============================================================================
                                United States
                      SECURITIES AND EXCHANGE COMMISSION
                           WASHINGTON, D.C.   20549


                                  FORM 10-Q


 (Mark One)
   [ X ]  QUARTERLY REPORT FOR THE PERIOD ENDED SEPTEMBER  30, 2001 PURSUANT
          TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

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

                        Commission file number 0-31781

                         MediChem Life Sciences, Inc.
            (Exact name of registrant as specified in its charter)


           Delaware                                       36-3518660
  -------------------------------                      ----------------
  (State or other jurisdiction of                      (I.R.S. Employer
  incorporation or organization)                      Identification No.)


   2501 Davey Rd., Woodridge, Illinois                       60517
 ----------------------------------------                 ----------
 (Address of principal executive offices)                 (Zip Code)

                                (630) 783-4600
                                --------------
             (Registrant's telephone number, including area code)


    Indicate by check mark whether  the registrant (1) has filed all  reports
 required to be filed by Section 13  or 15(d) of the Securities Exchange  Act
 of 1934 during the preceding 12 months (or for such shorter period that  the
 registrant was required to file such  reports), and (2) has been subject  to
 such filing requirements for the past 90 days.   Yes  X   No __


 As of November 6, 2001,  26,644,718  shares of the  Common  Stock, $.01  par
 value, of the registrant were outstanding.

 ============================================================================
                      Website is:  http://www.medichem.com

<PAGE>

                MEDICHEM LIFE SCIENCES, INC. AND SUBSIDIARIES
                                  FORM 10-Q
                                    INDEX
                     For Quarter Ended September 30, 2001

                                                                        Page
    Part I.    Financial Information                                    ----

      Item 1.    Financial Statements
                   Condensed Consolidated Balance Sheets                  2
                   Condensed Consolidated Statements of Operations        3
                   Condensed Consolidated Statements of Cash Flows        4
                   Notes to Condensed Consolidated Financial Statements   5


      Item 2.    Management's Discussion and Analysis of Financial
                 Condition and Results of Operations                     11

      Item 3.    Quantitative and Qualitative Disclosures About
                 Market Risk                                             18

    Part II.     Other Information

      Item 6.    Exhibits and Reports on Form 8-K                        19

    Signatures                                                           20


<PAGE>

 PART I.  FINANCIAL INFORMATION
 ITEM 1.  FINANCIAL STATEMENTS

<TABLE>

                MediChem Life Sciences, Inc. and Subsidiaries
                    Condensed Consolidated Balance Sheets

                                                          September 30,    December 31,
                                                               2001             2000
                                                          ------------     ------------
                     Assets                               (Unaudited)
 <S>                                                     <C>              <C>
 Current assets:
   Cash and cash equivalents                             $   2,256,086    $  12,812,294
   Investments, available-for-sale securities                6,456,900        8,464,948
   Accounts receivable, net                                  3,627,779        2,437,234
   Accounts receivable - related party                          70,640          729,465
   Prepaid assets                                              418,692          623,424
   Deferred taxes, net                                         100,678          100,678
   Other current assets                                        331,975        1,349,968
                                                          ------------     ------------
           Total current assets                             13,262,750       26,518,011

 Property and equipment, net                                28,631,989       25,632,716
 Intangibles, net                                            4,146,827       30,208,940
 Goodwill, net                                               1,192,533       22,808,774
 Other assets                                                  259,604          135,619
                                                          ------------     ------------
           Total assets                                  $  47,493,703    $ 105,304,060
                                                          ============     ============
 Liabilities and Stockholders' Equity
 Current liabilities:
   Current portion of debt and capital
     lease obligations                                   $   1,323,465    $     247,704
   Accounts payable                                          1,169,407        2,254,930
   Accrued expenses                                          2,018,998        3,835,619
   Deferred revenue                                          1,240,561        1,883,349
                                                          ------------     ------------
           Total current liabilities                         5,752,431        8,221,602

 Long-term debt                                             12,359,686       10,702,411
 Capital lease obligations, less current portion               992,574          148,840
 Deferred taxes, net                                           707,878       11,636,370
                                                          ------------     ------------
           Total liabilities                                19,812,569       30,709,223

 Stockholders' equity:
   Preferred stock, $.01 par value; 10,000,000 shares
    authorized, none issued and outstanding
    at September 30, 2001 and December 31, 2000                      -                -
   Common stock, $.01 par value, 100,000,000 shares
    authorized, 26,613,159 shares issued and outstanding
    at September 30, 2001; 26,510,042 shares issued and
    outstanding at December 31, 2000                           266,132          265,100
   Additional paid-in capital                               89,760,517       89,711,354
   Deferred compensation                                      (108,364)        (142,909)
   Accumulated deficit                                     (62,235,827)     (15,237,893)
   Accumulated other comprehensive loss                         (1,324)            (815)
                                                          ------------     ------------
           Total stockholders' equity                       27,681,134       74,594,837
                                                          ------------     ------------
           Total liabilities and stockholders' equity    $  47,493,703    $ 105,304,060
                                                          ============     ============

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

</TABLE>
<PAGE>
<TABLE>

                MediChem Life Sciences, Inc. and Subsidiaries
               Condensed Consolidated Statements of Operations
                                  (Unaudited)

                                                                 Three-month period          Nine-month period
                                                                 ended September 30,         ended September 30,
                                                              -------------------------   -------------------------
                                                                  2001          2000          2001          2000
                                                              -----------   -----------   -----------   -----------
 <S>                                                         <C>           <C>           <C>           <C>
 Contract Revenue:
  Contract revenue                                           $  4,209,103  $  4,325,726  $ 12,255,806  $ 11,859,670
  Contract revenue-related party                                   12,225       842,990     2,736,776     2,199,475
                                                              -----------   -----------   -----------   -----------
 Total contract revenue                                         4,221,328     5,168,716    14,992,582    14,059,145

 Contract service costs:
  Contract service costs                                        2,765,970     2,332,129     8,184,893     6,180,707
  Contract service costs-related party                             37,744       275,173       962,538       874,580
                                                              -----------   -----------   -----------   -----------
 Total contract service costs                                   2,803,714     2,607,302     9,147,431     7,055,287

 Gross profit                                                   1,417,614     2,561,414     5,845,151     7,003,858

  Milestone and intellectual property revenue, net                168,348             -       545,873       222,000
  Milestone and intellectual property revenue-related
    party, net                                                          -       650,000             -     1,000,000
                                                              -----------   -----------   -----------   -----------
 Total milestone and intellectual property revenue, net           168,348       650,000       545,873     1,222,000

 Operating expenses:
  Selling, general and administrative                           3,821,284     2,963,642    12,143,461     7,091,814
  Research and development                                        463,537             -     1,332,232             -
  Depreciation and amortization                                 2,034,852     1,598,817     5,858,389     2,588,011
  Impairment and restructuring charges                         44,692,012             -    44,692,012             -
                                                              -----------   -----------   -----------   -----------
 Total operating expenses                                      51,011,685     4,562,459    64,026,094     9,679,825

 Loss from operations                                         (49,425,723)   (1,351,045)  (57,635,070)   (1,453,967)

 Other income (expense):
  Interest expense                                               (270,048)     (310,334)     (609,468)     (785,534)
  Interest income                                                 130,106        30,397       546,725       148,310
  Loss on disposal of asset                                        (1,679)            -       (23,946)            -
  Change in value of redeemable stock warrants                          -      (263,772)            -    (2,169,259)
                                                              -----------   -----------   -----------   -----------
 Total other income (expense)                                    (141,621)     (543,709)      (86,689)   (2,806,483)
                                                              -----------   -----------   -----------   -----------

