<PAGE>


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

                                    FORM 10-Q

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

                  FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000

                                       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 000-23541

                                  NANOGEN, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

                  DELAWARE                                   33-0489621
       (State or other jurisdiction of                    (I.R.S. Employer
       incorporation or organization)                    Identification No.)


       10398 PACIFIC CENTER COURT, SAN DIEGO, CA               92121
       (Address of principal executive offices)              (Zip code)


                                 (858) 410-4600
              (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 APRIL 17, 2000, 20,613,315 SHARES OF THE REGISTRANT'S COMMON STOCK WERE
OUTSTANDING.


<PAGE>


                                  NANOGEN, INC.
                                    FORM 10-Q
                                      INDEX

<TABLE>
<CAPTION>

                                                                                                   PAGE
                                                                                                   ----
<S>                                                                                                <C>
PART I.           FINANCIAL INFORMATION

Item 1.           Financial Statements:

                  Consolidated Balance Sheets at March 31, 2000
                    and December 31, 1999...........................................................3

                  Consolidated Statements of Operations for the Three
                    Months ended March 31, 2000 and 1999............................................4

                  Consolidated Statements of Cash Flows for the Three
                    Months ended March 31, 2000 and 1999............................................5

                  Notes to Consolidated Financial Statements........................................6

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

Item 3.           Quantitative and Qualitative Disclosures About Market Risk........................20


PART II:          OTHER INFORMATION

Item 6.           Exhibits and Reports on Form 8-K..................................................21

SIGNATURES..........................................................................................22

EXHIBIT INDEX.......................................................................................23

</TABLE>


                                                                               2
<PAGE>



                          PART I. FINANCIAL INFORMATION
                          ITEM 1. FINANCIAL STATEMENTS
                                  NANOGEN, INC.
                           CONSOLIDATED BALANCE SHEETS
                        (IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>

                                                                              MARCH 31,           DECEMBER 31,
                                                                                2000                 1999
                                                                          -----------------     ----------------
                                                                           (unaudited)
<S>                                                                       <C>                   <C>
                                 ASSETS
Current assets:
  Cash and cash equivalents                                               $   111,626           $   41,021
  Receivables and other current assets                                          2,178                2,320
                                                                          -----------------     ----------------
Total current assets                                                         113,804                43,341

Property and equipment, net                                                    5,977                 6,154
Acquired technology rights                                                       955                 1,005
Restricted cash                                                                  219                   219
Other assets                                                                      69                    66
                                                                          -----------------     ----------------
                                                                          $   121,024           $   50,785
                                                                          ==============        =============


                  LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Accounts payable                                                        $    1,138            $      598
  Accrued liabilities                                                          2,088                 3,726
  Deferred revenue                                                             1,511                 3,373
  Current portion of capital lease obligations                                 2,137                 2,136
                                                                          -----------------     ----------------
Total current liabilities                                                      6,874                 9,833

Capital lease obligations, less current portion                                2,526                 2,831

Stockholders' equity:
  Convertible preferred stock, $.001 par value, 5,000,000 shares authorized; no
    shares issued and outstanding at March 31, 2000
    and December 31, 1999                                                          -                     -

  Common stock, $.001 par value, 50,000,000 shares authorized; 20,610,342 and
    18,990,799 shares issued and outstanding
    at March 31, 2000 and December 31, 1999, respectively                         21                    19
  Additional paid-in capital                                                 190,123               113,574
  Deferred compensation                                                       (1,021)               (1,473)
  Notes receivable from officers                                              (1,191)               (1,369)
  Accumulated deficit                                                        (76,308)              (72,630)
                                                                          -----------------     ----------------
Total stockholders' equity                                                   111,624                38,121
                                                                          -----------------     ----------------
                                                                          $   121,024           $   50,785
                                                                          =================     ================

</TABLE>

                             See accompanying notes.


                                                                               3
<PAGE>


                                  NANOGEN, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>

                                                                                    THREE MONTHS ENDED MARCH 31,
                                                                                 -----------------------------------
                                                                                      2000               1999
                                                                                 ---------------    ----------------
<S>                                                                                 <C>                 <C>
Revenues:
  Sponsored research                                                                $  1,862            $  1,353
  Contract and grant revenue                                                             450                 577
                                                                                 ---------------    ----------------
Total revenues                                                                         2,312               1,930

Operating expenses:
  Research and development                                                             4,243               6,860
  General and administrative                                                           2,281               1,837
                                                                                 ---------------    ----------------
Total operating expenses                                                               6,524               8,697
                                                                                 ---------------    ----------------
Loss from operations                                                                  (4,212)             (6,767)

Interest income, net                                                                     534                 568
Equity in loss of joint venture                                                            -                (660)
                                                                                 ---------------    ----------------
Net loss                                                                            $ (3,678)          $  (6,859)
                                                                                 ===============    ================

Net loss per share -
  basic and diluted                                                                 $  (0.20)          $   (0.38)
                                                                                 ===============    ================

Number of shares used in computing
  net loss per share - basic and diluted                                              18,818              17,846
                                                                                 ===============    ================

</TABLE>

                             See accompanying notes.


                                                                               4
<PAGE>


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

<TABLE>
<CAPTION>

                                                                              THREE MONTHS ENDED MARCH 31,
                                                                          --------------------------------------
                                                                              2000                  1999
                                                                          --------------        -------------
<S>                                                                        <C>                    <C>
Cash flows from operating activities:
Net loss                                                                   $  (3,678)             $ (6,859)
Adjustments to reconcile net loss to net cash
  used in operating activities:
  Equity in loss of joint venture                                                  -                   660
  Depreciation and amortization                                                  504                   419
  Amortization of deferred compensation                                          314                   304
  Stock based compensation expense                                               138                     -
  Interest capitalized on notes receivables from officers                        (10)                  (12)
  Changes in operating assets and liabilities:
    Accounts payable                                                             540                   370
    Accrued liabilities                                                       (1,638)                   11
    Deferred revenue                                                          (1,862)                 (759)
    Receivables and other current assets                                         139                   (69)
                                                                          --------------        -------------
Net cash used in operating activities                                         (5,553)               (5,935)

Cash flows from investing activities:
Purchase of equipment                                                              -                   (30)
                                                                          --------------        -------------
Net cash used in investing activities                                              -                   (30)

Cash flows from financing activities:
Decrease in restricted cash                                                        -                    (3)
Principal payments on capital lease obligations                                 (581)                 (474)
Issuance of common stock, net of repurchases                                  76,575                    14
Note receivable payments from officers                                           164                     -
                                                                          --------------        -------------
Net cash provided by (used in) financing activities                           76,158                  (463)

Increase/(decrease) in cash and cash equivalents                              70,605                (6,428)
Cash and cash equivalents at beginning of period                              41,021                62,245
                                                                          --------------        -------------
Cash and cash equivalents at end of period                                $  111,626              $ 55,817
                                                                          ==============        =============


Supplemental disclosure of cash flow information:
    Interest paid                                                         $      120            $      150
                                                                          ==============        =============

Supplemental schedule of noncash investing and financing activities:
    Equipment acquired under capital leases                               $      277            $      395
                                                                          ==============        =============

</TABLE>

                             See accompanying notes.


