec. 31
                                           ----------       ----------       ----------       ----------
<S>                                          <C>             <C>             <C>             <C>

OPERATING EXPENSES:
Research and development:
  Non-cash compensation                       $   353          $   646          $(1,285)         $   269
  Other research and development                1,678            2,065            2,009            1,664
                                           ----------       ----------       ----------       ----------
  Total research and development                2,031            2,711              724            1,933

General and administrative:
  Non-cash compensation                            48               35               23               33
  Other general and administrative              1,069            1,240            1,086              907
                                           ----------       ----------       ----------       ----------
  Total general and administrative              1,117            1,275            1,109              940
                                           ----------       ----------       ----------       ----------
LOSS FROM OPERATIONS                           (3,148)          (3,986)          (1,833)          (2,873)

OTHER INCOME (EXPENSE):
  Financing income, net                           870              549              582              230
  Taxes on income                                (110)             (10)             (59)             (18)
                                           ----------       ----------       ----------       ----------
NET LOSS                                      $(2,388)         $(3,447)         $(1,310)         $(2,661)
                                           ==========       ==========       ==========       ==========
NET LOSS PER COMMON SHARE
  Basic and diluted                           $ (0.12)         $ (0.17)         $ (0.07)         $ (0.13)
                                           ==========       ==========       ==========       ==========

SHARES USED IN COMPUTING NET LOSS PER
COMMON SHARE
  Basic and diluted                        19,594,448       19,721,973       19,734,224       19,744,303
                                           ==========       ==========       ==========       ==========
</TABLE>


<TABLE>
<CAPTION>
                                                                       2001
                                           -------------------------------------------------------------
                                              Mar. 31         June 30        Sept. 30         Dec. 31
                                           ---------        ---------        ----------       ----------
<S>                                         <C>              <C>             <C>              <C>

OPERATING EXPENSES:
Research and development:
  Non-cash compensation                       $   529          $   846          $ 1,014          $   797
  Other research and development                  872              283              880            1,465
                                            ---------        ---------       ----------       ----------
  Total research and development                1,401            1,129            1,894            2,262

General and administrative:
  Non-cash compensation                           814            1,243              658              (47)
  Other general and administrative                280              932              707            1,313
                                            ---------        ---------       ----------       ----------
 Total general and administrative               1,094            2,175            1,365            1,266
                                            ---------        ---------       ----------       ----------
LOSS FROM OPERATIONS                           (2,495)          (3,304)          (3,259)          (3,528)

OTHER INCOME (EXPENSE):
  Financing income (expenses)                      55               98              531              633
  Taxes on income                                 (27)             (28)             (38)            (127)
                                            ---------        ---------       ----------       ----------
NET LOSS                                      $(2,467)         $(3,234)         $(2,766)         $(3,022)
                                            =========        =========       ==========       ==========
NET LOSS PER COMMON SHARE
  Basic and diluted                           $ (0.30)         $ (0.40)         $ (0.17)         $ (0.16)
                                            =========        =========       ==========       ==========
SHARES USED IN COMPUTING NET LOSS PER
COMMON SHARE
  Basic and diluted                         8,108,306        8,108,306       15,927,878       19,489,568
                                            =========        =========       ==========       ==========
</TABLE>


                                       38
<PAGE>


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

     None.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.

     The information  required by this item is incorporated  herein by reference
to our Proxy Statement for our 2002 Annual Meeting of Stockholders.

ITEM 11. EXECUTIVE COMPENSATION.

     The information  required by this item is incorporated  herein by reference
to our Proxy Statement for our 2002 Annual Meeting of Stockholders.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

     The information  required by this item is incorporated  herein by reference
to our Proxy Statement for our 2002 Annual Meeting of Stockholders.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

     The information  required by this item is incorporated  herein by reference
to our Proxy Statement for our 2002 Annual Meeting of Stockholders.

                                     PART IV

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

     (a) 1. Financial Statements.

     Our Consolidated  Financial  Statements listed in the accompanying Index to
Consolidated  Financial  Statements  at page F-1 are  filed as part of this Form
10-K.

     2. Financial Statement Schedules.

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

     3. Exhibits. (See (c) below)

     (b) Reports on Form 8-K.

     None.


                                       39
<PAGE>


     (c) Exhibits

     Listed  below  are the  exhibits  that are  filed as part of this Form 10-K
(according to the number  assigned to them in Item 601 of Regulation  S-K). Each
exhibit  marked  by a (*) is  incorporated  by  reference  to  our  Registration
Statement on Form S-1 (File No.  333-37402)  filed on May 19, 2000. Each exhibit
marked by a (**) is  incorporated  by  reference  to the First  Amendment to our
Registration  Statement on Form S-1 (File No. 333-37402) filed on June 30, 2000.
Each  exhibit  marked with a (***) is  incorporated  by  reference to our Annual
Report on Form 10-K (File No.  000-30929)  filed on March 30, 2001.  Portions of
each exhibit marked with a (!) have been redacted and filed  separately with the
Commission pursuant to a request for confidential treatment. Each exhibit marked
(+) is a management  contract or  compensatory  plan or arrangement  filed as an
exhibit to this Form 10-K pursuant to Items 14(a) and 14(c) of Form 10-K.

 Exhibit

 Number                                Description

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

2.1*      --Asset Purchase Agreement between Partec Ltd. (a predecessor  company
          of Keryx Biopharmaceuticals, Inc.) and B.R.T. Biopharmaceuticals Ltd.,
          dated as of November 11, 1999.

2.2*      --Asset   Purchase   Agreement   between   Partec   Ltd.   and   Keryx
          Biopharmaceuticals,  Inc.  (f/k/a  Lakaro  Biopharmaceuticals,  Inc.),
          dated as of November 18, 1999.

3.1*      --Certificate of Incorporation of Keryx  Biopharmaceuticals,  Inc., as
          amended.

3.2       -- Amended and Restated Bylaws of Keryx Biopharmaceuticals, Inc.

4.1**     --Specimen Common Stock Certificate.

4.2*      --Form  of Stock  Purchase  Agreement  for the  purchase  of shares of
          Common Stock.

4.4*      --Form of  Contribution  Agreement  between Keryx  Biopharmaceuticals,
          Inc. and the holders of 12% Convertible Notes of Partec Ltd.

4.5*      --Warrant  No. 1 for the  Purchase of Shares of Common  Stock  between
          Children's  Medical Center  Corporation and Keryx  Biopharmaceuticals,
          Inc., dated as of November 18, 1999.

4.6*      --Warrant  No. 2 for the  Purchase of Shares of Common  Stock  between
          Children's  Medical Center  Corporation and Keryx  Biopharmaceuticals,
          Inc., dated as of November 18, 1999.

4.7*      --Form of Warrant for the Purchase of Shares of Common  Stock  between
          certain    holders   of   Series   A   Preferred   Stock   and   Keryx
          Biopharmaceuticals, Inc., dated as of December 14, 1999.

4.10*     --Warrant for the Purchase of Shares of Common Stock between Paramount
          Capital, Inc. and Keryx Biopharmaceuticals,  Inc., dated as of January
          25, 2000.

10.1*+    --1999 Share Option Plan.

10.2      --Employment   Agreement   between  Morris  Laster,   M.D.  and  Keryx
          Biopharmaceuticals,  Inc.,  (f/k/a  Lakaro  Biopharmaceuticals,  Inc.)
          dated as of November 19, 1999.


10.3      --Employment  Agreement between Morris Laster, M.D. and Keryx (Israel)
          Biopharmaceuticals Ltd., dated as of May 1, 2000.

10.4      --Amended   Employment  Agreement  between  Benjamin  Corn  and  Keryx
          Biopharmaceuticals, Inc., dated as of November 26, 2001.

10.5      --Amended   Employment  Agreement  between  Benjamin  Corn  and  Keryx
          (Israel) Ltd., dated as of November 26, 2001.

10.6*!    --Exclusive  License Agreement  between the Children's  Medical Center
          Corporation and Keryx  Biopharmaceuticals,  Inc., dated as of November
          18, 1999.

10.7*!    --License  Agreement  between Alfa Wassermann  S.p.A. and Partec Ltd.,
          dated as of November 12, 1998.


                                       40
<PAGE>


10.8!     --License  Agreement between Yissum Research & Development  Company of
          the Hebrew University of Jerusalem and Keryx Biopharmaceuticals, Inc.,
          dated as of January 10, 2002.

10.9!     --Research  Agreement between Yissum Research and Development  Company
          of the Hebrew  University of Jerusalem  and Keryx  Biopharmaceuticals,
          Inc., dated as of January 10, 2002.

10.10*!   --Manufacturing  Agreement  between  Opocrin  S.p.A.  and Partec Ltd.,
          dated as of April 16, 1999.

10.11*!   --Manufacturing  Agreement between Pharmaceutics  International,  Inc.
          and Keryx Biopharmaceuticals, Inc., dated as of March 17, 2000.

10.12*!   --Research and Development  Agreement  between National  Institutes of
          Health  Laboratories and Keryx  Biopharmaceuticals,  Inc., dated as of
          April 10, 2000.

10.13*    --Management Services Agreement between Keryx Biopharmaceuticals, Inc.
          and B.R.T. Biopharmaceuticals Ltd., dated as of November 30, 1999.

10.14*    --Finder   Agreement  between  Paramount   Capital,   Inc.  and  Keryx
          Biopharmaceuticals, Inc., dated as of November 19, 1999.

10.15*    --Form of KRX-101 Scientific Advisory Board Agreement.

10.16*    --Form of KinAce  Scientific  Advisory Board  Agreement  between Keryx
          Biopharmaceuticals, Inc. and Dr. James Broach.