 Loss before income taxes                                     (49,567,344)   (1,894,754)  (57,721,759)   (4,260,450)
 Benefit for income taxes                                      (8,273,470)     (580,000)  (10,723,825)     (580,000)
                                                              -----------   -----------   -----------   -----------
 Net loss                                                     (41,293,874)   (1,314,754)  (46,997,934)   (3,680,450)
   Less:
      Accretion to redemption value of preferred stock                  -       339,205             -       993,541
                                                              -----------   -----------   -----------   -----------
      Net loss available to common stockholders              $(41,293,874) $ (1,653,959) $(46,997,934) $ (4,673,991)
                                                              ===========   ===========   ===========   ===========
 Per share data - basic and diluted:
      Net loss available to common stockholders              $      (1.55) $      (0.13) $      (1.77) $      (0.48)
                                                              ===========   ===========   ===========   ===========
      Pro forma net loss available to common stockholders                  $      (0.09)               $      (0.29)
                                                                            ===========                 ===========
      Weighted average number of common shares outstanding     26,602,597    12,491,732    26,548,417     9,701,642
                                                              ===========   ===========   ===========   ===========
      Pro forma weighted average number of common
        shares outstanding                                                   18,842,853                  16,052,763
                                                                            ===========                 ===========

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

</TABLE>
<PAGE>
<TABLE>

                MediChem Life Sciences, Inc. and Subsidiaries
               Condensed Consolidated Statements of Cash Flows
                                 (Unaudited)

                                                       Nine-month period
                                                       ended September 30,
                                                   ---------------------------
                                                       2001           2000
                                                   ------------   ------------
 <S>                                              <C>            <C>
 Cash flows from operating activities:
   Net loss                                       $ (46,997,934) $  (3,680,450)
   Adjustments to reconcile net loss to net
     cash used in operating activities:
       Depreciation and amortization                  5,858,389      2,588,011
       Bad debt expense                                 125,857         54,447
       Deferred taxes                               (10,928,492)             -
       Redeemable stock warrant appreciation                  -      2,169,259
       Noncash compensation expense                      54,811          9,594
       Noncash impairment charge                     43,989,262              -
       Noncash interest expense                               -         59,525
       Loss on disposal of asset                         23,946              -
       Changes in assets and liabilities:
         Accounts receivable                           (652,577)    (1,231,108)
         Prepaid and other current assets             1,222,725     (1,238,635)
         Other assets                                  (123,985)      (649,173)
         Accounts payable                            (1,085,523)     1,358,559
         Accrued expenses                            (1,816,622)    (1,493,764)
         Other liabilities                             (642,788)      (179,919)
                                                   ------------   ------------
 Net cash used in operating activities              (10,972,931)    (2,233,654)
                                                   ------------   ------------
 Cash flows from investing activities:
   Capital expenditures                              (3,896,310)    (8,071,053)
   Purchase of intangibles                              (57,500)             -
   Proceeds from the sale of securities               2,007,539              -
   Cost of purchased businesses,
     net of cash acquired                                     -       (336,744)
                                                   ------------   ------------
 Net cash used in investing activities               (1,946,271)    (8,407,797)
                                                   ------------   ------------
 Cash flows from financing activities:
   Net borrowings under revolving line of credit              -      6,852,209
   Proceeds from the issuance of loans payable        3,212,913              -
   Repayment of loans payable                          (633,052)       (31,738)
   Repayment of capital lease obligations              (246,796)      (165,392)
   Repayment of debt to stockholder                           -     (3,000,000)
   Proceeds from options exercised                       29,929              -
                                                   ------------   ------------
 Net cash provided by financing activities            2,362,994      3,655,079
                                                   ------------   ------------
 Net decrease in cash and cash equivalents          (10,556,208)    (6,986,372)

 Cash and cash equivalents at beginning of period    12,812,294      8,164,730
                                                   ------------   ------------
 Cash and cash equivalents at end of period       $   2,256,086  $   1,178,358
                                                   ============   ============

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

</TABLE>
<PAGE>

                   MEDICHEM LIFE SCIENCES, INC. AND SUBSIDIARIES
               NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                    (Unaudited)

 (1)  Basis of Presentation

 The accompanying  condensed  consolidated  financial  statements  have  been
 prepared in accordance with accounting principles generally accepted in  the
 United States of America and  applicable Securities and Exchange  Commission
 regulations for interim financial statements.  These financial statements do
 not include  all  of  the  information  and  notes  required  by  accounting
 principles  generally  accepted  in  the   United  States  of  America   for
 complete financial statements.  In the opinion of management, the  financial
 statements presented contain all adjustments, consisting of normal recurring
 adjustments, which are necessary  for a fair  presentation of the  financial
 position and results of operations for  the periods presented.  The  results
 of operations for the three-month and nine-month periods ended September 30,
 2001 are not necessarily  indicative of the operating  results for the  full
 year.  These  financial statements should  be read in  conjunction with  our
 audited financial statements and the notes thereto included in our Company's
 Annual Report on Form 10-K for the fiscal year ended December 31, 2000.

 (2)  Reclassifications

 Certain  amounts  in  previously  issued  financial  statements  have   been
 reclassified to conform to the current year's presentation.

 (3)  Recent Accounting Pronouncements

 In July 2001, Statement of Financial Accounting Standards ("SFAS") No.  141,
 "Business Combinations" and SFAS No.  142, "Goodwill and Intangible  Assets"
 were issued.  In October 2001,  SFAS No. 144 "Accounting for the  Impairment
 or Disposal of Long-Lived  Assets" was issued.   SFAS No. 141 requires  that
 all business combinations initiated  after June 30,  2001, be accounted  for
 using the  purchase method  of  accounting, and  prohibits  the use  of  the
 pooling-of-interests method  for  such  transactions.   SFAS  No.  141  also
 requires  identified  assets  acquired  in  a  business  combination  to  be
 recognized as an asset apart from goodwill if they meet certain criteria.

 SFAS No.  142  applies to  all  goodwill and  identified  intangible  assets
 acquired in a business  combination. Under the  new standard, all  goodwill,
 including that acquired before initial  application of the standard,  should
 not be amortized  but should  be tested  for impairment  at least  annually.
 Identified intangible assets should be amortized over their useful lives and
 reviewed for impairment in accordance with  SFAS No. 144. Within six  months
 of initial application of the new  standard, a transitional impairment  test
 must be  performed on  all goodwill.  Any impairment  loss recognized  as  a
 result of the transitional impairment test should be reported as a change in
 accounting principle. In addition to  the transitional impairment test,  the
 required annual impairment test should be performed in the year of  adoption
 of SFAS No. 142. SFAS No. 142 is effective for fiscal years beginning  after
 December 15, 2001, (although  early adoption would  be permitted in  certain
 circumstances) and must  be adopted as  of the beginning  of a fiscal  year.
 Retroactive application is not permitted. The  Company is in the process  of
 evaluating the  impact  that  adoption of  SFAS  No.  142 may  have  on  the
 financial statements;  however,  such  impact,  if  any,  is  not  known  or
 reasonably estimable at this time.