                                                                               5
<PAGE>


                                  NANOGEN, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
                                 MARCH 31, 2000


1.  BASIS OF PRESENTATION

    The accompanying unaudited consolidated financial statements have been
    prepared in accordance with generally accepted accounting principles for
    interim financial information and with the instructions to Form 10-Q and
    Article 10 of Regulation S-X. Accordingly, they do not include all of the
    information and footnotes required by generally accepted accounting
    principles for complete financial statements. The consolidated balance sheet
    as of March 31, 2000, consolidated statements of operations for the three
    months ended March 31, 2000 and 1999, and the consolidated statements of
    cash flows for the three months ended March 31, 2000 and 1999 are unaudited,
    but include all adjustments (consisting of normal recurring adjustments)
    which the Company considers necessary for a fair presentation of the
    financial position, results of operations and cash flows for the periods
    presented. The results of operations for the three months ended March 31,
    2000 shown herein are not necessarily indicative of the results that may be
    expected for the year ended December 31, 2000.

    For more complete financial information, these financial statements, and
    notes thereto, should be read in conjunction with the audited consolidated
    financial statements for the year ended December 31, 1999 included in the
    Nanogen, Inc. Form 10-K filed with the Securities and Exchange Commission.

    NET LOSS PER SHARE

    The Company computes net income per share in accordance with SFAS No. 128,
    "Earnings per Share." Under the provisions of SFAS No. 128, basic net income
    per share is computed by dividing the net income(loss) available to common
    stockholders for the period by the weighted average number of common shares
    outstanding during the period. Diluted net income(loss) per share is
    computed by dividing the net income(loss) for the period by the weighted
    average number of common shares outstanding during the period and dilutive
    potential common shares outstanding. Weighted average common shares
    outstanding during the period does not include shares issued pursuant to the
    exercise of stock options prior to vesting. Due to the losses incurred by
    the Company during the three months ended March 31, 2000 and 1999, common
    stock equivalents resulting from the assumed exercise of outstanding stock
    options and warrants have been excluded from the computation of diluted net
    loss per share as their effect would be anti-dilutive.

    SECONDARY PUBLIC OFFERING

    In March 2000, the Company completed a secondary public offering of
    1,500,000 shares of common stock, providing the Company with net proceeds of
    $76.5 million.

2.  ACCRUED LIABILITIES

    Accrued liabilities are comprised of the following (in thousands):

<TABLE>
<CAPTION>

                                                March 31,           December 31,
                                                   2000                 1999
                                              -----------------    -----------------
<S>                                           <C>                  <C>
Accrued compensation and benefits             $         707        $        2,034
Accrued product development costs                       423                   944
Other                                                   958                   748
                                              -----------------    -----------------
                                              $       2,088        $        3,726
                                              =================    =================

</TABLE>


                                                                               6
<PAGE>


                                  NANOGEN, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
                                 MARCH 31, 2000


3.   COLLABORATIVE ALLIANCES

     AVENTIS RESEARCH AND TECHNOLOGIES

     In December 1997, the Company entered into an agreement with Aventis
     Research and Technologies, an affiliate of Hoechst AG ("Aventis"), for,
     among other things, an exclusive research and development collaboration
     relating to the development of molecular recognition arrays. In December
     1998, the Company entered into a Collaborative Research and Development
     Agreement which, among other things, extended the guaranteed term of the
     research program from two to three years. As a result of the signing of
     this agreement, the Company agreed to issue to Aventis a warrant to
     purchase 120,238 shares of common stock exercisable through March 2004 at
     an exercise price of $8.75 per share. The Company has also agreed to issue
     to Aventis, upon the achievement of certain milestones, warrants to
     purchase up to approximately 360,000 additional shares of common stock at a
     50 percent premium to the market price on the date the milestone is
     achieved. These warrants will have five-year maximum terms.

     In September 1999, the Company announced that two new technology
     development programs would be added to the current program with Aventis and
     would focus on the development of gene expression tools utilizing
     electronic bioarrays and the development of high throughput screening tools
     for kinase analyses. In total, the two new programs will provide a maximum
     of $12.0 million in additional funding to the Company through December 31,
     2001, including an up-front initiation fee of $2.0 million which was
     received in the fourth quarter of 1999 and accounted for as deferred
     revenue.

     Revenue is primarily recognized under these agreements as expenses are
     incurred, and totaled $1.9 million and $667,000 for the quarters ended
     March 31, 2000 and 1999, respectively. Funding received in advance of
     incurred expenses is recorded as deferred revenue until the expenses are
     incurred, and totaled $1.5 million and $3.4 million at March 31, 2000 and
     December 31, 1999, respectively.

     BECTON, DICKINSON AND COMPANY

     The Company entered into a Master Agreement with Becton, Dickinson and
     Company ("Becton Dickinson") in October 1997 to develop and commercialize
     products in the field of IN VITRO nucleic acid-based diagnostic and
     monitoring technologies in the field of infectious diseases. Pursuant to
     this Master Agreement, Becton Dickinson and the Company agreed to form The
     Nanogen/Becton Dickinson Partnership (the "Partnership"). Pursuant to a
     General Partnership Agreement, Becton Dickinson and the Company contributed
     to the Partnership their respective rights under a Collaborative Research
     and Development Agreement established in May 1997, certain Intellectual
     Property Licenses and cash in the amount of approximately $8.6 million
     through December 31, 1999, of which approximately $7.0 million was paid by
     Becton Dickinson and approximately $1.6 million was paid by the Company.
     The amounts paid or due to the Partnership by the Company have been
     recorded as the Company 's share of the joint venture's loss in the period
     paid or accrued, and totaled $660,000 for the period ended March 31, 1999.
     The partners are considering modifications to the joint venture to take
     advantage of potential third party opportunities on technology developed to
     date. The partners are also considering field changes which would allow the
     joint venture access to additional technologies or content in areas more
     strategically aligned with business opportunities. Further joint venture
     funding will be determined based upon a final decision regarding such
     modifications and field changes. The Company has received no research
     funding from Becton Dickinson since the third quarter of 1999, and it is
     uncertain whether the Company will receive any additional funding from
     Becton Dickinson. Concurrently with the execution of the joint venture
     agreement, the Company entered into a worldwide, royalty-bearing,
     nonexclusive license agreement with Becton Dickinson, relating to Becton
     Dickinson's proprietary SDA technology for use by us outside the
     Partnership in the fields of IN VITRO human genetic testing and IN VITRO
     cancer diagnostics.