10.17*    --Tenancy  Agreement  between Har Hotzvim  Properties  Ltd.  and Keryx
          (Israel)  Ltd.  (f/k/a  BRT  Biopharmaceuticals  Ltd.),  dated  as  of
          December 13, 1999.

10.18*    --Management  Agreement between Park Meir Management  Company Ltd. and
          Keryx (Israel) Ltd., dated as of December 13, 1999.

10.19**   --Form of KinAce  Scientific  Advisory Board  Agreement  between Moshe
          Oren, Ph.D. and Keryx Biopharmaceuticals, Inc.

10.20*+   --2000 Share Option Plan.

10.21***+ --Employment Agreement between Keryx Biopharmaceuticals,  Inc. and Ira
          Weinstein, dated as of November 19, 1999.

10.22***+ --Employment  Agreement between Keryx (Israel) Ltd. and Ira Weinstein,
          dated as of November 19, 1999.

10.23***+ --Employment Agreement between Keryx Biopharmaceuticals,  Inc. and Bob
          Trachtenberg, dated as of November 19, 1999.

10.24***+ --Employment   Agreement   between   Keryx   (Israel)   Ltd.  and  Bob
          Trachtenberg, dated as of November 19, 1999.

10.25***+ --Employment   Agreement  between  Robert  Gallahue,   Jr.  and  Keryx
          Biopharmaceuticals, Inc., dated as of June 16, 2000.

10.26***+ --Employment Agreement between Noa Shelach and Keryx (Israel) Ltd.

10.27***  --Lease Agreement between RMPA Nechasim, Ltd. and Keryx (Israel) Ltd.,
          dated as of December 21, 2000.

10.28***  --Amendment,  dated as of March 29,  2001,  to the  Exclusive  License
          Agreement between the Children's  Medical Center Corporation and Keryx
          Biopharmaceuticals, Inc., dated as of November 18, 1999.

10.29     --Employment    Agreement    between    Barry    Cohen    and    Keryx
          Biopharmaceuticals, Inc., dated as of September 24, 2001.

10.30     --Employment     Agreement    between    Rony    Seger    and    Keryx
          Biopharmaceuticals, Inc., dated as of October 15, 2001.

10.31     --Employment   Agreement  between  Rony  Seger  and  Keryx  Biomedical
          Technologies Ltd., dated as of October 15, 2001.

10.32     --Employment  Agreement  between  Thomas  J.  Humphries,  MD and Keryx
          Biopharmaceuticals, Inc., dated as of November 9, 2001.


                                       41
<PAGE>


10.33     --Amended     Management     Services     Agreement    between   Keryx
          Biopharmaceuticals, Inc. and Keryx Biomedical Technologies Ltd., dated
          as of November 1, 2001.

10.34     -- Sub-lease Agreement between Keryx Biopharmaceuticals, Inc. and Zero
          Stage Capital, Inc., dated June 20, 2001.

21.1      --List of subsidiaries of Keryx Biopharmaceuticals, Inc.

23.1      --Consent of KPMG.


                                   SIGNATURES

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

                                             KERYX BIOPHARMACEUTICALS, INC.
                                             By: /s/ Benjamin Corn, MD
                                             -----------------------------
                                             Benjamin Corn, MD
                                             President & Chief Executive Officer

                                             Date: March 26, 2002


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

<TABLE>
<CAPTION>
<S>                                    <C>                                             <C>
Signature                              Title

/s/ Benjamin Corn, M.D.
-------------------------------------  President, Chief Executive Officer and          March 26, 2002
Benjamin Corn, M.D.                    Director
                                       (Principal Executive Officer)

/s/ Robert Gallahue, Jr.
------------------------------------   Chief Financial Officer and Treasurer           March 26, 2002
Robert Gallahue, Jr.                   (Principal Financial and Accounting Officer)

/s/ Malcolm Hoenlein
-------------------------------------  Director                                        March 26, 2002
Malcolm Hoenlein

/s/ Peter M. Kash
-------------------------------------  Vice Chairman                                   March 26, 2002
Peter M. Kash

/s/ Morris Laster, M.D.
-------------------------------------  Chairman                                        March 26, 2002
Morris Laster, M.D.

/s/ Mark H. Rachesky, M.D.
-------------------------------------  Director                                        March 26, 2002
Mark H. Rachesky, M.D.

/s/ Lindsay A. Rosenwald, M.D.
-------------------------------------  Director                                        March 26, 2002
Lindsay A. Rosenwald, M.D.

/s/ Wayne Rothbaum
-------------------------------------  Director                                        March 26, 2002
Wayne Rothbaum

/s/ J. Wilson Totten, M.D.
-------------------------------------  Director                                        March 26, 2002
J. Wilson Totten, M.D.
</TABLE>


                                       42


<PAGE>


Keryx Biopharmaceuticals, Inc. (A Development Stage Company)

Consolidated Financial Statements as of December 31, 2001
--------------------------------------------------------------------------------

Contents

Page
----

Independent Auditor's Report                                                 F-2

Consolidated Balance Sheets as of December 31, 2001 and 2000                 F-3

Consolidated Statements of Operations for the years ended
   December 31, 2001, 2000 and 1999                                          F-4

Consolidated Statements of Changes in Stockholders' Equity for the
   years ended December 31, 2001, 2000 and 1999                              F-5

Consolidated Statements of Cash Flows for the years ended
   December 31, 2001, 2000 and 1999                                          F-8

Notes to Consolidated Financial Statements                                  F-11


                                       F-1


<PAGE>


                          Independent Auditor's Report

To the Board of Directors and Shareholders of
Keryx Biopharmaceuticals, Inc.:

We  have  audited  the  accompanying   consolidated   balance  sheets  of  Keryx
Biopharmaceuticals,  Inc. (the "Company"),  a development stage company, and its
subsidiaries,  as of December  31,  2001 and 2000 and the  related  consolidated
statements  of  operations,  statements of changes in  stockholders'  equity and
consolidated  statements  of cash flows for each of the years in the  three-year
period ended  December 31, 2001,  and for the  development  stage period.  These
consolidated  financial  statements  are  the  responsibility  of the  Company's
management.  Our  responsibility is to express an opinion on these  consolidated
financial statements based on our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material  respects,  the consolidated  financial  position of the
Company, a development stage company, and its subsidiaries, at December 31, 2001
and 2000 and the results of their  operations,  changes in stockholders'  equity
and cash flows for each of the years in the three-year period ended December 31,
2001,  and for the  development  stage  period,  in conformity  with  accounting
principles generally accepted in the United States.

Somekh Chaikin

Certified Public Accountants (Isr.)
A member firm of KPMG International

Jerusalem, Israel
February 28, 2002

                                       F-2


<PAGE>


Keryx Biopharmaceuticals, Inc. (A Development Stage Company)

Consolidated Balance Sheets as of December 31
--------------------------------------------------------------------------------
(in thousands, except share and per share amounts)

<TABLE>
<CAPTION>
                                                                   2001           2000
Assets                                                           --------       --------

Current assets

<S>                                                              <C>            <C>
Cash and cash equivalents (Note 2)                               $ 23,345       $ 22,708
Investment securities, held-to-maturity (Note 3)                   14,308         15,493
Accrued interest receivable                                           203            595
Other receivables and prepaid expenses                                465            205
                                                                 --------       --------
Total current assets                                               38,321         39,001
                                                                 --------       --------

Investment securities, held-to-maturity                                --         10,104

Investment in respect of employee
 severance obligations (Note 6)                                       291            136

Property, plant and equipment, net (Note 4)                         3,338            312


Deferred tax asset (Note 9)                                           115             --
Other assets, net (primarily intangible assets) (Note 5)            1,002            711
                                                                 --------       --------

Total assets                                                     $ 43,067       $ 50,264
                                                                 ========       ========



Liabilities and Stockholders' Equity

Accounts payable and accrued expenses                            $  2,376       $    919
Accrued compensation and related liabilities                          710            174
                                                                 --------       --------
Total current liabilities                                           3,086          1,093
                                                                 --------       --------
Liability in respect of employee severance                            766            304
 obligations (Note 6)                                            --------       --------
Total liabilities                                                   3,852          1,397
                                                                 --------       --------
Stockholders' equity (Note 7)

Common stock, $0.001 par value per share
 (40,000,000 and 40,000,000 shares authorized,
 19,846,694 and 19,532,772 shares issued and
 fully paid at December 31, 2001 and
 2000, respectively)                                                   19             19

Additional paid-in capital                                         74,025         76,566
Unearned compensation                                              (1,110)        (3,805)
Deficit accumulated during the development stage                  (33,719)       (23,913)
                                                                 --------       --------
Total stockholders' equity                                         39,215         48,867
                                                                 --------       --------
Total liabilities and stockholders' equity                       $ 43,067       $ 50,264
                                                                 ========       ========
</TABLE>

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

                                                     F-3


<PAGE>


Keryx Biopharmaceuticals, Inc. (A Development Stage Company)

Consolidated Statements of Operations for the Year Ended December 31
--------------------------------------------------------------------------------
(in thousands, except share and per share amounts)

<TABLE>
<CAPTION>
                                                                                               Amounts
                                                                                               accumulated
                                                                                               during the
                                                                                               development
                                                  2001           2000            1999          stage
                                               ----------     ----------       ---------      ------------

<S>                                              <C>            <C>             <C>             <C>
Management fees from related party                $    --       $     --        $     --        $    300
                                               ----------     ----------       ---------      ----------