 SFAS No. 144 addresses financial accounting and reporting for the impairment
 or disposal of long-lived  assets.  While SFAS  No. 144 supersedes SFAS  No.
 121, "Accounting for the Impairment of Long-Lived Assets and for  Long-Lived
 Assets to Be Disposed Of", it retains many of the fundamental provisions  of
 that Statement.  SFAS No. 144  also supersedes the accounting and  reporting
 provisions of  APB Opinion  No. 30,  "Reporting the  Results of  Operations-
 Reporting  the  Effects  of  Disposal  of  a  Segment  of  a  Business,  and
 Extraordinary, Unusual and Infrequently Occurring Events and  Transactions,"
 for the  disposal  of a  segment  of a  business.  However, it  retains  the
 requirement in Opinion 30 to  report separately 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.  SFAS  No. 144 is  effective for fiscal  years
 beginning after December 15,  2001 and interim  periods within those  fiscal
 years.  The Company is in the process of evaluating the impact that adoption
 of SFAS No. 144 may have on the financial statements; however, such  impact,
 if any, is not known or reasonably estimable at this time.

 (4) Liquidity

 As of September 30,  2001, the Company's  cash balance, including  available
 for sale securities,  was $8.7 million  representing a  year-to-date use  of
 cash totaling  $10.6 million.   The  Company has  recently executed  a  cost
 reduction program to eliminate  a significant portion  of its workforce  and
 reduce annual  operating  expenses in  order  to preserve  working  capital.
 Management estimates  the remaining  cash reserves  will sustain  operations
 through the second quarter of  2002.   In  order to provide working  capital
 beyond the second  quarter of 2002,  the Board of  Directors has  authorized
 management to pursue various fund  raising activities including the  private
 placement  of  the  Company's  common stock.   Additional  alternatives  for
 raising capital include an investment from  a strategic partner and a  sale-
 leaseback of the Woodridge Discovery Center.

 Management believes  that the cash infusion of between  $5.0 - $9.0  million
 provided  to the Company  from these capital raising activities will provide
 sufficient working capital  to fund operations through  the  time  that cash
 flow  is expected to turn positive  and therfore would be sufficient to fund
 future operations.

 (5) Business Combinations

 On May 31, 2000, we acquired all the outstanding common stock of  ThermoGen,
 Inc. and Emerald  BioStructures, Inc.  The acquisitions  were accounted  for
 using the purchase method of accounting.

 The following unaudited pro forma financial information for the nine  months
 ended September  30, 2000  presents combined  results of  operations of  the
 Company as  if ThermoGen and  Emerald  BioStructures  had been  acquired  on
 January 1, 2000.  The pro  forma financial information does not  necessarily
 reflect  the  results  of  operations  that  would  have  occurred  had  the
 acquisitions been consummated at the beginning of the period presented.

      Total contract revenue                              $  15,208,995
      Net loss available to common stockholders           $  (5,894,601)
      Pro forma per share net loss available to common
      stockholders - basic and diluted                    $       (0.31)


 (6) Related Party Transactions

 On September 14,  2000, the Company  entered into a  contract with  Advanced
 Life Sciences, Inc. (ALS) to develop a research proposal for the development
 of ALS' patented  chemical compound  as a  drug candidate  through all  pre-
 clinical  testing.  Advanced  Life Sciences,  Inc. is  an early  stage  drug
 development  company  owned  by  MediChem's  Chairman,  CEO  and   principal
 stockholder.   As  of  September  30,  2001,  the  Company  has  outstanding
 receivables totaling $71,000 related to this project, which will become  due
 in the fourth quarter.

 (7) Impairment and Restructuring Charges

 In  September  of  2001,  the  Company  implemented  a  board-approved  cost
 reduction program to consolidate several  operational sites of its  MediChem
 and ThermoGen subsidiaries.  This plan called for the closure of  facilities
 located in Chicago, IL, Des Plaines, IL, Lemont, IL, Cambridge, MA and South
 San  Francisco,  CA.   Operational  facilities  were  centralized  into  the
 Company's new corporate  headquarters located  in Woodridge,  IL.   Expenses
 related to lease abandonment  totaled $116,876 for the  quarter and will  be
 paid through  2003  in  accordance  with the  terms  of  the  related  lease
 agreements. In addition  to the facilities  consolidation plan, the  Company
 simultaneously  implemented  a  program  to  reduce  its  workforce  by   52
 employees.  This  action impacted approximately  twenty-five percent of  the
 Company's workforce.  Charges  related to the  severance of these  employees
 totaled $585,874 for the quarter ended September 30, 2001, and are  expected
 to be settled in cash over the next 6 months.

 During  the  quarter   ended  September   30,  2001,   certain  events   and
 circumstances caused the Company to conduct  a review of the carrying  value
 of its long-lived assets, including  the long-lived assets acquired  through
 the ThermoGen and Emerald BioStructures acquisitions described above.  These
 events include:  (1)  the 25%  reduction  in the  Company's  workforce,  (2)
 determination of the  business climate,  which has  generated the  valuation
 declines of enterprises in  the Company's industry, and  (3) the failure  of
 certain assets to generate the cash flows that were projected at the time of
 acquisition. Certain  intangible  assets  were  determined  to  be  impaired
 because the carrying amount of the  assets exceeded the undiscounted  future
 cash flows expected to be derived from the assets.  These impairment  losses
 were measured as  the amount  by which the  carrying amounts  of the  assets
 exceeded the fair values of the  assets, determined based on the  discounted
 future cash flows  expected to be  derived from the  assets.  The  resulting
 impairment charges totaled $34.2 million and $9.8 million for ThermoGen  and
 Emerald BioStructures, respectively.

 Additionally, management  revised  the  estimated useful  lives  of  certain
 intangible assets at each  of the acquired subsidiaries  based upon a  lower
 projected life indicated by the impairment  analysis.  The estimated  useful
 lives of patents and trade names at ThermoGen was reduced from 15 years to 7
 years, while the expected benefit period  of contracts and customer base  at
 both ThermoGen and Emerald was reduced from 8 years to 4 years.

<TABLE>
 The  following  tables  summarize  the  restructuring  charges  incurred  in
 relation to the cost reduction program and impairment of intangible assets:

                                         Restructuring
                                            Charges       Paid Through     Unpaid Balance as of
 Expense Category                           Accrued     September 30, 2001   September 30, 2001
 ----------------------------------------------------------------------------------------------
 <S>                                       <C>                 <C>                  <C>
 Employee severance and related costs      $    585,874    $   201,512          $   384,362
 Lease termination costs                        116,876              -              116,876
                                            -----------     ----------           ----------
 Retructuring liability totals             $    702,750    $   201,512          $   501,238
                                            ===========     ==========           ==========

                                                                            Asset Balance as of
 Intangibles                          Impairment Charges                     September 30, 2001
 -------------------------------------------------------                    -------------------
 Patents                                   $ (6,021,371)                        $ 1,962,629
 Trade names                                 (2,633,766)                          1,022,233
 Contracts and customer base                (14,904,467)                          5,161,533
 Proprietary technology                               -                             289,000
 Other intangibles                                    -                             245,918
                                            -----------                          ----------
                                           $(23,559,604)                          8,681,313
                                            ===========
 Less accumulated amortization                                                   (4,534,486)
                                                                                 ----------
 Intangibles, net                                                               $ 4,146,827
                                                                                 ==========

                                                                            Asset Balance as of
 Goodwill                             Impairment Charges                     September 30, 2001
 -------------------------------------------------------                    -------------------
 Goodwill                                  $(20,429,658)                        $ 1,918,402
                                            ===========
 Less accumulated amortization                                                     (725,869)
                                                                                 ----------
 Goodwill, net                                                                  $ 1,192,533
                                                                                 ==========
 Restructuring charges                     $    702,750
 Impairment charges                          43,989,262
                                            -----------
 Total restructuring and
   impairment charges                      $ 44,692,012
                                            ===========
</TABLE>

 (8) Debt

 Effective June 1, 2001, the  Company converted its $12,000,000  construction
 loan related to its recently completed  Woodridge, Illinois facility into  a
 5-year mortgage  loan amortized  over 20  years.   The  loan has  a  limited
 unsecured principal  guaranty from  the Company's  Chairman and  CEO in  the
 amount of $3,000,000.  The guarantee will decline by $500,000 at each fiscal
 year end, starting at December 31, 2001.   Repayment of the loan is  secured
 by a mortgage and security agreement creating a first and prior lien on  the
 building  and  all  fixtures  and  improvements,  and  a  first   collateral
 assignment of  all  rents, issues,  security  deposits and  profits  of  the
 project.  Interest on the first $5.0 million  of the loan is fixed at  7.74%
 through May 2002.  Interest on the remaining $7.0 million will be calculated
 on  the  30-day  LIBOR  floating  rate plus  225  basis  points.   Principal
 reductions on  the loan  will equal  $50,000 per  month with  the  remaining
 balance becoming due at the end  of the loan term.   At September 30,  2001,
 $11,850,000 was outstanding under the mortgage loan.