                                                                               7
<PAGE>


                                  NANOGEN, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
                                 MARCH 31, 2000


3.   COLLABORATIVE ALLIANCES (CONTINUED)

     Revenue is recognized under the agreements as expenses are incurred, and
     totaled $527,000 for the quarter ended March 31, 1999. No revenue was
     recognized under the agreements during the quarter ended March 31, 2000.

     ELAN CORPORATION, PLC

     In December 1997, the Company entered into an agreement with Elan
     Corporation, plc ("Elan") for a non-exclusive research and development
     agreement for the development of genomics and gene expression research
     tools. The Company and Elan have not yet agreed upon specific program
     objectives with respect to the nonexclusive research and development
     program. The Company is uncertain as to whether the Company will receive
     any additional funding from Elan.

     Revenue is recognized under the agreement as expenses are incurred, and
     totaled $159,000 for the quarter ended March 31, 1999. No revenue was
     recognized under the agreement during the quarter ended March 31, 2000.

     HITACHI, LTD.

     In January 2000, the Company executed an agreement with Hitachi, Ltd.
     ("Hitachi"), effective as of December 15, 1999, for the full-scale
     commercial manufacturing and distribution of the NanoChip-TM- molecular
     biology workstation in specified research markets. Hitachi's Instrument
     Group will provide technology and technical support to aid in the
     manufacturing scale up of the NanoChip-TM- molecular biology workstation's
     components.

     Hitachi will have the right to be the sole distributor of Hitachi-produced
     NanoChip-TM- molecular biology workstation instruments in Japan. Hitachi
     will also have the non-exclusive right to distribute NanoChip-TM-
     cartridges in Japan. The Company retains the right to distribute, directly
     or through others, Hitachi produced NanoChip-TM- molecular biology
     workstations outside of Japan. In addition, the Company will develop and
     manufacture the NanoChip-TM- cartridges for distribution worldwide. The
     agreement is non-exclusive and excludes certain clinical markets, and the
     Company continues to have the right to form other manufacturing and
     distribution agreements for all markets and for all non-Hitachi produced
     products. No revenue was recognized under the agreement during the quarter
     ended March 31, 2000.

4.   SUBSEQUENT EVENT

     On April 28, 2000, the Company filed a complaint for declaratory judgment
     against Motorola, Inc. ("Motorola"), Beckman Coulter, Inc. ("Beckman") and
     Massachusetts Institute of Technology "(MIT"). The action was filed in the
     United States District Court for the Southern District of California. Prior
     to the filing of the complaint, the parties had been involved in licensing
     discussions concerning U.S. Patent No. 5,693,939 entitled "Optical and
     Electrical Methods and Apparatus For Molecule Detection" (the "'939
     patent") which was licensed by MIT to Beckman in 1993 and to Genometrix,
     Inc. ("Genometrix") in 1994. Genometrix subsequently granted its
     sublicensing rights to Motorola in 1999. The inventions claimed in the `939
     patent were made with United States government funding through a grant from
     the Department of the Air Force. The complaint seeks, among other things, a
     declaration that the Company is entitled to a license to the government
     funded `939 patent and, in the event the Company proceeds to take a
     license, that it is not required to obtain a license from both Motorola and
     Beckman. Alternatively, the complaint seeks a declaratory judgment that the
     claims of the `939 patent are invalid and not infringed by the Company. No
     assurance can be made that a license to the `939 patent will be available
     on commercially acceptable terms, or at all, or that the Company will
     prevail in the lawsuit. In addition, one or more of the parties may file
     answers to the complaint, assert defenses and/or file counterclaims seeking
     monetary damages and/or injunctive relief. The Company may have to expend
     considerable financial resources and


                                                                               8
<PAGE>


                                  NANOGEN, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
                                 MARCH 31, 2000


4.   SUBSEQUENT EVENT (CONTINUED)

     managerial efforts prosecuting the lawsuit and defending against such
     claims and we can make no assurance that the Company would prevail in any
     such action which could have a material adverse effect on the Company.



                                                                               9
<PAGE>


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

    This report includes forward-looking statements about our business and
results of operations that are subject to risks and uncertainties that could
cause our actual results to vary materially from those reflected in the
forward-looking statements. Words such as "believes," "anticipates," "plans,"
"estimates," "future," "could," "may," "should," "expect," "envision,"
"potentially," variations of such words and similar expressions are intended to
identify such forward-looking statements. Factors that could cause or contribute
to these differences include those discussed below under the caption "Factors
that May Affect Results" and elsewhere in this Form 10-Q. Readers are cautioned
not to place undue reliance on these forward-looking statements, which speak
only as of the date hereof. We disclaim any intent or obligation to update these
forward-looking statements.

OVERVIEW

    We integrate advanced microelectronics and molecular biology into a core
technology platform with broad and diverse commercial applications in the fields
of genomics, biomedical research, medical diagnostics, drug discovery,
forensics, agriculture, environmental testing and potentially the electronics
and telecommunications industries. The first application we have developed is an
integrated bioassay system, the NanoChip-TM- molecular biology workstation,
comprised of two automated instruments and a consumable cartridge. The
NanoChip-TM- cartridge, which incorporates a proprietary microchip, provides a
flexible tool for the rapid identification and precision analysis of biological
test samples containing charged molecules.

    Since commencing operations in 1993, we have applied substantially all of
our resources to our research and development programs. We have incurred losses
since inception and, as of March 31, 2000, had an accumulated deficit of $76.3
million. We expect to incur significant losses over at least the next several
years as we expand our research and product development efforts and attempt to
commercialize our products.

    We plan to introduce our first product into the marketplace in the second
half of 2000. We anticipate our main sources of revenues during at least 2000
will be payments under our sponsored research agreements, contracts and grants.
We believe our future operating results may be subject to quarterly fluctuations
due to a variety of factors, including the achievement of milestones under our
collaborative agreements, whether and when new products are successfully
developed and introduced by us or our competitors, and market acceptance of
products under development. Payments under contracts, grants and sponsored
research agreements will be subject to significant fluctuations in both timing
and amount and therefore our results of operations for any period may not be
comparable to the results of operations for any other period.