Expenses

Research and development:
   Non-cash compensation                          $   (17)      $  3,186        $  5,426        $  8,595
   Other research and development                   7,416          3,500           1,497          14,388
                                               ----------     ----------       ---------      ----------
   Total research and development expenses          7,399          6,686           6,923          22,983
                                               ----------     ----------       ---------      ----------
General and administrative:
   Non-cash compensation                              139          2,668             588           3,395
   Other general and administrative                 4,302          3,232           1,225          10,297
                                               ----------     ----------       ---------      ----------
   Total general and administrative expenses        4,441          5,900           1,813          13,692
                                               ----------     ----------       ---------      ----------
Total operating expenses                           11,840         12,586           8,736          36,675
                                               ----------     ----------       ---------      ----------
Operating loss                                    (11,840)       (12,586)         (8,736)        (36,375)

Interest income                                     2,316          1,368              21           3,709

Interest expense and other bank charges               (85)           (51)           (278)           (587)
                                               ----------     ----------       ---------      ----------
Net loss before income taxes                       (9,609)       (11,269)         (8,993)        (33,253)

Income taxes (Note 9)                                 197            220              10             466
                                               ----------     ----------       ---------      ----------
Net loss                                         $ (9,806)      $(11,489)       $ (9,003)       $(33,719)
                                               ==========     ==========       =========      ==========
Basic and diluted loss per common share          $  (0.50)      $  (0.89)       $  (1.11)       $  (2.96)
                                               ==========     ==========       =========      ==========

Weighted average shares used in
 computing basic and diluted net loss per
 common share                                  19,699,542     12,929,643       8,108,306      11,391,668
</TABLE>


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

                                       F-4


<PAGE>



Keryx Biopharmaceuticals, Inc. (A Development Stage Company)

Statement of Changes in Stockholders' Equity

--------------------------------------------------------------------------------
(in thousands, except share and per share amounts)


<TABLE>
<CAPTION>
                                                         Series A convertible
                                                            preferred stock                Common stock
                                                       ------------------------      -------------------------
                                                        Shares        Amount          Shares         Amount
                                                       --------    ------------      ---------    ------------
<S>                                                      <C>       <C>

Balance at December 31, 1998                                --     $         --             --    $         --

Changes during the year:
Conversion of convertible notes of
 Partec into stock in Keryx                                 --               --             --              --
Issuance of Series A convertible preferred
 stock to investors at $100 per share for
 cash (net of issuance expenses of $309)                50,000               --*            --              --
Issuance of Series A convertible preferred
 stock at $0.001  par value to  noteholders
 in exchange for note of predecessor                    29,465               --*            --              --
Issuance of common stock to technology
 licensors for technology license                           --               --      1,208,306               1
Compensation in respect of options
 granted to employees, directors and
 consultants                                                --               --             --              --
Warrants for common stock issued to
 technology licensor for technology license                 --               --             --              --
Warrants for common stock issued to
 noteholders in exchange for note of
 predecessor                                                --               --             --              --
Net loss for the year                                       --               --             --              --
                                                       --------    ------------      ---------    ------------
Balance at December 31, 1999                            79,465     $         --*     1,208,306    $          1
                                                       ========    ============      =========    ============
</TABLE>


<TABLE>
<CAPTION>
                                                                                      Deficit
                                                                                      accumulated
                                                        Additional                    during the
                                                         paid-in        Unearned      development
                                                         capital      compensation    stage           Total
                                                       ------------   ------------    ------------    ------------
<S>                                                    <C>                <C>            <C>             <C>

Balance at December 31, 1998                           $  3,181           $    --        $ (3,421)       $ (240)

Changes during the year:
Conversion of convertible notes of
 Partec into stock in Keryx                               2,973                --              --         2,973
Issuance of Series A convertible preferred
 stock to investors at $100 per share for
 cash (net of issuance expenses of $309)                  4,691                --              --         4,691
Issuance of Series A convertible preferred
 stock at $0.001  par value to  noteholders
 in exchange for note of predecessor                         --                --              --            --
Issuance of common stock to technology
 licensors for technology license                            --                --              --             1
Compensation in respect of options
 granted to employees, directors and
 consultants                                              7,555            (2,129)             --         5,426
Warrants for common stock issued to
 technology licensor for technology license                 725              (725)             --            --
Warrants for common stock issued to
 noteholders in exchange for note of
 predecessor                                                588                --              --           588
Net loss for the year                                        --                --          (9,003)       (9,003)
                                                       --------           -------        --------        ------
Balance at December 31, 1999                           $ 19,713           $(2,854)       $(12,424)       $4,436
                                                       ========           =======        ========        ======

*Less than $1 (thousand)
</TABLE>


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

                                       F-5


<PAGE>



Keryx Biopharmaceuticals, Inc. (A Development Stage Company)

Statement of Changes in Stockholders' Equity (continued)
--------------------------------------------------------------------------------
(in thousands, except share and per share amounts)


<TABLE>
<CAPTION>
                                                         Series A convertible
                                                            preferred stock                   Common stock
                                                      ----------------------------    ---------------------------
                                                         Shares          Amount          Shares         Amount
                                                      ------------    ------------    ------------   ------------
<S>                                                         <C>       <C>                <C>         <C>
Balance at December 31, 1999                                79,465    $         --*      1,208,306   $          1

Changes during the year:
Issuance of Series A convertible preferred
 stock to investors at $100 per share for
 cash (net of issuance expenses of $271)                    39,180              --*             --             --
Receipt on account of shares issued in
 prior years                                                    --              --       6,900,000              7
Conversion of Series A convertible
 preferred stock to common stock                          (118,645)             --*      6,114,962              6
Issuance of common stock in initial public
 offering, including exercise of overallotment
 (net of issuance expenses of $5,702)                           --              --       5,200,000              5
Exercise of warrants                                            --              --         109,504             --*
Compensation in respect of options
 granted to employees, directors and
 consultants                                                    --              --              --             --
Compensation in respect of warrants for
 common stock issued to technology licensor                     --              --              --             --
Warrants of common stock issued to related
 party as finder's fee in private placement                     --              --              --             --
Net loss                                                        --              --              --             --
                                                      ------------    ------------    ------------   ------------
Balance at December 31, 2000                                    --    $         --*     19,532,772   $         19
                                                      ============    ============    ============   ============
</TABLE>


<TABLE>
<CAPTION>
                                                                                      Deficit
                                                                                      accumulated
                                                       Additional                     during the
                                                        paid-in         Unearned      development
                                                        capital       compensation    stage              Total
                                                      ------------    ------------    ------------    -----------

<S>                                                   <C>              <C>            <C>             <C>
Balance at December 31, 1999                          $     19,713     $    (2,854)   $    (12,424)   $     4,436

Changes during the year:
Issuance of Series A convertible preferred
 stock to investors at $100 per share for
 cash (net of issuance expenses of $271)                     3,647              --              --          3,647
Receipt on account of shares issued in
 prior years                                                    --              --              --              7
Conversion of Series A convertible
 preferred stock to common stock                                (6)             --              --             --
Issuance of common stock in initial public
 offering, including exercise of overallotment
 (net of issuance expenses of $5,702)                       46,293              --              --         46,298
Exercise of warrants                                             1              --              --              1
Compensation in respect of options
 granted to employees, directors and
 consultants                                                 3,734             431              --          4,165
Compensation in respect of warrants for
 common stock issued to technology licensor                  3,070          (1,382)                         1,688
Warrants of common stock issued to related
 party as finder's fee in private placement                    114              --              --            114
Net loss                                                        --              --         (11,489)       (11,489)
                                                      ------------    ------------    ------------    -----------
Balance at December 31, 2000                          $     76,566    $     (3,805)   $    (23,913)   $    48,867
                                                      ============    ============    ============    ===========
</TABLE>

*Less than $1 (thousand)

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

                                       F-6


<PAGE>


Keryx Biopharmaceuticals, Inc. (A Development Stage Company)

Statement of Changes in Stockholders' Equity (continued)
--------------------------------------------------------------------------------
(in thousands, except share and per share amounts)


<TABLE>
<CAPTION>
                                                          Series A convertible
                                                            preferred stock                   Common stock
                                                      ----------------------------    ---------------------------
                                                         Shares          Amount          Shares         Amount
                                                      ------------    ------------    ------------   ------------

<S>                                                             <C>   <C>               <C>          <C>
Balance at December 31, 2000                                    --    $         --      19,532,772   $         19

Changes during the year:
Exercise of warrants                                            --              --         137,922            --*
Exercise of options                                             --              --         176,000            --*
Compensation in respect of options
 granted to employees, directors and
 consultants                                                     --             --              --             --
Compensation in respect of warrants for
 common stock issued to technology licensor
Net loss                                                        --              --              --             --
                                                      ------------    ------------    ------------   ------------
Balance at December 31, 2001                                    --    $         --      19,846,694   $         19
                                                      ============    ============    ============   ============
</TABLE>


<TABLE>
<CAPTION>
                                                                                         Deficit
                                                                                       accumulated
                                                       Additional                     during the
                                                        paid-in         Unearned      development
                                                        capital       compensation       stage           Total
                                                      ------------    ------------    ------------    ------------

<S>                                                   <C>             <C>             <C>             <C>
Balance at December 31, 2000                          $     76,566     $    (3,805)   $    (23,913)   $    48,867

Changes during the year:
Exercise of warrants                                            10              --              --             10
Exercise of options                                             23              --              --             23
Compensation in respect of options
 granted to employees, directors and
 consultants                                                (1,514)          1,738              --             18
Compensation in respect of warrants
 for common stock issued to technology licensor             (1,060)            957              --            103

Net loss                                                        --              --          (9,806)        (9,806)
                                                      ------------    ------------    ------------    ------------
Balance at December 31, 2001                          $     74,025    $     (1,110)   $    (33,719)   $    39,215
                                                      ============    ============    ============    ============
</TABLE>

*Less than $1 (thousand)

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

                                       F-7


<PAGE>


Keryx Biopharmaceuticals, Inc. (A Development Stage Company)

Statement of Changes in Stockholders' Equity (continued)
--------------------------------------------------------------------------------
(in thousands, except share and per share amounts)