 The Company has  a $4.0  million laboratory  equipment line  of credit  with
 General Electric Capital Corporation.  Cumulative draws under this line were
 $1.5  million  as of  September 30,  2001.  During  the third  quarter,  the
 Company drew $571,738 for equipment purchases.  The note bears interest at a
 fixed rate of 9.04% and is payable in equal monthly payments based on a  48-
 month amortization and is secured by the equipment purchased. The lender has
 temporarily suspended the Company's ability  to borrow under this  equipment
 line  for  the  fourth  quarter  of  2001.   The  Company  is  currently  in
 negotiation with GE  Capital to  have the  line restored  during the  fourth
 quarter.

 The Company is subject to certain covenants as a result of these facilities.
 As of September 30, 2001, the Company was in compliance with all covenants.


 (9) Net Loss Per Share

<TABLE>

 The following table summarizes the calculations for net loss per share:


                                                        For the three-month periods ended
                                   ---------------------------------------------------------------------------
                                             September 30, 2001                    September 30, 2000
                                   -------------------------------------  ------------------------------------
                                                   Average                                Average
                                   Income (loss)   shares      Per share  Income (loss)   shares     Per share
                                    (numerator) (denominator)   amount     (numerator) (denominator)   amount
                                    -----------  -----------    ------     -----------  -----------    ------
 <S>                               <C>           <C>           <C>        <C>           <C>           <C>
 Net loss                          $(41,293,874)                          $ (1,314,754)
   Less accretion to redemption
     value of preferred stock                 -                               (339,205)
                                    -----------                             ----------
 Common stock outstanding                         26,602,597
 Class A common stock                             ----------
   outstanding                                                                           12,491,732
                                                                                        -----------
 Basic and diluted loss per share:
   Net loss available
     to common stockholders        $(41,293,874) 26,602,597    $ (1.55)   $ (1,653,959)  12,491,732   $ (0.13)
                                    ===========  ===========    ======     ===========  ===========    ======


                                                          For the nine-month periods ended
                                   ---------------------------------------------------------------------------
                                             September 30, 2001                    September 30, 2000
                                   -------------------------------------  ------------------------------------
                                                   Average                                Average
                                   Income (loss)   shares      Per share  Income (loss)   shares     Per share
                                    (numerator) (denominator)   amount     (numerator) (denominator)   amount
                                    -----------  -----------    ------     -----------  -----------    ------
 <S>                               <C>           <C>           <C>        <C>           <C>           <C>
 Net loss                          $(46,997,934)                          $ (3,680,450)
   Less accretion to redemption
     value of preferred stock                 -                               (993,541)
                                    -----------                            -----------
 Common stock outstanding                         26,548,417
 Class A common stock                            -----------
   outstanding                                                                            9,701,642
                                                                                        -----------
 Basic and diluted loss per share:
   Net loss available
     to common stockholders        $(46,997,934)  26,548,417   $ (1.77)   $ (4,673,991)   9,701,642   $ (0.48)
                                    ===========  ===========    ======     ===========  ===========    ======

</TABLE>

 Basic and diluted  net earnings  (loss) per  common share  are presented  in
 conformity with SFAS  No. 128,  "Earnings Per Share",  and SAB  98, for  all
 periods  presented.  Under  the  provisions  of  SAB 98,  common  stock  and
 redeemable convertible preferred stock that has  been issued or granted  for
 nominal consideration prior to the anticipated effective date of the initial
 public offering must be included in the calculation of basic and diluted net
 earnings (loss) per common share as if these shares had been outstanding for
 all periods presented.

 In accordance with SFAS No. 128,  basic and diluted net earnings (loss)  per
 share have  been computed  using the  weighted-average number  of shares  of
 common stock outstanding during the period.  Pro forma basic and diluted net
 earnings (loss) per common share, as presented in the condensed consolidated
 statements of operations, have been computed  for the three-month and  nine-
 month periods ended September  30, 2000 as described  above, and also  gives
 effect to the  conversion of  the Company's  Class A  preferred stock  which
 automatically converted to common stock immediately prior to the  completion
 of the Company's initial public offering on October 26, 2000 (using the  "as
 if converted" method) from the original date of issuance.


 (10) Comprehensive Income (Loss)

 The following table presents the  components of the Company's  comprehensive
 loss for the nine-months ended September 30, 2001:

           Net loss                               $ (46,997,934)

           Other comprehensive loss
             Unrealized loss on
               available-for-sale securities             (1,324)
                                                   ------------
           Total comprehensive loss               $ (46,999,258)
                                                   ============


 (11) Supplemental Cash Flow Information

 The following  table presents  supplemental cash  flow information  for  the
 nine-month periods ended September 30, 2001 and 2000:

                                   For the nine-month periods ended September 30
                                      ---------------------------------------
                                             2001                  2000
                                         ----------             ----------

 Supplemental disclosure of
  cash flow information:
   Interest paid                        $   761,935            $   687,083
   Income taxes paid                    $         -            $   664,692

 Supplemental disclosure of
  non-cash investing activities:
   Equipment acquired under
    capital lease                       $ 1,243,705            $         -

 The Company purchased all of the
  capital stock of ThermoGen
  and Emerald for $41,691,888.
  Liabilities were assumed as
  follows:
    Fair value of assets acquired       $         -            $43,526,286
    Class A common stock instruments
     issued for capital stock           $         -            $41,355,144
    Cash paid                           $         -            $   336,744
    Liabilities assumed                 $         -            $ 1,841,470


 (12) Subsequent Events

 On October 8, 2001,  the Company's newly  formed subsidiary, Advanced  X-Ray
 Analytical  Services  (AXAS)  was  awarded  the  contract  to  operate   the
 Commercial Collaborative Access  Team (COM-CAT)  beam line  at the  Advanced
 Photon Source (APS)  located within Argonne  National Laboratory in  Darien,
 IL.  The agreement calls for AXAS to operate the beam line for a minimum  of
 1.5 years, at which time  the Company has the  option to renew the  contract
 for an additional 3.5 years.  As the operator of the beam line, the  Company
 is entitled to charge for beam  time utilized by third parties.  Commitments
 for the  operation  of  the beam  line  during  the first  1.5  years  total
 approximately $460,000.  The contract requires the Company to secure a  $1.0
 million letter of credit with a  financial institution that was received  on
 October 30, 2001.

 On October  18,  2001, the  Company  announced an  additional  reduction  in
 workforce of  24 personnel  in order  to reduce  operating expenditures  and
 conserve  cash.  A  resulting  pre-tax  severance  charge  of  approximately
 $800,000 will be recorded in the fourth quarter.