RESULTS OF OPERATIONS

    REVENUES. For the three months ended March 31, 2000 and 1999, revenue
from sponsored research totaled $1.9 million and $1.4 million, respectively.
Revenues are primarily recorded under these arrangements as expenses are
incurred. Payments received in advance under these arrangements are recorded
as deferred revenue until the expenses are incurred. Sponsored research
revenue recognized during the three months ended March 31, 2000, was earned
in connection with our three technology development programs under our
research and development agreements entered into in December 1998 and
September 1999 with Aventis. Sponsored research revenue recognized during the
three months ended March 31, 1999, was earned in connection with our research
and development agreement with Aventis entered into in December 1998, our
joint venture collaboration with Becton Dickinson, and our nonexclusive
research and development agreement with Elan. We and Becton Dickinson are
considering modifications to the joint venture to take advantage of potential
third party opportunities on technology developed to date, as well as field
changes which would allow the joint venture access to additional technologies
or content in areas more strategically aligned with business opportunities.
Further joint venture funding will be determined based upon a final decision
regarding such modifications and field changes. We have received no research
funding from Becton Dickinson since the third quarter of 1999, and it is
uncertain whether we will receive any additional funding from Becton
Dickinson. We and Elan have not yet agreed upon specific program objectives
with respect to the nonexclusive research and development program, and are
uncertain as to whether we will receive any additional funding from Elan.

    We fund some of our research and development efforts through contracts and
grants awarded by various federal and state agencies. Revenues are recognized
under these contracts and grants as expenses are incurred.


                                                                              10
<PAGE>


    Continuation of sponsored research agreements, contracts and grants is
dependent upon us achieving specific contractual milestones. The recognition of
revenue under sponsored research agreements, contracts and grants may vary from
quarter to quarter and may result in significant fluctuations in operating
results from year to year.

    RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses were
$4.2 million for the three months ended March 31, 2000 compared to $6.9 million
for the same period in 1999. During this period, research and development
expenses include salaries for scientific, engineering and operations personnel,
product design and prototype development costs, lab supplies, consulting,
travel, facilities, and other expenditures associated with our current research
and product development activities. The decrease in research and development
expenses resulted from the different development stages of our initial product
from quarter to quarter. During the first quarter of 1999, the product was in an
advanced stage of prototype design and development. During this stage, we
incurred significant expenditures both internally and with outside vendors
related to engineering prototypes, as well as other costs associated with
testing and refining the product. In comparison, during the first quarter of
2000, many costs associated with the instrument were absorbed by our
manufacturing partner. In addition, research and development expenses during the
first quarter of 1999 included costs associated with the support of sponsored
research programs with Becton Dickinson and Elan. Research and development
spending may increase over the next several years as our research and product
development efforts continue.

    GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
totaled $2.3 and $1.8 million for the three months ended March 31, 2000 and
1999, respectively. This increase was primarily due to reclassifications of
certain personnel as well as increased legal costs associated with enhancing and
maintaining our intellectual property portfolio. General and administrative
expenses include deferred compensation expense which represents the excess of
the fair value for financial statement presentation purposes over the exercise
price for common stock issuable on exercise of stock options. General and
administrative expenses are expected to continue to increase as we continue to
expand our sales and marketing and general and administrative organizations and
as we continue to enhance our intellectual property portfolio.

    INTEREST INCOME, NET. Net interest income was $534,000 and $568,000 for the
three months ended March 31, 2000 and 1999, respectively. The decrease in net
interest income can be attributed to the lower average cash balances available
during the first quarter of 2000 compared to the same period in 1999 as a result
of cash used for operations. Interest expense paid on capital leases was
consistent when comparing the first quarter of 2000 to the same period in 1999.

    EQUITY IN LOSS OF JOINT VENTURE. We recognized a loss of $660,000 during the
three months ended March 31, 1999 from the joint venture with Becton Dickinson,
based on the loss allocation described in the Partnership Agreement stating that
losses will be allocated in proportion to and not to exceed required cash
contributions. There was no loss recognized during the first quarter of 2000, as
the sponsored research program with Becton Dickinson is currently being modified
and no joint venture funding occurred during the quarter ended March 31, 2000.

LIQUIDITY AND CAPITAL RESOURCES

    At March 31, 2000, we had $111.6 million in cash and cash equivalents,
compared to $41.0 million at December 31, 1999. This increase is primarily due
to the completion of our secondary public offering of common stock in March 2000
generating net proceeds of $76.5 million, offset by net cash used in operations
during the quarter ended March 31, 2000.

    Net cash used in operating activities was $5.6 and $5.9 million for the
three months ended March 31, 2000 and 1999, respectively. Cash used for
operations was primarily related to costs associated with entering the
commercialization stage of our initial product, supporting our continued
research and development efforts, and legal fees relating to establishing and
maintaining our intellectual property portfolio.

    We fund most of our equipment acquisitions and leasehold improvements
through capital leasing facilities. During the first three months of 2000, we
received proceeds from equipment financing of $277,000, compared to $395,000 of
proceeds received during the same period in 1999. We anticipate that we will
continue to use capital equipment leasing or debt facilities to fund most of our
equipment acquisitions and leasehold improvements.


                                                                              11
<PAGE>


    We expect that our existing capital resources, combined with anticipated
revenues from potential product sales, sponsored research agreements, contracts
and grants will be sufficient to support our planned operations through at least
the next two years. This estimate of the period for which we expect our
available sources of liquidity to be sufficient to meet our capital requirements
is a forward-looking statement that involves risks and uncertainties, and actual
results may differ materially. Our future liquidity and capital funding
requirements will depend on numerous factors including, but not limited to, the
extent to which our products under development are successfully developed and
gain market acceptance, the timing of regulatory actions regarding our potential
products, the costs and timing of expansion of sales, marketing and
manufacturing activities, prosecution and enforcement of patents important to
our business and any litigation related thereto, the results of clinical trials,
competitive developments, and our ability to maintain existing collaborations
and to enter into additional collaborative arrangements. We have incurred
negative cash flow from operations since inception and do not expect to generate
positive cash flow to fund our operations for at least the next several years.
We may need to raise additional capital to fund our research and development
programs, to scale up manufacturing activities and expand our sales and
marketing efforts to support the commercialization of our products under
development. Additional capital may not be available on terms acceptable to us,
or at all. If adequate funds are not available, we may be required to curtail
our operations significantly or to obtain funds through entering into
collaborative agreements or other arrangements on unfavorable terms. Our failure
to raise capital on acceptable terms when needed could have a material adverse
effect on our business, financial condition or results of operations.

FACTORS THAT MAY AFFECT RESULTS

OUR PRODUCTS MAY NOT BE SUCCESSFULLY DEVELOPED, WHICH WOULD HARM US AND FORCE US
TO CURTAIL OR CEASE OPERATIONS.

    We are at an early stage of development. All of our products are under
development. We have not sold any products and do not expect to sell any
products until at the earliest the last half of 2000. Our products may not be
successfully developed or commercialized on a timely basis, or at all. If we are
unable, for technological or other reasons, to complete the development,
introduction or scale-up of manufacturing of our new products, or if our
products do not achieve a significant level of market acceptance, we would be
forced to curtail or cease operations.