<TABLE>
<CAPTION>
                                                        Series A convertible
                                                            preferred stock                   Common stock
                                                      ----------------------------    ---------------------------
                                                         Shares          Amount          Shares         Amount
                                                      ------------    ------------    ------------   ------------
<S>                                                       <C>         <C>                <C>          <C>

Amounts accumulated during the development stage:

Contributed capital                                             --    $         --              --   $         --
Conversion of convertible notes of Partec
 into stock in Keryx                                            --              --              --             --
Issuance of Series A convertible preferred
 stock to investors at $100 per share for
 cash (net of issuance expenses of $552)                    89,180              --*             --             --
Issuance of Series A convertible preferred
 stock at $0.001 par value to noteholders
 in exchange for note of predecessor                        29,465              --*             --             --
Issuance of common stock to technology
 licensors for technology license                               --              --       1,208,306              1
Receipt on account of shares issued in
 prior years                                                    --              --       6,900,000              7
Conversion of Series A convertible
 preferred stock to common stock                          (118,645)             --*      6,114,962              6
Issuance of common stock in initial public
 offering, including exercise of overallotment
 (net of issuance expenses of $5,702)                           --              --       5,200,000              5
Exercise of warrants                                            --              --         247,426             --*
Exercise of options                                             --              --         176,000             --*
Compensation in respect of options
 granted to employees, directors and consultants                --              --              --             --
Warrants for common stock issued to
 technology licensor                                            --              --              --             --
Warrants of common stock issued to related
 party as finder's fee in private placement                     --              --              --             --
Warrants for common stock issued to
 noteholders in exchange for note of predecessor                --              --              --             --
Net loss                                                        --              --              --             --
                                                      ------------    ------------    ------------   ------------
                                                                --    $         --*     19,846,694   $         19
                                                      ============    ============    ============   ============
</TABLE>

<TABLE>
<CAPTION>
                                                                                          Deficit
                                                                                        accumulated
                                                         Additional                     during the
                                                          paid-in         Unearned      development
                                                          capital       compensation       stage            Total
                                                        ------------    ------------    ------------    ------------

<S>                                                     <C>             <C>             <C>             <C>
Amounts accumulated during the development stage:

Contributed capital                                     $      3,181    $         --    $         --    $      3,181
Conversion of convertible notes of Partec
 into stock in Keryx                                           2,973              --              --           2,973
Issuance of Series A convertible preferred
 stock to investors at $100 per share for
 cash (net of issuance expenses of $552)                       8,338              --              --           8,338
Issuance of Series A convertible preferred
 stock at $0.001 par value to noteholders
 in exchange for note of predecessor                              --              --              --              --
Issuance of common stock to technology
 licensors for technology license                                 --              --              --               1
Receipt on account of shares issued in
 prior years                                                      --              --              --               7
Conversion of Series A convertible
 preferred stock to common stock                                  (6)             --              --              --
Issuance of common stock in initial public
 offering, including exercise of overallotment
 (net of issuance expenses of $5,702)                         46,293              --              --          46,298
Exercise of warrants                                              11              --              --              11
Exercise of options                                               23              --              --              23
Compensation in respect of options
 granted to employees, directors and consultants               8,715             997              --           9,712
Warrants for common stock issued to
 technology licensor                                           3,795          (2,107)             --           1,688
Warrants of common stock issued to related
 party as finder's fee in private placement                      114              --              --             114
Warrants for common stock issued to
 noteholders in exchange for note of predecessor                 588              --              --             588
Net loss                                                          --              --         (33,719)        (33,719)
                                                        ------------    ------------    ------------    ------------
                                                        $     74,025    $     (1,110)   $    (33,719)   $     39,215
                                                        ============    ============    ============    ============
</TABLE>

*Less than $1 (thousand)

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

                                       F-8


<PAGE>


Keryx Biopharmaceuticals, Inc. (A Development Stage Company)

Consolidated Statements of Cash Flows for the Year Ended December 31
--------------------------------------------------------------------------------
(in thousands)

<TABLE>
<CAPTION>
                                                                                                          Amounts
                                                                                                        accumulated
                                                                                                        during the
                                                                                                        development
                                                           2001            2000            1999            stage
                                                      ------------    ------------    ------------   ------------
<S>                                                   <C>             <C>             <C>            <C>
Cash flows from operating activities

Net loss                                              $     (9,806)   $    (11,489)   $     (9,003)  $   (33,719)

Adjustments to reconcile cash flows
 used in operating activities:
  Revenues and expenses not involving cash flows:
       Employee stock compensation expense                     335           3,556           4,965          8,856
       Consultants' stock compensation expense                (213)          2,297           1,049          3,134
       Interest on convertible notes
        settled through issuance of
        preferred shares                                        --              --             253            253
       Provision for employee severance obligations            462             187              36            766
       Depreciation and amortization                           250              47              36            373
       Disposal of property, plant and equipment                28              --              --             28
       Exchange rate differences                                62               3              --*            58
  Changes in assets and liabilities:
       (Increase) decrease in other
        receivables and prepaid expenses                      (260)             47            (202)          (460)
       Decrease (increase) in accrued interest
        receivable                                             392            (595)             --           (203)
       (Increase) in deferred tax asset                       (115)             --              --           (115)
       Increase (decrease) in amounts
        due to related party                                    --            (141)            141             --
       Increase (decrease) in other
        payable and accrued expenses                           982             778             (97)         1,897
       Increase in accrued compensation
        and related liabilities                                536              62              16            710
                                                      ------------    ------------    ------------   ------------

Net cash used in operating activities                       (7,347)         (5,248)         (2,806)       (18,422)
                                                      ------------    ------------    ------------   ------------

Cash flows from investing activities

       Purchases of property, plant and equipment           (2,808)           (199)             (2)        (3,245)
       Investment in other assets                             (313)           (366)           (141)        (1,024)
       Purchase of investment securities-
        in respect of employee severance obligations          (155)            (72)            (19)          (291)
       Maturity (purchase) of short-term securities          1,185         (15,494)             --        (14,308)
       Maturity (purchase) of long-term securities          10,104         (10,104)             --             --
                                                      ------------    ------------    ------------   ------------

       Net cash provided by (used in)                 $      8,013    $    (26,235)   $       (162)  $    (18,868)
        investing activities                          ------------    ------------    ------------   ------------
</TABLE>


*Less than $1 (thousand)

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


                                       F-9


<PAGE>


Keryx Biopharmaceuticals, Inc. (A Development Stage Company)

Consolidated Statements of Cash Flows for the Year Ended December 31 (continued)
--------------------------------------------------------------------------------
(in thousands)

<TABLE>
<CAPTION>
                                                                                                       Amounts
                                                                                                       accumulated
                                                                                                       during the
                                                                                                       development
                                                          2001            2000            1999         stage
                                                      ------------    ------------    ------------    -----------

<S>                                                   <C>             <C>             <C>             <C>
Cash flows from financing activities
Proceeds from short-term loans                        $         --    $         --    $         --    $       500
Proceeds from long-term loans                                   --              --             125          3,251
Issuance of convertible note, net                               --              --           2,150          2,150
Issuance of preferred shares, net and
 contributed capital                                            --           3,761           4,692          8,453
Receipts on account of shares previously
 issued                                                         --               7              --              7
Proceeds from initial public offering, net                      --          46,298              --         46,298
Proceeds from exercise of options and warrants                  33               1              --             34
                                                      ------------    ------------    ------------    -----------
Net cash provided by financing activities                       33          50,067           6,967         60,693
                                                      ------------    ------------    ------------    -----------
Effect of exchange rate on cash                                (62)             (3)             --*           (58)
                                                      ------------    ------------    ------------    -----------
Net increase in cash and cash equivalents                      637          18,581           3,999         23,345
Cash and cash equivalents at beginning
 of year                                                    22,708           4,127             128             --
                                                      ------------    ------------    ------------    -----------
Cash and cash equivalents at end of
 year                                                 $     23,345    $     22,708    $      4,127    $    23,345
                                                      ============    ============    ============    ===========
Non - cash transactions
Conversion of short-term loans into
 contributed capital                                  $         --    $         --    $         --    $       500
Conversion of long-term loans into
 contributed capital                                            --              --              --          2,681
Conversion of long-term loans into
 convertible notes of Partec                                    --              --             570            570
Conversion of convertible notes of Partec
 and accrued interest into stock in Keryx                       --              --           2,973          2,973
Issuance of warrants to related party
 as finder's fee in private placement                           --             114              --            114
Declaration of stock dividend                                   --               3              --*             3
Conversion of Series A preferred stock to
 common stock                                                   --              --*             --             --
Purchase of property, plant and equipment
 on credit                                                     475              --              --            475
Supplementary disclosures of cash flow
 information
Cash paid for interest                                $          1    $          3    $         14    $       138
Cash paid for income taxes                                     120             118              --            238
</TABLE>


*Less than $1 (thousand)

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


                                      F-10


<PAGE>


Note 1 - Organization and Summary of Significant Accounting Policies

     Description of Business

     Keryx Biopharmaceuticals, Inc. (the "Company") is a development stage
     biotechnology company formed to use data discovered through the mapping of
     the human genome to generate and develop drug candidates. Keryx was
     incorporated in Delaware in October 1998 (under the name Paramount
     Pharmaceuticals, Inc. which was later changed to Lakaro Biopharmaceuticals,
     Inc. in November 1999, and finally to Keryx Biopharmaceuticals, Inc. in
     January 2000). The Company commenced activities in November 1999, and since
     then has operated in one segment of operations, namely the development and
     commercialization of clinical compounds and core technologies for the life
     sciences. The Company has not had revenues from its planned principal
     operations and is dependent upon significant financing to fund the working
     capital necessary to execute its business development plan. There can be no
     assurance that the Company will be able to obtain additional financing.