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

 OVERVIEW

 Founded in 1987, we believe we were the first independent chemistry  company
 to  offer  a  broad array  of discovery-related medicinal chemistry services
 to pharmaceutical  and  biotechnology  customers.  From  a  company  focused
 exclusively on medicinal chemistry  services, we have  evolved into a  full-
 service drug discovery technology and  services company.  Our development of
 strong relationships with  pharmaceutical companies  by initially  providing
 basic medicinal chemistry services helped us  to identify their unmet  needs
 in the later stages of the drug discovery process. In response, we  expanded
 our  service  offerings  to  include  process  development,  analytical  and
 separations  chemistry and chemical synthesis and  scale up.  To  capitalize
 on  recent advances  in genomics, we have  acquired and developed technology
 and  services  in  early-stage  proteomics,   combinatorial  chemistry   and
 biocatalysis.

 ACQUISITIONS

 On May 31, 2000, we acquired all the outstanding common stock of  ThermoGen,
 Inc. and Emerald  BioStructures, Inc.  The acquisitions  were accounted  for
 using the  purchase  method of  accounting  and our  results  of  operations
 include the results of ThermoGen and Emerald BioStructures since the date of
 acquisition.  We  issued approximately  5.0 million  shares of  our Class  A
 common stock in exchange for the outstanding shares of ThermoGen and Emerald
 BioStructures.  The  purchases resulted  in approximately  $55.7 million  of
 goodwill and intangibles.  See discussion below regarding the impairment  of
 the certain intangible assets acquired.

 INITIAL PUBLIC OFFERING

 On October 31, 2000, we completed  our initial public offering of  7,360,000
 shares of common stock (which included  960,000 over-allotment shares) at  a
 public offering price of $7.00 per share.  We received net proceeds of $45.3
 million.  We  used $9.7 million  of the net  proceeds to repay  in full  and
 terminate our credit facility, $11.5 million for the mandatory redemption of
 outstanding preferred stock,  $2.1 million  for the  optional redemption  of
 outstanding warrants,  $1.6 million  for  general corporate  purposes,  $1.5
 million to repay a note payable to  a stockholder and $0.4 million to  repay
 outstanding shareholder  loans arising  from the  acquisition of  ThermoGen,
 Inc.


 RESULTS OF OPERATIONS

 Three-month  period  ended  September 30, 2001 compared with the three-month
 period ended September 30, 2000

 Contract revenue
 Total contract revenue  including related party  decreased $1.0 million,  or
 18%, to $4.2 million  for the three-month period  ended September 30,  2001,
 from $5.2  million for  the three-month  period  ended September  30,  2000.
 Contract revenue excluding related party decreased  $0.1 million, or 3%,  to
 $4.2 million for the three-month period ended September 30, 2001, from  $4.3
 million for  the three-month  period ended  September 30,  2000.   Decreased
 contract revenue excluding related party resulted from a decline in contract
 closures associated  with delays in  executing larger collaborations.  These
 collaborations  typically  require  a  higher  level  of  senior  management
 involvement from  our clients,  thereby extending  the time  frame in  which
 contracts can be closed.  Contract revenue-related party decreased $831,000,
 or 99%, to $12,000 for the three-month period ended September 30, 2001, from
 $843,000 for the three-month period ended September 30, 2000.  The  decrease
 in contract  revenue-related party  was a  result  of reduced  project  load
 resulting  from  the  lead  compounds   of  Advanced  Life  Sciences   (ALS)
 progressing further down  the drug  development pipeline  and into  clinical
 trials.

 Gross profit
 Gross profit from total contract revenue decreased $1.2 million, or 45%,  to
 $1.4 million for the three-month period ended September 30, 2001, from  $2.6
 million for the three-month period ended  September 30, 2000.  Gross  profit
 excluding related party decreased $0.6 million, or 28%, to $1.4 million  for
 the three-month period ended September 30,  2001, from $2.0 million for  the
 three-month period ended  September 30, 2000.   Related  party gross  profit
 decreased $594,000, or 104%, to a loss of $26,000 for the three-month period
 ended September 30, 2001, from $568,000 in profit for the three-month period
 ended September 30, 2000.

 Gross profit as a percent of total contract revenue decreased to 34% for the
 three-month period ended September  30, 2001, from  50% for the  three-month
 period ended September 30, 2000.  Gross profit excluding related party as  a
 percent of  contract revenue  decreased to  34% for  the three-month  period
 ended September  30,  2001,  from  46%  for  the  three-month  period  ended
 September 30, 2000.  The majority of the reduction in gross profit excluding
 related party is attributable to reduced utilization due principally to  the
 emphasis on selling multi-disciplinary service offerings in the marketplace.
 The lower utilization is also a result of new hires in scientific staff made
 prior to the  recent general  economic down  turn.  Because  the  scientific
 staff represents  a  fixed cost  to  the Company,  utilization  varies  with
 changes in contract service revenue volume.  A selected group of  scientists
 that  filled  redundant   positions  created  by   the  operating   facility
 consolidation were terminated late in the third quarter.  Due to the  timing
 of these terminations,  the impact on  gross profit was  immaterial for  the
 three-month period ended September 30, 2001.

 Related party gross  profit operated at  negative margin  during the  three-
 month period ended September 30, 2001,  from 67% for the three-month  period
 ended September 30, 2000.  The decrease in related party gross profit was  a
 result of reduced  project load attributable  to ALS  compounds moving  into
 clinical trials and lower margin business with Advanced Life Sciences.

 Milestone and intellectual property revenue
 Milestone and intellectual property revenue  decreased $482,000, or 74%,  to
 $168,000 for the three-month period ended September 30, 2001, from  $650,000
 for the three-month period ended September 30, 2000.  All milestone  revenue
 for the three-month period ended September 30, 2000 was derived from related
 parties.  Such revenue did not recur in the same period of 2001.

 Operating expenses
 Selling, general and administrative expenses increased $0.8 million, or 29%,
 to $3.8 million for  the three-month period ended  September 30, 2001,  from
 $3.0 million for  the three-month  period ended September  30, 2000.   As  a
 percentage of total contract  revenues, selling, general and  administrative
 expenses increased 34% to 91% for the three-month period ended September 30,
 2001, from  57%  for  the  three-month  period  ended  September  30,  2000.
 Increases in selling, general and administrative expenses were due to  costs
 incurred in  relation  to  operating  as  a  public  company  and  increased
 recruitment and relocation costs  associated with several senior  scientific
 positions.

 Research and  development expenses  include  compensation and  benefits  for
 scientific personnel for  work performed on  un-funded proprietary  research
 projects and costs of supplies and  related chemicals.  Non-funded  research
 and development was $0.5 million for the three-month period ended  September
 30, 2001 compared to $0 for the three-month period ended September 30, 2000.
 This non-funded research and development is distinguished from the  research
 expenses incurred prior to 2001.  The research and development disclosed  in
 our Annual Report on Form 10-K for 2000 represented research funded  through
 SBIR grant programs, which  are presented within  contract service costs  on
 the consolidated statement of operations.

 Depreciation and amortization  expenses increased $0.4  million, or 27%,  to
 $2.0 million for the three-month period ended September 30, 2001, from  $1.6
 million for the three-month period ended  September 30, 2000 resulting  from
 $0.2 million  of  depreciation expense  associated  with the  new  Woodridge
 facility and $0.2 for new capital equipment expenditures.