    Our success will depend upon our ability to overcome significant
technological challenges and successfully introduce our products into the
marketplace. A number of applications envisioned by us need significant
enhancements to our basic technology platform.

LACK OF MARKET ACCEPTANCE OF OUR TECHNOLOGY WOULD HARM US.

    We may not be able to develop commercially viable products. Even if we
develop a product it may not be accepted in the marketplace. If we are unable to
achieve market acceptance, we will not be able to generate sufficient product
revenue to become profitable. Market acceptance will depend on many factors,
including our ability to:

-        convince prospective strategic partners and customers that our
         technology is an attractive alternative to other technologies;

-        manufacture products in sufficient quantities with acceptable quality
         and at an acceptable cost; and

-        place and service sufficient quantities of our products.

    In addition, our technology platform could be harmed by limited funding
available for product and technology acquisitions by our customers, as well as
internal obstacles to customer approvals of purchases of our products.

COMMERCIALIZATION OF SOME OF OUR POTENTIAL PRODUCTS DEPENDS ON COLLABORATIONS
WITH OTHERS. IF OUR COLLABORATORS ARE NOT SUCCESSFUL OR IF WE ARE UNABLE TO FIND
COLLABORATORS IN THE FUTURE, WE MAY NOT BE ABLE TO DEVELOP THESE PRODUCTS.


                                                                              12
<PAGE>


    Our strategy for the research, development and commercialization of some of
our products requires us to enter into contractual arrangements with corporate
collaborators, licensors, licensees and others. Our success depends in part upon
the performance by these collaborators of their responsibilities under these
arrangements. Some collaborators may not perform their obligations as we expect
or we may not derive any revenue from these arrangements.

    We have collaborative agreements with several health care companies. We do
not know whether these companies will successfully develop and market any
products under our respective agreements. Moreover, some of our collaborators
are also researching competing technologies targeted by our collaborative
programs. We may be unsuccessful in entering into other collaborative
arrangements to develop and commercialize our products. In addition, disputes
may arise over ownership rights to intellectual property, know-how or
technologies developed with our collaborators.

    We currently have agreements with Aventis, Becton Dickinson and Elan that
contemplate the commercialization of products resulting from research and
development collaboration agreements between the parties. In addition, we have a
manufacturing and distribution agreement with Hitachi. These collaborations may
not be successful. We have received no funding under our collaboration with
Becton Dickinson since the third quarter 1999 and we may never receive any
additional funds from Becton Dickinson. We have not yet agreed upon specific
program objectives with respect to our research and development agreement with
Elan, and we may never receive any additional funds from Elan.

WE HAVE A HISTORY OF NET LOSSES. WE EXPECT TO CONTINUE TO INCUR NET LOSSES AND
WE MAY NOT ACHIEVE OR MAINTAIN PROFITABILITY.

    We have not sold any products and do not expect to sell any products until
at the earliest the last half of 2000. From our inception to March 31, 2000, we
have incurred cumulative net losses totaling approximately $76.3 million.
Moreover, our negative cash flow and losses from operations will continue and
increase for the foreseeable future. We may never generate sufficient product
revenue to become profitable. We also expect to have quarter-to-quarter
fluctuations in revenues, expenses and losses, some of which could be
significant.

    To develop and sell our products successfully, we will need to increase our
spending levels in research and development, as well as in selling, marketing
and administration. We will have to incur these increased spending levels before
knowing whether our products can be sold successfully.

WE MAY NEED ADDITIONAL CAPITAL IN THE FUTURE. IF ADDITIONAL CAPITAL IS NOT
AVAILABLE, WE MAY HAVE TO CURTAIL OR CEASE OPERATIONS.

    We may need to raise more money to continue the research and development
necessary to bring our products to market and to establish manufacturing and
marketing capabilities. We may seek additional funds through public and private
stock offerings, arrangements with corporate partners, borrowings under lease
lines of credit or other sources. If we cannot raise more money we will have to
reduce our capital expenditures, scale back our development of new products,
reduce our workforce and license to others products or technologies that we
otherwise would seek to commercialize ourselves. The amount of money we will
need will depend on many factors, including among others:

-        the progress of our research and development programs;

-        the commercial arrangements we may establish;

-        the time and costs involved in:

         -        scaling up our manufacturing capabilities;

         -        obtaining necessary regulatory approvals; and

         -        filing, prosecuting, defending and enforcing patent claims and
                  litigation; and


                                                                              13
<PAGE>


-        the scope and results of our future preclinical studies and clinical
         trials, if any.

    Additional capital may not be available on terms acceptable to us, or at
all. Any additional equity financing may be dilutive to stockholders, and debt
financing, if available, may include restrictive covenants.

COMPETING TECHNOLOGIES MAY ADVERSELY AFFECT US.

    We expect to encounter intense competition from a number of companies that
offer products in our targeted application areas. We anticipate that our
competitors in these areas will include:

-        health care companies that manufacture laboratory-based tests and
         analyzers;

-        diagnostic and pharmaceutical companies; and

-        companies developing drug discovery technologies.

    If we are successful in developing products in these areas, we will face
competition from established companies and numerous development-stage companies
that continually enter these markets.

    In many instances, our competitors have substantially greater financial,
technical, research and other resources and larger, more established marketing,
sales, distribution and service organizations than us. Moreover, these
competitors may offer broader product lines and have greater name recognition
than us and may offer discounts as a competitive tactic.

    In addition, several development-stage companies are currently making or
developing products that compete with or will compete with our potential
products. Our competitors may succeed in developing, obtaining FDA approval or
marketing technologies or products that are more effective or commercially
attractive than our potential products, or that render our technologies and
potential products obsolete. As these companies develop their technologies, they
may develop proprietary positions which may prevent us from successfully
commercializing products.

    Also, we may not have the financial resources, technical expertise or
marketing, distribution or support capabilities to compete successfully in the
future.

THE UNCERTAINTY OF PATENT AND PROPRIETARY TECHNOLOGY PROTECTION MAY ADVERSELY
AFFECT US.

    Our success will depend in part on obtaining and maintaining meaningful
patent protection on our inventions, technologies and discoveries. Our ability
to compete effectively will depend on our ability to develop and maintain
proprietary aspects of our technology, and to operate without infringing the
proprietary rights of others, or to obtain rights to third-party proprietary
rights, if necessary. Our pending patent applications may not result in the
issuance of patents. Our patent applications may not have priority over others'
applications, and even if issued, our patents may not offer protection against
competitors with similar technologies. Any patents issued to us may be
challenged, invalidated or circumvented and the rights created thereunder may
not afford us a competitive advantage.