     Until November 1999, most of the Company's activities were carried out by
     Partec Limited, an Israeli corporation formed in December 1996, and its
     subsidiaries SignalSite Inc. (85% owned) and its wholly owned subsidiary,
     SignalSite Israel Ltd., and Vectagen Inc. (87.25% owned) and its wholly
     owned subsidiary, Vectagen Israel Ltd. (hereinafter collectively referred
     to as "Partec"). In November 1999, the Company acquired substantially all
     of the assets and liabilities of Partec and, as of that date, the
     activities formerly carried out by Partec are now performed by the Company.
     At the date of the acquisition, Keryx and Partec were entities under common
     control (the controlling interest owned approximately 79.7% of Keryx and
     approximately 76% of Partec) and accordingly, the assets and liabilities
     were recorded at their historical cost basis by means of an "as if" pooling
     and Partec is being presented as a predecessor company. Consequently, these
     financial statements include the activities performed in previous periods
     by Partec by aggregating the relevant historical financial information with
     the financial statements of the Company as if they had formed a discrete
     operation under common management for the entire development stage.

     The Company owns a 100% interest in Keryx (Israel) Ltd., incorporated in
     Israel, and Keryx Securities Corp., a US corporation. The Company also owns
     a 100% interest in Keryx Biomedical Technologies Ltd., which was
     incorporated in Israel during 2001. At present, substantially all of the
     biopharmaceutical research and development activities are in Israel, and
     therefore, the Company has one geographical segment.

     Principles of Consolidation

     The consolidated financial statements include the financial statements of
     the Company, its subsidiaries and the operations detailed above.
     Intercompany transactions and balances have been eliminated.

     Use of Estimates

     The preparation of financial statements in conformity with generally
     accepted accounting principles requires management to make estimates and
     assumptions that affect the reported amounts of assets and liabilities and
     the disclosure of contingent assets and liabilities at the date of the
     financial statements and the reported amounts of revenues and expenses
     during the reporting period. Actual results could differ from those
     estimates.

     Foreign Currency Translation

     The financial statements of the Israeli subsidiaries have been prepared
     using the US dollar as the functional currency.

     Transactions in foreign currency (primarily in New Israeli Shekels - "NIS")
     are recorded at the representative exchange rate as of the transaction
     date, except for activities relating to balance sheet items, which are
     recorded at the appropriate exchange rate of the corresponding balance
     sheet item. Monetary assets and liabilities in foreign currency are stated
     on the basis of the representative rate of exchange at the balance sheet
     date. Non-monetary assets and liabilities in foreign currency are stated at
     historical exchange rates. All exchange gains and losses from remeasurement
     of monetary balance sheet items denominated in non-dollar currencies are
     reflected in the statement of operations as they arise.


                                      F-11


<PAGE>


Note 1 - Organization and Summary of Significant Accounting Policies (continued)

     Cash and Cash Equivalents

     The Company considers all highly-liquid investments with original
     maturities of three months or less to be cash equivalents.

     Investment Securities

     Investment securities at December 31, 2001 consist of U.S. government and
     corporate debt securities. The Company classifies its investment securities
     as held-to-maturity. Held-to-maturity securities are those securities in
     which the Company has the ability and intent to hold the security until
     maturity.

     Held-to-maturity securities are recorded at amortized cost, adjusted for
     the amortization or accretion of premiums or discounts.

     A decline in the market value of any held-to-maturity security below cost,
     that is deemed to be other than temporary, results in a reduction in the
     carrying amount to fair value. The impairment is charged to earnings and a
     new cost basis for the security is established. Premiums and discounts are
     amortized or accreted over the life of the related held-to-maturity
     security as an adjustment to yield using the effective interest method.
     Dividend and interest income are recognized when earned.

     Investment in Respect of Employee Severance Obligations

     Investment in respect of employee severance obligations is recorded at its
     current redemption value.

     Property, plant and equipment

     Property, plant and equipment are stated at historical cost. Depreciation
     is computed using the straight-line method over the estimated useful lives
     of the assets at the following annual rates:

                                                                          %
                                                                        -----
     Office furniture and equipment                                      6-15
     Laboratory equipment                                                  20
     Computers, software and related equipment                          20-33

     Leasehold improvements are amortized over the lesser of 10 years or the
     remaining term of the lease exclusive of renewal options.


                                      F-12


<PAGE>


Note 1 - Organization and Summary of Significant Accounting Policies (continued)

     Intangible Assets

     Acquired patents and intangible assets are recorded at cost and are
     amortized over the remaining useful lives of these assets. The Company
     continually evaluates whether events and circumstances warrant the
     recognition of a reduction of carrying amounts.

     Revenue Recognition

     Revenues accumulated during the development stage arose from provision of
     management services to a related company and were recognized ratably over
     the period for which the services were provided.

     Research and Development Costs

     Research and development costs are expensed as incurred.

     Income Taxes

     Income taxes are accounted for under the asset and liability method.
     Deferred tax assets and liabilities are recognized for the future tax
     consequences attributable to temporary differences between the financial
     statement carrying amounts of existing assets and liabilities and their
     respective tax bases and operating loss and tax credit carryforwards.
     Deferred tax assets and liabilities are measured using enacted tax rates
     expected to apply to taxable income in the years in which those temporary
     differences are expected to be recovered or settled. If the likelihood of
     realizing the deferred tax assets or liability is less than "more likely
     than not," a valuation allowance is then created.

     Stock - Based Compensation

     The Company applies the intrinsic value-based method of accounting
     prescribed by the Accounting Principles Board ("APB") Opinion No. 25,
     "Accounting for Stock Issued to Employees," and related interpretations, to
     account for stock option plans for employees and directors. As such,
     compensation expense would be recorded on the measurement date only if
     current market price of the underlying stock exceeded the exercise price.
     Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting
     for Stock-based Compensation" is applied to stock options and warrants
     granted to other than employees and directors. The Company has adopted the
     disclosure requirements of SFAS No. 123.

     Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of

     The Company reviews its fixed assets for impairment whenever events or
     changes in circumstances indicate that the carrying amount of an asset may
     not be recoverable. Recoverability of assets to be held and used is
     measured by a comparison of the carrying amount of an asset to future net
     cash flows expected to be generated by the asset. If such assets are
     considered to be impaired, the impairment to be recognized is measured by
     the amount by which the carrying amount of the assets exceeds the fair
     value of the assets.


                                      F-13


<PAGE>


Note 1 - Organization and Summary of Significant Accounting Policies (continued)

     Net Loss Per Share

     Basic loss per share is computed on the basis of the weighted average
     number of shares outstanding for the reporting period. Diluted net loss per
     share is the same as basic net loss per share as the inclusion of common
     stock equivalents would be anti-dilutive. The common stock equivalent of
     anti-dilutive securities not included in the computation of net loss per
     share amounts was 5,730,897 for the year ended December 31, 2001 (5,224,150
     in 2000 and 4,095,625 in 1999). The number of shares of common stock
     outstanding retroactively reflects a stock dividend declared in June 2000
     (as described in Note 8). Basic net loss per share has been computed using
     the number of shares issued by the Company immediately following the
     commencement of activities in November 1999 as if outstanding for the
     period of the predecessor company (see Description of Business above).

     Comprehensive Income (Loss)

     The Company follows SFAS 130 "Reporting Comprehensive Income," which states
     that all items that are required to be recognized under accounting
     standards as components of comprehensive income be reported in a financial
     statement that is displayed with the same prominence as other financial
     statements. It requires that an enterprise (a) classify items of other
     comprehensive income by their nature in financial statements and (b)
     display the accumulated balance of other comprehensive income separately
     from retained earnings and additional paid in capital in the equity section
     of the statement of financial position. Comprehensive income (loss) is the
     same as net loss for all years presented.

     Concentrations of Credit Risk

     The Company does not have significant off-balance-sheet risk or credit risk
     concentrations. The Company maintains its cash and cash equivalents with
     multiple financial institutions and invests in investment-grade securities
     with maturities of less than twenty-four months.

     Recently Issued Accounting Standards

     In June 2001, the FASB issued SFAS No. 141, "Business Combinations," and
     SFAS No. 142, "Goodwill and Other Intangible Assets". SFAS 141 requires
     that the purchase method of accounting be used for all business
     combinations. SFAS 141 specifies criteria that intangible assets acquired
     in a business combination must meet to be recognized and reported
     separately from goodwill. SFAS 142 will require that goodwill and
     intangible assets with indefinite useful lives no longer be amortized, but
     instead tested for impairment at least annually in accordance with the
     provisions of SFAS 142. SFAS 142 also requires that intangible assets with
     estimable useful lives be amortized over their respective estimated useful
     lives to their estimated residual values, and reviewed for impairment in
     accordance with SFAS 121 and subsequently, SFAS 144 after its adoption.

     We adopted the provisions of SFAS 141 as of July 1, 2001, and SFAS 142 is
     effective for periods beginning on or after January 1, 2002. Goodwill and
     intangible assets determined to have an indefinite useful life acquired in
     a purchase business combination completed after June 30, 2001, but before
     SFAS 142 is adopted in full, are not amortized. Goodwill and intangible
     assets acquired in business combinations completed before July 1, 2001
     continue to be amortized and tested for impairment prior to the full
     adoption of SFAS 142.

     Upon adoption of SFAS 142, we are required to evaluate our existing
     intangible assets and goodwill that were acquired in purchase business
     combinations, and to make any necessary reclassifications in order to
     conform with the new classification criteria in SFAS 141 for recognition
     separate from goodwill. We will be required to reassess the useful lives
     and residual values of all intangible assets acquired and make any
     necessary amortization period adjustments by the end of the first interim
     period after adoption. If an intangible asset is identified as having an
     indefinite useful life, we will be required to test the intangible asset
     for impairment in accordance with the provisions of SFAS 142 within the
     first interim period. Impairment is measured as the excess of carrying
     value over the fair value of an intangible asset with an indefinite life.
     Any impairment loss will be measured as of the date of adoption and
     recognized as the cumulative effect of a change in accounting principle in
     the first interim period.