 Impairment and  restructuring  charges  include  approximately  $703,000  of
 severance benefits and  consolidation expenses incurred  in connection  with
 the reduction  in workforce  and  operating facilities  consolidation  plans
 authorized by the Company's board of  directors during the third quarter  of
 2001. As of September 30, 2001,  52 employees had been terminated, of  which
 33 were  classified as  general and  administrative  personnel and  19  were
 classified  as   scientific  personnel.   Scientific  personnel   terminated
 represented  redundant  positions  resulting   from  the  consolidation   of
 operating facilities. The restructuring charge  related to the reduction  in
 workforce totaled approximately $586,000.   Closure of operating  facilities
 located  in  Chicago,  Des  Plaines   and  Lemont,  Illinois  and   business
 development offices  located in  California  and Massachusetts  resulted  in
 lease abandonment costs of approximately $117,000.

 As  a  result  of  the  reduction   in  workforce  and  operating   facility
 consolidation plans, the decline in the  Company's market valuation and  the
 failure of certain assets to generate the cash flows that were projected  at
 the time of the ThermoGen and Emerald acquisitions, the Company conducted an
 impairment review of its long-lived assets, including the long-lived  assets
 acquired through  the  ThermoGen  and  Emerald  BioStructures  acquisitions.
 Certain intangible  assets  were  determined  to  be  impaired  because  the
 carrying amounts of the  assets exceeded the undiscounted future  cash flows
 expected  to  be derived  from  the  assets.  These impairment  losses  were
 measured as the amount by which the carrying amounts of the assets  exceeded
 the fair values  of the assets,  determined based on  the discounted  future
 cash flows expected to be derived from the assets.  The resulting impairment
 charges totaled $34.2  million and $9.8  million for  ThermoGen and  Emerald
 BioStructures, respectively, for the three months ended September 30, 2001.

 Other expenses, net
 Interest income  increased  to  $130,000 in  the  three-month  period  ended
 September 30, 2001, from $30,000 in  the three-month period ended  September
 30, 2000.  This increase is due to interest earned on the available-for-sale
 securities purchased with  proceeds received from  our October 2000  initial
 public offering.

 Interest expense  decreased to  $270,000 for  the three-month  period  ended
 September 30, 2001, from $310,000 for the three-month period ended September
 30, 2000.  The  decrease in interest expense  was primarily attributable  to
 the retirement of debt totaling $9.7 million in the fourth quarter of  2000,
 subsequent to the Company's IPO.  The interest expense for the period  ended
 September 30,  2001 included  interest on  the Woodridge  facility  mortgage
 loan.  In the second quarter of 2001, the construction loan of this facility
 was converted into a mortgage loan.

 Income taxes
 An income tax  benefit of $8.3  million was recognized  for the  three-month
 period ended September 30, 2001, compared  to a tax benefit of $580,000  for
 the three-month period ended  September 30, 2000.   The tax benefit for  the
 three-month period  ended September  30, 2001  primarily resulted  from  the
 decrease in deferred tax liability attributable to intangible assets written
 down in connection with  the impairment charge as  stated above.  The  16.7%
 effective tax  rate for  the three-month  period  ended September  30,  2001
 reflects the establishment  of a $3.3  million valuation  allowance and  the
 $7.3  million  tax   effect  from   the  amortization   and  impairment   of
 nondeductible goodwill.

 Nine-month  period  ended  September 30, 2001  compared  with the nine-month
 period ended September 30, 2000

 Contract revenue
 Total contract revenue  including related party  increased $0.9 million,  or
 7%, to $15.0  million for the  nine-month period ended  September 30,  2001,
 from $14.1 million for the nine-month period ended September 30, 2000.  This
 increase was  principally  due  to  revenue  generated  from  the  May  2000
 acquisitions.   Contract  revenue  excluding related  party  increased  $0.4
 million, or 3%, to $12.3 million  for the nine-month period ended  September
 30, 2001, from $11.9 million for  the nine-month period ended September  30,
 2000.  Increased contract revenue excluding related party was achieved  from
 higher volume in our service offerings for structural biology and additional
 research grants. Contract revenue-related  party increased $0.5 million,  or
 24%, to $2.7  million for the  nine-month period ended  September 30,  2001,
 from $2.2 million for the nine-month  period ended September 30, 2000.   The
 increase in contract  revenue-related party  was achieved  primarily from  a
 chemical synthesis and scale up project with Advanced Life Sciences.

 Gross profit
 Gross profit from total contract revenue  decreased 17% to $5.8 million  for
 the nine-month period ended  September 30, 2001, from  $7.0 million for  the
 nine-month period ended September 30, 2000.  Gross profit excluding  related
 party decreased $1.6  million, or 28%,  to $4.1 million  for the  nine-month
 period ended September 30, 2001, from $5.7 million for the nine-month period
 ended September  30,  2000.   Related  party  gross  profit  increased  $0.5
 million, or 34%, to $1.8 million  for the nine-month period ended  September
 30, 2001, from $1.3  million for the nine-month  period ended September  30,
 2000.

 Gross profit as a percent of total contract revenue decreased to 39% for the
 nine-month period  ended September  30, 2001,  from 50%  for the  nine-month
 period ended September 30, 2000.  Gross profit excluding related party as  a
 percent of contract revenue decreased to 33% for the nine-month period ended
 September 30, 2001, from 48% for  the nine-month period ended September  30,
 2000.  The majority of the reduction in gross profit excluding related party
 is attributable to reduced  utilization due principally  to the emphasis  on
 selling multi-disciplinary service offerings in the marketplace.  The  lower
 utilization  is  also  a  result of new hires in scientific staff made prior
 to the recent  general  economic  down turn.  Because the  scientific  staff
 represents a fixed cost to the  Company, utilization varies with changes  in
 contract service revenue volume.  A selected group of scientists that filled
 redundant positions  created by  the operating  facility consolidation  were
 terminated  late  in  the  third  quarter.   Due  to  the  timing  of  these
 terminations, the impact on gross profit  was immaterial for the  nine-month
 period ended September 30, 2001.

 Related party  gross  profit increased  to  65% of  related  party  contract
 revenue for the nine-month period ended September 30, 2001, from 60% for the
 nine-month period ended September 30, 2000.  This increase is attributed  to
 a chemical synthesis and scale up project with Advanced Life Sciences.

 Milestone and intellectual property revenue
 Milestone and intellectual property revenue  decreased $676,000, or 55%,  to
 $546,000 for  the nine-month  period ended  September  30, 2001,  from  $1.2
 million for the nine-month period ended September 30, 2000 due to a decrease
 in related party drug development activity which has proceeded into clinical
 trials.   All  milestone revenue  earned  in 2001  represented  third  party
 activity.

 Operating expenses
 Selling, general and administrative expenses increased $5.0 million, or 71%,
 to $12.1 million for  the nine-month period ended  September 30, 2001,  from
 $7.1 million  for the  nine-month period  ended September  30, 2000.   As  a
 percentage of total contract  revenues, selling, general and  administrative
 expenses increased 31  percentage points to  81% for  the nine-month  period
 ended September 30, 2001, from 50% for the nine-month period ended September
 30, 2000.  The increase in selling, general and administrative expenses  was
 due primarily to expanding our geographic  presence through four new  market
 locations including two new sales offices, an increase in administrative and
 marketing personnel to support our  expanding operations and customer  base,
 an increase in  administrative expenses  associated with  the ThermoGen  and
 Emerald BioStructures operations, an  increase in facility costs  associated
 with the development of our Woodridge Discovery Center and costs  associated
 with operating as a public company.