    We also rely upon trade secrets, technical know-how and continuing
inventions to develop and maintain our competitive position. Others may
independently develop substantially equivalent proprietary information and
techniques or otherwise gain access to our trade secrets or disclose our
technology and we may not be able to meaningfully protect our trade secrets, or
be capable of protecting our rights to our trade secrets. We seek to protect our
technology and patents, in part, by confidentiality agreements with our
employees and contractors. Our employees may breach their existing Proprietary
Information, Inventions, and Dispute Resolution Agreements and these agreements
may not protect our intellectual property. This could have a material adverse
effect on us.

OUR PRODUCTS COULD INFRINGE ON THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS, WHICH
MAY SUBJECT US TO FUTURE LITIGATION AND CAUSE US TO BE UNABLE TO LICENSE
TECHNOLOGY FROM THIRD PARTIES.


                                                                              14
<PAGE>


    Our commercial success also depends in part on us neither infringing valid,
enforceable patents or proprietary rights of third parties, nor breaching any
licenses that may relate to our technologies and products. Besides the '939
patent described below, we are aware of other third-party patents that may
relate to our technology. It is possible that we may unintentionally infringe
these patents or other patents or proprietary rights of third parties. We may in
the future receive notices claiming infringement from third parties as well as
invitations to take licenses under third-party patents. Any legal action against
us or our collaborative partners claiming damages and seeking to enjoin
commercial activities relating to our products and processes affected by
third-party rights may require us or our collaborative partners to obtain
licenses in order to continue to manufacture or market the affected products and
processes. In addition, these actions may subject us to potential liability for
damages. We or our collaborative partners may not prevail in an action and any
license required under a patent may not be made available on commercially
acceptable terms, or at all.

    There are many U.S. and foreign patents and patent applications held by
third parties in our areas of interest, and we believe that, besides our
litigation with Motorola, Beckman and MIT described below, there may be
significant other litigation in the industry regarding patent and other
intellectual property rights. Additional litigation could result in substantial
costs and the diversion of management's efforts regardless of the result of the
litigation. Additionally, the defense and prosecution of interference
proceedings before the U.S. Patent and Trademark Office, or USPTO, and related
administrative proceedings would result in substantial expense to us and
significant diversion of effort by our technical and management personnel. We
may in the future become subject to USPTO interference proceedings to determine
the priority of inventions. In addition, laws of some foreign countries do not
protect intellectual property to the same extent as do laws in the U.S., which
may subject us to additional difficulties in protecting our intellectual
property in those countries.

    We are aware of U.S. and corresponding foreign patents and applications
which are assigned to Affymax Technologies, N.V., and Affymetrix, Inc. which
relate to certain devices having 1,000 or more groups of oligonucleotides
occupying a total area of less than 1 cm(2) and 400 different
oligonucleotides per cm(2) on a substrate. In the event that we proceed with
the development of arrays with more than 400 groups of oligonucleotides, we
expect to design our devices through, among other things, the selection of
the physical dimensions, methods of binding and selection of support
materials to avoid infringing these patents. We may not be able to design
around these patents. We are aware of U.S. and European patents and patent
applications owned by Isis Innovations Ltd. or Isis Innovations (E. M.
Southern). We have opposed one allowed European patent which had broad claims
to array technology for analyzing a predetermined polynucleotide sequence.
Isis Innovations' position with respect to the opposed patent is that the
claims relate to what it terms the "diagnostic mode." Those claims have now
all been narrowed to the point that if the claims are accepted by the
European Patent Office, they would not be infringed by our technology. On May
5, 1998, the Opposition Division of the European Patent Office issued a
provisional nonbinding opinion that the claims should be revoked. If the
claims of the original European patent survive the opposition or if an
application relating to arrays issues in another country with claims as broad
as the original European patent, we would be subject to infringement claims
that could delay or preclude sales of some or all of our anticipated
diagnostic products.

WE ARE INVOLVED IN INTELLECTUAL PROPERTY LITIGATION THAT MAY BE COSTLY,
TIME-CONSUMING AND MAY IMPACT OUR COMPETITIVE POSITION.

    On April 28, 2000, we filed a complaint for declaratory judgment against
Motorola, Inc. or Motorola, Beckman Coulter, Inc. or Beckman and Massachusetts
Institute of Technology or MIT. The action was filed in the United States
District Court for the Southern District of California. Prior to the filing of
the complaint, the parties had been involved in licensing discussions concerning
U.S. Patent No. 5,693,939 entitled "Optical and Electrical Methods and Apparatus
For Molecule Detection" (the "'939 patent") which was licensed by MIT to Beckman
in 1993 and to Genometrix, Inc. or Genometrix in 1994. Genometrix subsequently
granted its sublicensing rights to Motorola in 1999. The inventions claimed in
the `939 patent were made with United States government funding through a grant
from the Department of the Air Force. The complaint seeks, among other things, a
declaration that we are entitled to a license to the government funded '939
patent and, in the event we proceed to take a license, that we are not required
to obtain a license from both Motorola and Beckman. Alternatively, the complaint
seeks a declaratory judgment that the claims of the '939 patent are invalid and
not infringed by us. No assurance can be made that a license to the '939 patent
will be available on commercially acceptable terms, or at all, or that we will
prevail in the lawsuit. In addition, one or more of the parties may file answers
to the complaint, assert defenses and/or file counterclaims seeking monetary
damages


                                                                              15
<PAGE>


and/or injunctive relief. We may have to expend considerable financial resources
and managerial efforts prosecuting the lawsuit and defending against such claims
and we can make no assurance that we would prevail in any such action which
could have a material adverse effect on us.

THE REGULATORY APPROVAL PROCESS IS EXPENSIVE, TIME CONSUMING, UNCERTAIN AND MAY
PREVENT US FROM OBTAINING REQUIRED APPROVALS FOR THE COMMERCIALIZATION OF OUR
PRODUCTS.

    We anticipate that the manufacturing, labeling, distribution and marketing
of a number of any diagnostic products will be subject to regulation in the U.S.
and other countries. These regulations could subject us to several problems such
as:

-        failure to obtain necessary regulatory approvals or clearances for our
         products on a timely basis, or at all;

-        delays in receipt of or failure to receive approvals or clearances;

-        the loss of previously received approvals or clearances;

-        limitations on intended uses imposed as a condition of approvals or
         clearances; or

-        failure to comply with existing or future regulatory requirements.

    In the U.S., the Food and Drug Administration, or FDA, regulates as medical
devices most diagnostic tests and IN VITRO reagents that are marketed as
finished test kits and equipment. Pursuant to the Federal Food, Drug, and
Cosmetic Act, the FDA regulates the preclinical and clinical testing, design,
efficacy, safety, manufacture, labeling, distribution and promotion of medical
devices. We will not be able to commence marketing or commercial sales in the
U.S. of these products until we receive clearance or approval from the FDA,
which can be a lengthy, expensive and uncertain process. We have not applied for
FDA or other regulatory approvals with respect to any of our products under
development. We may experience difficulties that could delay or prevent the
successful development, introduction and marketing of proposed products.
Regulatory clearance or approval or clearance of any proposed products may not
be granted by the FDA or foreign regulatory authorities on a timely basis, if at
all.