                                      F-14


<PAGE>


Note 1 - Organization and Summary of Significant Accounting Policies (continued)

     In connection with SFAS 142's transitional goodwill impairment evaluation,
     we are required to perform an assessment of whether there is an indication
     that goodwill is impaired as of the date of adoption. To accomplish this,
     we must identify our reporting units and determine the carrying value of
     each reporting unit by assigning the assets and liabilities, including the
     existing goodwill and intangible assets, to those reporting units as of
     January 1, 2002. We will then have up to six months from January 1, 2002 to
     determine the fair value of each reporting unit and compare it to the
     carrying amount of the reporting unit. To the extent the carrying amount of
     a reporting unit exceeds the fair value of the reporting unit, an
     indication exists that the reporting unit goodwill may be impaired and we
     must perform the second step of the transitional impairment test. The
     second step is required to be completed as soon as possible, but no later
     than the end of the year of adoption. In the second step, we must compare
     the implied fair value of the reporting unit goodwill with the carrying
     amount of the reporting unit goodwill, both of which would be measured as
     of the date of adoption. The implied fair value of goodwill is determined
     by allocating the fair value of the reporting unit to all of the recognized
     and unrecognized assets and liabilities of the reporting unit in a manner
     similar to a purchase price allocation, in accordance with SFAS 141. The
     residual fair value after this allocation is the implied fair value of the
     reporting unit goodwill. Any transitional impairment loss will be
     recognized as the cumulative effect of a change in accounting principle in
     our statement of income. We do not expect the adoption of SFAS 141 and SFAS
     142 to have a significant impact on our consolidated financial statements.

     In June 2001, the FASB issued SFAS 143, Accounting for Asset Retirement
     Obligations. SFAS 143 requires us to record the fair value of an asset
     retirement obligation as a liability in the period in which we incur a
     legal obligation associated with the retirement of tangible long-lived
     assets that result from the acquisition, construction, development and/or
     normal use of the assets. We also record a corresponding asset which is
     depreciated over the life of the asset. Subsequent to the initial
     measurement of the asset retirement obligation, the obligation will be
     adjusted at the end of each period to reflect the passage of time and
     changes in the estimated future cash flows underlying the obligation. We
     are required to adopt SFAS 143 on January 1, 2003. We do not believe the
     adoption of SFAS 143 will have a significant impact on its consolidated
     financial statements.

     In August, 2001, the FASB issued SFAS 144, Accounting for the Impairment or
     Disposal of Long-Lived Assets. SFAS 144 addresses financial accounting and
     reporting for the impairment or disposal of long-lived assets. This
     Statement requires that long-lived assets be reviewed for impairment
     whenever events or changes in circumstances indicate that the carrying
     amount of an asset may not be recoverable. Recoverability of assets to be
     held and used is measured by a comparison of the carrying amount of an
     asset to future net cash flows expected to be generated by the asset. If
     the carrying amount of an asset exceeds its estimated future cash flows, an
     impairment charge is recognized by the amount by which the carrying amount
     of the asset exceeds the fair value of the asset. SFAS 144 requires
     companies to separately report discontinued operations and extends that
     reporting to a component of an entity that either has been disposed of (by
     sale, abandonment, or in a distribution to owners) or is classified as held
     for sale. Assets to be disposed of are reported at the lower of the
     carrying amount or fair value less costs to sell. We are required to adopt
     SFAS 144 on January 1, 2002 and do not believe it will have a significant
     impact on our consolidated financial statements.


                                      F-15


<PAGE>


Note 2 - Cash and Cash Equivalents (in thousands)

                                                 December 31,       December 31,
                                                     2001              2000
                                                 -----------        -----------
       In or linked to US dollars:

         Money market funds                      $    20,338        $    20,489
         Cash*                                         2,402              2,025
       In Israeli currency                               605                194
                                                 -----------         ----------
                                                 $    23,345        $    22,708
                                                 ===========        ===========

*    Of this amount, approximately $243 at December 31, 2001 and $40 at December
     31, 2000 is restricted in connection with bank guarantees, as described in
     Note 11.


Note 3 - Investment Securities (in thousands)

     The following tables summarize the Company's investment securities at
     December 31, 2001 and December 31, 2000 (regarding assumptions used for
     estimated fair value see note 8):

<TABLE>
<CAPTION>
                                                                   December 31, 2001
                                          -------------------------------------------------------------------
                                                                  Gross             Gross
                                                               unrealized         unrealized       Estimated
                                          Amortized cost      holding gains     holding losses     fair value
                                          --------------      -------------     --------------     ----------
<S>               <C>                     <C>                    <C>              <C>            <C>
       Short-term investments
       Obligations of domestic
       governmental agencies
       (mature between January
        and June 2002)                    $     3,720            $     3          $    --        $      3,723
       US corporate debt securities
        (mature between
        January and September 2002)            10,588                 51               (7)             10,632
                                           ----------             ------           ------          ----------
                                               14,308                 54               (7)             14,355
                                           ==========             ======           ======          ==========



       Long-term investments                       --                 --               --                  --
                                           ----------             ------           ------          ----------
                                          $        --            $    --          $    --        $         --
                                           ==========             ======           ======          ==========

</TABLE>

<TABLE>
<CAPTION>
                                                                   December 31, 2000
                                          -------------------------------------------------------------------
                                                                  Gross             Gross
                                                               unrealized         unrealized       Estimated
                                          Amortized cost      holding gains     holding losses     fair value
                                          --------------      -------------     --------------     ----------
<S>                          <C>          <C>                   <C>              <C>              <C>

       Short-term investments
       Obligations of domestic
        governmental agencies
        (mature in September 2001)        $     3,496           $     11         $     (2)        $     3,505
       US corporate debt securities
        (mature between
        January and August 2001)               11,997                 31                -              12,028
                                           ----------             ------           ------          ----------
                                               15,493                 42               (2)             15,533
                                           ==========             ======           ======          ==========
       Long-term investments
       Obligations of domestic
        governmental agencies
       (mature between January and
        February 2002)                          2,783                 14               (4)              2,793
       US corporate debt securities
         (mature between
         February and July 2002)                7,321                  8                -               7,329
                                           ----------             ------           ------          ----------
                                          $    10,104           $     22         $     (4)        $    10,122
                                           ==========             ======           ======          ==========
</TABLE>



                                                     F-16


<PAGE>


Note 4 - Property, plant and equipment (in thousands)

                                                  December 31,      December 31,
                                                      2001              2000
                                                   -----------       -----------
      Cost

      Office furniture and equipment               $      391        $      162
      Laboratory equipment                                624                27
      Computers, software and related
       equipment                                          305               127
      Leasehold improvements                            2,212                95
                                                   ----------        ----------
                                                        3,532               411
      Accumulated depreciation
       and amortization                                  (194)              (99)
                                                   ----------        ----------
      Net book value                               $    3,338        $      312
                                                   ==========        ==========



Note 5 - Other Assets (in thousands)

                                                  December 31,      December 31,
                                                      2001              2000
                                                   ----------        ----------
      Patents and other intangible assets          $      979        $      711
      Long-term deposits                                   45                --
                                                   ----------        ----------
                                                        1,024               711
      Patent amortization                                 (22)               --
                                                   ----------        ----------
                                                   $    1,002        $      711
                                                   ==========        ==========


Note 6 - Liability in Respect of Employee Severance Obligations (in thousands)

     Under Israeli law, employers are required to make severance payments to
     dismissed employees and employees leaving employment in certain other
     circumstances, on the basis of the latest monthly salary for each year of
     service.

     This liability is provided for by payments of premiums to insurance
     companies under approved plans and by a provision in these financial
     statements.

     For the year ended December 31, 2001, $462 (2000 - $187 and 1999 - $36) was
     recorded as salary expense in respect of future severance obligations and
     $155 (2000 - $72) was funded under the severance payment plans and is
     included in these financial statements as long-term investments.

                                      F-17


<PAGE>



Note 7 - Stockholders' Equity (in thousands, except share amounts)

     Composition

<TABLE>
<CAPTION>
                                            December 31, 2001                              December 31, 2000
                               --------------------------------------------    -----------------------------------------
                                                               Issued and                                     Issued and
                                Authorized       Issued        fully paid      Authorized       Issued        fully paid
                                ----------     ----------      ----------      -----------   ------------    ------------
<S>                             <C>            <C>             <C>             <C>           <C>             <C>

       Common stock,
       $0.001 par value
       per share                40,000,000     19,846,694      19,846,694      40,000,000    19,532,772      19,532,772

      "Blank check"
       preferred stock,
       $0.001 par value
       per share                 4,830,000             --              --       4,830,000            --              --
</TABLE>




(1)  In June 2000, the board of directors declared a 3:2 common stock dividend,
     which was effective in conjunction with the Company's initial public
     offering whereby the stockholders received one share of common stock for
     each two shares of common stock held at July 15, 2000. These financial
     statements have been prepared to reflect the stock dividend.

(2)  The Company completed its initial public offering of 4.6 million shares of
     its common stock at $10 per share pursuant to a Registration Statement on
     Form S-1 (Registration no. 333-37402) which was effective on July 28, 2000.
     Additionally, the underwriters exercised their overallotment option and
     purchased an additional 600,000 shares of the Company's common stock, at
     $10 per share, on August 30, 2000. Total proceeds of this offering,
     including the exercise of the over-allotment option, were approximately
     $46.3 million, net of underwriting fees and offering expenses of
     approximately $5.7 million.