 Research and  development expenses  include  compensation and  benefits  for
 scientific personnel for  work performed on  un-funded proprietary  research
 projects  and  costs  of  supplies  and  related  chemicals.   Research  and
 development was $1.3 million for the  nine-month period ended September  30,
 2001 compared to  $0 for  the nine-month  period ended  September 30,  2000.
 This non-funded research and development is distinguished from the  research
 expenses incurred prior to 2001.  The research and development disclosed  in
 our Annual Report on Form 10-K for 2000 represented research funded  through
 SBIR grant programs, which  are presented within  contract service costs  on
 the consolidated statement of operations.

 Depreciation and amortization expenses increased  $3.3 million, or 126%,  to
 $5.9 million for the nine-month period  ended September 30, 2001, from  $2.6
 million for the nine-month  period ended September 30,  2000.  The  increase
 was due to $2.1  million of amortization  expense resulting from  intangible
 assets acquired  in the  ThermoGen and  Emerald BioStructures  acquisitions,
 $0.7 million of depreciation  expense associated with facilities  expansion,
 with the balance being the result of additional capital spending.

 Impairment and  restructuring  charges  include  approximately  $703,000  of
 severance benefits and consolidation expenses  incurred in the reduction  in
 workforce and  operating facilities  consolidation plans  authorized by  the
 Company's board of directors during the third quarter of 2001. For the nine-
 month period ended September 30, 2001, 52 employees had been terminated,  of
 which  33  were  classified as general  and  administrative personnel and 19
 were classified as  scientific  personnel.  Scientific personnel  terminated
 represented  redundant  positions  resulting   from  the  consolidation   of
 operating facilities. The restructuring charge  related to the reduction  in
 workforce totaled approximately $586,000.   Closure of operating  facilities
 located in  Chicago  and  Des Plaines,  Illinois  and  business  development
 offices  located  in   California  and  Massachusetts   resulted  in   lease
 abandonment costs of approximately $117,000.

 As  a  result  of  the  reduction   in  workforce  and  operating   facility
 consolidation plans, the decline in the  Company's market valuation and  the
 failure of certain assets to generate the cash flows that were projected  at
 the time of the ThermoGen and Emerald acquisitions, the Company conducted an
 impairment review of its long-lived assets, including the long-lived  assets
 acquired through  the  ThermoGen  and  Emerald  BioStructures  acquisitions.
 Certain intangible  assets  were  determined  to  be  impaired  because  the
 carrying amounts of the  assets exceeded the undiscounted future  cash flows
 expected  to  be derived  from  the  assets.  These impairment  losses  were
 measured as the amount by which the carrying amounts of the assets  exceeded
 the fair values  of the assets,  determined based on  the discounted  future
 cash flows expected to be derived from the assets.  The resulting impairment
 charges totaled $34.2  million and $9.8  million for  ThermoGen and  Emerald
 BioStructures, respectively, for the nine months ended September 30, 2001.

 Other expenses, net
 Interest income  increased  to  $547,000  in  the  nine-month  period  ended
 September 30, 2001, from $148,000 in  the nine-month period ended  September
 30, 2000.  This increase is due to interest earned on the available-for-sale
 securities purchased with  proceeds received from  our October 2000  initial
 public offering.

 Interest expense  decreased  to $609,000  for  the nine-month  period  ended
 September 30, 2001, from $786,000 for the nine-month period ended  September
 30, 2000.  The  decrease in interest expense  was primarily attributable  to
 the retirement of debt totaling $9.7 million in the fourth quarter of  2000,
 subsequent to the Company's IPO. The  interest expense for the period  ended
 September 30, 2001 included interest on the Woodridge facility  construction
 loan  and  mortgage  loan.  Interest  paid  on  the  construction  loan  was
 capitalized  until  March  2001.   In  the  second  quarter  of   2001,  the
 construction loan on this facility was converted into a mortgage loan.

 Income taxes
 An income tax  benefit of  $10.7 million  was recognized  in the  nine-month
 period ended September 30,  2001 compared to a  tax benefit of $580,000  for
 the nine-month period  ended September 30,  2000.  The  tax benefit for  the
 nine-month period  ended  September 30,  2001  primarily resulted  from  the
 decrease in deferred tax liability attributable to intangible assets written
 down in connection with  the impairment charge as  stated above.  The  18.6%
 effective tax  rate  for the  nine-month  period ended  September  30,  2001
 reflects the establishment  of a $3.3  million valuation  allowance and  the
 $7.6  million  tax   effect  from   the  amortization   and  impairment   of
 nondeductible goodwill.

 LIQUIDITY AND CAPITAL RESOURCES

 We have historically funded our business through cash flows from operations,
 proceeds from  borrowings and  the issuance  of preferred  stock and  public
 common  stock.  During the nine-month  period ended September  30, 2001,  we
 used $11.0 million  in cash flows  from operations.   Of the $11.0  million,
 $3.0  million  was  related  to  non-recurring  facility  expenditures   for
 construction  of  the  Woodridge  Discovery  Center  and  $8.0  million  was
 attributable to 2001 operations.  For  the year ended December 31, 2000,  we
 generated $1.0 million in cash flows from operations.

 During the  nine-month  period  ended  September  30,  2001,  cash  used  in
 investing activities totaled $1.9 million as  compared to $29.2 million  for
 the  year ended  December 31, 2000.  This change  during 2001 was  primarily
 attributable to  the  decrease  in capital  expenditures  and  the  sale  of
 available-for-sale securities.

 During the nine-month  period ended September  30, 2001 and  the year  ended
 December  31,  2000,  total  capital  expenditures  were  $3.9  million  and
 $20.3 million,  respectively.  Capital  expenditures  incurred in  2001 were
 predominantly for  the  purchase  of laboratory  equipment  to  enhance  our
 service offerings in medicinal chemistry and structural proteomics,  capital
 expenditures incurred in 2000 were attributable  to the construction of  the
 Woodridge Discovery Center.

 Net  cash  provided  by  financing  activities  for  the  nine-months  ended
 September 30, 2001, totaled $2.4 million.   For the year ended December  31,
 2000, cash  provided by  financing activities  totaled $32.7  million.   The
 change is primarily due to the Company's initial public offering in 2000.

 In April 1999, we began to develop a 14-acre site in Woodridge, Illinois for
 the construction of  a new 100,000  square foot  headquarters and  discovery
 laboratories center.  This facility cost $18.5 million for construction  and
 an  additional  $3.8  million  for  laboratory  instrumentation,   software,
 furniture and equipment  upgrades.   In May  2000, we  received an  18-month
 construction loan in  the amount of  $12.0 million to  finance the  project.
 Effective June 1,  2001, we converted  the $12.0  million construction  loan
 into a 5-year mortgage loan amortized over 20 years.  At September 30, 2001,
 $11,850,000 was  outstanding on  this  loan.   The  new facility  came  into
 operation in the first  quarter of 2001.   The new offices and  laboratories
 were developed  with  the capability  of  being expanded  by  an  additional
 100,000 square feet on an adjacent portion of the 14-acre site.

 Working capital was $7.5  million at September 30,  2001, compared to  $18.3
 million at December 31, 2000.  The decrease in working capital at  September
 30, 2001, was primarily due to  the operating loss, a reduction of  accounts
 payable and accrued expenses, and an increase in accounts receivable.