    Noncompliance with applicable FDA requirements can result in:

-        administrative sanctions or judicially imposed sanctions such as
         injunctions;

-        civil penalties, recall or seizure of products;

-        total or partial suspension of production, failure of the government to
         grant premarket clearance or premarket approval for devices;

-        withdrawal of marketing clearances or approvals; and

-        criminal prosecution.

    The FDA also has the authority to request the recall, repair, replacement or
refund of the cost of any regulated device manufactured or distributed by us.
Any devices manufactured or distributed by us pursuant to FDA clearance or
approvals are subject to thorough and continuing regulation by the FDA and
certain state agencies.

WE DEPEND ON SUPPLIERS FOR MATERIALS WHICH COULD IMPAIR OUR ABILITY TO
MANUFACTURE OUR PRODUCTS.

    Outside vendors provide key components and raw materials used by us and
Hitachi in the manufacture of our products. Although we believe that alternative
sources for these components and raw materials are available, any supply
interruption in a limited or sole source component or raw material would harm
our and Hitachi's ability to manufacture our products until a new source of
supply is identified and qualified. In addition, an uncorrected defect or
supplier's variation in a component or raw material, either unknown to us or
Hitachi or incompatible with our or Hitachi's manufacturing processes, could
harm our or Hitachi's ability to manufacture products. We or Hitachi may


                                                                              16
<PAGE>


not be able to find a sufficient alternative supplier in a reasonable time
period, or on commercially reasonable terms, if at all. If we or Hitachi fail to
obtain a supplier for the manufacture of components of our potential products,
we may be forced to curtail or cease operations.

WE MAY NOT BE ABLE TO MANUFACTURE PRODUCTS ON A COMMERCIAL SCALE.

    We rely on subcontractors to manufacture the limited quantities of
microchips and other components we require for internal and collaborative
purposes, as well as for use in prototype products.

    Manufacturing, supply and quality control problems may arise as we or
Hitachi either alone, together or with subcontractors, attempt to scale up
manufacturing procedures. We or Hitachi may not be able to scale-up in a timely
manner or at a commercially reasonable cost. Problems could lead to delays or
pose a threat to the ultimate commercialization of our products and cause us to
fail.

    We or Hitachi or any of our contract manufacturers could encounter
manufacturing difficulties, including:

-        the ability to scale up manufacturing capacity;

-        production yields;

-        quality control and assurance; or

-        shortages of components or qualified personnel.

    Our manufacturing facilities and those of Hitachi and any other of our
contract manufacturers are or will be subject to periodic regulatory inspections
by the FDA and other federal, state and international regulatory agencies and
these facilities are subject to Quality System Regulation, or QSR, requirements
of the FDA. If we, Hitachi or our third-party manufacturers fail to maintain
facilities in accordance with QSR regulations, other international quality
standards or other regulatory requirements then the manufacture process could be
suspended or terminated which would harm us.

WE HAVE LITTLE MARKETING OR SALES EXPERIENCE, AND IF WE ARE UNABLE TO DEVELOP
OUR OWN SALES AND MARKETING CAPABILITY, WE MAY NOT BE SUCCESSFUL IN
COMMERCIALIZING OUR PRODUCTS.

    In order to market and sell our proprietary products, we will need to
develop a sales force and a marketing group with relevant experience, or make
appropriate arrangements with strategic partners to market and sell these
products. Developing a marketing and sales force is expensive and time consuming
and could delay any product launch. Our inability to successfully employ
qualified marketing and sales personnel and develop our sales and marketing
capabilities will harm our business.

IF WE FAIL TO MANAGE OUR GROWTH, OUR BUSINESS COULD BE IMPAIRED.

    We expect to continue to experience growth in the number of our employees
and the scope of our operating and financial systems. This growth has resulted
in an increase in responsibilities for both existing and new management
personnel. Our ability to manage growth effectively will require us to continue
to implement and improve our operational, financial and management information
systems and to recruit, train, motivate and manage our employees. We may not be
able to manage our growth and expansion, which would impair our business.

WE MAY HAVE SIGNIFICANT PRODUCT LIABILITY EXPOSURE.

    We face an inherent business risk of exposure to product liability and other
claims in the event that our technologies or products are alleged to have caused
harm. These risks are inherent in the testing, manufacturing and marketing of
our products. We may not be able to obtain insurance for such potential
liability on acceptable terms with adequate coverage, or at reasonable costs.
Any potential product liability claims could exceed the amount of our insurance
coverage or may be excluded from coverage under the terms of the policy. Our
insurance, once obtained, may not be renewed at a cost and level of coverage
comparable to that then in effect.


                                                                              17
<PAGE>


IF WE LOSE OUR KEY PERSONNEL OR ARE UNABLE TO ATTRACT AND RETAIN ADDITIONAL
PERSONNEL, WE MAY NOT BE ABLE TO PURSUE COLLABORATIONS OR DEVELOP OUR OWN
PRODUCTS.

    We are highly dependent on the principal members of our scientific,
manufacturing, marketing and management personnel, the loss of whose services
might significantly delay or prevent the achievement of our objectives. We face
competition from other companies, academic institutions, government entities and
other organizations in attracting and retaining personnel.

HEALTH CARE REFORM AND RESTRICTIONS ON REIMBURSEMENT MAY LIMIT OUR RETURNS ON
POTENTIAL PRODUCTS.

    Our ability to earn sufficient returns on our products will depend in part
on the extent to which reimbursement for our products and related treatments
will be available from:

-        government health administration authorities;

-        private health coverage insurers;

-        managed care organizations; and

-        other organizations.

    If appropriate reimbursement cannot be obtained, we could be prevented from
successfully commercializing our potential products.

    There are efforts by governmental and third party payors to contain or
reduce the costs of health care through various means. We expect that there will
continue to be a number of legislative proposals to implement government
controls. The announcement of proposals or reforms could impair our ability to
raise capital. The adoption of proposals or reforms could impair our business.

    Additionally, third party payors are increasingly challenging the price of
medical products and services. If purchasers or users of our products are not
able to obtain adequate reimbursement for the cost of using our products, they
may forego or reduce their use. Significant uncertainty exists as to the
reimbursement status of newly approved health care products, and whether
adequate third party coverage will be available.

IF ETHICAL AND OTHER CONCERNS SURROUNDING THE USE OF GENETIC INFORMATION BECOME
WIDESPREAD, WE MAY HAVE LESS DEMAND FOR OUR PRODUCTS.