     As a result of the offering, all outstanding shares of Series A convertible
     preferred stock automatically converted into 6,114,962 shares of common
     stock.

                                      F-18


<PAGE>


Note 7 - Stockholders' Equity (continued)

     Stock Option Plans

     In November 1999, the Company adopted a stock option plan (the "1999 plan")
     pursuant to which the Company's board of directors may grant stock-based
     awards to directors, consultants and employees. The plan authorizes grants
     to purchase up to 4,230,000 shares of authorized but unissued common stock
     at a 1:1 ratio. In June 2000, the Company adopted an additional stock
     option plan (the "2000 plan") pursuant to which the compensation committee
     of the Company's board of directors may grant stock-based awards to
     directors, consultants and employees. The 2000 plan authorizes grants to
     purchase up to 4,455,000 shares of authorized but unissued common stock at
     a 1:1 ratio. At December 31, 2001, a total of 5,122,096 (1) stock options
     have been granted pursuant to the two plans and, in addition, 240,000
     options, which are not part of any plan, have been granted. At December 31,
     2001, 116,000 options issued to directors and employees and 60,000 options
     issued to consultants have been exercised. The vesting and exercise terms
     are as follows:

     To directors and employees:


<TABLE>
<CAPTION>
                                                                                               Weighted      Number of
                   Number of                                                                   Averaged      Outstanding
   Exercise         Options                                                                    Exercise      Options
    Price        Outstanding               Vesting period             Expiration date           Price         Vested
------------    ---------------   -----------------------       ---------------------         --------      ----------

<S>   <C>         <C>             <C>                           <C>                             <C>         <C>
      $0.10       2,096,587              Immediately upon       25 years from date of           $0.10       2,096,587
                                                    grant                       grant

  0.10-0.50       1,678,533       At different dates from       10 years from date of            0.13       1,672,908
  5.00-9.25         887,696                 December 1999                       grant            5.86          15,000
10.00-14.55         280,868              through December                                       11.33         115,410
                                                     2004
</TABLE>

     As of December 31, 2001 60,000 options granted in 1999, 30,000 options
     granted in 2000, and 34,332 options granted in 2001, respectively, have
     been cancelled and returned to the plans.

(1)  Excludes 195,000 options granted in 1999 (of which 135,000 were milestone
     based), 30,000 options granted in 2000, and 38,332 options granted in 2001
     that were cancelled and returned to the plans.


                                      F-19


<PAGE>


Note 7 - Stockholders' Equity (continued)

     Stock Option Plans (continued)

     The Company applies APB Opinion No. 25 in accounting for its options
     granted to directors and employees. The Company has recorded $335 of
     compensation expense during 2001 and $13 of compensation expense in regard
     to these options has been deferred. Had the Company determined compensation
     cost based on the fair value at the grant date for its stock options under
     SFAS 123, the Company's net loss would have been increased to the pro forma
     amounts indicated below:

<TABLE>
<CAPTION>
                                                                                                                     Amounts
                                                                                                                   accumulated
                                                                    For the year ended December 31                 during the
                                                          -------------------------------------------------        development
        (in thousands, except per share amounts)              2001               2000               1999              stage
                                                          ------------        -----------       -----------       ------------

<S>                                 <C>                   <C>                <C>                <C>               <C>
       Net loss                     As reported           $     (9,806)      $    (11,489)      $    (9,003)      $    (33,719)

                                    Pro forma             $    (12,649)      $    (11,502)      $    (9,049)      $    (36,621)

       Basic and diluted losses
        per common share            As reported                 $(0.50)            $(0.89)           $(1.11)            $(2.96)

                                    Pro forma                   $(0.64)            $(0.89)           $(1.12)            $(3.21)
</TABLE>


     The value of these options has been estimated using the Black-Scholes
     model. The assumptions used in the calculation of the fair value for
     compensation expense during the year ended December 31, 2001 were a
     weighted average expected life of 1-3 years, an expected volatility rate of
     70-98% and a risk-free interest rate of 2-7%. The assumptions used in the
     calculation of the fair value for compensation expense during the years
     ended December 31, 2000 and 1999 were a weighted average expected life of 3
     years, an expected volatility rate of 70-75% and a risk-free interest rate
     of 5-6%.

             To consultants:
<TABLE>
<CAPTION>
                                                                                                Weighted      Number of
                                  Number of                                                     Averaged      Outstanding
                  Exercise         Options                                                      Exercise      Options
                   Price         Outstanding        Vesting period     Expiration date             Price      Vested
             -----------------   -----------    ------------------     ---------------         ---------      ----------

             <S>                   <C>          <C>                    <C>                       <C>           <C>
             $        0.10         210,912      Immediately upon       25 years from             $0.10         165,912
                                                                       date of grant

                 6.46-8.80          12,000      At different dates     10 years from              6.85           2,000
                                                from December 1999     date of grant
                                                through April 2002

               10.00-14.55          19,500                             10 years from             11.57          14,500
                                                                       date of grant
</TABLE>


     As of December 31, 2001 60,000 options issued to consultants have been
     exercised. Additionally, 135,000 options granted in 1999 and 4,000 options
     granted in 2001, respectively, have been cancelled and returned to the
     plans.

     During 2001, the Company recorded negative $316 in compensation expense
     with regard to these options based on the fair value at the grant date as
     determined using the Black-Scholes model under the assumptions stated
     above. Deferred compensation expense on these options amounted to $153 at
     December 31, 2001. In accordance with EITF 96-18, the unvested options are
     revalued at every reporting period over the vesting period in order to
     determine the compensation expense.


                                      F-20


<PAGE>


Note 7 - Shareholders' Equity (continued)

     Warrants

     In November 1999, the board of directors granted warrants to purchase
     678,832 shares of common stock to investors and others (not directors or
     employees). In January 2000, the board of directors granted additional
     warrants to a related party to purchase 116,090 shares of common stock as a
     finder's fee in connection with the private placement. The costs of $114
     were recorded against proceeds from the private placement. During 2001, the
     Company recorded $103 in compensation expense related to warrants and at
     December 31, 2001, $944 of compensation expense in regard to these warrants
     remains deferred. Compensation expense during the year ended December 31,
     2001 with regard to the warrants has been calculated using the
     Black-Scholes model assuming 0-3 year expected life of the warrants, an
     expected volatility rate of 78.85% and a risk-free interest rate of 2%.
     Compensation expense during the years ended December 31, 2000 and 1999 with
     regard to the warrants was calculated assuming a weighted average expected
     life of 3-5 years, an expected volatility rate of 70-75% and a risk-free
     interest rate of 5-6%.

             The terms of the outstanding warrants are as follows:

<TABLE>
<CAPTION>
                                                                                                    Weighted        Number of
                               Number of                                                            Averaged       Outstanding
                Exercise        Warrants                                                            Exercise         Warrants
                  Price       Outstanding        Vesting period           Expiration date            Price            Vested
                --------      -----------    ----------------------  --------------------------     --------       -----------

<S>             <C>              <C>         <C>                     <C>                             <C>               <C>
                $0.0067          72,564      Immediately upon grant  3 years from date of grant      $0.0067           72,564

                   1.94          97,237      Immediately upon grant  10 years from date of grant        1.94           97,237

                 0.0067         375,000      Milestone - based       10 years from date of grant      0.0067               --
</TABLE>


     As of December 31, 2001, 247,422 warrants have been exercised and 2,699
     warrants were forfeited as part of cashless exercises.

     In accordance with EITF 96-18, the unvested warrants issued to consultants
     are revalued at every reporting period over the vesting period in order to
     determine the compensation expense.

Note 8 - Fair Value of Financial Instruments

     The Company's financial instruments at December 31, 2001 and 2000 consisted
     of cash and cash equivalents, investment securities, accrued interest
     receivable, other receivables, investment in respect of employee severance
     benefits, deferred tax asset, accounts payable and accrued expenses,
     accrued compensation and related liabilities and liability in respect of
     employee severance obligations. The carrying amounts of all financial
     instruments other than investment securities approximates their fair value
     for all years presented. The difference between the carrying value and fair
     value of investment securities held-to-maturity is set forth in Note 3
     above.

     The following methods and assumptions were used to estimate fair value of
     each class of financial instruments:

     Cash and cash equivalents, accrued interest receivable, other receivables,
     investment in respect of employee severance benefits, deferred tax asset,
     accounts payable and accrued expenses, accrued compensation and related
     liabilities. The carrying amounts approximate fair value because of the
     relatively short maturity of these instruments.

     Investment securities: The fair values of debt securities
     (held-to-maturity) are based on quoted market prices for these investments
     at the reporting date.

     Liability in respect of employee severance obligations: The carrying amount
     reflects the approximate fair value inclusive of future salary adjustments.


                                      F-21


<PAGE>


Note 9 - Taxes on Income (in thousands, unless otherwise noted)

     At December 31, 2001, for US income tax purposes, the Company had
     approximately $5.8 million of net operating loss carryforwards from
     November 1999 through December 31, 2001. Such net operating loss
     carryforwards begin expiring in 2019.

     Because of the Company's lack of earnings history, the US deferred tax
     assets have been fully offset by a valuation allowance. Deferred tax assets
     in the financial statements relate to the Israeli subsidiaries, which have
     taxable income that is eliminated upon consolidation. The valuation
     allowance for deferred tax assets was $12.3 million as of December 31,
     2001.