 We believe that the remaining net proceeds from our initial public offering,
 together with  cash  generated  from operations  and  borrowings  under  the
 mortgage loan, will be  sufficient to fund  our anticipated working  capital
 needs and capital expenditures, other  than financing necessary to  complete
 future acquisitions, if any, for  at least the next  9 months.  The  Company
 has recently executed a  cost reduction program  to eliminate a  significant
 portion of its workforce and  reduce annual operating  expenses in order  to
 preserve  working capital.  In order to provide  working capital beyond  the
 second quarter of 2002, the Board of Directors has authorized management  to
 pursue various fund raising  activities including the  private place of  the
 Company's common stock.  Additional alternatives for raising capital include
 an investment from a strategic partner and a sale-leaseback of the Woodridge
 Discovery Center.   Future acquisitions, if  any, could be  funded with  the
 issuance of  debt or  equity securities.   There  can be  no  assurance that
 attractive  acquisition  opportunities  will  be available  to  us  or  will
 be  available  at  prices  and  upon  such other terms that  are  attractive
 to us.  We regularly evaluate potential  acquisitions  of other  businesses,
 products  and  product  lines  and  may  hold  discussions  regarding   such
 potential acquisitions.  As a general rule, we will  publicly  announce such
 acquisitions only after a definitive purchase agreement has been signed.  In
 addition, in  order to  meet our  long-term  liquidity needs  or  consummate
 future  acquisitions,  we  may   incur  additional  indebtedness  or   issue
 additional  equity  and  debt  securities,  subject  to  market  and   other
 conditions.  There can be no  assurance that such additional financing  will
 be available on terms acceptable to us or at all.  Our failure to raise  the
 funds necessary to finance our future cash requirements or consummate future
 acquisitions could adversely affect our ability  to pursue our strategy  and
 could negatively affect our operations in future periods.


 RECENT ACCOUNTING PRONOUNCEMENTS

 In July 2001, Statement of Financial Accounting Standards ("SFAS") No.  141,
 "Business Combinations" and SFAS No.  142, "Goodwill and Intangible  Assets"
 were issued.  In October 2001,  SFAS No. 144 "Accounting for the  Impairment
 or Disposal of Long-Lived  Assets" was issued.   SFAS No. 141 requires  that
 all business combinations initiated  after June 30,  2001, be accounted  for
 using the  purchase method  of  accounting, and  prohibits  the use  of  the
 pooling-of-interests method  for  such  transactions.   SFAS  No.  141  also
 requires  identified  assets  acquired  in  a  business  combination  to  be
 recognized as an asset apart from goodwill if they meet certain criteria.

 SFAS No.  142  applies to  all  goodwill and  identified  intangible  assets
 acquired in a business  combination. Under the  new standard, all  goodwill,
 including that acquired before initial  application of the standard,  should
 not be amortized  but should  be tested  for impairment  at least  annually.
 Identified intangible assets should be amortized over their useful lives and
 reviewed for impairment in accordance with  SFAS No. 144. Within six  months
 of initial application of the new  standard, a transitional impairment  test
 must be  performed on  all goodwill.  Any impairment  loss recognized  as  a
 result of the transitional impairment test should be reported as a change in
 accounting principle. In addition to  the transitional impairment test,  the
 required annual impairment test should be performed in the year of  adoption
 of SFAS No. 142. SFAS No. 142 is effective for fiscal years beginning  after
 December 15, 2001, (although  early adoption would  be permitted in  certain
 circumstances) and must  be adopted as  of the beginning  of a fiscal  year.
 Retroactive application is not permitted. The  Company is in the process  of
 evaluating the  impact  that  adoption of  SFAS  No.  142 may  have  on  the
 financial statements;  however,  such  impact,  if  any,  is  not  known  or
 reasonably estimable at this time.

 SFAS No. 144 addresses financial accounting and reporting for the impairment
 or disposal of long-lived  assets.  While SFAS  No. 144 supersedes SFAS  No.
 121, "Accounting for the Impairment of Long-Lived Assets and for  Long-Lived
 Assets to Be Disposed Of", it retains many of the fundamental provisions  of
 that Statement.  SFAS No. 144  also supersedes the accounting and  reporting
 provisions of  APB Opinion  No. 30,  "Reporting the  Results of  Operations-
 Reporting  the  Effects  of  Disposal  of  a  Segment  of  a  Business,  and
 Extraordinary, Unusual and Infrequently Occurring Events and  Transactions",
 for the  disposal  of a  segment  of a  business.  However, it  retains  the
 requirement in Opinion 30 to  report separately 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.  SFAS  No. 144 is  effective for fiscal  years
 beginning after December 15,  2001 and interim  periods within those  fiscal
 years.  The Company is in the process of evaluating the impact that adoption
 of SFAS No. 144 may have on the financial statements; however, such  impact,
 if any, is not known or reasonably estimable at this time.

 SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

 The discussion of our results of  operations and financial condition  should
 be  read  in  conjunction  with  the  accompanying  consolidated   financial
 statements and the notes thereto included within this report. This Form 10-Q
 contains "forward-looking statements" within the  meaning of Section 27A  of
 the Securities Act of  1933, as amended, and  Section 21E of the  Securities
 Exchange  Act  of  1934,  as  amended.   Our  actual  results  could  differ
 materially from  those  contained  in  the  forward-looking  statements  and
 therefore, prospective investors are cautioned that any such forward-looking
 statements are not guarantees  of future performance  and involve risks  and
 uncertainties.  Actual events or results may differ from those discussed  in
 the forward-looking statements  as a result  of various factors,  including,
 without limitation, a reduction in research and development spending in  the
 pharmaceutical and  biotechnology  industries,  our ability  to  compete  in
 multiple areas of the drug development technology and services industry, the
 loss of  a  significant customer,  the  termination of  contracts  on  short
 notice, our ability to attract and  retain scientific personnel, the  impact
 of government regulations  on our service  offerings, our  ability to  raise
 additional capital  to  meet our  future  liquidity needs,  our  ability  to
 produce proprietary technology, to protect our intellectual property and  to
 license technologies from others.  We  refer you to the detailed  discussion
 of these and other risk factors  contained in our registration statement  on
 Form S-1, as declared effective on October 26, 2000.


 ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 Investment risk

 The primary objective of our investment activities is to preserve  principal
 while at the same time maximizing the income we receive from our  activities
 without 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 fair value of 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 prevailing  rate and the prevailing  rate later rises, the  fair
 value of the principal amount of  our investment will probably decline.   To
 minimize this risk  in the future,  we intend to  maintain our portfolio  of
 cash equivalents  and short-term  investments in  a variety  of  securities,
 including commercial paper,  government and  non-government debt  securities
 and money market  funds.  The  average duration of  all our investments  has
 generally been 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.

 Interest rate risk

 A portion of the mortgage loan has a  floating rate of LIBOR plus 225  basis
 points.   Accordingly,  any movement  in  LIBOR will  impact  the  Company's
 interest expense.   The outstanding  mortgage loan balance at September  30,
 2001 was $11.85 million.  Based on this balance, a hypothetical 10% increase
 in LIBOR  would  result  in  an  increase  in  annual  interest  expense  of
 approximately $36,600.  The Company has not historically used interest  rate
 swaps, caps or  other derivative financial  instruments for  the purpose  of
 hedging  fluctuations  in  interest  rates   on  its  floating  rate   debt.
 Consequently, an increase in interest rates could have an adverse effect  on
 the Company's future results.


 PART II. OTHER INFORMATION


 ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

      (a)  Exhibits.
           None

      (b)  Reports on Form 8-K.
           None

<PAGE>

                                  SIGNATURES


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



                         MEDICHEM LIFE SCIENCES, INC.


                    By:  /s/ R. Richard Wieland
                       ------------------------------
                              R. Richard Wieland
                         Executive Vice President and
                           Chief Financial Officer


                    By:  /s/ Michael J. Cogan
                       ------------------------------
                               Michael J. Cogan
                                Controller and
                           Chief Accounting Officer



 Date:  November 8, 2001