    Genetic testing has raised ethical issues regarding confidentiality and the
appropriate uses of the resulting information. For these reasons, governmental
authorities may call for limits on or regulation of the use of genetic testing
or prohibit testing for genetic predisposition to certain conditions,
particularly for those that have no known cure. Any of these scenarios could
reduce the potential markets for our products, which could seriously harm our
business, financial condition and results of operations.

WE USE HAZARDOUS MATERIALS IN OUR BUSINESS. ANY CLAIMS RELATING TO IMPROPER
HANDLING, STORAGE OR DISPOSAL OF THESE MATERIALS COULD BE TIME CONSUMING AND
COSTLY.

    Our research and development processes involve the controlled storage, use
and disposal of hazardous materials including biological hazardous materials and
radioactive compounds. We are subject to federal, state and local regulations
governing the use, manufacture, storage, handling and disposal of materials and
waste products. Although we believe that our safety procedures for handling and
disposing of these hazardous materials comply with the standards prescribed by
law and regulation, the risk of accidental contamination or injury from
hazardous materials cannot be completely eliminated. In the event of an
accident, we could be held liable for any damages that result, and any liability
could exceed the limits or fall outside the coverage of our insurance. We may
not be able to maintain insurance on acceptable terms, or at all. We could be
required to incur significant costs to comply with current or future
environmental laws and regulations.


                                                                              18
<PAGE>


OUR STOCK PRICE COULD CONTINUE TO BE HIGHLY VOLATILE AND OUR STOCKHOLDERS MAY
NOT BE ABLE TO RESELL THEIR SHARES AT OR ABOVE THE PRICE THEY PAID FOR THEM.

    The market price of our common stock, like that of many other life sciences
companies, has been highly volatile and is likely to continue to be highly
volatile. The following factors, among others, could have a significant impact
on the market price of our common stock:

-        the results of our premarket studies and clinical trials or those of
         our collaborators or competitors or for DNA testing in general;

-        evidence of the safety or efficacy of our potential products or the
         products of our competitors;

-        the announcement by us or our competitors of technological innovations
         or new products;

-        announcements or developments relating to our litigation against
         Motorola, Beckman and MIT;

-        developments concerning our patents or other proprietary rights or
         those of our competitors, including other litigation or patent office
         proceedings;

-        loss of key personnel;

-        governmental regulatory actions;

-        changes or announcements in reimbursement policies;

-        developments with our collaborators;

-        period-to-period fluctuations in our operating results;

-        market conditions for life science stocks in general; and

-        changes in estimates of our performance by securities analysts.

OUR ANTI-TAKEOVER PROVISIONS COULD DISCOURAGE POTENTIAL TAKEOVER ATTEMPTS AND
MAKE ATTEMPTS BY STOCKHOLDERS TO CHANGE MANAGEMENT MORE DIFFICULT.

    The approval of two-thirds of our voting stock is required to approve some
transactions and to take some stockholder actions, including the calling of a
special meeting of stockholders and the amendment of any of the anti-takeover
provisions contained in our certificate of incorporation. Further, pursuant to
the terms of our stockholder rights plan adopted in November 1998, we have
distributed a dividend of one right for each outstanding share of common stock.
These rights will cause substantial dilution to the ownership of a person or
group that attempts to acquire us on terms not approved by our board of
directors and may have the effect of deterring hostile takeover attempts.

IF WE MAKE ANY ACQUISITIONS, WE WILL INCUR A VARIETY OF COSTS AND MAY NEVER
REALIZE THE ANTICIPATED BENEFITS.

    If appropriate opportunities become available, we may attempt to acquire
businesses, technologies, services or products that we believe are a strategic
fit with our business. We currently have no commitments or agreements with
respect to any material acquisitions. If we do undertake any transaction of this
sort, the process of integrating an acquired business, technology, service or
product may result in operating difficulties and expenditures and may absorb
significant management attention that would otherwise be available for ongoing
development of our business. Moreover, we may never realize the anticipated
benefits of any acquisition. Future acquisitions could result in potentially
dilutive issuances of equity securities, the incurrence of debt, contingent
liabilities and/or amortization expenses related to goodwill and other
intangible assets, which could adversely affect our results of operations and
financial condition.


                                                                              19
<PAGE>


ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We invest our excess cash primarily in U.S. government securities and marketable
debt securities of financial institutions and corporations with strong credit
ratings. These instruments have maturities of three months or less when
acquired. We do not utilize derivative financial instruments, derivative
commodity instruments or other market risk sensitive instruments, positions or
transactions in any material fashion. Accordingly, we believe that, while the
instruments we hold are subject to changes in the financial standing of the
issuer of such securities, we are not subject to any material risks arising from
changes in interest rates, foreign currency exchange rates, commodity prices,
equity prices or other market changes that affect market risk sensitive
instruments.


                                                                              20
<PAGE>


                                  NANOGEN, INC.
                           PART II - OTHER INFORMATION


ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a)      Exhibits

         10.1  Reader, Loader and Cassette Low Cost Engineering and
               Manufacturing Agreement by and between Hitachi, Ltd. and Nanogen,
               Inc., dated as of December 15, 1999.+

         27.1  Financial Data Schedule.
          -------------
          + Confidential treatment has been requested with respect to certain
            portions of this agreement.

(b)      Reports on Form 8-K

         No Reports on Form 8-K were filed during the three months ended March
31, 2000.


                                                                              21
<PAGE>



                                  NANOGEN, INC.

                                   SIGNATURES


PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED.


                                  NANOGEN, INC.



DATE             MAY 12, 2000           /s/ HOWARD C. BIRNDORF
            ------------------------    ----------------------------------
                                        HOWARD C. BIRNDORF
                                        CHAIRMAN OF THE BOARD,
                                        CHIEF EXECUTIVE OFFICER AND
                                        PRESIDENT
                                        (PRINCIPAL EXECUTIVE OFFICER)


DATE             MAY 12, 2000           /s/ KIERAN T. GALLAHUE
            ------------------------    ----------------------------------
                                        KIERAN T. GALLAHUE
                                        SENIOR VICE PRESIDENT, CHIEF
                                        FINANCIAL OFFICER AND TREASURER
                                        (PRINCIPAL FINANCIAL AND
                                        ACCOUNTING OFFICER)


                                                                              22
<PAGE>


                                  NANOGEN, INC.
                                  EXHIBIT INDEX


   EXHIBIT NO.                                    DESCRIPTION

10.1                Reader, Loader and Cassette Low Cost Engineering and
                    Manufacturing Agreement by and between Hitachi, Ltd.
                    and Nanogen, Inc., dated as of December 15, 1999.+

27.1                Financial Data Schedule
------------
                    +   Confidential treatment has been requested with respect
                        to certain portions of this agreement.