     The Israeli subsidiaries are subject to the Income Tax Regulations
     (Guidelines for Management of the Books and Records of Companies with
     Foreign Investment and of Certain Partnerships and Determination of Taxable
     Income), 1986, which state that the Israeli subsidiaries income may be
     calculated on the basis of their results in dollars. Partec, the
     predecessor company, was subject to the Israeli Income Tax Law
     (Inflationary Adjustments), 1985. Under this law, operating results for tax
     purposes are measured in real terms, in accordance with the changes in the
     Israeli Consumer Price Index ("Israeli CPI"), and companies are entitled to
     deduct from their taxable income an "equity preservation deduction" (which
     partially compensated for the decrease in the value of stockholders' equity
     resulting from the annual rise in the Israeli CPI).

     In September 2001, one of the Company's Israeli subsidiaries received the
     status of an "Approved Enterprise" which grants certain tax benefits in
     accordance with Paragraph 51 of the "Law for the Encouragement of Capital
     Investments, 1959," in Israel.

     Income arising from the subsidiary's Approved Enterprise is subject to zero
     tax under the "Alternative Benefit Method" for a period of ten years. In
     the event of distribution by the subsidiary of a cash dividend out of
     retained earnings which were tax exempt due to the Approved Enterprise
     status, the subsidiary would have to pay a 10% corporate tax on the amount
     distributed, and the recipient would have to pay a 15% tax (to be withheld
     at source) on the amounts of such distribution received. Should the
     subsidiary derive income from sources other than the Approved Enterprise
     during the relevant period of benefits, such income will be taxable at the
     regular tax rate, currently 36%, in 2001 and thereafter.

     The benefit period under this Approved Enterprise program has not yet
     commenced. Therefore, the subsidiary incurred income tax expense during the
     year ended December 31, 2001.

     Under its Approved Enterprise status, the subsidiary must maintain certain
     conditions and submit periodic reports. Failure to comply with the
     conditions of the Approved Enterprise status could cause the subsidiary to
     lose all previously accumulated tax benefits. As of the date of these
     financial statements the subsidiary's management believes it complies with
     these conditions, although, as mentioned, no benefits have yet been
     utilized.

     The tax expense reported in the consolidated financial statements relates
     to the subsidiaries in Israel and to Partec. Income tax expense
     attributable to income from continuing operations was $197, $220, and $10
     for the years ended December 31, 2001, 2000 and 1999, respectively, and
     differed from amounts computed by applying the US federal income tax rate
     of 35% to pretax income from continuing operations as a result of the
     following:

<TABLE>
<CAPTION>
                                                                                   For the year ended December 31,
                                                                            --------------------------------------------
                                                                                2001            2000            1999
                                                                            ------------    ------------    ------------

             Losses before taxes on income,
<S>                                                                          <C>            <C>             <C>
              as reported in the consolidated statements of operations       $    (9,609)   $    (11,269)   $     (8,993)
                                                                            ------------    ------------    ------------

      Computed "expected" tax benefit                                        $    (3,363)   $     (3,944)   $     (3,147)

      Increase (decrease) in income taxes resulting from:

      Expected benefit from state & local taxes                                     (913)         (1,673)              --
      Change in the balance of the valuation
       allowance for deferred tax assets
       allocated to income tax expense (1)                                         4,429           5,711           2,207
      Losses of Partec not entitling Keryx to deferred
       tax assets                                                                     --              --             976
      Permanent differences                                                          (70)             --              --
      Effect of foreign operations                                                   114             126             (26)
                                                                            ------------    ------------    ------------

                                                                            $        197    $        220    $         10
                                                                            ============    ============    ============
</TABLE>
(1)   Deferred tax assets of Partec were lost upon  acquisition of operations by
      Keryx (see Note 1).

                                      F-22

<PAGE>


Note 9 - Taxes on Income (continued)

      The  significant  components  of  deferred  income tax  expense  (benefit)
      attributable to income from continuing operations are as follows:

                                             For the year ended December 31,
                                      -----------------------------------------
                                          2001           2000           1999
                                      -----------    -----------    -----------
      Deferred tax expense (benefit)  $   ( 4,544)   $    (5,711)   $    (2,207)

      Increase in the valuation
       allowance for deferred tax
       assets                               4,429          5,711          2,207
                                      -----------    -----------    -----------

                                      $      (115)   $        --    $        --
                                      ===========    ===========    ===========

      The tax effects of  temporary  differences  that give rise to  significant
      portions  of the  deferred  tax assets and  deferred  tax  liabilities  at
      December 31, 2001 and 2000 are presented below.

                                                 December 31,       December 31,
                                                    2001 (1)          2000 (1)
                                                 -----------        -----------
      Deferred tax assets:

      Net operating loss                          $    2,589        $     2,558

      Timing differences (primarily
      relating to compensation and
         expenses capitalized for tax)                 9,757              5,359

      Foreign timing differences
      (primarily relating to
       compensation)                                     115                 --
                                                  ----------        -----------
      Total gross deferred assets                     12,461              7,917

      Less valuation allowance                       (12,346)            (7,917)
                                                  ----------        -----------
      Net deferred tax assets                     $      115        $        --
                                                  ==========        ===========

      (1)   Deferred tax assets of Partec were lost upon assumption of operation
            by Keryx (see Note 1).


                                      F-23


<PAGE>


Note 10 - Commitments and Contingencies (in thousands, unless otherwise noted)

     Agreements

     The Company entered into a license agreement with Alfa Wassermann SpA which
     grants it the exclusive rights to KRX-101 for diabetic nephropathy,
     diabetic retinopathy and diabetic neuropathy in the United States, Canada,
     Japan, Australia, New Zealand, South Africa and Israel, and entitles Alfa
     Wassermann to ongoing royalties and fixed milestone payments. The license
     requires Alfa Wassermann to pay the Company a royalty to the extent that
     Alfa Wasserman or its sub-licensees receive revenues from products that
     incorporate information or know-how developed by the Company and commits
     Alfa Wassermann to participate in the costs of data or intellectual
     property developed by the Company that Alfa Wasserman decides to utilize.
     Unless terminated for reason of breach or other customary termination
     provisions, the license terminates upon the later of the expiration of all
     underlying patent rights or ten years from the first commercial sale of
     KRX-101 by the Company.

     Pursuant to a license with Children's Medical Center Corporation, (CMCC),
     the Company has the exclusive right to commercialize the KinAce platform
     and practice the claims contained in one granted patent and ten patent
     applications owned by them. Unless terminated for breach or other customary
     termination provisions, the license terminates upon the later of November
     2014 or the expiration of the last patent covered by the license.

     The license obligates the Company to meet certain financing and development
     milestones. To date, the Company has met all of its milestones under this
     agreement. Should CMCC reasonably believe that the Company failed to meet
     any of the development milestones that remain to be fulfilled because it
     did not devote diligent efforts and adequate resources, the license could
     be terminated, which could materially affect the Company's operations.
     During 2001, an amendment to the license agreement was signed, whereby the
     date for meeting one of the milestones was extended to June 2003.

     The Company has undertaken to make milestone payments to its licensors,
     contingent upon attaining certain goals, of up to approximately $4.0
     million. In certain cases, such payments will reduce any royalties to be
     paid on sales of related products. In the event that the milestones are not
     achieved, the Company remains obligated to pay one licensor $50 annually
     thereafter until the licenses expire. As of December 31, 2001, the Company
     has recorded $400 in license and milestone payments.

     Manufacturing Agreements. Opocrin S.P.A., a manufacturer of bulk biological
     products, has agreed to manufacture and supply the Company's raw
     requirements for Sulodexide until 2009. The agreement with Opocrin may be
     terminated by the Company or them on 180 days' notice for any reason.
     Pharmaceutics International, Inc., a manufacturer of medicinal gelcaps, has
     agreed to produce the KRX-101 gelcaps necessary for the proposed clinical
     trial. Until the agreed-upon manufacturing is completed, this agreement may
     be terminated only by the Company.

     Research Agreements. The Company has entered into sponsored research
     agreements for the development of specific products and/or technologies
     under which the Company is committed to finance up to $595 of research
     costs through March 2003.

     Regarding subsequent events, see Note 11.


                                      F-24


<PAGE>


Note 10 - Commitments and Contingencies (continued)

     Leases

     The Company leases its laboratory and office space under three separate
     operating lease agreements that expire through 2005. Certain of the
     facility leases provide the Company with the option to renew its lease for
     an extended period. Total rental expense approximately $567, $76, and $50
     for the years ended December 31, 2001, 2000, and 1999, respectively.

     Future minimum lease commitments as of December 31, 2001 are as follows (in
     thousands):

                           2002                   $574
                           2003                    491
                           2004                    393
                           2005                    381


     At December 31, 2001 the Company has provided bank guarantees of
     approximately $243 in connection with its leases.

Note 11 - Subsequent Events

     Yissum: In January 2002, the Company entered into a license agreement with
     Yissum Research and Development Company of the Hebrew University of
     Jerusalem ("Yissum"). The agreement provides the Company with an exclusive
     worldwide license to a novel technology known as Small Integrated
     Building-blocks ("SIB"), for the conversion of peptides and other existing
     drugs into small molecules that have the potential for oral delivery. Under
     this agreement the Company was required to make an upfront payment
     comprised of cash and the Company's common stock, as well as warrants to
     purchase the Company's common stock upon the attainment of certain
     development milestones and royalty payments on income arising from the
     technology.

     Additionally in January 2002, the Company entered into a research agreement
     with Yissum to finance the research, which is being and may be carried out
     and conducted in the Hebrew University and/or any of its branches, related
     to the SIB technology. Under this agreement, the Company will be required
     to make periodic sponsored research payments.

     HIVAN: In January 2002, the Company announced that it received approval
     from the South African Medicines Control Council for the initiation of a
     Phase II clinical trial of the Company's investigational drug Candidate
     KRX-101 (Sulodexide) for the treatment of Human Immunodeficiency Virus
     Associated Nephropathy (HIVAN) in AIDS patients. The Company initiated the
     clinical trial in March 2002.


                                      F-25